AoFS Final 1 (1)

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    ANALYSISOF

    FINANCIALSTATEMENTS -

    HOTELS

    Abhijeet Shinde (91) Shikhar Singla (96)

    Shishir Shirbhate (92) Sriram Krishnan (97)Mandar Shirodkar (93) Srinath Subramanian (98)

    Nikhil Shenoy (94) Pranit Surana (99)

    Lovkush Singh (95) Hitesh Suri (100)

    INDIAN HOTELSAND EAST INDIA

    HOTELS

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    INDIAN HOTEL INDUSTRY The international travel and tourism industry is currently

    on a recovery path and on their way to return to the pre-crisis peak levels.

    Indian travelers have emerged the sixth biggest spenderswhen travelling abroad1; even as they remain highlyprice-conscious when travelling within the country

    NCR and Mumbai are two of the busiest hotelconstruction markets with 14000+ rooms under pipeline

    India occupies the sixty-eighth position among the toptourist destinations in the world

    Government of India increased spend on advertisingcampaigns like 'Incredible India' and 'Athithi Devo Bhava'

    Foreign Tourist Arrivals in India during 2011 were 6.29million with a growth of 8.9%

    Domestic traveler now accounts for nearly 74% of thetotal demand (across all segments) and 53% of the luxurysegment.

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    STRUCTUREOF HOTEL INDUSTRY

    Comprises the high-end 5-Star deluxe and 5-starhotels

    Cater to business and upmarket foreign leisuretraveler

    Premium andLuxury Segment

    Palaces and forts built prior to 1950 converted

    into hotels The Ministry of Tourism classified these hotels

    as Heritage Hotels

    Heritage Hotels

    Comprises of 4-Star and 3-Star hotels

    Cater to average foreigners and domestic leisure

    traveler

    Mid-Market

    Segment

    Comprises of 1-Star and 2-Star hotels

    Provides inexpensive accommodation to priceconscious people

    Budget Segment

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    The Indian Hotels Company (The TajGroup)

    EIH Limited (The Oberoi Group)

    ITC Hotels Limited

    Indian Tourism Development

    Corporation (ITDC) Hyatt International Corporation

    Hotel Leela Venture

    Bharat Hotel

    Marriott

    Starwood

    Berggruen Hotels

    Major Players

    Foreign Tourist Arrivals into IndiaClassification of Indian Hotel

    Industry

    International Hotel ChainsLarge Hotel ChainsSmall ChainsPublic Sector ChainsLocalized Hotel Companies

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    DEMAND SUPPLY COMPARISON

    Source: HVS Research

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    A healthy increase in demand across the country hasbeen observed

    The industry will also see an infusion of supply overthe next few years from domestic and internationalbrands

    Foreign tourist arrivals to India are forecasted togrow at a rate of 9% - 10% in the next few years.

    DEMAND SUPPLY COMPARISON

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    TRENDSIN REVENUESAND PROFITSFOR

    THE INDIAN HOTELS INDUSTRY

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    EXPECTED SCENARIOIN PREMIUM HOTEL SEGMENTIN SELECTINDIAN MARKETS (SOURCE: INDUSTRYANDICRASESTIMATES)

    Market Demand Drivers Prospects Outlook

    Mumbai Gateway city andfinancial capital

    Supply likely to beabsorbed

    being a gateway city and the countrysfinancial centre, demand is likely to berobust

    NCR Gateway city Oversupply likely inthe near term

    expecting to add around 5,000 rooms overthe next three to four years , this is likely tosuppress pricing power

    Bangalore Foreign IT/ITESbusinesstravelers

    Oversupply likely inthe near term

    Bangalore has seen significant roomadditions in 2009-11 and is likely to seemore over the next few years

    Pune Foreign IT/ITESbusiness

    travelers

    Heavy oversupplylikely

    the outlook for the next two years issubdued, saw occupancies and ARRsdecline in Q1, 2010-11 because of supply

    addition

    Chennai Manufacturingand servicessectors

    Oversupply likely inthe near term

    strong supply pipeline for 2012 and 2013,the city is likely to experience significantpricing pressure over the next two years

    Kolkata Business

    travelers

    Supply likely to be

    absorbed

    relatively small market, also has limited

    additions in the immediate term

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    INDIAN HOTELS COMPANY LTD

    IHCL owns and operates76 hotels, 7 palaces,serviced apartments, 6private islands and 12resorts and spas

    Presence across 52destinations in 12countries

    Operating across the

    market segments: Luxury

    Premium

    Mid-market

    value

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    Taj

    Flagship brand of traditional luxury full-service hotels, resorts and palaces

    Two speciality brands: Taj Exotica and Taj Safari

    Vivanta

    Contemporary-luxury hotel brand that is building a more cutting-edge, modern-chic esthetic

    Caters to an upscale market, it is positioned a step below the flagship Taj brand.

