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Indian Hotels operating profit up 38% - Views on News from Equitymaster
 
 
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  • Oct 19, 2000

    Indian Hotels operating profit up 38%

    Indian Hotels Company Ltd (IHCL), has reported a 16% growth in revenues to Rs 1,429 m in the 2QFY01. This increase in revenues has been driven mainly by better occupancy rates in its luxury metro hotels and higher food and beverage revenues.

    As the company has managed to curtail costs which went up by only 11% in the 2QFY01, its operating margins have improved by 340 basis points. IHCL has reported an operating profit of Rs 303 m in the 2QFY01, a growth of a whopping 38%. Its operating margins have gone up from 17.8% in the 2QFY00 to 21.2% in the 2QFY01.

    (Rs m) 2QFY00 2QFY01 Change
    Sales 1,231 1,429 16.1%
    Other Income 101 64 -36.7%
    Expenditure 1,012 1,127 11.4%
    Operating Profit (EBDIT) 220 303 37.8%
    Operating Profit Margin (%) 17.8% 21.2%  
    Interest 31 86 177.9%
    Depreciation 98 110 11.7%
    Profit before Tax 192 171 -10.7%
    Other Adjustments - 4  
    Tax 13 (19) -239.1%
    Profit after Tax/(Loss) 178 186 4.3%
    Net profit margin (%) 14.5% 13.0%  
    No. of Shares (eoy) (m) 45.1 45.1  
    Diluted number of shares 45.1 45.1  
    Diluted Earnings per share* 15.8 16.5  
    *(annualised)      

    Due to higher interest costs, the net profit has grown by only 4% to Rs 186 m. Though this growth may seem low, it should be noted that in the 1QFY01 the company had actually reported a 20% fall in net profit. Hence the 2Q figure is an improvement in net after four difficult years .

    As compared to its operating margin of 24% in the 1QFY01, IHCL's operating margins in the 2QFY01 was 21.2%. However the reason behind this is the seasonal factor as hotels have to resort to higher discounts during the period of July to September due to the monsoons as compared to the months from April-June. Hence this is not a sign of worry. Infact, in the second half of the year the margins are expected to be much better as room rates went up in October 00.

      1QFY00 2QFY00 1QFY01 2QFY01
    Operating Profit Margin (%) 22.3% 17.8% 24.2% 21.2%

    The company has initiated a voluntary retirement scheme for a total amount of Rs 288 m. This total cost will be amortised over a period of 72 months starting from September 00.

    The interest costs went up because of its new projects, its ongoing renovations in its major hotels, expansions and investments. Keeping in mind that IHCL is gearing up to meet future competition in metro cities, its undergoing a major renovation and refurbishment drive at its hotels. Hence the higher interest and depreciation charges. This strategy of the company will pay off in the long term.

    On the current price of Rs 196, IHCL is trading at 7.8x FY00 EPS of Rs 25.1. IHCL shares closed on a positive note.

     

     

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