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Oriental Hotels: Better than peers - Views on News from Equitymaster
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Oriental Hotels: Better than peers
Aug 8, 2008

Performance summary
  • Topline grows by 19.5% YoY in 1QFY09 on the back of stable room rates due to shortage of room supply in Chennai.
  • Operating margins witness a 6% YoY increase during 1QFY09
  • Net profits jump by 52% YoY mainly on account of robust topline and operating profits.


Rs( m) 1QFY08 1QFY09 Change
Net sales 442 528 19.5%
Expenditure 319 349 9.4%
Operating profit (EBDITA) 123 179 45.4%
Operating profit margin (%) 27.8% 33.9%
Other income 11 11 -1.9%
Interest 0 0 -
Depreciation 29 31 6.9%
Profit before tax 104 158 51.7%
Tax 36 55 50.7%
Profit after tax/(loss) 68 104 52.2%
Net profit margin (%) 15.4% 19.6%
No. of shares (m) 17.9 17.9
Diluted earnings per share (Rs)*   26.3
Price to earnings ratio (x)*   9.2
* 12 month trailing earnings

What has driven performance in 1QFY09?
  • Oriental Hotels reported a 19.5% YoY growth in the topline for 1QFY09. While the details of the room rates and occupancy rates have not been divulged, with Chennai witnessing shortage of rooms, the company has benefited on the demand supply mismatch. Chennai, South Indiaís biggest city is the fast-growing IT hub and commercial powerhouse. There are a number of industries here such as automobile, technology, hardware manufacturing, and healthcare industries. Due to this, the city witnesses a strong tourist inflow. Oriental Hotelís properties are market leaders, thereby witnessing strong room revenues.

    Cost break-up

    As a % of net sales 1QFY08 1QFY09
    Total Cost of goods 12.4% 11.5%
    Staff Cost 18.7% 18.1%
    Power and fuel 7.6% 7.3%
    Other Expenditure 33.4% 29.2%

  • Operating margins witnessed robust 6% increase during 1QFY09. Lower expenses (as a percent of sales) led to the jump of 45% YoY in operating profits. The company in comparison to its peers has done very appreciably on the margin front.

  • The net profits jumped by 52% YoY mainly on account of robust topline and operating profits. The net margins improved from 15% in 1QFY08 to 19.6% this quarter.

What to expect?
At the current market price of Rs 242, Oriental Hotelís stock is trading at a multiple of 8.0 times our estimated FY10 earnings. The company has done well in the quarter as compared to its peers on account of its strong positioning and demand supply mismatch. However, Chennai's inventory of hotel rooms will increase by more than 3,000 in the next 3 years when some of the hotel projects under construction are commissioned. This would rationalise the room rates going forward.

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