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EIH: Higher costs weight on bottomline
Oct 29, 2010

EIH Limited has announced its 2QFY11 results. The company has reported a 28.3% YoY increase in sales and a net loss of Rs 150 m. Here is our analysis of the results.

Performance summary
  • Sales of EIH Ltd. grew by 28.3% YoY in 2QFY11 as a result of higher demand and the reopening of The Oberoi property in Mumbai.
  • Operating (EBITDA) margins shrunk by 7% to 5.6% during the quarter. This fall comes on the back of higher staff costs and increase in power and fuel charges (as a percentage of sales)
  • Net profit was in the red by Rs 150 m on the back of lower operating income, higher interest costs and higher depreciation costs.
  • The company registered a loss of Rs 309 m for 1HFY11. This was a result of lower operating income, higher interest costs and higher depreciation during this period.

Rs(m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales            1,691          2,169 28.3%          3,872          4,212 8.8%
Expenditure            1,478          2,047 38.5%          2,984          3,839 28.7%
Operating profit (EBDITA)                213             122 -42.6%             888             374 -57.9%
Operating profit margin (%) 12.6% 5.6%   22.9% 8.9%  
Other income                  33                33 0.3%                43                41 -3.3%
Interest                239             402 68.4%             458             737 61.0%
Depreciation                152             225 48.2%             300             430 43.2%
Profit before tax              (145)            (472)               172            (753)  
Extraordinary items                   -               187                   -               187  
Tax                (48)            (135)                  78            (256)  
Profit after tax/(loss)                (96)            (150)                  94            (309)  
Net profit margin (%) -5.7% -6.9%   2.4% -7.3%  
No. of shares (m)                393             393               393             393  
Diluted earnings per share (Rs)*                       0.4  
Price to earnings ratio (x)*                  292.4  
* 12 month trailing earnings

What has driven performance in 2QFY11?
  • EIH's top line increased by 28.3% YoY during the quarter. The hotel segment witnessed a 28% YoY growth in sales, while sales of the others segment increased by 32% YoY. The growth in sales has been due to increase in demand and the reopening of the company's Mumbai property after the Mumbai attacks.

    Cost break-up
    As a % of net sales 2QFY10 2QFY11 1HFY10 1HFY11
    Total Cost of goods 15.4% 14.4% 13.3% 14.8%
    Staff Cost 31.9% 41.3% 30.0% 37.8%
    Power and fuel 8.2% 8.9% 7.2% 9.2%
    Other Expenditure 31.9% 29.7% 26.5% 29.3%

  • Operating income declined by 43% YoY as a result of increase in staff costs and power and fuel charges. Staff costs and power and fuel charges increased by 66% YoY and 41% YoY respectively. The reason for increase in costs has been due to the reopening of The Oberoi property where costs were incurred ahead of sales. Moreover, sales at the company's Bandra-Kurla property is still to ramp up resulting in higher fixed costs compared to sales. However, fall in cost of goods sold and other expenditure (as a percentage of sales) helped support the decline in operating income.

  • EIH's bottom line was in the red during the quarter. This was a result of lower operating income, higher interest costs and higher depreciation costs incurred. Depreciation costs were higher as the company's Bandra Kurla property became operational. Since this property is new it will take some time to reach its full potential in sales.

What to expect?
At a price of Rs. 126, the company is trading at 292 times its trailing twelve month earnings. We have seen the company go through a bad quarter. However, the problems are temporary and we expect to see higher sales as The Oberoi property and the new Bandra Kurla property achieve their full potential in sales.

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