Indian Hotels (Q4 FY14)

Indian Hotels standalone business was affected by the ongoing lackluster economy and write downs in its wholly owned overseas subsidiaries in US and HK.

Jun 03, 2014 12:06 IST India Infoline News Service

CMP Rs90, Target Rs105, Upside 17.3% 

  • Indian Hotels Q4 consolidated revenues posted moderate 7.6% yoy rise; FY14 sales up 8.6% yoy

  • Margins decline ~300bps yoy in Q4 amidst higher staff and other expenses

  • Standalone business growth remains tepid with revenues up just 3.9% yoy, an indication of lackluster domestic economy; higher other expenditure and input inflation costs lead to margin decline 

  • Write downs in overseas subsidiaries including in US holding co to the tune of Rs4bn lead to losses at standalone level

  • Believe worst of sector woes are behind and expect domestic recovery to support margin and profitability; Upgrade to BUY

Result table
(Rs m) Q4 FY14 Q4 FY13 % yoy FY14 FY13 % yoy
Net sales 10,940 10,165 7.6 40,662 37,434 8.6
License fees (573) (501) 14.4 (2,082) (1,971) 5.6
Raw material (1,110) (1,016) 9.2 (4,271) (3,816) 11.9
Personnel (3,527) (3,239) 8.9 (13,722) (12,718) 7.9
Power & fuel (787) (733) 7.5 (3,112) (2,888) 7.7
Other overheads (3,248) (2,798) 16.1 (11,881) (10,665) 11.4
Operating profit 1,694 1,878 (9.8) 5,596 5,376 4.1
OPM (%) 15.5 18.5 (299) bps 13.8 14.4 (60) bps
Depreciation (755) (710) 6.4 (3,081) (2,884) 6.8
Interest (403) (461) (12.7) (1,685) (1,707) (1.3)
Other income 110 120 (8.6) 598 602 (0.7)
PBT 646 827 (21.8) 1,427 1,386 2.9
Tax (607) (423) 43.5 (1,110) (990) 12.1
Minority int/Associates (12) 4 - (307) (395) (22.2)
Extra ordinary items (1,636) (4,299) (62.0) (5,548) (4,304)
Reported PAT (1,609) (3,892) (58.7) (5,539) (4,302) 28.7
Source: Company, India Infoline Research
Note: Q4 numbers derived from full year and 9m figures

Write downs, lackluster domestic economy impact Q4 standalone performance 

Indian Hotels standalone business was affected by the ongoing lackluster economy and write downs in its wholly owned overseas subsidiaries in US and HK. Topline growth remained tepid at 3.9% yoy and continues to face margin pressure as other expenses and inflation in input costs weighed on EBIDTA (down 8.6% yoy). Adjusted PAT (excluding exceptional items) dropped ~22% yoy in the domestic business. Company has guided for FY15 capex of Rs3bn. At the consolidated level (derived from FY14 and 9m figures) too, revenue growth remained moderate at 7.6% yoy and margins declined ~300bps yoy. Consolidated debt stood at Rs42.5bn and the upcoming rights issue proceeds would be used partially for debt repayment (Rs6bn) and rest for capex.

Believe worst is behind as domestic economy gains traction; upgrade to BUY

Indian Hotels domestic business has been impacted by a tepid economy and incoming supply which has put pressure on room rates; however, we believe domestic business is poised for turnaround as above factors correct in the next 12 months. Fund raising through rights issue would also help lower leverage and fund the capex program alleviating pressure on internal cash flows. We raise our FY15/16 EPS estimates and upgrade to BUY with revised 9-12mth target of Rs105.


Financial summary
Y/e 31 March (Rs m) FY13 FY14E FY15E FY16E
Revenues 37,434 40,662 45,278 50,276
yoy growth (%) 9.0 8.6 11.4 11.0
Operating profit 5,376 5,596 6,520 7,491
OPM (%) 14.4 13.8 14.4 14.9
Reported PAT (4,303) (5,539) 1,005 1,590
yoy growth (%) - - 58.3
EPS (Rs) (5.3) (6.9) 1.2 2.0
P/BV (x) 2.4 3.0 3.0 2.9
EV/EBITDA (x) 20.4 20.1 16.8 14.2
Debt/Equity (x) 1.3 1.5 1.5 1.4
ROE (%) 0.0 0.0 4.1 6.4
ROCE (%) 4.0 4.3 5.8 7.2
Source: Company, India Infoline Research

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