EIH Ltd: 49% jump in net in 2Q - Views on News from Equitymaster

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EIH Ltd: 49% jump in net in 2Q

Oct 30, 2000

EIH Ltd, India's second largest hotel chain has reported a 49% YoY growth in its net profit for the 2QFY01 to Rs 100 m. This performance can be attributed to a 19% growth in sales as well as an improvement in operating margins. The operating margins have gone upto 12% in the 2QFY01, an improvement of 100 basis points. The main drivers to this have been higher occupancy rates across its metro city hotels in the current financial year. The hotel industry is finally showing strong signs of a turnaround.

(Rs m) 2QFY00 2QFY01 Change
Sales 920 1,092 18.7%
Other Income 90 101 12.3%
Expenditure 819 961 17.4%
Operating Profit (EBDIT) 102 132 29.3%
Operating Profit Margin (%) 11.0% 12.0%  
Interest 44 45 0.9%
Depreciation 60 68 13.8%
Profit before Tax 87 120 36.9%
Other Adjustments 10 11  
Tax 11 9 -15.1%
Profit after Tax/(Loss) 67 100 48.9%
Net profit margin (%) 7.3% 9.1%  
No. of Shares (eoy) (m) 52.4 52.4  
Diluted number of shares 52.4 52.4  
Diluted Earnings per share* 5.1 7.6  
*(annualised)      

EIH's operating margins in the 2QFY01 are however lower than its 1QFY01 operating margin of 20.6%, however this is mainly due to the seasonal factor. During the 1Q (months from April-June), occupancy rates are better than in the months of July to September due to heavy monsoons during this period. Hence the hotels have to offer higher discounts during the period of July-September resulting in lower margins.

  1QFY00 2QFY00 1QFY01 2QFY01
Operating Profit Margin (%) 18.9% 11.0% 20.6% 12.0%

In the hotel industry as the 1H is considered to be the lean season, we expect the 2H performance to be even better for EIH. Normally, the first half profits account for only 25%-30% of full year profits. Based on the above results, hence EIH should report a full year net of Rs 916 m for FY01E.

We are currently forecasting a net profit of Rs 905 m for the FY01E, which gives an EPS of Rs 17.3. As our projections are more or less in line with the 1HFY01 figures, we will be maintaining our current forecasts.

On the current price of Rs 195, it is trading at 11.3x FY01E EPS of Rs 17.3.


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