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Hotel Leelaventure: Interest cost pressure
Nov 22, 2010

Hotel Leelaventure Limited has announced its 2QFY11 results. The company has reported a 16% YoY growth in its sales and a net loss of Rs 48 m. Here is our analysis of the results.

Performance summary
  • Top line of Hotel Leelaventure increased by 16% during the quarter on the back of economic recovery. This growth was witnessed in what is considered the slowest quarter of the year by the hospitality industry.
  • Operating (EBITDA) margins increased by 0.8% to stand at 23% during the quarter. This increase in margins has been due to lower power and fuel and other expenditure as a percentage of sales. Growth in operating margins could have been higher but for increase in staff costs (as a percentage of sales) during the quarter.
  • The company turned in a net loss during the quarter. This was on the back of a sharp increase in interest costs.
  • For 1HFY11, the company’s net profit increased by 61% YoY while net profit margins improved by 0.5% to stand at 2.1%. This performance came on the back of increase in operating income partly offset by higher interest costs and higher effective tax rates.

Consolidate financial picture
Rs(m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 911 1,056 15.9% 1,758 2,114 20.3%
Expenditure 709    813 14.6% 1,367 1,556 13.8%
Operating profit (EBDITA) 202    243 20.4%    391    559 43.0%
Operating profit margin (%) 22.2% 23.0%   22.2% 26.4%  
Other income    43  48 10.7%  83  90 8.1%
Interest    61    151 148.2%    125    207 66.1%
Depreciation 163    187 14.9%    324    374 15.3%
Profit before tax    21     (48)    25  68 168.0%
Extraordinary items   -   -        7 -    
Tax 4 -   -100.0%    5  23 397.8%
Profit after tax/(loss)    18     (48)    28  45 60.9%
Net profit margin (%) 1.9% -4.5%   1.6% 2.1%  
No. of shares (m) 378    388      378    388  
Diluted earnings per share (Rs)*         1.1  
Price to earnings ratio (x)*           42.7  
* 12 month trailing earnings

What has driven performance in 2QFY11?
  • The top line of Hotel Leelaventure saw strong growth aided by higher buoyancy seen in the hotel sector, marked by an increase in influx of foreign tourists.

    Cost break-up
    As a % of net sales 2QFY10 2QFY11 1HFY10 1HFY11
    Total Cost of goods 7.2% 7.2% 7.5% 7.1%
    Staff Cost 25.1% 26.8% 25.2% 25.1%
    Power and fuel 11.8% 10.3% 12.2% 10.6%
    Other Expenditure 33.7% 32.7% 32.8% 30.7%

  • Operating profit for the year increased by 20.4% YoY. This was due to lower growth in power and fuel cost and other expenditure as compared to the top line. While power and fuel cost remained flat, other expenditure grew by 13% YoY. Operating profit could have been higher but for an increase of 24% YoY in staff costs.

  • Net loss for the quarter stood at Rs 48 m. This was a result of higher interest expense. Interest costs increased by 148% YoY during the quarter.

What to expect?
At a price of Rs 47, the company is trading at 42.7 times its trailing twelve month earnings. As a result of an economic recovery, we are witnessing a recovery in sales growth. The company is taking advantage of its positioning in the luxury segment and position in the metros, benefiting from increase in foreigner and leisure traffic. The company has seven properties with over 1,860 rooms. The company had a soft launch of its new 260 room Delhi property in October. A 332 room property in Chennai is coming up and is expected to be operational by mid 2011. This property will take the room inventory of the company to over 2,162 rooms. However, FCCB worth US$ 67 m maturing in April 2012 is a cause for concern.

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