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Indian Hotels: Seasoned performance

Oct 15, 2003

Indian Hotels (IHCL) started the current financial year on a positive note (15% YoY growth in topline) giving an indication that the worst is probably over for the industry. In continuation of the positive results of 1QFY04, the hotel major posted an 18% YoY growth in topline and nearly 32% growth in bottomline over the previous period. Let us take a look at the performance of the company during the current quarter.

(Rs m)2QFY032QFY04Change1HFY031HFY04Change
Net Sales 1,159 1,366 17.9% 2,285 2,662 16.5%
Other Income 105 77 -27.3% 157 157 -0.1%
Expenditure 1,012 1,182 16.8% 1,944 2,329 19.8%
Operating Profit (EBDIT) 147 184 24.9% 341 333 -2.3%
Operating Profit Margin (%)12.7%13.4% 14.9%12.5% 
Interest 93 61 -34.7% 200 126 -37.0%
Depreciation 118 115 -2.5% 235 229 -2.5%
Profit before Tax4184104.1%63135113.9%
Extraordinary items - (29)  - (29) 
Tax 15 20 37.4% 26 33 25.0%
Profit after Tax/(Loss) 26 35 31.7% 37 73 98.9%
Net profit margin (%)2.3%2.6% 1.6%2.7% 
No. of Shares 45 45   45 45  
Diluted Earnings per share*2.33.1 1.63.2 
P/E Ratio    102.0 
* annualised      

At first glance, the results seem to be encouraging given the fact that this period is considered off-season for the industry. The company has seen an increase in its overall occupancy levels (15%), as a result of which the average room rates have also gone up 9% over the previous period. IHCL has seen an increase in occupancies across all categories of hotels with luxury and leisure hotels witnessing a 22% increase, while the business hotels saw a rise of 15% over the previous year. Occupancies for the business hotels have been lower on account of the sale of 2 hotels (Blue Diamond, Pune and Taj Residency, Lucknow) to an associate company, Piem Hotels.

IHCL continues to derive 46% of its revenues from its rooms while 44% is contributed from sale of food & beverages. The rest 10% comes from management fees and others. However, this is likely to change during 2HFY04, as the industry expects an increase in the tourist influx due to the holiday season. Even the department of Tourism has indicated that FY04 could see around 3 m tourists coming into the country. This means a substantial 30% increase over the previous period.

On the operational level, IHCL saw a marginal (70 basis points) increase in the gross profit margin during the quarter. However in 1HFY04, the gross profit margin has actually seen a fall (240 basis points). For the quarter, all expense heads have seen an increase (as is apparent from the table below). Going forward, to increase profitability, the cost efficiency may play a key role.

  2QFY03 2QFY04 % change 1HFY03 1HFY04 % change
Raw material 131 151 15.1% 262 296 12.9%
Staff Costs 291 336 15.4% 589 664 12.7%
Fuel, power & lighting 149 160 7.2% 288 320 11.0%
Other exp 441 536 21.5% 804 1,049 30.4%
Total expenses 1,012 1,182 16.8% 1,944 2,329 19.8%

The 37% decrease in interest expenses has further helped the bottomline performance. This is mainly due to the lower interest bearing debts. Depreciation costs have gone down mainly due to the removal of the 2 business hotels from its books and the sale of idle land (Chiplun). At pre-tax levels, the company incurred an extra-ordinary expense of Rs 29 m towards voluntary retirement scheme, which it has written off during the quarter itself.

Currently the stock is trading at Rs 320 levels. The company has been on the look out for acquiring small hotels in the international arena, but it would be some time before that becomes a reality. On the domestic front, the next 2 quarters is the peak season time for the industry. IHCL will benefit from it being the industry leader. The expected opening of Wellington Mews by the year-end will give a further boost to the performance of the company. In the long term, if the spike in international tourist arrival continues, then it will be a sign that India has arrived on the business and tourist global map. That in itself, is enough potential for players like Indian Hotels.

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