Indian Hotels Company Limited - Sify.comim.sify.com/sifycmsimg/nov2009/Finance/14919172_Indian...• Taj re-brands Maldives property under Vivanta. • Roods Corporation of India (RCL),

Firstcall India Equity Advisors Pvt Ltd 1

Indian Hotels Company Limited

NEUTRAL CMP: Rs.84.50 Market Cap. : Rs.61127.30mn.

Date: November 10, 2009.

Key Ratios:

Particulars FY09

(12 m)

FY10E

(12 m)

FY11E

(12 m)

OPM (%) 34 27 28

NPM (%) 14 6 9

ROE (%) 8 2 4

ROCE (%) 9 5 5

P/BV(x) 2.01 1.96 1.88

P/E(x) 26.12 79.03 49.15

EV/EBDITA(x) 11.17 19.55 18.99

Debt equity ratio 0.58 0.62 0.66

Key Data:

Sector Hospitality

Face Value Rs.1.00

52 wk. High/Low Rs.87.20/34.00

Volume (2 wk. Avg.) 842804

BSE Code 500850

SYNOPSIS • The Indian Hotels Company and its subsidiaries, collectively

known as Taj Hotels Resorts and Palaces, is recognized as one

of Asia`s largest and finest hotel companies. Incorporated by

the Tata Group.

• The company has agreed to construct a hotel in joint venture

with Delhi Metro Rail Corp. (DMRC) for room facility for

tourists, particularly during the 2010 Commonwealth Games in

New Delhi, India.

• The company has cut down its expansion plans and has

provided visibility only for projects that will be implemented in

F2010. The company has until now commissioned 700 rooms

across various brands and categories, for the balance of F2010;

the company is likely to commission another 672 rooms taking

the total room addition in the year to 1,372 rooms of the total

room expansion planned in F2010.

• Taj re-brands Maldives property under Vivanta.

• Roods Corporation of India (RCL), a subsidiary of Indian Hotels

Company, will invest about Rs 800 million in the country for

setting up seven to eight hotels.

• The company which operates the Taj brand of hotels will invest

Rs 3.50 billion in the current fiscal even as it expects the

industry to continue to face challenges in the near term.

• The company is acquiring Elel Hotels and Investments for Rs

6.80 billion, a closely held company and a subsidiary of

Claridges Hotel which holds the sublease for the land on which

the Sea Rock hotel is located in Mumbai.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

[email protected]

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

[email protected]


Table of Content

Content Page No.

1. Investment Highlights 03

2. Peer Group Comparison 07

3. Key Concerns 07

4. Financials 08

5. Charts & Graph 10

6. Outlook and Conclusion 12

7. Industry Overview 13


Investment Highlights • Result Updates (Q2FY10)

For the Second quarter, the top line of the company decreased 16%YoY and stood at

Rs.3071.90mn against Rs.3678.20mn of the same period of the last year. The bottom

line of the company for the quarter stood at Rs.118.70mn from Rs.506.60mn of the

corresponding period of the previous year i.e., a decrease of 77%YoY.

EPS of the company for the quarter stood at Rs.0.16 for equity share of Rs.1.00 each.


Expenditure for the quarter stood at Rs.2776.82mn, which is around 14% lower than the

corresponding period of the previous year. Raw material cost of the company for the

quarter accounts for 8% of the sales of the company and stood at Rs.243.00mn.

Employee cost stood at Rs.859.90mn. and accounts for 28% of the revenue of the

company for the quarter. Other Expenses of the company for the quarter accounts for

33% of the sales of the company and stood at Rs.1020.30mn.

OPM and NPM for the quarter stood at 27% and 4% respectively from 30% and 14%

respectively of the same period of the last year.


