Revival heralds better days for hotel chains

The June ’10 quarter reinforced the fact that things have improved for the hospitality industry.
The June ’10 quarter reinforced the fact that things have improved for the hospitality industry. Increasing occupancy levels and average room rates, along with a rise in inbound tourists on a year-on-year basis, ensured a good revenue growth for leading hotel chains in the first quarter.

On an overall basis, in the June ’10 quarter, on a standalone basis, occupancy levels for the industry have gone up from 52% to 64% while revenue-per-available-room has increased from Rs 4,600 to Rs 5,200. Also, foreign exchange revenues due to inbound tourists in the June ’10 quarter showed a handsome growth of around 25% to Rs 4,571 crore, adding to the topline.

Much of the positive sentiments have been shown by smaller players like Taj GVK Hotels & Resorts, Oriental Hotels, Royal Orchid Hotels, and Hotel Leela Ventures and others, which have seen, on an average, more than 50% growth in their net profit. For instance, Hotel Leela Ventures, which has presence in Chennai, Bangalore and Delhi, has seen almost a nine-time jump in its net profit, suggesting improvement in occupancy and room rates in these locations.

In the June ’10 quarter, large hotel chains suffered from rising inflation, which increased the food and beverage costs and increased employee costs. These two factors brought down their net profits. Hence, Indian Hotels Company and East India Hotels (EIH), though have not been able to replicate the growth of their smaller peers, going forward, keeping aside technical glitches, these companies would do well by around the September or December quarter of this fiscal .

Consider the operational performance of Indian Hotels Company. The company reported a 54% year-on-year jump in its operating profit to Rs 53 crore in the June ’10 quarter. In the past year’s June quarter, the company had an insurance gain, which pushed its net profit to Rs 16 crore.

EIH, it seems, would take a few months more to show traction in revenues, as it’s ramping up operations at The Oberoi Towers, Mumbai. Besides, its brand new Trident property hotel at Bandra-Kurla Complex in Mumbai would also take a while to start contributing to its bottomline. A sharp decline in other income coupled with a 52% YoY jump in interest cost and a 38% jump in depreciation, led to the company reporting a net loss of Rs 15 in the June ’10 quarter against a profit of Rs 19 crore during the corresponding period a year ago. However, its sales showed a decent growth of 22% to Rs 186 crore in the June ’10 quarter against Rs 150 crore in the past year’s June quarter.

However, both these big players – Indian Hotels Company and EIH – will get the final settlement of their insurances, which may come in August this year. Probably, this may get reflected either in their September or December quarter earnings of this year. By the end of the December ’10 quarter, these hotels would show better numbers with all these factors taken into account.