Indian Hotels: Stale fare

Indian Hotels' numbers are not too impressive

Indian Hotels' profit before exceptional and taxes in FY04 was 47.2 per cent higher, which is impressive coming on the back of a 49.4 per cent increase in the previous fiscal.

Growth in operating profit, however, was just 1.2 per cent, worse than the mere seven per cent growth recorded in FY03.

But the stunted growth last fiscal was largely because of the transfer of two units in Pune and Lucknow to an associate company in FY03. These units accounted for over 10 per cent of sales and operating profit in FY03.

Adjusting for the sales and operating profit of these units, the growth in operating profit is much more respectable at 17.5 per cent. Nevertheless, regardless of the adjustment, operating profit margin was down almost 200 basis points.

There are a numbers of reasons for this: the company spent Rs 25 crore, almost four per cent of sales, on upgradation work at the Taj Lands End.

Staff costs increased 70 basis points as a percentage of sales, owing to higher salaries and new appointments, particularly those of people with international experience. Besides, travel expenses last year were higher and even sales and marketing effort was increased.

Growth in profit before exceptionals and taxes was much higher because of a 44 per cent jump in other income and a 26 per cent reduction in interest costs. Part of the reason for the lower interest cost is an income tax refund of Rs 3.48 crore relating to earlier years.

But leaving aside the nitty-gritty of the results, FY04 was a much better year for Indian Hotels. The key performance barometer, RevPAR (revenue per available room) increased 20 per cent last year. RevPAR is the multiple of average room realisations (ARR) and occupancy.

Last year, occupancy increased to 69 per cent from 61 per cent in FY03, and ARR improved by seven per cent. Towards the middle of the financial year, there was a surge in international business traffic and in the second half of the year, there was a pick-up in international leisure traffic.

These segments returned after a long break - owing to 9/11 and the SARS attack. Importantly, things have progressively got better for the industry and for the company.

In the fourth quarter, occupancy was as high as 82 per cent, and ARR was 16 per cent higher compared to the corresponding period in FY03.

The Indian Hotels stock has fallen over 20 per cent since the highs reached earlier in the year. But even at current levels, the stock trades at 43 times FY04 earnings (adjusted for exceptionals).

But this needn't necessarily imply an extremely high vote of confidence about future prospects - the markets also put a lot of value to the high amount of holdings the company has in land and properties.

with contributions from Mobis Philipose