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EIH: Profits still some way away - Views on News from Equitymaster
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EIH: Profits still some way away
Aug 4, 2010

EIH Limited has announced its 1QFY11 results. The company has reported a 6% YoY and 184% YoY fall in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales of EIH fell by 6% YoY in 1QFY11 as a result of The Oberoi, Mumbai not being operational for part of the quarter because of renovations after the terrorist attack.
  • Operating (EBITDA) margins shrunk by 18.6% to 12.3% during the quarter. This fall comes on the back of higher cost of provisions, stores and wines, higher staff costs, increase in power and fuel charges and higher other expenditure (all as a percentage of sales).
  • Net profits was in the red by Rs 159 m on the back of lower operating income, lower other income, higher interest costs and higher depreciation costs.

Financial picture
Rs(m) 1QFY10 1QFY11 Change
Net sales 2,181 2,043 -6.3%
Expenditure 1,506 1,792 19.0%
Operating profit (EBDITA) 675 251 -62.8%
Operating profit margin (%) 30.9% 12.3%  
Other income 10 8 -15.5%
Interest 219 335 52.8%
Depreciation 148 205 38.1%
Profit before tax 317 (281)  
Extraordinary items -   -    
Tax 126 (121)  
Profit after tax/(loss) 191 (159)  
Net profit margin (%) 8.7% -7.8%  
No. of shares (m) 393 393  
Diluted earnings per share (Rs)*   0.6  
Price to earnings ratio (x)*   223.9  
* 12 month trailing earnings

What has driven performance in 1QFY11?
  • EIH’s top line declined by 6.3% YoY during the quarter. The hotel segment witnessed a 9% YoY decline in sales, while sales of the others segment increased by 35% YoY. The main reason for the fall in EIH’s revenues is that a major chunk of the company’s revenue comes from its Mumbai properties, which were the target of terror attacks in November 2008 and have since been closed for renovation. The Mumbai properties opened during the quarter but the company was not able to benefit from the full quarter of operation as the property opened only towards the end of April. Moreover, no insurance claim was recorded during the quarter as the property became operational.

    Cost break-up
    As a % of net sales 1QFY10 1QFY11
    Total Cost of goods 11.7% 15.3%
    Staff Cost 28.6% 43.9%
    Power and fuel 6.4% 9.5%
    Other Expenditure 22.4% 28.8%

  • Operating income declined by 63% YoY as a result of increase in cost of provisions, stores and wines, staff costs, power and fuel charges and other expenditure. Cost of provisions, stores and wines increased by 23% YoY during the year. Staff costs and power and fuel costs increased by 44% YoY and 39% YoY respectively. Other expenditure increased by 21% YoY during the quarter. The reason for increase in costs ahead of sales has been due to the preparation of opening of The Oberoi property. All costs were incurred much before the property was actually opened and sales were booked.

  • EIH's bottom line was in the red during the quarter. This was a result of higher interest costs and higher depreciation costs incurred. Depreciation costs were higher as the company's Bandra Kurla property became operational. Since this property is new it will take some time to reach its full potential in sales.

What to expect?
At a price of Rs. 127, the company is trading at 224 times its trailing twelve month earnings. We have seen the company go through a bad quarter. However, the problems are temporary and we expect to see higher sales as The Oberoi property and the new Bandra Kurla property achieve their full potential in sales.

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