04 November 2010

EIH in red as margins drop:: Elara

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EIH in red as margins drop

Better operational matrix, Oberoi, metro hotels may boost topline
in future
EIH reported a decent growth of 28% YoY on the topline for Q2FY11
at INR 2.17bn; 13% below our estimates on the back of better
occupancies and ARRs. `The Oberoi’ which was re-launched in end
April and seems muted during off season, must propel revenues as in
the past with the approaching season. We feel the strain on the
topline would ease off in the coming quarters due to EIH’s strong
presence in metro cities.


Margins shrink to 5.6% with high cost pressures
The company lost out on 701bps of EBIDTA margin at 5.6% (INR
122mn) vs 12.7% in Q1FY10 due to high expense pressures on all
accounts - employee cost and food and beverage were the major
ones. EIH reported a net loss of INR419.7mn in Q2FY11 as against a
loss of INR96mn in Q2FY10 due to higher overall expenses.

Recovery in numbers seen in H2
EIH had launched Trident, BKC in Dec’2010 with effective revenues
from the new hotel for four months in FY10. ‘The Oberoi’ has also
started functioning since April end after being closed for more than a
year. We expect EIH to improve its revenues and profitability in the
second half of the fiscal on the back of the improved occupancy and
ARRS and a full year operation of key properties.

Upgrade to Accumulate rating; Retain INR145 target price
We expect EIH to present a healthy earnings growth going ahead. The
company is currently trading at INR20mn FY12E EV/Adj Room. We
upgrade to ‘Accumulate’ rating, maintaining our target price at
INR145, valuing it at INR22mn FY12E EV/Adj. Room, presenting a 17%
upside.

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