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H i g h e r c o s t d e n t s m a r g i n s …
Royal Orchid Hotels reported its Q2FY12 results, which were in line with
our estimate on the revenue front, which surged by 4% YoY to | 35.8
crore (I-direct estimate: | 35.3 crore). However, it reported a net loss of |
2.6 crore (I-direct estimate: net profit | 0.2 crore) against net profit of | 2
crore in the corresponding period last year. The dismal performance
during the quarter is mainly attributable to lower-than-expected growth in
ARR (~1% YoY) while occupancy surged ~300 bps YoY. Further, a sharp
rise in operating cost by 22% YoY was due to higher than expected rise in
employee cost and other expenses by 25% YoY to | 8.9 crore and 28%
YoY to | 15.2 crore, respectively. As a result, operating margins shrunk
~1260 bps YoY to 12.7%. There has also been a sharp increase in interest
costs by 29% YoY to | 4 crore, which finally dented the bottomline.
ƒ Topline remains muted on lower-than-expected ARR growth
The Q1FY12 topline grew a mere ~4% YoY to | 35.8 crore mainly
supported by ~300 bps YoY growth in occupancy (I-direct estimate:
62%) while ARR remained flat during the same period.
ƒ Higher cost during quarter leads to sharp reduction in margin
The company’s total operating cost increased by a notable 22% YoY
to | 31 crore during Q2FY12. This was supported by higher
employee cost and other expense, which surged by 25% YoY and
28% YoY, respectively. As a result, the OPM dipped ~1260 bps YoY
to 12.7%. Finally, the company reported a net loss of | 2.6 crore on
the back of a sharp rise in interest cost by 29% YoY to | 4 crore.
V a l u a t i o n s
At the CMP of | 53, the stock is trading at 12.4x and 10.2x its FY12E and
FY13E EV/EBITDA, respectively. We expect occupancy levels and ARR to
remain low due to excess supply of hotel rooms in cities where the
company has a presence. Considering this, we lower our FY13E EBITDA
and revise our one year price target downward to | 48 from | 70 with a
HOLD rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
H i g h e r c o s t d e n t s m a r g i n s …
Royal Orchid Hotels reported its Q2FY12 results, which were in line with
our estimate on the revenue front, which surged by 4% YoY to | 35.8
crore (I-direct estimate: | 35.3 crore). However, it reported a net loss of |
2.6 crore (I-direct estimate: net profit | 0.2 crore) against net profit of | 2
crore in the corresponding period last year. The dismal performance
during the quarter is mainly attributable to lower-than-expected growth in
ARR (~1% YoY) while occupancy surged ~300 bps YoY. Further, a sharp
rise in operating cost by 22% YoY was due to higher than expected rise in
employee cost and other expenses by 25% YoY to | 8.9 crore and 28%
YoY to | 15.2 crore, respectively. As a result, operating margins shrunk
~1260 bps YoY to 12.7%. There has also been a sharp increase in interest
costs by 29% YoY to | 4 crore, which finally dented the bottomline.
ƒ Topline remains muted on lower-than-expected ARR growth
The Q1FY12 topline grew a mere ~4% YoY to | 35.8 crore mainly
supported by ~300 bps YoY growth in occupancy (I-direct estimate:
62%) while ARR remained flat during the same period.
ƒ Higher cost during quarter leads to sharp reduction in margin
The company’s total operating cost increased by a notable 22% YoY
to | 31 crore during Q2FY12. This was supported by higher
employee cost and other expense, which surged by 25% YoY and
28% YoY, respectively. As a result, the OPM dipped ~1260 bps YoY
to 12.7%. Finally, the company reported a net loss of | 2.6 crore on
the back of a sharp rise in interest cost by 29% YoY to | 4 crore.
V a l u a t i o n s
At the CMP of | 53, the stock is trading at 12.4x and 10.2x its FY12E and
FY13E EV/EBITDA, respectively. We expect occupancy levels and ARR to
remain low due to excess supply of hotel rooms in cities where the
company has a presence. Considering this, we lower our FY13E EBITDA
and revise our one year price target downward to | 48 from | 70 with a
HOLD rating.
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