Oriental Hotels: Return of demand - Views on News from Equitymaster

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Oriental Hotels: Return of demand

Jul 28, 2010

Oriental Hotels Limited has announced its 1QFY11 results. The company has reported 31% YoY and 186% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenue of Oriental Hotels increased by 31% during the quarter.
  • Operating (EBITDA) margins remained flat at 16.3% as a fall in staff costs (as a percentage of sales) was balanced out by an increase in costs of raw material, power and fuel costs and other expenditure (all as a percentage of sales).
  • Net profits increased by 186% on the back of increase in operating income and one time extraordinary income registered during the quarter.

Financial picture
Rs(m) 1QFY10 1QFY11 Change
Net sales 369 483 30.7%
Expenditure 310 404 30.5%
Operating profit (EBDITA) 60 78 31.7%
Operating profit margin (%) 16.1% 16.3%  
Other income 3 2 -41.4%
Interest 20 33 68.3%
Depreciation 34 35 3.8%
Profit before tax 9 12 31.7%
Exceptional items   10  
Tax 3 5 56.8%
Profit after tax/(loss) 6 17 186.1%
Net profit margin (%) 1.6% 3.5%  
No. of shares (m) 18 18  
Diluted earnings per share (Rs)*   13.6  
Price to earnings ratio (x)*   20.9  

* 12 month trailing earnings

What has driven performance in 1QFY11?
  • Sales of Oriental Hotels improved on the back of the economic recovery and increased demand. The top line also benefited from the inclusion of sales from the company’s new Trivandrum property. When excluding sales from the new Trivandrum property, the top line of the company grew by 19% YoY.

  • Operating income increased by 32% YoY during the quarter as a result of higher sales growth. However, margins remained flat during the quarter.

    Cost break-up
    As a % of net sales 1QFY10 1QFY11
    Total Cost of goods 11.0% 11.4%
    Staff Cost 26.8% 24.4%
    Power and fuel 9.9% 10.3%
    Other Expenditure 36.1% 37.7%

  • Net profit grew by 186% YoY during the quarter. This was on the back of higher operating income and a onetime gain recorded during the quarter. The company received compensation in connection with the surrender of lease on a plot of land which helped boost profit growth. When not accounting for onetime gains, the net profits grew by 18% YoY. The growth in net profit could have been higher but for an increase in interest costs and higher effective tax rate registered during the quarter. Interest expense increased by 68% during the quarter possibly due to the acquisition costs of the Trivandrum property and the building of the Coimbatore property.

What to expect?
At a price of Rs. 336, the company is trading at 14.2 times our estimated FY13 earnings (RPro subscribers click here). During the previous year, the company had taken, on a long term lease, a 137 room hotel in Trivandrum which has been branded Vivanta by Taj and is in advanced stages of completing an addition of 64 rooms at Taj Fisherman’s Cove in Chennai. The company is also entering the Coimbatore market with a Taj branded hotel and the Bangalore market with a Gateway branded hotel. These two hotels are expected to add 380 rooms to the company’s current inventory of 870 guest rooms. However, the stock has run up recently and we believe that growth from a 2-3 years perspective is already priced into the stock. We therefore advise investors to be cautious on this stock.

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Feb 17, 2020 03:29 PM


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