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Still room for Indian Hotels to grow

Still room for Indian Hotels to grow
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First Published: Thu, Aug 04 2011. 11 16 PM IST
The March quarter gave a glimpse of a turnaround in the hotel industry, which has been ravaged by the financial crisis and terrorist attacks in the past couple of years.
As tourists returned to Indian shores and the local populace got bitten again by the travel bug—not to mention the boost from the cricket World Cup 2011—occupancy rates increased and hotels cautiously hiked room rates.
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The Indian Hotels Co. Ltd continued the trend in the June quarter. Although revenue growth at 12% over a year ago was a tad below Street expectations, the company reported an 8% growth in volumes. The company also said that occupancy rates were increasing across the country, but didn’t provide any numbers.
Brokerages estimate that occupancy rates have increased upwards of 70%, close to the pre-financial crisis levels. Thus, Indian Hotels was able to hike average room rates by 4%, which boosted income.
Operationally, things aren’t much different from the March quarter. Operating profit growth came in at 27.5% and margins improved by 3.2 percentage points. The kicker to profits came from a doubling of non-operating income and a decrease in interest expenses, which fell 40% from a year ago.
In the last fiscal year, promoter Tata Sons Ltd had pumped in some money through warrants, which helped reduce debt levels. Another round of equity infusion is in the offing; that will not only cut debt further, but will also allow the company to show improved results in the next couple of quarters.
Net profit grew six times from a year ago in the June quarter, but these are numbers for Indian Hotels’ domestic operations. Last fiscal year, though the local business reported a net profit, losses from its US operations buried the overall numbers.
Locally though, things seem to be looking up for the moment. Supply of hotel rooms is growing slower than planned, which means that room rates and occupancy rates have scope to grow more.
Foreign tourist arrivals in June grew 7.2% over a year ago, similar to May. While that is a positive, the rate of growth is tapering off. Between January and May, tourist arrivals had grown 12%. With increasing murmurs of a global economic slowdown, growth may slip further; after all, travel is discretionary spending for both businesses and individuals alike.
That, and the drag from the US operations, perhaps explain why despite decent results and expectations, the Indian Hotels stock still trails the broader market.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Thu, Aug 04 2011. 11 16 PM IST