• Indian Hotels Co. Ltd. to Form Joint Venture with Delhi Metro Rail Corp

The company has agreed to construct a hotel in joint venture with Delhi Metro Rail

Corp. (DMRC) for room facility for tourists, particularly during the 2010 Commonwealth

Games in New Delhi, India. The six-floor hotel is spread over an area of 29,999 square

meters and is proposed to set up at metro station complex at Sector 21 in Dwarka, New

Delhi, India and will have 400 rooms. The State Environment Impact Assessment

Committee has approved the project costing INR 3,200 million ($69.53 million).

• Taj re-brands Maldives property under Vivanta

The Taj group has added another property under its Vivanta brand. The Taj Coral Reef,

Maldives, has now been re-branded Vivanta by Taj — Coral Reef, Maldives.

The nine-acre resort located Hembadhu Island, about 30 km from the Male airport. This

property is the second for the group in the Maldives. While Taj Exotica Resorts & Spa,

Maldives, is targeted at the luxury segment, Vivanta caters to the ‘upper upscale’

segment of travellers. Taj has always had two properties in the Maldives; even now,

these two are in different segments — luxury and upper upscale.

The focus markets for the Vivanta brand are the UK, Japan, India, Korea, Russia, France,

Germany, and Italy. The Vivanta brand is smart and contemporary. The Maldives

property is the third for the group under this brand. The other two are in Whitefield,

Bangalore, and Panjim. The Vivanta properties currently rest in the premium division of

the group, which comprises a mix of business and leisure hotels catering to the upper

upscale segment.

• RCL plans Rs 800mn expansion plan

Roods Corporation of India (RCL), a subsidiary of Indian Hotels Company, will invest

about Rs 800 million in the country for setting up seven to eight hotels in the current

fiscal.

The company is planning to have 60-70 hotels in various locations across the country in

the next four-five years, with seven to eight hotels planned for the current fiscal. The

expense of each venture would depend on the location. The locations have been

identified after detailed study taking into account various parameters such as potential

of the market, profile of clientele and peak occupancy period. The company recently

inaugurated the ginger brand of hotel here, the first in the state of Jharkhand. It was

built over 1.3 acres land at a cost of Rs 115 million.

• Indian Hotels Interested In Orient’s Properties Outside US


The company has shown keen interest in acquiring some of Orient-Express Hotels Ltd’s

properties, which are based outside the United States, and which do not form a core of

Orient-Express. The company had earlier expressed its interest increasing its stake in

Orient Express from its current 9.7%. However, Indian Hotels has ruled out a hostile

takeover.

• IHCL to infuse Rs 3.5bn in FY-10

The company which operates the Taj brand of hotels will invest Rs 3.50 billion in the

current fiscal even as it expects the industry to `continue to face challenges` in the near

term.

The company is currently working on expansion and restoration of 12 properties in

India, Middle East and US, most of which are expected to open in 2009. The hotel and

tourism industry will continue to face challenges in the near term. Occupancy rates

presently are 70-75%. As the economic situation improves, the occupancy will also

improve. The company is seriously looking at enhancing security cover at The Taj Mahal

Palace & Towers in South Mumbai, which was one of the nodal points of last year`s

terror strike.

• Indian Hotels acquire hotel for Rs 6.80bn.

The Company is acquiring Elel Hotels and Investments for Rs 6.80 billion, a closely held

company and a subsidiary of Claridges Hotel which holds the sublease for the land on

which the Sea Rock hotel is located in Mumbai.

The company has an existing arrangement with the Company that owns the Sea Rock

hotel in Mumbai to provide technical and management expertise for the restoration and

operations of the hotel, when the redevelopment of the property is completed. It is

proposed to demolish the existing structure at site and re-develop the area as a high

end world class luxury hotel and convention centre with retail facilities, fully integrated

with the company`s existing Lands End hotel, both operating in a synchronized manner

Through this acquisition, the company believes that considerable synergies can be

generated by an association with the Sea Rock hotel, which when the reconstruction is

completed will enable the combined operation to have a leading market position in

North Mumbai.

