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Taj GVK: Room rate woes - Views on News from Equitymaster

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Taj GVK: Room rate woes
Oct 27, 2009

Performance summary
  • Net sales of the company for the quarter fell by 13% YoY while sales for 1HFY10 fell by 15.8% YoY. This fall has been due to fall in room rates.
  • Operating (EBITDA) income fell by 34.2% during the quarter while for the half year, the same fell by 37.7%. This fall is due to increase in employee and fuel, power and light costs.
  • Net profit fell by 56.9% while the same fell by 62.1% for 1HFY10. This fall comes on the back of depressed sales, increasing operating costs and rising depreciation and interest expense.


Financials
Rs(m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 618 538 -13.1% 1206 1016 -15.8%
Expenditure 333 350 5.1% 655 672 2.7%
Operating profit (EBDITA) 285 188 -34.2% 551 343 -37.7%
Operating profit margin (%) 46.2% 34.9%   45.7% 33.8%  
Other income 0 0   0 0  
Interest 8 33 314.8% 14 66 371.8%
Depreciation 29 48 66.5% 58 97 67.3%
Profit before tax 248 106 -57.2% 480 181 -62.2%
Tax 86 36 -57.6% 166 62 -62.5%
Profit after tax/(loss) 163 70 -56.9% 313 119 -62.1%
Net profit margin (%) 26.3% 13.0%   26.0% 11.7%  
No. of shares (m) 63 63   63 63  
Dilutedearnings per share (Rs)*         5.3  
Price to earnings ratio (x)*         22.6  
* 12 month trailing earnings

What has driven performance in 2QFY10?
  • While the first two quarters are considered an off season, the company’s sale suffered from the economic slowdown, more specifically slowdown in IT and the KPO/BPO industry during the quarter. The company has 3 out of its 5 functioning properties in Hyderabad, which is the hub for IT and KPO/BPO industry. This coupled with the Satyam case has had an adverse effect on the company’s occupancy during the quarter.

    Cost break-up
    As a % of net sales 2QFY09 2QFY10 1HFY09 1HFY10
    Total Cost of goods 8.6% 9.3% 8.3% 9.5%
    Staff Cost 15.3% 19.3% 15.3% 20.5%
    Power and fuel 6.3% 8.8% 6.4% 9.1%
    Other Expenditure 23.9% 28.0% 24.6% 27.4%

  • While the company’s topline suffered, the margins suffered to higher fixed costs in the form of employee and fuel, power and light expense.

  • The bottomline of the company was affected due to lower sales and higher operating costs. Moreover, the interest costs grew by 318.4% and depreciation costs grew by 66.5% affecting the net profit of the company.

What to expect?
At a price of Rs. 121 the stock is trading at 19 times our estimated FY12 earnings. While the company’s performance has been poor, the onset of the peak season from September is likely to improve the scenario. It may be noted that the economic slowdown has impacted the industry, pressuring them to lower rates in the range of 30% to 40% in the first half of this calendar year.

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