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Taj GVK: Leaving recession behind - Views on News from Equitymaster

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Taj GVK: Leaving recession behind

Jul 26, 2010

Taj GVK Hotels & Resorts Limited has announced its 1QFY11 results. The company has reported 27.6% YoY and 106.6% YoY increase in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales of the company for 1QFY11 increased by 28% YoY.
  • Operating (EBITDA) income increased by a robust 47% YoY. This increase comes on the back of higher sales and fall in staff costs, power and fuel and other expenditure (as a percentage of sales).
  • Net profit jumped by 107% YoY. This increase comes on the back of higher operating profits, fall in interest costs and fall in effective tax rates.

Rs(m) 1QFY10 1QFY11 Change
Net sales 478 610 27.6%
Expenditure 322 381 18.4%
Operating profit (EBDITA) 156 228 46.7%
Operating profit margin(%) 32.6% 37.4%  
Other income      
Interest 33 26 -19.0%
Depreciation 48 50 4.4%
Profit before tax 75 152 102.7%
Exceptional Items                -    
Tax 26 50 95.3%
Profit after tax/(loss) 49 101 106.6%
Net profit margin (%) 10.2% 16.6%  
No. of shares (m) 63 63  
Diluted earnings per share (Rs)*   6.6  
Price to earnings ratio (x)*   24.8  
* 12 month trailing earnings

What has driven performance in 1QFY11?
  • Taj GVK had been suffering due to an economic slowdown, specifically in the IT and KPO/BPO industry. More recently, the company, which has 3 of its 5 properties in Hyderabad suffered due to the Telengana issue. However, with the economic recovery firmly in place, the company turned in a third quarter of positive growth. The company’s top line growth of 28% YoY comes on the back of higher demand.
    Cost break-up
    As a % of net sales 1QFY10 1QFY11
    Total Cost of goods 9.6% 9.6%
    Staff Cost 21.8% 18.4%
    Power and fuel 9.3% 8.6%
    Other Expenditure 26.7% 25.9%

  • Operating margin of Taj GVK grew by 4.8%. This has been due to fall in staff costs, power and fuel costs and other expenditure as a percentage of sales. While staff costs fell by 3.4% (as a percentage of sales) to stand at 18.4% for the quarter, power and fuel costs and other expenditure fell by 0.9% and 0.8% (both as a percentage of sales) to stand at 8.6% and 25.9% respectively.

  • Net profit for 1QFY11 increased by 106% YoY while the net profit margins were higher by 6.4%. This was a result of the higher demand for hotel rooms and higher operating income.

What to expect?
At a price of Rs 164, the stock is trading at 14.7 times our estimated FY13 earnings (ResearchPro subscribers, kindly click here). As of now, the company has 5 hotels with the latest one in Chennai. It is putting up a 6th luxury hotel in Begumpet, Hyderabad along with a smart basic hotel under the Ginger brand of hotels, also in Hyderabad. The luxury hotel Taj Begumpet is expected to start operations by January - March 2011 while the 250 room Ginger hotel is expected to be launched in 2 years time. Taj GVK is a Hyderabad centric company and the new properties will ensure that it will continue to remain dependent on the city. While there have been new rooms additions in the city over the last year, new supply is not going to enter the market for atleast the next 3 years due to the Telangana issue as investors are cautious in investing money. This has put the company is a sweet spot as the economic recovery continues. However, at these levels the growth for the next 2-3 years is captured in the stock price. Hence we have a cautious view on the stock.

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Mar 26, 2019 (Close)


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