Stock Review: INDIAN HOTELS

Indian Hotels' receding US operations losses and a recovery in domestic operations means the company could end FY12 with a profit. The company is to benefit from healthy recovery in international travel and tourism industry.

During FY11, occupancy levels have increased at its properties in the US. With the improving situations, the revenue per available room (RevPAR) improved 12-20% during FY11, compared with last year. Further continuation of this trend will help the company breakeven its US operations within the next two years. For FY11, Indian Hotel's net loss on a consolidated basis stood at . 87 crore, lower than the . 136-crore loss in FY10. During the March 2011 quarter, the company has made a net profit of . 93 crore on a standalone basis, reflecting the buoyant domestic travel situation.

Currently, domestic travel accounts for 74% of its total demand, out of which 54% is from luxury segment. The demand for rooms in most metros is estimated to have increased around 15% during FY11. This has boosted the revenue per available room (RevPAR) by around 10%.

Currently, half the company's room inventory is in metros and hence the increase in demand and RevPAR in metros are expected to increase its earnings in the coming quarters. Besides this, the foreign tourists arrivals have also grown at 17% in April 2011, which is the highest growth in the last five years for the same month. Being the industry leader, the company is set to benefit from this.

While trying to rein in its overseas losses, the company is simultaneously expanding its room inventory across the country.

After growing its room inventory at an annual average of 7% for the past three years, it is planning to add 16% more rooms during FY12. This will add 2,043 rooms to its existing portfolio of 12,795. Most of these projects will be on management contracts, which is a less capital-intensive way of expansion. The company ended FY11 with a consolidated debt of . 3,600 crore. This translates into a debt to equity ratio of 1.08 times.