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Taj GVK: Slowdown effect - Views on News from Equitymaster

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Taj GVK: Slowdown effect
Nov 5, 2008

Performance summary
  • Topline grow by just 4% YoY during 2QFY09 and 1HY09 due to lower room rates

  • Operating margins decline by 1.2% in 2QFY09.

  • The bottomline growth is almost flat during both the quarter and the half year period mainly on account of subdued topline growth and high interest costs.



Rs( m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 594 618 4.1% 1,161 1,207 4.0%
Expenditure 313 333 6.5% 620 654 5.5%
Operating profit (EBDITA) 281 286 1.6% 541 552 2.1%
Operating profit margin (%) 47.4% 46.2%   46.6% 45.8%  
Other income - -   - -  
Interest 5 8 46.3% 8 14 74.7%
Depreciation 29 29 0.3% 57 58 1.1%
Profit before tax 247 249 0.7% 476 481 1.1%
Tax 85 86 1.2% 163 166 2.0%
Profit after tax/(loss) 162 163 0.5% 313 315 0.6%
Net profit margin (%) 27.3% 26.3%   27.0% 26.1%  
No. of shares (m) 62.7 62.7   62.7 62.7  
Diluted earnings per share (Rs)*         11.3  
Price to earnings ratio (x)*         4.9  
* 12 month trailing earnings

What has driven performance in 2QFY09?
  • Topline for both the period under consideration increased by 4% YoY. Besides the low spending by the corporates on travel in the event of global crisis and second quarter being an off-season, kept the performance subdued. The company’s Hyderabad properties have achieved occupancy of 74% and the Taj Chandigarh achieved occupancy of 67% during the quarter. During 1HFY09, Hyderabad properties achieved occupancy of 75% and the Taj Chandigarh Hotel achieved occupancy of 69%. Taj GVK’s property in Chennai is nearing completion and is expected to be operational by December 2008.

    Cost break-up
    As a % of net sales 2QFY08 2QFY09 1HFY08 1HFY09
    Total Cost of goods 7.8% 8.6% 8.2% 8.3%
    Staff Cost 14.0% 15.2% 14.3% 15.2%
    Power and fuel 5.9% 6.3% 6.0% 6.3%
    Other Expenditure 24.9% 23.8% 24.9% 24.4%

  • Operating margins declined by 1.2% in 2QFY09. Barring other expenditure, all expenses witnessed an increase as a percent of sales. For 1HFY09, the margins declined by 0.5%. They are in line with our estimates.

  • The bottomline growth was almost flat during both the quarter mainly on account of subdued topline growth. The higher interest costs further restricted the growth.

What to expect?
    At the current market price of Rs 55, Taj GVK’s stock is trading at a price to earnings multiple of 4.4 times our FY11 estimates. Like its peers, the company too faced pressure on its performance due to the recent crisis. Hyderabad is mainly a business destination and around 60% of the business travelers are foreign corporates. Hence the effect of slowdown was visible on the hotel’s topline growth. Going forward, the outlook for the company in the coming quarters is of cautious optimism as the peak season is approaching and also the commencement of operations of it Chennai property.

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