Indian Hotels: Good times

Increased room rentals, occupancy levels help offset the rupee rise

The operating profit of Indian Hotels grew 35.5 per cent y-o-y to Rs 98.9 crore in the second quarter ended September 2007, while sales and other operating income improved 15.7 per cent to Rs 341.4 crore.

The improvement in average room rentals (ARRs) and occupancy levels on a y-o-y basis, helped the hotelier in offsetting the appreciating rupee to an extent. Sales growth would have been higher, but for renovation at the flagship Mumbai property.

The surging rupee resulted in the hotel group's revenues being hit by 8-9 per cent. But the reducing expenditure helped improve the operating profit margin, which expanded 420 basis points y-o-y to 29 per cent in Q2 FY08.

Meanwhile, Indian Hotels had occupancy levels of 68 per cent on an all-India basis in the first half of FY08 as compared with 67 per cent in the previous corresponding period.

The net profit growth was muted at 16 per cent as interest expenses grew 64 per cent following the company's use of FCCB money to fund the Boston purchase and raising of new debt to finance the Campton Place acquisition.

Indian Hotel's ARRs in key markets such as south Mumbai were at Rs 10,382 per day in the first half of FY08, 25 per cent higher over the previous period.

On a blended basis, Indian Hotels' ARRs increased by 18 per cent y-o-y and revenue per available room was up 19 per cent in the first half of FY08.

Indian Hotels has moved to a rupee-based tariff with effect from September 2007 and increased its room rates, due to the peak tourism season in the second half of FY08.

In addition, the company plans to raise Rs 1,400 crore, through a rights issue, to fund its capex plans and pre-pay the higher cost debt. At Rs 137, the stock trades at about 17 times estimated FY09 earnings and is not likely to be an outperformer.

PVR: Picture perfect

After hitting a high of Rs 332 in April 2006, about three months after it was listed, the PVR stock fell to a low of Rs 148 in March this year. Since then, the stock has recovered to the current level of Rs 191, but still trades way below its IPO price of Rs 225.

Indeed, for the better part of 2007, when the rest of the market was scaling new highs, the Delhi-based multiplex operator has been quoting below its issue price.

The company has turned in fairly good numbers for the September quarter, with revenues driven by a 32 per cent increase in footfalls and a lower entertainment tax outgo, now down to 20 per cent of sales compared with 25 per cent in Q2 FY07.

The operating profit margin jumped nearly 600 basis points to 20.6 per cent as total expenditure grew just 32 per cent.

Only three screens were added during the quarter, because of which rentals remained under check. Besides, the distributor's share of collections (ticket sales) as a percentage of revenues, came off slightly.

Now that PVR is generating entertainment tax exemptions, the margins should be sustainable. PVR continues to expand aggressively and plans to have 250 screens in about three years from about 90 currently.

The multiplex player is estimated to command about 10 per cent of the industry's box office collections and attracted approximately five million movie goers in the September quarter.

The Rs 164-crore company has also forayed into the distribution and film production business and two of its co-productions with Aamir Khan are slated to be released in the current year.

The company has not disclosed how much it is investing in making the films. While the film production business has been de-risked to a great extent with producers able to sell a variety of rights, in this case PVR would be the producer-distributor as well as the exhibitor.

The stock trades at about 15 times estimated FY09 earnings and is not cheap. However, there could be a big upside to the stock if the two films are hits.

With contributions from Amriteshwar Mathur and Shobhana Subramanian