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ITC Hotels: In difficult times - Views on News from Equitymaster
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  • Oct 22, 2001

    ITC Hotels: In difficult times

    ITC group's hotel business, ITC Hotels, represented as the Welcome Group has faced an extremely challenging business scenario. The topline of the company, YoY, has declined by double digits for the quarter ended September '01.

    (Rs m) 2QFY01 2QFY02 Change
    Sales 298 263 -11.7%
    Other Income 2 3 19.0%
    Expenditure 266 260 -2.4%
    Operating Profit (EBDIT) 32 3 -89.6%
    Operating Profit Margin (%) 10.7% 1.3%  
    Interest 6 7 16.4%
    Depreciation 23 25 7.0%
    Profit before Tax 5 -26  
    Extraordinary items 2 -  
    Tax 1 (1)  
    Profit after Tax/(Loss) 6 (25)  
    Net profit margin (%) 2.0% -9.4%  
    No. of Shares (eoy) 30 30  
    Diluted Earnings per share* 0.8 -3.3  
    * annualised      

    Some slowdown is likely to have been faced post September 11. However, the hotel industry is facing excess capacity in important circles of Mumbai and Delhi. A slowdown in the global economy has led to reduced business travel. This coupled with the proximity to the war against terrorism could have led to an alteration in destination plans of tourist.

    The reduction in operating expenses seems to be largely a fall out of lower business volumes. Key expense heads have declined YoY. However, the reduction in costs has not kept pace with the slide in topline leading to a severe erosion in margins. The OPM has dropped by 9.4 percentage points. Staff costs have declined significantly YoY. The company had undertaken a Voluntary Retirement Scheme (VRS) in 2QFY01 amounting to Rs 10.5 m. This alongwith profit on sale of fixed assets amounting to Rs 12.3 m has been provided for as extraordinary items.

    Pre-tax profits have dipped into the red. Deferred tax provision has been adjusted in taxation for the quarter ended September '01. A deferred tax liability of Rs 2.2 bn upto March '01 has been written off against general reserves.

    In the hotel industry, the second half of the fiscal is generally better compared to the first half. However, with the developments post September, tourism in the current fiscal is likely to be severely impacted. Consequently, hotel companies may not get any respite in the much awaited second half. ITC Hotels scrip is trading at Rs 46.



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