Stock Review: Indian Hotels

INDIAN Hotels Company (IHC), the owner of a chain of luxury restaurants, including the Taj Hotels, looks well geared up to take advantage of revival in tourist arrivals. The company has recently reopened its property in South Mumbai, which alone is likely to boost its annual revenue by more than 10%, feel analysts.

   IHC recently made its Taj Mahal Palace & Tower property fully operational, nearly two years after the terrorist attack in South Mumbai. This means the hotel would now operate some 500 rooms, including the Palace wing. Historically on a full operational basis, the hotel has exhibited the potential of contributing around Rs 200 crore to the topline on an annualised basis. Take, for instance, in FY08, when the hotels business was still to get impacted by slowdown and hotels players were making good business, the hotel yielded revenues of around Rs 180 crore or nearly 10% of total revenue.

   IHC had earlier reported lesser profit for eight straight quarters following a slump in the tourist demand due to the global economic turmoil. The picture is gradually changing for the better. The latest data released by the ministry of tourism reflects that foreign exchange earnings from tourist arrivals rose sharply 32% in the seven months ended July 2010. This points to a sharp recovery in the travel business.

   With its facilities fully operational, IHC looks wellpoised to take advantage of the recovery in demand. Analysts are of the opinion that along with Tower wing — which got operational just about in a month after the attacks — and the Palace wing that reopened on August 15, 2010, the company would see annualised revenues of close to Rs 100 crore for FY11 from the Taj Mahal Palace & Tower hotel itself. Another fact is IHC has so far not raised its peak room rates. This, however, is likely to go up. A major concern, however, is that IHC's overseas operations are yet to see a turnaround. It has significant investments in properties in the US and Maldives which are yet to operate with full capacity. On the other hand, these investments have increased IHC's debt burden by nearly 50% to Rs 2,672 crore as on March 2010 from the year-ago level.

   Industry experts feel that a turnaround in the overseas operations is still a few years away. IHC's stock currently trades at around 58 times its consolidated trailing twelve-month earnings. Additional profit from its fully operational Mumbai property may see some easing in its P/E going ahead