Among key casualties in the aftermath of the terrorist attacks was the hospitality industry. Business and leisure travel came to a stand still in the days following the attack. Indian Hotels Company Ltd. (IHCL), on the bourses, has charted a handsome comeback after the intial doomsday fears lapsed.
Having said that, IHCL was no less impacted by the gloom and doom encompassing the globe. In 2QFY02, the company reported a less than modest, 3%, growth in topline, which was significantly lower compared to the immediately preceding quarter and corresponding quarter of the previous year. This could be attributed to the drop in room demand post September-11 by 13%-14%.
Among business divisions -- strategic business units (SBUs) -- luxury was the worst hit, as the SBU could be catering mainly to foreign tourists who delayed/cancelled their travel plans post September-11. Divisions & segments that did well were business hotels and food & beverages (F&B). The F&B segment could turn out to be the lifeline of the company, as the segment is likely to be least affected by changes in business conditions. Contributions from F&B to the topline in 2QFY02 were 29%.
In the previous quarter, IHCL sold their air catering business to Taj SATS Air caterers Ltd., which was established as a joint venture between IHCL and Singapore Airlines. The deal was sealed at Rs 2.4 bn, with IHCL as majority shareholder (51%), resulting in a pre-tax profit of Rs 886.4 m for the company. Also, cash from the deal replenishes IHCL's munitions for launching any acquisitions.
The company is targeting all the possible avenues to achieve improved sales and profits. The initiatives include marketing tie-ups, aggressive packages, loyalty programmes, cost cutting, renovations, streamlining processes, food festivals and acquisitions. The company hopes to make-up for loss in foreign tourist by boosting domestic travel. Over the next two fiscals, through cost cutting, the company anticipates to save Rs 150 m.
Over the next two quarters there could be some simplification in group holdings. The group proposes to amalgamate Oriental Hotels Ltd, Covelong Beach Hotel (I) Ltd. and Coromandel Hotels Ltd. Also, there could be consolidation in non-core companies.
The scrip has retraced almost the entire path since the sharp fall post September 11. At Rs 167.5 the IHCL stock is trading on a multiple of 4x 1HFY02 annualised earnings. However, on adjusting the extra-ordinary gains the valuations do look stretched.
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