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�� ORs subdued due to lower contribution from Trident, BKC, Oberoi
East India Hotels (EIH) posted ~54% and ~INR 11,500 ORs and ARRs, during
Q3FY11 against 46% and INR 9,000 in Q2FY11, respectively; in Q3FY10, ORs
were at 67% and ARRs at INR 11,520. Trident (BKC) and Oberoi (Nariman Point)
are taking longer than expected to come to a steady state of ORs; excluding
these, ORs were healthy at ~67% during the current quarter. Sales improved
26.4% and 38.8% Y-o-Y and Q-o-Q, respectively. Y-o-Y growth is due to the
addition of Oberoi Trident and the sequential growth is due to 800bps
improvement in ORs and ~20% improvement in ARRs. EIH reported EBIDTA
margins of 34.7% during the quarter against 32.8% in Q3FY10 and 5.6% in
Q2FY11. As the recovery is taking longer than expected, we are cutting our FY11
estimates of ORs to 60% and ARRs growth to 0% from earlier estimates of 62%
and 5% growth, respectively.
We are revising down our FY11 and FY12 revenue estimates by 5.2% and 9.3%,
respectively, as we cut our ARRs estimates. We are also revising down our
EBIDTA estimates for FY11 by 15.6% and FY12 by 25.1%.
�� Rights issue details announced
EIH has approved the 5:11 rights issue at INR 66 per share, approving 45%
equity dilution. The company will be issuing total 178.5 mn shares gathering in
total INR 11.8 bn. In its rights issue document, EIH had mentioned repayment
INR 9 bn of debt from proceeds of the rights issue. We believe the participation of
major shareholders in the rights issue is the next major corporate action.
�� Outlook and valuations: Recovery taking time; maintain ‘HOLD’
With the Trident (BKC) and Oberoi (Mumbai) taking more time than expected to
stabilise, we believe recovery in the Indian hospitality space is slower. With no
expansion coming on line till FY12, earnings growth for the company is dependent
on growth of ARRs and ORs. We continue to value the stock at EV/EBIDTA (14x
FY12 EV/EBIDTA) and international operations at 2x investments. We reduce our
target price to INR 110 and maintain ‘HOLD’ recommendation on the stock.
Company Description
EIH, the third largest hospitality company in India after Indian Hotels and the ITC
Welcome Group, manages more than 3,000 rooms across India. It is the largest
company in the Oberoi Group. The group, founded in 1934, manages luxury hotels
across five countries under the Oberoi and Trident brands. The group’s portfolio includes
hotels, operations in flight catering, airport restaurants, travel & tour services, car
rentals, project management, and corporate air charters. The company manages 3,500
rooms across India and the international market. It also operates luxury cruises in India.
Besides hotels, the group also has a printing press business.
Investment Theme
With the revival of ARRs and ORs across India, the hotel industry is looking for better
times ahead. With India emerging as one of the fastest growing economy, FTAs of both
business and leisure are expected to pick up. Domestic tourism is also on a revival path
and with more Indians ready to take holidays, is expected to perform well in years to
come. We like EIH’s under leveraged balance sheet, but the slow expansion along with
other businesses like printing press and car rental services were margins are substandard.
We believe the company is not in a position to exploit growth in Indian
hospitality industry to its fullest.
Key Risks
Further stake increase by ITC, announcement of major projects, sale of land bank, and
an income surprise from international operations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
�� ORs subdued due to lower contribution from Trident, BKC, Oberoi
East India Hotels (EIH) posted ~54% and ~INR 11,500 ORs and ARRs, during
Q3FY11 against 46% and INR 9,000 in Q2FY11, respectively; in Q3FY10, ORs
were at 67% and ARRs at INR 11,520. Trident (BKC) and Oberoi (Nariman Point)
are taking longer than expected to come to a steady state of ORs; excluding
these, ORs were healthy at ~67% during the current quarter. Sales improved
26.4% and 38.8% Y-o-Y and Q-o-Q, respectively. Y-o-Y growth is due to the
addition of Oberoi Trident and the sequential growth is due to 800bps
improvement in ORs and ~20% improvement in ARRs. EIH reported EBIDTA
margins of 34.7% during the quarter against 32.8% in Q3FY10 and 5.6% in
Q2FY11. As the recovery is taking longer than expected, we are cutting our FY11
estimates of ORs to 60% and ARRs growth to 0% from earlier estimates of 62%
and 5% growth, respectively.
We are revising down our FY11 and FY12 revenue estimates by 5.2% and 9.3%,
respectively, as we cut our ARRs estimates. We are also revising down our
EBIDTA estimates for FY11 by 15.6% and FY12 by 25.1%.
�� Rights issue details announced
EIH has approved the 5:11 rights issue at INR 66 per share, approving 45%
equity dilution. The company will be issuing total 178.5 mn shares gathering in
total INR 11.8 bn. In its rights issue document, EIH had mentioned repayment
INR 9 bn of debt from proceeds of the rights issue. We believe the participation of
major shareholders in the rights issue is the next major corporate action.
�� Outlook and valuations: Recovery taking time; maintain ‘HOLD’
With the Trident (BKC) and Oberoi (Mumbai) taking more time than expected to
stabilise, we believe recovery in the Indian hospitality space is slower. With no
expansion coming on line till FY12, earnings growth for the company is dependent
on growth of ARRs and ORs. We continue to value the stock at EV/EBIDTA (14x
FY12 EV/EBIDTA) and international operations at 2x investments. We reduce our
target price to INR 110 and maintain ‘HOLD’ recommendation on the stock.
Company Description
EIH, the third largest hospitality company in India after Indian Hotels and the ITC
Welcome Group, manages more than 3,000 rooms across India. It is the largest
company in the Oberoi Group. The group, founded in 1934, manages luxury hotels
across five countries under the Oberoi and Trident brands. The group’s portfolio includes
hotels, operations in flight catering, airport restaurants, travel & tour services, car
rentals, project management, and corporate air charters. The company manages 3,500
rooms across India and the international market. It also operates luxury cruises in India.
Besides hotels, the group also has a printing press business.
Investment Theme
With the revival of ARRs and ORs across India, the hotel industry is looking for better
times ahead. With India emerging as one of the fastest growing economy, FTAs of both
business and leisure are expected to pick up. Domestic tourism is also on a revival path
and with more Indians ready to take holidays, is expected to perform well in years to
come. We like EIH’s under leveraged balance sheet, but the slow expansion along with
other businesses like printing press and car rental services were margins are substandard.
We believe the company is not in a position to exploit growth in Indian
hospitality industry to its fullest.
Key Risks
Further stake increase by ITC, announcement of major projects, sale of land bank, and
an income surprise from international operations.
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