Indian Hotels - fully booked

QUARTERLY RESULT ANALYSIS: March 2005

INDIAN HOTELS
Strong tourist inflow buoys performance

The strong inflow of tourists into the country and rise in average room rates (ARRs) have helped Indian Hotels turn in a splendid performance. The company's sales touched Rs 266.3 crore, a rise of 26 per cent y-o-y. 

Indian Hotels
(In Rs Cr)	Q4FY05	Q4FY04	% change
Net sales	266.3	211.2	26
Other income	3.49	10.7	-67
Operating profit	70.52	35.1	100
OPM (%)	26.4	16.6	980 bps
Net profit	42.1	36.8	14.4
NPM (%)	15.8	17.42	-162 bps
EPS (Rs)	6.47	3.1	-
12-month trailing P/E			30

The growth in operating profit was even more remarkable as it doubled to Rs 70.52 crore though the company paid license fees of Rs 27 crore, as compared with Rs 21 crore in Q4FY04. Nonetheless, the operating profit margin at 26.4 per cent was up smartly compared with 16.6 per cent in Q4FY04.

The rise in licence fees was inevitable since they are correlated with the revenues earned from specific properties. In the last quarter of FY05, revenues from the Bangalore and Delhi properties have been high and hence licence fees went up. With the company paying lower interest, the profit before extraordinary items and tax at Rs 52.4 crore grew 123 per cent y-o-y. The outgo on account of taxes was up more than 50 per cent at Rs 16.73 crore.

The rise in the net profit, however, is lower at 14.4 per cent because in Q4FY04, there was an extraordinary item of Rs 24.3 crore which boosted the profit. This quarter's net profit includes an extraordinary item of Rs 6.4 crore earned from the sale of hotels and property.

The paid-up equity of the company has gone up to Rs 50.2 crore following the conversion of a portion of the foreign currency convertible bonds (FCCB) into shares. The conversions were done at a price of Rs 501.53.

At the current price of Rs 660, the stock trades at a trailing multiple of 30 times and a forward multiple of 24 times FY06 estimated earnings. Though India is set to receive more tourists this year and ARRs in cities such as Bangalore are averaging Rs 9,000 per night, the Street appears to have factored in the growth.

TATA TEA
Rise in tea prices leads to better realisations

Tata Tea reported a 38.35 per cent rise in net profit to Rs 25.83 crore during Q4FY05, backed up by robust growth in the tea segment. Net sales went up 11.85 per cent to Rs 220.41 crore. 

Tata Tea
(In Rs Cr)	Q4FY05	Q4FY04	% change
Net sales	220.41	197.05	11.85
Other income	28.95	31.82	-9.02
Operating profit	4.66	0.55	-
OPM (%)	2.11	0.28	184 bps
Net profit	25.83	18.67	38.35
Net margin	11.72	9.47	224 bps
EPS (Rs)	4.59	3.32	-
Trailing 12-month P/E			27.19

Though the profits at the operating levels were lower at Rs 4.66 crore, company's income from investments and other income, which stood at Rs 28.95 crore, enhanced net.

The domestic tea business saw a 14.04 per cent to Rs 217.88 crore.

Other income saw a 9.02 per cent drop to Rs 28.95 crore.

Raw material costs surged 115 per cent to Rs 52.48 crore as the company purchased stock from outside its plantations to meet a crop shortage. Despite this, there was a 225 basis point rise in net margins to 11.72 per cent.

As much as 85 per cent of the company's consolidated world-wide turnover was contributed by its branded tea segment.

Market-share has improved from 14 per cent to 20.1 per cent, behind Hindustan Lever's 29 per cent.

For FY05, on a consolidated level, there was a 4.72 per cent rise in turnover to Rs 3,059.13 crore, while net profit rose 9.69 per cent to Rs 215.47 crore. Much of the growth was driven by Tata Tea's Indian business, which saw a near 15 per cent rise in turnover to Rs 899.63 crore.

A demand supply mismatch led to a rise in tea prices last year, which led to improved realisations. While the outlook for volume growth continues to be good, tea prices have corrected which means that the upside from higher realisations may not be available this fiscal.

However, analysts believe that the company's focus on geographical expansion and the value-added tea segment (herbal tea, iced tea, etc.) is likely to give it momentum going forward.

On a consolidated basis, the stock trades at a P/E of 15x, based on an FY05 EPS of Rs 38.33.