Indian Hotels: Back in business

Indian Hotels’ revenues were down only 16 per cent in the September 2009 quarter to Rs 307 crore compared with a 20 per cent fall in the first half of 2009-10, an indication that rooms are filling up.

Of course, 287 rooms at the Taj Mahal Palace in Mumbai remain closed for renovation. The hotel chain’s operating profit margin dropped 650 basis points to just under 18 per cent, during the quarter, dragging down the operating profit 43 per cent year-on-year.

Even if the adjusted profits at Rs 4 crore were down 94 per cent year-on-year, the three months to September have been good for the company with the revenue per available room down 29 per cent compared with a fall of 37 per cent in the June quarter. With the economy on the mend, occupancies in hotels are going up, according to industry sources, a growth of 57 per cent in September compared with 53 per cent in the first half of the year.

Average room rates too are improving with the drop in the September 2009 quarter just 4 per cent year-on-year compared with a much steeper fall of over 20 per cent for the six month period to September. While business is clearly better than a few months ago, industry watchers point out that international business tourist traffic was lower by 7 per cent in the six months to September and could take a while to pick up.

Meanwhile, there are chances of supply increasing across markets and competition remains keen because of which industry experts believe that occupancies may recover to levels of 65 per cent only in 2010-11.

While the performance of Indian Hotels’ domestic hotels should improve from here on, its properties in the US may continue to post losses in the current year. At Rs 87, the stock trades at around 23.5 times estimated 2010-11 price to earnings and just under 2 times price to book value. Analysts believe that near-term upsides are captured in the price.