• Indian Hotels acquires 2.25mn shares of Orient Express

The Company has acquired 2.25 million shares of the New York-listed Orient Express

Hotels (OEH) for a price of USD 5.75 a share equaling to an aggregate amount of Rs


646.50 million or USD 12.93 million. Samsara Properties, a subsidiary of Indian Hotels

has raised USD 51 million loans from the UK branch of ICICI Bank, to part fund the share

purchase.

It is learnt that the remaining amount would be funded by Tata`s via internal accruals. It

is further learnt that the Tatas may buy more shares Orient Express. Orient Express

Hotels owns several luxury resorts, tourist trains and cruises.

• Indian Hotels Gateway brand eyes expansion

The company’s mid-range brand Gateway Hotels would open 12 new properties in the

next 2-3 years.

These dozen-odd hotels will be run as management contracts and not as owned

properties. The Gateway brand was created seven months ago and this expansion is

part of Indian Hotels effort to create space for it.

Indian Hotels Company plans to have 50 Gateway Hotels in India in the next few years,

from about 30 at present. Of the latter, 16 used to be run under the Taj brand and were

transferred to Gateway, while 10 were added later.

Peer Group Comparison Name of the

company

CMP(Rs.)

(As on

November

10,2009)

Market Cap.

(Rs. Mn.)

EPS

(Rs.)

P/E (x) P/BV

(x)

Dividend

(%)

(FY08)

Indian Hotels

Company 84.50 61127.30 2.08 40.63 2.01 120.00

Hotel Leela 38.85 14678.50 2.39 16.26 2.09 20.00

Asian Hotel 425.00 9691.50 29.36 14.48 1.30 10.00

Taj GVK Hotel 152.55 9565.10 5.33 28.62 3.53 100.00

Key Concerns

� Adverse Govt. policies.

� Economic slow down.

� Highly competition.


Financials Results Update

12 months ended Profit and Loss A/C (Standalone):

Value(Rs. in million) FY08 FY09 FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 17645.10 16195.70 13118.52 14430.37

Other Income 586.20 869.50 878.20 922.10

Total Income 18231.30 17065.20 13996.71 15352.47

Expenditure -10629.40 -11594.00 -10494.81 -11327.84

Operating Profit 7601.90 5471.20 3501.90 4024.63

Interest -942.80 -904.30 -1515.63 -1389.33

Gross Profit 6659.10 4566.90 1986.27 2635.31

Depreciation -854.40 -943.90 -1019.41 -1080.58

Profit before Tax 5804.70 3623.00 966.86 1554.73

Tax -2030.10 -1282.70 -193.37 -310.95

Net Profit 3774.60 2340.30 773.48 1243.78

Equity Capital 602.90 723.40 723.40 723.40

Reserves 19562.90 29752.90 30526.38 31770.17

Face Value (Rs) 1.00 1.00 1.00 1.00

Total No. of Shares 602.90 723.40 723.40 723.40

EPS (Rs) 6.26 3.24 1.07 1.72


Quarterly ended Profit and Loss A/C (Standalone):

Value(Rs. in million) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09E

Description 3m 3m 3m 3m

Net Sales 4182.20 2848.80 3071.90 3440.53

Other Income 122.40 91.10 225.00 231.75

Total Income 4304.60 2939.90 3296.90 3672.28

Expenditure -3028.70 -2070.60 -2479.30 -2776.82

Operating Profit 1275.90 869.30 817.60 895.46

Interest -229.40 -376.00 -378.30 -382.08

Gross Profit 1046.50 493.30 439.30 513.38

Depreciation -285.60 -250.60 -252.00 -257.04

Profit before Tax 760.90 242.70 187.30 256.34

Tax -378.40 -78.30 -68.60 -93.89

Net Profit 382.50 164.40 118.70 162.45

Equity Capital 723.40 723.40 723.40 723.40

Face Value 1.00 1.00 1.00 1.00

Total No. of Shares 723.40 723.40 723.40 723.40

EPS 0.53 0.23 0.16 0.22


Charts

• Net sales & PAT

• P/E Ratio (x)


• P/BV (X)

• EV/EBITDA(X)


1 Year Comparative Graph

Outlook and Conclusion • At the market price of Rs.84.50, the stock is trading at 79.03 x and 49.15 x for FY10E and

FY11E respectively.

