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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 revenue coupled with low PAT margins make the company

unattractive for investors EIH has seen a higher erosion in PAT margins compared to IH which

shows lower cost efficiencies for EIH

PAT Margins

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2010 0ver 2009

Increased borrowings by issue of secured and unsecured NCDs to fundthe Companys expansion projects

Net cash from operating activities was higher

Investments have increased due to renovation of existing propertiesand replacement/up-gradation of existing fixed assets

R&S has decreased primarily due to a provision for premium onredemption ofNCDs

In short the company has strained its short-term liquidity position byhigh borrowings to cater to its expansion plans, as indicated by thelower current ratio, lower interest coverage ratio and an increase indebt to equity ratio

Fund Flow Analysis Indian Hotels

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2011 0ver 2010

Current assets have significantly declined and NWC has decreased substantiallyfor 2 consecutive years which doesnt augur well for an industry which needsan effective WC mgmt for its high operating costs

Restoring one of the Tajs hotels might have reduced the capital WIP andincreased the net block

R&S has increased substantially due to issue of shares and warrants at apremium; indicating the company is moving from owed funds to owned funds

The company paid a lot of its debts and increased its investments in mutualfunds with the cash raised from equity

In short the company is undertaking steps to financially deleverage itselfbecause for an industry with a high operational leverage it is necessary toachieve a balance between the financial and operational leverage to minimizerisks

Fund Flow Analysis Indian Hotels

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ShareCapital

Reserves &Surplus

Total DebtTotal

Liabilities

East India Hotels 1143.14 24,734.84 9738.72 35616.7

Indian Hotels 200.32 3028.59 2379.21 5608.12

0

5000

10000

15000

20000

25000

30000

35000

40000

Sources of Funds (2010-11)

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Application of Funds (2010-11)

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1.77 1.31

3.81

1.99

0.950.480

1

2

3

4

2008-09 2009-10 2010-11

Current Ratio

East India Hotels Indian Hotels

1.67 1.23

3.68

1.90

0.92 0.450

1

2

3

4

2008-09 2009-10 2010-11

Acid Test Ratio


Liquidity Ratios

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0.14

0.05

2.16

0.05

0.410.090

0.5

1

1.5

2

2.5

2008-09 2009-10 2010-11

Cash Ratio


0.06 0.06

0.03

0.04

0.03

0.06

0

0.01

0.020.03

0.04

0.05

0.06

0.07

2008-09 2009-10 2010-11

Inventory to GWC Ratio


Liquidity Ratios

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0.35

0.29 0.30

0.340.29 0.31

0

0.1

0.2

0.3

0.4

2008-09 2009-10 2010-11

Total Assets Turnover


31.90

25.62

30.39

43.86 44.34

54.69

0

10

2030

40

50

60

2008-09 2009-10 2010-11

Inventory Turnover


Turnover Ratios

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10.51

8.098.58

16.78

13.615915.2932

0

5

10

15

20

2008-09 2009-10 2010-11

Debtors Turnover


34.74

45.1342.54

21.7526.81

23.87

0

10

20

30

40

50

2008-09 2009-10 2010-11

Average Collection Period


Turnover Ratios

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0.7216

0.7912

0.3184

0.5796

0.9856

0.7243

0

0.2

0.40.6

0.8

1

1.2

2008-09 2009-10 2010-11

Debt Equity Ratio


3.5237

2.1677 1.9801

6.0741

2.7398 2.8613

0

2

4

6

8

2008-09 2009-10 2010-11

Debt Service Coverage Ratio


Leverage Ratios

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4.68

2.332.86

3.52

2.17 1.98

0

1

2

3

4

5

2008-09 2009-10 2010-11

Interest Coverage Ratio


1.941.72

2.65

1.02 0.73 0.88

0

0.5

1

1.5

2

2.5

3

2008-09 2009-10 2010-11

Fixed Assets Coverage Ratio


Leverage Ratios

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0.44

0.32

0.18

0.320.28

0.27

0

0.1

0.2

0.3

0.4

0.5

2008-09 2009-10 2010-11

Gross Profit Ratio


12.02

4.04

2.49

7.68

5.694.37

0

2

46

8

10

12

14

2008-09 2009-10 2010-11

Return on Net Worth


Profitability Ratios

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14.58

7.09 7.419.29

5.89 6.32

0

5

10

15

20

2008-09 2009-10 2010-11

Return on Capital Employed


67.33 67.32

42.7137.23

44.11

0

20

40

60

80

2008-09 2009-10 2010-11

Book Value per Share


Profitability Ratios

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EARNINGSPER SHARE

0

12

3

4

5

6

7

8

9

2008-09 2009-10 2010-11

East India Hotels

Indian Hotels