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EIH: In search of respite - Views on News from Equitymaster
 
 
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  • Aug 12, 2003

    EIH: In search of respite

    East India Hotels (EIH), popularly known as Oberoi Hotels, recently declared its June quarter (1QFY04) results. Topline for the quarter has grown by 7% YoY, while pressure on the bottomline continues. EIH has posted a loss for the second consecutive quarter. Let us take a look at the hotel majors’ performance during the June quarter.

    (Rs m) 1QFY03 1QFY04 Change
    Net Sales 818 875 7.0%
    Other Income 94 148 57.8%
    Expenditure 807 904 11.9%
    Operating Profit (EBDIT) 10 (29)  
    Operating Profit Margin (%) 1.3% -3.3%  
    Interest 28 73 164.0%
    Depreciation 72 96 33.4%
    Profit before Tax 5 (49)  
    Tax (2) (46)  
    Profit after Tax/(Loss) 7 (3)  
    Net profit margin (%) 0.8% -0.4%  
    No. of Shares 52.4 52.4  
    Diluted Earnings per share* 0.5 -0.3  
    * annualised      

    The sector has witnessed turbulent times during the last few years. However, from the last quarter (March 2003) things have been looking upbeat, which is apparent from the topline growth. Post the US-Iraq war and the SARS scare there has been an increase in the tourist traffic to the country. According to the tourism department, there has been a 12% increase from Jan-June’03 in the tourist arrivals over the previous period. As a result of which most hoteliers have witnessed an increase in the occupancies during this period. Occupancies have reached as high as 75% in some of the key hotels. Even for Oberoi, some hotels in Mumbai and Delhi have also witnessed high occupancy levels.

    Having said that, average room rates (ARRs) have continued to remain subdued and are still to attain the FY01 levels. In order to achieve higher occupancies hotel majors have had to resort to discounts. As a result, operating margins have taken a major hit. Operating margins have gone in the negative for the company during the quarter, which is just a continuation of its FY03 performance.

    There has been 58% jump in the other income, which is largely due to the extra-ordinary gains from restructuring of the foreign currency loan of Rs 26 m. If the gains are removed then the company has posted an actual loss of nearly Rs 30 m. Operating margins have taken a significant hit during the quarter, which is largely due to the overall increase in the expenses. At the pre-tax levels there has been an increase in the interest and depreciation costs. This indicates that EIH is adding fresh capacity.

    However, as the industry is seasonal in nature, the first half (May-October) is usually the off-season period. We reiterate that any turn of fortunes for the industry would be in the second half (November-April). EIH stock is currently trading at Rs 201, which is around the same levels as last year. However, with the industry on a turnaround, EIH is likely to benefit owing to its strategy of setting up new hotels in upcoming cities like Bangalore and Pune. Having said that, concerns continue to cloud sentiment in the near term.

     

     

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