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Hotels
ƒ Low discretionary spends by clients to impact topline growth
The average revenue growth for the I-direct universe is expected to be
5-6% YoY in Q2FY12E. This can mainly be attributed to lower growth in
occupancy levels and muted average room rates (ARR) during the
quarter on account of the lean season. In our coverage universe, we
expect average occupancy levels to decline by ~100 bps QoQ in both
business and leisure destinations, respectively, on account of low
discretionary spends by corporate clients and the lean season impact.
However, ARR is expected to increase by mere 1-2% YoY to offset
rising cost pressure. Hence, the incremental room supply in the last one
year would mainly be the driving factor for the revenue growth over
normalised growth for the quarter.
ƒ High fixed overhead charge, muted revenue growth to dent margin
The I-direct hotel universe is expected to witness margin contraction of
~200 QoQ to 22% mainly due to high fixed overhead charge and lower
topline growth. Under our coverage, we expect margins of TajGVK and
Kamat Hotels to dip by 500 bps and 200 bps QoQ, respectively. Margins
of EIH and Indian Hotels are expected to decline by 100 bps each. On
the other hand, we expect Royal Orchid Hotel to report flat margins
similar to that of last quarter.
ƒ Bottomline to remain under pressure on lower revenue
The companies under the I-direct universe are expected to report net
profit of ~| 28 crore in Q2FY12E, a drop of ~41% QoQ mainly due to
poor room demand across business and leisure destinations. The
cyclical nature of the business coupled with higher interest charges is
expected to weigh on the bottomline. Among major players, Indian
Hotels and EIH are expected to report net profit of ~| 4.6 crore and ~|
15.2 crore, respectively, against a loss of | 15 crore and | 6.3 crore in
Q2FY11, respectively, mainly due to growth in room inventories (i.e.
addition of Taj Falaknuma and EIH’s BKC, respectively).
ƒ Business destination to remain relatively better than leisure
Business destinations are expected to remain relatively better than
leisure destinations due to the lean season impact. However, both these
destinations are expected to see an average decline in average
occupancy. Business destinations such as Mumbai, Delhi, Chennai and
Bengaluru are expected to report a dip of 100 bps QoQ in average
occupancy in Q2FY12E due to lower discretionary spending by
corporate clients. On the other hand, occupancy levels across Goa,
Jaipur and Agra (among leisure destinations) are likely to drop 100 bps
at around 53% due to lean season.
: Company specific view
Company Remarks
EIH Revenues are expected to grow 10% YoY with incremental revenue flow from
stabilisation of BKC, Mumbai. Hence, the operating margin is expected to increase
significantly coupled with cost control measures. EIH is expected to report net profit
of | 4.6 crore against a loss in Q2FY11 due to a drop in interest cost
Indian Hotels Revenues for the quarter are likely to see a moderate growth of 8% YoY due to
incremental revenue from its Taj Heritage wing, Mumbai and Taj Falknuma in
Hyderabad. We expect average occupancy levels and average blended ARRs to
remain flat at 63% and | 7217, respectively, in Q2FY11
Kamat Hotel Revenue is expected to grow by ~10% YoY (~2% QoQ) led by incremental revenue
from newly launched hotels. However, ARR growth is expected to be mere 1-2% in
most of the business destinations. Operating margin is expected to remain under
pressure by ~500 bps due to higher other expenses and employee cost
Royal Orchid
Hotel
Revenues are expected to grow by 3% YoY led by new room addition in Hospet.
However, corresponding growth in cost is likely to hit the EBITDA margin by650
bps in Q2FY12. Considering the seasonality impact, topline is expected to remain flat
sequentially
Taj GVK Hotel Revenues are expected to decline ~4% YoY due to drop in occupancy rate by 200 bps
& flat ARR mainly due to political disturbance in the region. Operating margins are
expected to decline 200 bps YoY to 30% due to a rise in operating cost. Sequentially,
topline is expected to decline 3% due to seasonality impact
Source: ICICIdirect.com Research
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