• On the basis of EV/EBDITA, the stock trades at 19.55 x for FY10E and 18.99 x for FY11E.

• Price to book value of the company is expected to be at 1.96 x for FY10E and 1.88 x for

FY11E respectively.

• EPS of the company is expected to be at Rs.1.07 and Rs.1.72 for the earnings of FY10E and

FY11E respectively.

• The company has agreed to construct a hotel in joint venture with Delhi Metro Rail Corp.

(DMRC) for room facility for tourists, particularly during the 2010 Commonwealth Games in

New Delhi, India.

• The Indian Hotel industry has been hit by declining tourist arrivals because of the global

financial crisis, followed by the Mumbai terrorist attacks and now the swine flu pandemic.

• The company has cut down its expansion plans and has provided visibility only for projects

that will be implemented in F2010. The company has until now commissioned 700 rooms

across various brands and categories, which include 120 rooms of the Taj Lands End

expansion in Mumbai, 184 rooms of the Pierre in New York, 232 rooms through the Vivanta

brand in Panjim and Maldives and 164 rooms through two Ginger properties. For the

Indian Hotels BSE SENSEX


balance of F2010, the company is likely to commission another 672 rooms taking the total

room addition in the year to 1,372 rooms. Of the total room expansion planned in F2010,

22% would be through management contracts and 34% through the Ginger brand. Also,

management has indicated that 4,209 rooms are in the pipeline to be added through the

management contract route – 857 rooms under the Vivanta brand, 1,335 rooms under the

Gateway brand and the remaining 2,017 rooms under the Taj brand.

• We believe that this trend is likely to continue in the rest of the financial year on the back of

the festive season and an expected increase in business tourists due to the improving

macroeconomic outlook. Further, a visible recovery is expected at the end of FY11 owing to

the 2010 Commonwealth Games in the country and an expected recovery in the world

economy.

• We are giving a ‘Neutral’ rating for this particular scrip.

Industry Overview

India offers myriad exciting experiences to tourists. Tourism industry in India is being utilized as

a powerful tool to facilitate international understanding and enable building of broader cultural

horizons. According to the Travel & Tourism Competitiveness Report 2009 brought out by

World Economic Forum, India is ranked 11th in the Asia-Pacific region and 62nd overall in a list

of 133 assessed countries in 2008, up three places since 2007. In terms of travel, India stands

9th in the index of relative cost of access (ticket taxes and airport charges) to international air

transport services, having almost the lowest costs in the world.

Also according to the report, India has been rated well for its natural resources (ranked 14th)

and cultural resources (24th), with many World Heritage sites, both natural and cultural, rich

fauna, and strong creative industries in the country. India also has quite a good air transport

network (ranked 37th), particularly given the country’s stage of development, and a reasonable

ground transport infrastructure (ranked 49th). India is ranked 7th in terms of number of World

Heritage cultural sites, according to a UNESCO report (2008).

India is ranked 1st with regard to tourism fair attendance. Also, according to the International

Congress and Convention Association, India is rated 33rd in terms of number of international

fairs and exhibitions held in the country annually (average for 2006-07).

The World Travel and Tourism Report for 2009 for 180 countries worldwide also ranks the

Indian Travel and Tourism economy 14th in absolute size worldwide, 144th in relative

contribution to national economies and 5th in long-term (10-year) growth. The contribution of

travel and tourism to gross domestic product (GDP) is expected to be at 6.0 per cent (US$ 67.3

billion) in 2009 rising to US$ 187.3 billion by 2019.


The report also states that real GDP growth for travel and tourism economy is expected to be

0.2 per cent in 2009 and to an average 7.7 per cent per annum over the coming 10 years.

Export earnings from international visitors and tourism goods are expected to generate 6.0 per

cent of total exports (almost US$ 16.9 billion) in 2009, growing (nominal terms) to US$ 51.4

billion in 2019.

