East India Hotels -In line quarter… :: ICICI Securities, report

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EIH Ltd - Buy between CMP & Rs.116 :: HDFC Sec, link

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EIH, Higher fixed overheads pull down margins… :: ICICI Securities,

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Buy East India Hotels (EIH) Target :Rs 110 ::ICICI Securities

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I n t e r e s t   c o s t   s a v i n g  d r i v e s   b o t t o m l i n e …
East India Hotels (EIH) reported its Q3FY12 numbers, which were in line
with our estimates. EIH reported net sales of ~| 314 crore during Q3FY12
(I-direct estimate: ~| 317 crore) and EBITDA of | ~102 crore (I-direct
estimate: ~| 103 crore). Net sales surged mere ~4% YoY due to a
marginal rise in occupancy. However, average room rate (ARR) growth
remained subdued during the same period. Also, operating costs rose 8%
YoY to ~| 212 crore on account of ~12% YoY increase in both raw
material cost and power and fuel cost. This, in turn, dented the operating
margin by ~235 bps YoY. However, the company reported a net profit
growth of 59% YoY to | 45 crore (I-direct estimate: ~ | 51 crore) on the
back of a sharp decline in interest cost by ~70% YoY to ~ | 12 crore.
ƒ Moderate growth in topline due to subdued ARR
EIH reported moderate topline  growth ~4% YoY to | 314 crore
during Q3FY12 supported by a marginal rise in occupancy.
However, due to seasonality, ARR across leisure destinations surged
~4-5% YoY, which negated the  impact of subdued ARR across
business destinations for the same period. The slowdown in
recovery was primarily due to oversupply of rooms particularly
across business and leisure destinations, which hurt ARR growth.
ƒ Higher operating cost takes toll on margin
Operating cost in Q3FY12 increased ~8% YoY, supported by ~12%
YoY increase in both raw material cost and power and fuel cost to
~| 41 crore and ~| 20 crore, respectively. Consequently, the
operating profit dipped marginally by 3% YoY to ~| 102 crore and
margin fell by ~235 bps YoY to ~32%.
V a l u a t i o n s
We expect EIH’s profitability to improve due to its presence in key
business and leisure locations and reduction in the debt burden. At the
CMP of | 91, the stock is trading at 14.6x and 11.6x its FY12E and FY13E
EV/EBITDA, respectively. We continue to value the stock at 14x FY13E
EV/EBITDA and maintain our target price of | 110 with a BUY rating.

Buy East India Hotels; Target : Rs 110 ::ICICI Securities

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E x c e p t i o n a l   i t e m   i nf l a t e s   b o t t o m l i n e …
East India Hotels (EIH) reported net sales of | 237.2 crore during Q2FY12,
which was in line with our estimate | 239.1 crore while PAT of | 16.6
crore was above our estimate (I-direct estimate: | 4.6 crore) mainly due to
one time income of ~| 11 crore from sale of properties. Net sales grew
~9% YoY led by an improvement in occupancy (~100 bps YoY) across
business destinations. However, average room rate (ARR) growth
remained subdued to the extent of  mere 2% YoY. On the other hand,
operating costs rose marginally by  2% YoY as a result of tight cost
control measures taken by the company at the operating level. As a
result, operating margins surged by 674 bps YoY to 12.4%. Finally, the
company reported a net profit of | 16.6 crore (loss of | 15 crore in
Q2FY11) on the back of a sharp decline in interest cost by ~70% YoY and
gains of | 11.2 crore from one-time income from sale of properties.
ƒ Moderate growth in topline due to seasonality
EIH’s topline grew ~9% YoY to | 237 crore during Q2FY12
supported by moderate growth in occupancy (~100 bps YoY).
However, average room rates remained flat on account of the lean
season and new supply across leading business destinations such
as Delhi, Chennai and Hyderabad.
ƒ Lower operating cost helps margin expansion
Operating cost in Q2FY12 increased a mere 2% YoY, an indication
of various cost control measure taken by the company. During the
period, raw material cost and other expenses grew by 14% YoY and
9% YoY to | 35.7 crore and | 69.9 crore, respectively, which was
partially offset by a decline in employee cost by ~8% YoY to | 82.2
crore. Consequently, operating profit grew exceptionally by 140%
YoY to | 29.4 crore, thus expanding margin by ~674 bps YoY.
V a l u a t i o n s
We expect the company’s profitability to improve due to its presence in
key business and leisure locations and reduction in the debt burden. At
the CMP of | 95, the stock is trading at 15.3x and 12.2x its FY12E and
FY13E EV/EBITDA, respectively. We value the stock at 14x FY13E
EV/EBITDA and arrive at a target price of | 110 with a BUY rating.