    Located at both business and vacation destinations

    The Gateway

    This is a mid-market brand positioned below the Vivanta by Taj brand, andcontains properties in both business and vacation destinations.

    Ginger

    Ginger is the Tata Groups economy hotels brand across India.

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    EIH LTD.

    Founded in 1934 Operates 28 hotels and 3

    cruisers in 5 countries

    Also operates airportrestaurants, flightcatering services, travelsand tours services,corporate air chartersand printing press

    Operating across marketsegments:

    Luxury

    5-Star

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    The Oberoi

    Caters to luxury segment Operates 28 hotels and 3

    cruisers in 5 countries

    Trident

    Falls in 5-star segment Operates 9 hotels in India and

    a hotel in Jeddah, Saudi Arabia

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    OPERATIONSRESEARCH

    Major revenues fromoperations in India

    Catering to luxury,premium, mid-marketand budget segments

    Revenue concentration

    on Indian luxurysegment

    Increased outboundtraffic is a key risk

    More diversifiedportfolio

    Catering to luxury and5-star segment

    Revenue concentrationon super premium and

    premium segments

    Crude oil prices mayaffect travel and tourism

    IHC Ltd. EIH Ltd.

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    11,166.20

    15414.3 17651.7 16202.6 14740.516744.2

    7,563.909389.7

    11235.69432.9

    823410275

    0.00

    5,000.00

    10,000.00

    15,000.00

    20,000.00

    Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11

    IHEIH

    Reasons for moderation in sales:- Competition from InternationalHotel Chains

    Mumbai terror attacks Air Catering business continues tobe under pressure

    CAGR IndianHotels

    EIH

    2006 to2011

    8.44% 6.32%

    2008 to2011

    -1.74% -2.94%

    Sales (Rs. Million)

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    Mar 09 Mar 10 Mar 11

    Distribution

    of total

    expenses

    100 100 100

    Operating

    expenses75.6 76 77.7

    Financial

    charges9.6 12.3 9.8

    Non-cash

    charges5.8 6.9 6.4

    Others 9.0 4.8 6.1

    9%

    33%

    8%

    6%

    44%

    Components of Operating

    Expenses, IH 2010-11

    Power, fuel & water

    Compensation to Employees

    Royalties

    Advertising

    Others

    Expenses Indian Hotels

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    Mar-09 Mar-10 Mar-11

    Operating

    Expenses 73.1 76 71.9

    Financial

    Charges9.1 11.9 14

    Non-Cash

    Charges6 8 7.9

    Provision11.3 3.7 1.7

    Others .6 .4 4.6

    40%

    8%9%5%

    38%

    Split up of operatingexpenses

    Employee Cost

    Repairs & Maintenance

    Power & Fuel

    Raw Material

    Others

    Expenses East India Hotels

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    70.0075.00

    80.00

    85.00

    90.00

    95.00

    100.00

    Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11

    IH

    EIH

    Expenses as % of sales have increased to above 90% of sales for both companieseroding its profit margins

    Operating expenses accounts for more than 75% of total expenses

    Industry with high operational leverageHigh payroll costs, higher provisioning of retirement benefits Operating cost of new hotels opened

    Depreciation for the last year increased due to capitalisation of new properties

    Expenses as % of Sales

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    1837.8

    3223.9

    3774.6

    2340.3

    1531 1412.5

    1888 2003.52172.3

    1704.4

    572.3 645.4

    0

    500

    1000

    1500

    2000

    2500

    3000

    3500

    4000

    Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

    CAGR has been -5.12% over last five years The fact that low revenue growth is coupled with rising costs is being reflected

    in the falling PAT and PAT Margins

    Over last three years CAGR has been -9.6% Last three years have seen a drastic fall in PAT

    PAT (Rs. Million)

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    15.5

    19.5 20.5

    13.4

    9.58

    20.8

    19.218.5

    15.8

    6.3 5.5

    0

    5

    10

    15

    20

    25

    IH

    EIH

    Mar 06 Mar07 Mar 08 Mar 09 Mar 10 Mar 11

    PAT Margins are falling for both the companies Slow growth in reve