Indian Hotels: Doing well in a lean quarter

Other income saves the blushes for Indian Hotels

The April-June quarter is generally a lean period for Indian Hotels. So much so that other income stood at 112 per cent of PBT last quarter (159 per cent in the year ago period). Put simply, the company would report a loss if one were to exclude its other income.

But on a comparative basis, the company has done well. Sales grew 23 per cent and net profit jumped 70 per cent year-on-year. A 120 basis points improvement in operating margin was one reason profit jumped. Importantly, room revenues grew 27 per cent, thanks to an increase in both average room rates and occupancy rates.

An improvement in operating profit margin is expected to continue, especially since the company had spent around four per cent of sales last year on upgradation work at the Taj Lands End.

Besides, margins were hit last year because of a hike in salaries, new appointments, higher travel expenses and an increase in selling and marketing expenses. Indian Hotels is expected to do much better than last year's low base. Last quarter's highlight was the launch of the 'IndiOne' budget hotel in Bangalore.

With better amenities than competition in the same space, the hotel has taken off well. But even at a 100 per cent occupancy rate through the year, it would add just 0.5 per cent to the company's sales. Needless to say, the budget hotels will have an impact only if they are implemented on a very large scale.

Regardless of how much the budget hotels will contribute this year, net profit is set to jump by a big margin this fiscal, and in case the company is successful in disposing of some unwanted properties, there could be a further upside. But the Indian Hotels stock has been declining throughout this year, indicating that the FY05 earnings was priced well in advance.

Finolex Inds

The Finolex Industries stock has already gained around 5.8 per cent since the Union budget, thanks to the finance minister's emphasis on improving rural water infrastructure. The first quarter results will add to the positive sentiment on the stock.

For the June quarter, net profits have surged 136 per cent year-on-year to Rs 27.32 crore. Also overall operating profits have risen to Rs 24.96 crore in the last quarter as compared to an operating loss of Rs 7.98 crore in the previous year. Operational efficiency has also improved due to a reduction in prices of ethylene di - chloride, a key input.

For the PVC division, there was strong demand from the construction sector, as the company's product is used for insulation of cables. Demand was also strong from the leather industry. Segment revenues rose 31.4 per cent to Rs 190.38 crore in the June quarter, while segment profits rose 154 per cent to Rs 39.73 crore.

For the PVC pipes and fittings division, segment revenues rose by 27.6 per cent to Rs 88.71 crore in the June quarter. Senior management officials explained that they have aggressively expanded their dealership in the key agricultural markets of Punjab and Uttar Pradesh. Also, in their traditional markets like Maharastra and other parts of Western India where there were indications of reduced rainfall last year, farmers have sought to optimise their agricultural operations by laying out an extensive network of PVC pipes.

These factors helped segment profitability rise 89.57 per cent to Rs 4.94 crore. Going forward, expectations are high that the UPA government's emphasis on rural water management programmes will benefit the company.

With contributions from Mobis Philipose and Amriteshwar Mathur