Stock Review: East India Hotels (EIH)

 

Considerable de-leveraging of balance sheet, improved business situation, new hotel in the NCR region, and plans for acquisitions will continue to boost earnings for East India Hotels (EIH) in this fiscal.

The company, which is known for its premium brands such as Oberoi and Trident, recently reported an encouraging performance in the March 2011 quarter. Its net profit jumped by more than 150% to . 67 crore on a yearon-year basis. Also, for the March 2011 quarter, the Kolkata-based company's net sales increased by 22% to . 300 crore on a year on year basis.

For FY11, however, higher depreciation, interest and employee costs eroded the company's net earnings, which resulted in a net loss of . 9 crore against a net profit of . 71 crore in FY10.

In coming quarters, the company would benefit from de-leveraged balance sheet, thanks to the proceeds of rights issue it issued last year. The company has raised  1,178 crore through issuance of over 17 crore shares at . 2 each.

Till March this year, the company has used . 461 crore for the repayment of its debt. It plans to use around . 900 crore for the repayment of its debt.

This has helped the company reduce its debt to equity ratio considerably. The company's debt to equity, as on March 31, 2011, stands at 0.40 against 1.02 in FY10. This would save a lot of interest cost for the company, which at present forms 15% of its net sales for FY11. Analysts foresee that this de-leveraging would help the company in coming quarters in preparing a war chest for acquisitions.

Since the company caters to the premium segment, it is estimated that it would reinforce its presence in that segment by either tieup with a foreign entity or acquiring a strong domestic player.

The company will also benefit from the growth in arrival of foreign tourists, which contributes 75% of its total revenues. In April this year, foreign tourist arrival grew 17% on a year-on-year basis. This is the highest growth in foreign tourist arrivals in April since the past five years.

Also, the company's new hotel in Gurgaon, which is closer to the International Airport in Delhi, would boost its earnings in the coming quarters. Analysts expect the company's average room revenues to report growth of 8-10% in this fiscal.