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Indian Hotels Company Ltd Quick Comment – F2Q11: Another Quarter of Losses
Impact on our views: IHCL reported standalone
revenue of Rs3.3bn (up 7% YoY), EBITDA of Rs366mn
(down 28% YoY), and an adjusted loss of Rs11mn
(down 131% YoY). This quarter is generally weak for the
hospitality industry, and we expect operating
performance to improve substantially in F2H11,
although we see about 13-15% downside risk to our
F2011e earnings given the weak performance in F1H11.
What's new: The hospitality industry has been weak,
and this is evident in IHCL’s result – it reported EBITDA
of Rs366mn (down 28% YoY) and an EBITDA margin of
11.2% (down 546bp). IHCL believes that the second half
of the year will be strong, and this is evident in improved
ARR and OR that its hotels across the country are
fetching. During the quarter, the company reopened the
heritage wing of the Taj Mahal Palace & Tower hotel in
Mumbai. In addition, the performance of key
international properties is showing signs of improvement
(see Exhibit 2). Also, during the quarter the company
made a provision of Rs86mn for diminution in the value
of its investment in Innovative Foods Ltd (a subsidiary
company).
The company has decided to make a preferential
allotment to Tata Sons for 36mn shares as well as issue
48mn warrants, which will be exercisable not later than
18 months starting from April 2011. In this process, it
hopes to raise Rs8.5bn (Rs5bn in F2011 and Rs3.5bn
subsequently). The proceeds will be used to reduce debt.
The net debt as of September 2010 was Rs23.3bn (vs.
Rs22bn in March 2010).
Conclusion: Industry trends should improve both
domestically and internationally, which will help improve
earnings. However, we believe the company faces
challenges on managing its international properties and
its debt situation, and hence we maintain our
Equal-weight rating on the stock.
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