Pick-up in economic activity and increased capacity coming onstream will bring the company back on track.
The management at East India Hotels (EIH) could not have timed it better. The positive trend in tourist arrivals and pick-up in the economic activity come at a time when the capacity increases. The company recently commissioned its Trident property in the Bandra Kurla Complex (BKC) in Mumbai and re-opened The Oberoi at Nariman point. The Oberoi, which was shut throughout FY10 due to the unfortunate terror attacks, contributes more than 10 per cent to its revenues.
One of the key revenue triggers for hotels, the average room rents (ARRs), remained steady at Rs 9,000 to 10,500 levels during the fourth quarter, with Delhi showing maximum traction in ARR. The other trigger, occupancy, which was earlier between 35 per cent and 60 per cent levels, shot up to 70 per cent levels across the country and around 75 per cent in metros in the March quarter. The metros flagged off the revival in activity, reckon analysts at Elara Capital.
The adjusted net profit dipped 61 per cent to Rs 71 crore in FY10 on the back of higher interest costs. Subsequently, the company saw return on equity dip sharply from a healthy 12 per cent to 4.5 per cent. However, at an operating level, the earnings before interest, tax, depreciation and amortisation (Ebitda) margins managed to rise to 28.6 per cent from 27 per cent the previous year. Going ahead, analysts expect this to improve, as the foreign tourist arrival numbers rose around 15 per cent year-on-year in May. Moreover, the company will have a full year of revenues from BKC and The Oberoi coming in. The hotel can even see a revenue growth of over 25 per cent in FY11, reckon analysts. With this happening, the valuations that looked awkward in the previous financial year, will start looking rational.