Indian Hotels 1QFY01 operating profit jumps 25% YoY
Indian Hotels Company Ltd (IHCL) has reported a 14.7% increase in its sales to Rs 1,404 m in the 1QFY01. This is due to improvement in occupancy rates in its metro city hotels. As a result its operating profit has reported a strong growth of 24.6% YoY to Rs 339 m in FY01.
After four years of falling occupancy rates and average room rates, IHCL's performance in the 1QFY01 is an indicator of an improvement in the hotel industry. IHCL's Mumbai and Delhi hotels which contribute to over 60% of its profits are headed towards better times.
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On a net profit level the company has reported a decline of 21.6% YoY to Rs 174 m for the 1QFY01. This is attributed to higher interests costs. Interest costs have gone up due to higher borrowings in relation to the company's ongoing renovations at its top five hotel properties as well as due to certain strategic acquisitions of the company. In the past year the company has acquired a hotel in Hyderabad and Pune.
The results are very encouraging and augur well for the year ahead. The quality of earnings of the company have improved substantially on an operating level. In the hotel industry as the second half performance is always better, the company's full year performance is expected to be much higher.
The improvement in the economic scenario and stable political situation has been favourable for the hotel industry. FY2001 earnings across the industry is expected to be much better after four miserable years of falling profits.
The negative news affecting the hotel industry has been factored into IHCL's low valuations. Increasing room supply in metro cities is not a worry as most of the projects are delayed or some have been stalled due to lack of adequate funds.
Indian Hotels is an attractive play on the recovery of the Indian hotel industry. Given its capital cost advantage, prime hotel properties, widespread network and exciting expansion plans it will always be ahead of new hotel chains. It is the only hotel company which has surplus land currently available on ownership and lease basis both in North and South Mumbai.
On valuations, IHCL Ltd is trading at 8.7x (on FY00 earnings). This is low as compared to multiples of 25x-30x it had traded at few years ago.
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