Buy East India Hotels Target : Rs 102 ::ICICI Securities,

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D e m a  n d   r e c o v e r s   b u t   a t   l o w e r   p a c e …
East India Hotels (EIH) reported Q1FY12 net sales of | 246.6 crore and PAT
of | 14.5 crore, which was below our estimate | 258.1 crore and | 20.5
crore respectively mainly due to lower than expected growth in average
room rate (ARR) across business destinations. Net sales grew ~21% YoY
due marginal increase in occupancy as well as ARRs and incremental
revenue inflow from BKC Mumbai. On the other hand, operating costs rose
moderately by 11% YoY during the quarter. Due to cost control measures,
operating margins expanded by 710 bps  YoY  to  19.4%.  However,  with  a
sharp surge in the other income from | 0.8 crore in Q1FY11 to | 9.3 crore in
Q1FY12 on account of gains from short term investments and lower interest
outgo (down 38% YoY), company reported net profit of | 14.5 crore against
a loss of | 16 crore reported in Q1FY11.
ƒ Addition of new keys leads top-line growth
EIH’s Q1FY12 surged by 21% YoY to | 246.6 crore on the back of
incremental revenue from new  rooms in BKC Mumbai. Average
occupancy levels also seen a marginal improvement of over 100bps,
while average room rates remained flat on account of lean season
impact.  
ƒ Control in operating costs, higher other income drives bottom-line
Various cost control measures led operating cost to grow at moderate
rate of 11% YoY to | 198.7 crore in Q1FY12. The main cost driver
remained raw material cost (up 16% YoY to |36.1 crore) and
employee cost (up 12% YoY to | 78.4 crore), while P&F and other
expenses remained at comfort zone by rising 6%-8% YoY. This
helped operating profit to grow 90% YoY to | 47.8 crore, thus
expanding margin by ~700 bps YoY. Finally, net profit came at | 14.5
crore against loss of ~ | 16 crore (YoY) on sharp rise in other income
and lower interest outgo (declined by 38% YoY to | 20.7 crore).
V a l u a t i o n s
We expect the company’s profitability to improve due to its presence in key
business and leisure locations and reduction in the debt burden. At the
CMP of | 89, the stock is trading at 14.0x and 10.2x its FY12E and FY13E
EV/EBITDA, respectively. We value the stock at 12.0x FY13E EV/EBITDA and
arrive at a target price of | 102 with a BUY rating on it.

Sizzling Stocks: Idea Cellular (Rs 94.3); EIH (Rs 96) ::Business Line,

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Sizzling Stocks: Idea Cellular (Rs 94.3)

Idea Cellular has been on medium-term uptrend from its 52-week low of Rs 55 recorded in late February. The stock's uptrend got accelerated on July 22 after it penetrated its key resistance at Rs 80. The upward momentum has continued since, and saw the stock gain more than 10 per cent backed with good volumes last week. Next key hurdle for the stock is in the band between Rs 105 and Rs 110. Failure to move above this band will keep the stock hovering in the broad range between Rs 85 and Rs 110 over the medium-term. Emphatic move above Rs 110 will give a long-term target of Rs 125 and Rs 140 levels.

However, strong close below the significant long-term support at Rs 85 can pull the stock down to Rs 80 and then to Rs 70.

EIH (Rs 96)

Following a narrow sideways movement between Rs 80 and Rs 90 from this April, the stock zoomed 12.5 per cent on July 29, decisively breaking out of the narrow range. The volume accompanied was extraordinary (21 lakhs) on that session. The sudden spurt has helped the stock breach its 200-day moving average positioned around Rs 92. Over the week, the stock surged more than 11 per cent. Nevertheless, it is facing an important long-term resistance at Rs 100. Strong breakthrough of this level can lift the stock higher to Rs 115 and then to Rs 125 in the medium-term.

