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Indian Hotels: Bucks industry trend

Jul 27, 2001

The Indian Hotels Company Ltd (IHCL), India's largest hotel chain has reported a 31% YoY decline in its 1QFY02 net profit to Rs 121 m, which was driven down mainly by higher provisions and amortisation expenses. However, the company’s sales during this period grew by 12.5% YoY and its operating profit was up by 15.7% YoY.

(Rs m) 1QFY01 1QFY02 Change
Sales 1,404 1,580 12.5%
Other Income 41 52 26.2%
Expenditure 1,065 1,188 11.6%
Operating Profit (EBDIT) 339 392 15.7%
Operating Profit Margin (%) 24.2% 24.8%  
Interest 72 123 71.2%
Depreciation 108 123 13.8%
Profit before Tax 200 198 -1.2%
Extraordinary items - 58 -
Tax 26 20 -25.2%
Profit after Tax/(Loss) 174 121 -30.6%
Net profit margin (%) 12.4% 7.6%  
No. of Shares (eoy) (m) 45.1 45.1  
Diluted number of shares 45.1 45.1  
Diluted Earnings per share* 15.4 10.7  
*(annualised)      

The growth in sales is the beneficial impact of the company's renovations at its prime hotels in FY01, resulting in higher revenues. As a result, IHCL has managed to buck the industry trend of declining sales due to occupancy rates being under pressure. The 1QFY02 has been tough for the hotel industry due to the domestic economic slowdown as well as slowdown in traffic from the US. To add to this, new room supply in the metro cities is catching up. In the light of the above this performance is creditable.

Despite better operating margins, the company's profit before tax declined by 1% YoY in 1QFY02 mainly due to the impact of higher interest and depreciation costs. The interest costs rose sharply by 71% YoY and depreciation costs by 13.8% YoY, as IHCL spent substantial amount on renovations, strategic investments and financial restructuring of few of its associate companies.

IHCL's net profit would have declined marginally had it not been for the extraordinary expenses in relation to provisions and contingencies on account of deferred taxes to the tune of Rs 33.2 m and amortisation of VRS expenses of Rs 24.3 m. As a result the company's profit after tax fell by 31% YoY.

Due to regrouping of certain figures in 1QFY01, IHCL has now reported a net profit of Rs 148 m for 1QFY01, as compared to Rs 174 m reported previously for 1QFY01. However as the detailed break up is not available we continue to give their previously reported figures in the table above.

On the current price of Rs 199, it is trading at 7.7x FY01 EPS of Rs 25.9. This is low compared to its past price to earnings multiple of 20-25x.


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