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ORs subdued due to low occupancy at Trident and Oberoi
East India Hotels (EIH) posted ~46% and INR 9,000 ORs and ARRs, respectively,
during Q2FY11 compared to 44% and INR 8,900 in Q1FY11; in Q2FY10, the
company had recorded 51.6% and INR 8,800 ORs and ARRs. As the Trident (BKC)
and Oberoi (Mumbai) are taking time to come to a steady state of ORs, excluding
these two properties, ORs and ARRs during the current quarter were healthy.
Sales improved 28.2% and 6.1% Y-o-Y and Q-o-Q, respectively. EBIDTA margins
declined to 5.6% compared to 12.7% in Q2FY10 and 12.3% in Q1FY11. They
came under pressure as the company effected yearly wage hike during the
quarter effective April 1. Due to the healthy ORs in October, we maintain our FY11
estimates of 62% ORs, but cutting growth in ARRs from 10% to 5%.
Consolidation of international operations by FY12
In May, EIH approved the acquisition of 45.85% interest of Amex Investment,
Hong Kong, in its international joint venture, EIH Holdings, for USD 45 mn. The
transaction will help the company consolidate operations of approximately 300
rooms across Oberoi hotels in Mauritius, Bali Indonesia, Lambok Indonesia, and
Sahl Hasheesh Egypt. The company closed the transaction in June 2010. It so far
has not consolidated financials of international operations due to regulations of
British Virgin Islands.
Outlook and valuations: Recovery taking time; maintain ‘HOLD’
With the Trident (BKC) and Oberoi (Mumbai) taking more time than expected to
stabilise, we are revising down growth in ARRs for 10% to 5% and cutting EBIDTA
and PAT estimates by 2-3% and 5-6%, respectively for FY11 and FY12. With no
expansion coming on line till FY12, earnings growth is dependent on growth of
ARRs and ORs. We continue to value the stock at EV/EBIDTA and international
operations at 2x investments. We maintain our target price of INR 120 and
‘HOLD’ recommendation on the stock.
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