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Oriental Hotels: Hit by economic woes - Views on News from Equitymaster
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Oriental Hotels: Hit by economic woes
Nov 12, 2009

Performance summary
  • Revenue of Oriental Hotels fell by 18% during the quarter on the back of economic slowdown.
  • Operating (EBITDA) margins shrunk by 11% YoY to 19% during 2QFY10 on the back of higher staff costs, power expenses and other expenditure as a percentage of sales.
  • Net profits fell by 79% on the back of lower revenue, higher operating costs and increase in interest expense.
  • Net profit for 1HFY10 declined by 89% due to shrinking sales, higher operating costs and a jump in interest expense.


Financial picture
Rs(m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 510 419 -17.9% 1,040 784 -24.6%
Expenditure 357 339 -5.2% 707 649 -8.2%
Operating profit (EBDITA) 153 80 -47.7% 333 136 -59.3%
Operating profit margin (%) 29.9% 19.1%   32.0% 17.3%  
Other income 7 5 -18.3% 15 9 -43.3%
Interest 3 26 757.1% 3 45 1342.6%
Depreciation 32 33 1.9% 63 67 5.9%
Profit before tax 124 27 -78.5% 282 32 -88.6%
Tax 43 9 -77.9% 97 13 -87.0%
Profit after tax/(loss) 81 17 -78.8% 185 20 -89.4%
Net profit margin (%) 16.0% 4.1%   17.8% 2.5%  
No. of shares (m) 18 18   18 18  
Diluted earnings per share (Rs)*         11.9  
Price to earnings ratio (x)*         18.6  
* 12 month trailing earnings

What has driven performance in 2QFY10?
  • The revenue of Oriental Hotels fell due to a combination of economic slowdown and off season blues (first two quarters are generally off season). Due to the economic slowdown, the company witnessed pressure on both occupancy rates and room rentals. During the quarter, the company took a property with over 126 rooms in Trivandrum on license.

    Cost break-up
    As a % of net sales 2QFY09 2QFY10 1HFY09 1HFY10
    Total Cost of goods 11.4% 10.7% 11.4% 10.9%
    Staff Cost 19.1% 23.7% 18.6% 25.3%
    Power and fuel 7.8% 8.9% 7.5% 9.4%
    Other Expenditure 31.8% 37.7% 30.4% 37.1%

  • Operating income fell by 48% during the quarter mainly due to employee costs which grew by 2% YoY. Moreover, power costs and other expenditure jumped by 1% and 6% respectively as a percentage of sales resulting in further pressure on the operating income.

  • Net profit margins shrunk by 12% during the quarter. This was the result of lower sales, higher operating costs and interest expense which grew by Rs. 23 m during the quarter, possible due to the acquisition costs of the Trivandrum property and the building of the Coimbatore property.

What to expect?
At a price of Rs. 220, the company is trading at 8.5 times our estimated FY12 earnings. While the company has not performed as hoped, the company’s performance is expected to improve from the 3rd quarter onwards.

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