Oberoi, Trident operator’s net profit drops by 39%1 min read . Updated: 06 Aug 2012, 11:36 PM IST
Oberoi, Trident operator’s net profit drops by 39%
New Delhi: EIH Ltd, which runs the Oberoi and Trident hotel chains, said on Monday that first-quarter profit fell 38.8% as a weak economy crimped demand for rooms from travellers and as operating costs rose.
“In the hotel industry, in terms of profit, even a small change in occupancies and ARRs (average room rates) can produce a large swing," said a Mumbai-based analyst, who did not want to be named. “ARRs are not going up as the costs are because of inflation, and it is really going to be reflected in the hospitality industry results."
Bangalore-based Royal Orchid Hotels Ltd, however, reported a net profit of ₹ 21.39 crore in the June quarter, compared with a loss of ₹ 17.63 lakh a year earlier, boosted by the sale of its entire stake in unit Royal Orchid Ahmedabad Pvt. Ltd in April. Revenue rose 1.2% to ₹ 36.03 crore in the quarter ended June.
Royal Orchid Hotels, which runs brands such as Royal Orchid, Royal Orchid Central and Royal Orchid Resort, sold a 104-room hotel in Ahmedabad to Samhi Hotels Pvt. Ltd as part of a debt reduction plan. Royal Orchid will, however, continue to manage the property.
According to a statement to BSE, the company had gained ₹ 27.64 crore from the sale.
The performance of the hospitality sector is going to be weak because of high costs, according to analysts.
“Most of the hospitality companies are going to be posting weaker results because the economy is weak. The cost has gone up because of inflation. And average room rates (ARRs), which have been stagnant for some time now, have not been able to compensate the increasing cost," said the Mumbai-based analyst.
The analyst said Royal Orchid’s performance has been weaker than the industry because it had launched a new property recently which has not done well, and the company’s interest burden is quite high.
“The reason for the inflated profit is the sale of its Ahmedabad property. However, the new property that the company has launched recently in Hyderabad is dragging down its profit margin because of low occupancy," said the analyst.
On Monday, shares of EIH rose 1.64% to end trading at ₹ 80.80 on BSE. Royal Orchid’s stock gained 0.58% to close at ₹ 43.50.