Indian Hotels Co. Ltd (IHCL) is best positioned to take on the growth in business travel and improvement in occupancy rates across metro cities. Besides, its presence in all the large tourist destinations too holds it in good stead.
As compared to its nearest competitor EIH Ltd too, its enjoys better long term prospects due to its wide spread experience. The fact that it is less dependant on its metro city hotels, in comparison to EIH, protects it to a certain extent in an economic and business downturn. For EIH, 80% of its profits come from metro city hotels, while for IHCL this is lower around 65%.
During the tough times that the hotel industry faced over the past few years, IHCL came out a winner. To save its face from declining occupancy rates, it concentrated on increasing its revenues from food and beverage. This was done by opening specialty restaurants, refurbishment of existing ones and tapping its airline catering potential further. As a result food and beverage now accounts for a large chunk of its revenues. In the 1HFY01, food and beverage accounted for 46% of total revenues and this segment reported a strong growth of 20% YoY.
The company's current strategy of renovating and upgrading its luxury hotels in Mumbai, Delhi, Calcutta will help it to ward off the threat imposed by foreign hotel chains. This proactive approach, will prepare it to bravely face the future increase in room supply in metro cities.
Besides concentrating on its luxury hotels, the company continues to pursue its interests in the business hotel segment. It has recently acquired hotels in Pune, Hyderabad and Ahmedabad to this effect. This segment of the hotel industry has the best future growth potential.
||Luxury hotels occupancies up
|Occupancy rates (%)
|Taj Luxury Hotels
|Taj Leisure Hotels
|Taj Business Hotels
Another interesting strategy of IHCL, is the fact that it has almost always taken an equity stake in hotels managed by. This it believes helps it to maintain consistent quality standards at all its hotels. EIH too has now started following on its footsteps and has decided to take atleast a 26% stake in all hotels managed by it.
Inspite of having one of the best strategies in place and reporting better operating results in the 1HFY01, IHCL has not seen a major improvement in its share price performance in the recent past.
IHCL is a stock to watch out for in the next couple of months. In the 2HFY01 its performance is expected to improve, due to the fact that occupancy rates are expected to rise further. The company has increased its room tariffs by 5-10% in its metro hotels from October 2000. Also the rupee depreciation will continue to spruce up its bottomline.
On the current price of Rs 203, IHCL is trading at 7.8x FY01E EPS of Rs 26.1.