Indian Hotels Company or Taj Hotels Resorts - best buy

The Indian Hotels Company and its subsidiaries, collectively known as Taj Hotels Resorts and Palaces, recognised as one of Asia's largest and finest hotel company has posted encouraging results for the year ended 31^st March 2008.

The consolidated net revenue of the company rose 16.27% at Rs.2920.03 crore. This rise in revenue was mainly on account of higher room sales, healthy improvement in average room rates and steady growth in F&B business across the key markets. Room sales grew 16% and F&B grew 12% in FY08. It has maintained occupancy ratio at 73% as against the industry average of 70%. Its Average Room Rates (ARRs) increased by 16% to Rs.10,674 room per day. Interestingly, the biggest operating expense for the company is the expense it spends on the staff, which was at Rs.781.18 crore in FY08. No wonder the hotel industry is known as a “people’s “ industry!

EBIDTA rose 20.53% at Rs.1048.76 crore. Its interest outgo shot up from Rs.122.25 crore in FY07 to Rs.202.32 crore. Apart from the increased taxation outgo, the company had an exceptional expense of Rs.54.16 crore and this was because, it had to shut down all the rooms at The Pierre Hotel, New York, Inorder to undertake extensive renovation shut down. It incurred Rs.54.16 crore towards employee severance cost and that pulled down the PAT. Consolidated PAT was thus down marginally by 4.04% at Rs.354.98 crore. On an equity of Rs.60.29 crore, it posted an EPS of Rs.5.89.

One worrying aspect about the company is the very low promoter’s stake, at 29.4% while institutions hold 44.15%. This is the typical shareholding pattern of the olden days, when there was no fear of hostile takeovers. But in today’s time, this low stake of the promoters would surely have to go up. And probably the rights issue, which recently concluded in April 2008, would have helped shore up the stake of Tata Sons, which subscribed to the unsubscribed portion of the NCD issue. An aggregate amount of Rs 1,447 crore was raised by the company, of which Rs 844 crore was raised through rights issue of equity shares and Rs 603 crore from the NCDs.

Currently Indian Hotels owns 59 hotels at 40 locations across India with an additional 17 international hotels in the Maldives, Mauritius, Malaysia, United Kingdom, United States of America, Bhutan, Sri Lanka, Africa, the Middle East and Australia. It plans to open 16 new hotels in FY09 and with this, its total room tally is expected to go up by 2100, it currently has a total of 10,300 rooms.

The rising inflation and soaring oil price is affecting tourism world over and India too. There is bound to be a drop in the occupancies but the hotels do not plan to bring down the room rates. The rate of growth in ARRs is expected to slow down in FY09 because the rates have reached such a level where there is no room for further increase. Yet, despite this, with a long term perspective, Indian Hotels qualifies as a very good buy at the current low rate of Rs.80. A Taj hotel share at Rs.80? Pick it up now, you cannot go wrong here!
source s.p.tulsian