Growth Trends

According to the Ministry of Tourism, Foreign Tourist Arrivals (FTAs) during the month of March

2009 were 472,000 and the decline in FTAs may be mainly due to ongoing global financial

meltdown. FTAs during January to March 2009 were at 1.461 million.

Foreign Exchange Earning (FEE) during the month of March 2009 was US$ 867 million while FEE

during January to March 2009 was US$ 2731 million. The lower growth rate in March 2009 as

compared to March 2008 is mainly due to exchange rate variation and lower growth rate of

FTAs.

Despite short- and medium-term setbacks, tourism revenues are expected to rise by 42 per

cent from 2007 to 2017. Every year, more than 3 million tourists visit the Taj Mahal in Agra.

According to figures released by Kerala Tourism, a little over 7.591 million domestic tourists

visited the State in 2008, which was a growth of 14.28 per cent compared to 2007. Foreign

tourist arrivals also grew—by a healthy 16.11 per cent—in 2008, with just over 598,000

foreigners visiting Kerala.

Medical Tourism

A number of reasonably priced wellness centres such as 20 by Facet Lifestyle and health spas

are coming up in several destinations increasing patient arrivals.

The country ranks second in medical tourism. In 2007, Indian hospitals treated 450,000 patients

from other countries against topper Thailand's 1.2 million. A two-year study by healthcare

researchers Deloitte revealed that there's a significant rise in patients in India from the US, UK

and Europe apart from the usual inflow of patients from neighboring countries and West Asia.

Healthcare majors in the eastern region too are wooing international patients with special

offerings. Leading players in the field, like the Calcutta Medical Research institute (CMRI),

Medica Synergy Limited (MSL), Apollo Gleneagles, BM Birla Heart Research Centre, are offering

added facilities to these patients. Apollo is expecting an increase of about 30 to 40 per cent in

international patients this year, mostly from the UK, US, Italy and Germany.

Hospitality Sector

The hospitality sector is expected to rise to US$ 275 billion in the next 10 years. The domestic

hospitality sector is expected to see investments of over US$ 11 billion in the next two years

within 40 international hotel brands making their presence in the country in the next few years.


At the Vibrant Gujarat Global Investors' Summit, memorandums of understanding (MoUs)

worth US$ 9.10 billion for hotels, convention centres, resorts, and adventure tourism in the

state, were signed.

Government Initiatives

According to the Tourism Secretary, Mr Sujit Banerjee, the government is offering attractive

packages to foreign tourists and has organized road shows in major markets such as the UK,

Canada, Australia, Singapore and Malaysia.

• The ministry is offering free air ticket for companion, travel to additional places and

extended stay at hotels.

• Now, foreign medical tourists will be offered one additional treatment for free. Apollo,

Manipal, Moolchand, Fortis and Wockhardt among others have forwarded their

proposals for the same.

• The government has also taken a number of steps to minimise the impact of the

slowdown. This year has been designated as the ‘Visit India’ year. The ministry has

increased financial support to tour operators for promoting India in international

exhibitions. To involve more operators, the ministry has doubled the upper ceiling of

foreign exchange earnings of applicant companies to US$ 4.05 million under the market

development assistance scheme.

• All issues including uniform state-level tax structure, luxury tax and free-movement of

inter-state tourist vehicles are being reviewed by the empowered committee of state

finance ministers.

• To strengthen the Indian tourism sector ahead of the Commonwealth Games in 2010

and to double foreign tourist arrivals from 5.37 million in 2008 to 10 million by 2010, the

ministry is taking measures such as rationalizing taxes, increased focus on infrastructure

and easy visas.

___________________________________________________________

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This document prepared by our research analysts does not constitute an offer or solicitation

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sources believed to be reliable but we do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.


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Documents

Indian Hotels Company Limited - Sify.comim.sify.com/sifycmsimg/nov2009/Finance/14919172_Indian...• Taj re-brands Maldives property under Vivanta. • Roods Corporation of India (RCL),