Reversal from the resistance at Rs 100 will pull the stock down to Rs 90-92 zone initially and then to Rs 85. Next key supports are pegged at Rs 80 and Rs 75

EIH Rights Offer closes on March 15: Invest :Business Line

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Given the expected revival in the hospitality sector and the dilution in equity, post-offer, shareholders can subscribe to this offer.

It is not always that a rights offer of a company comes packed with a potential takeover angle. EIH, which has Reliance Industries and ITC as shareholders at little less than the 15 per cent holding each, is making a 5:11 rights offer at Rs 66 per share to raise Rs 1,179 crore. Both the potential bidders will get to retain their current stakes in EIH only if they subscribe to the rights offers. Any portion of the offer made to the public that remains unsubscribed may be picked up by promoters, increasing their holding in the company.

Retail shareholders who do not subscribe to the offer may suffer substantial equity dilution. With the stock close to its 52 week low and a revival likely in the hotels business over the medium term, the timing of the offer appears reasonable. As for valuations, the offer price, at a discount to the current market price of Rs 77, values the company at about 24 times its likely FY12 per share earnings, at a premium to Hotel Leela (15 times) and Indian Hotels (23 times). Manageable debt on books, improving outlook for the hotel industry (especially in Mumbai where it has a strong presence) and the heightened interest in EIH, however, justify the premium to some extent.

OFFER PROCEEDS

Of the offer proceeds, EIH plans to use Rs 900 crore to retire debt; Rs 100 crore towards setting up a flight kitchen facility at the Indira Gandhi International Airport in New Delhi and the balance towards issue-related and general corporate expenses. The company had an outstanding debt of about Rs 1,810 crore, as of September 2010 . With interest rates likely to harden further, EIH's plan to prepay debt promises to significantly bring down its interest burden; debt: equity ratio is expected to come down from 1.15 levels now to 0.27. The impact on earnings, however, would not be commensurate as the offer will also cause a 45 per cent expansion in the company's equity base.

TUG OF WAR

But what really makes the offer attractive is the prospect of an open offer or a price war between Reliance Industries and ITC, if either or both their shareholdings cross the 15 per cent mark. Note that Reliance Industries currently holds about 14.8 per cent in EIH, while ITC's shareholding is at 14.98 per cent. While ITC has long maintained that its interest in EIH is only strategic , it would be interesting to see if it participates in the offer. It would have to shell out about Rs 177 crore just to retain its shareholding.

What's also interesting is that while ITC has accumulated EIH shares over a period of a few years, RIL is a new entrant. It bought 14.2 per cent stake from EIH promoters at about Rs 182 apiece. Interestingly, the Oberoi family, which holds 32.31 per cent stake, has said that it would be subscribing to the rights shares that other shareholders relinquish. Subscribing to the rights, therefore, would let the retail shareholders make most of the possible upside in case of any open offer(s). The business environment is beginning to look up for the hospitality sector now. After the terrorist attack on its Mumbai property in 2008 and the subsequent recessionary trends, EIH has witnessed a growth in occupancies and room rents across its properties. The offer closes on March 15

East India Hotels - disappointing results; recovery taking time; Hold :: Edelweiss

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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.

ICICI Securities: Reduce East India Hotels -High interest cost lowers bottomline growth… Target : 92

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East India Hotels -High interest cost lowers bottomline growth…
East India Hotels (EIH) came out with better results on the topline front
this time compared to our estimates. EIH reported net sales of | 301.1
crore (I-direct estimate: | 273.1 crore) that remained above our
expectations. It grew by 26.4% YoY due to the peak season impact.
Operating costs also remained under control despite a 24% rise in raw
material costs. As a result, we have seen a margin expansion of 198 bps
to 34.7% for the quarter. However, with a sharp increase in the interest
cost (up 51% YoY), its net profit grew only 27% YoY to | 28.4 crore.

East India Hotels - subdued ARRs, ORs dent performance; Hold:: Edelweiss

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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%.

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.