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Research
Indian Hotels - Muted performance... - ICICIdirect.com
Posted On : 2013-08-18 19:47:28( TIMEZONE : IST )
Indian Hotels' (IHCL) Q1FY14 standalone operating performance was below our estimates at the topline level though PAT remained in line with our estimates. Revenues remained flat YoY at Rs. 396.6 crore mainly on account of subdued demand due to a weak macro environment. At the standalone level, the operating profit declined ~19% YoY vis-Ã -vis the subsidiaries witnessing ~49% jump for the same period. Margins at the standalone level declined ~120 bps YoY to 15.5% mainly on account of an increase in expenses like fuel expenses rising 7% YoY and other operating expenses up ~9%. PAT at Rs. 9.8 crore vs. Rs. 4.0 crore in the same quarter last fiscal can only be attributed to higher other income (up ~185% YoY) and reduced finance costs (down 24% YoY). Though the subsidiaries reported a net loss, revenues improved 12% YoY due to a marginal pick-up in occupancies in the US market and better cost control management leading to a reduction in losses (down ~23% YoY).
Lower occupancies due to economic slowdown
IHCL's standalone revenue for Q1FY13 remained flat YoY as both occupancies and room rates remained under pressure due to oversupply of room inventory coupled with a slowdown in demand. Occupancies were down 100 bps YoY to 59% while the average revenue per room declined ~6.4% with the ARR subdued at Rs. 8,300, especially due to pressure emanating from Chennai and Hyderabad.
Subsidiary reports loss
Loss from subsidiary companies stood at Rs. 28.9 crore due to higher interest and depreciation, despite an improvement in margins. We believe the performance of the subsidiary will continue to remain muted, going forward, led by high cost environment and subdued demand outlook.
Recovery unlikely soon; maintain HOLD rating
At the CMP of Rs. 44, the stock is trading at 12.7x and 10.3x FY14E and FY15E EV/EBITDA, respectively. We continue to remain conservative on the earnings growth front given the weak performance of the international subsidiaries and subdued environment. Hence, we maintain our HOLD rating with a revised target price of Rs. 41 (i.e. at 10.0x FY15E EV/EBITDA), implying further downside potential of 7%.
