Stock Review: East India Hotels (EIH)

 

Small-size hotels have become a hit with tourists and investors alike. A growing number of foreign and domestic tourists are opting for smallsize hotels that are located in exotic locations and which offer reasonable room rates.

A case in point is EIH Associated Hotels. The company, which operates the Oberoi and Trident brands of Kolkata-based premium hotels' company East India Hotels (EIH), has shown tremendous improvement in its financial performance in the last one year. For FY11, the company's net profit more than trebled, compared with the year ago. Its net profit rose to . 9.3 crore in FY11, from . 3.7 crore in FY10. Also, the company's net sales jumped 16% to . 181 crore in FY11, compared with FY10. Besides this, one differentiating factor that has also attracted investor interest in EIH Associated Hotels is the extensive location advantage it has over its peers. The company has a management contract with EIH under which it uses its brands Trident and Oberoi for its properties across India and overseas. In India, the company has a presence in Delhi, Mumbai, Bangalore, Cochin, Udaipur, Sawai Madhopur (district in Rajasthan), Jaipur, Agra and Shimla. Overseas, the company has a presence in Mauritus, Australia, Indonesia, Saudi Arabia and Egypt.

 
Having such a wide presence in the small-size hotels category has also helped the company in terms of better operating margins, not only in comparison to its peers, but also larger players in the industry. In the last five fiscals (till FY11), the company has operated consistently on an operating profit margin of close to 30%. This is far better than larger hotels companies such as EIH and Indian Hotels Company, which had operating margins of 15% and 24%, respectively, at FY11 end. It is hardly surprising then that the UK-based Jupiter Asset Management and its investment fund have recently raised their respective stakes in the company to 9.8% and 3.61%.

While all these factors would continue to drive the company's revenues in the coming quarters, analysts believe that there are no convincing triggers for investors to hold onto the company's stock. As of FY11, the company has a debt-to-equity ratio of 2.4, down from 2.72 in FY10. In the last one year.