Sectoral Analysis – Hotels- Large

8/14/2019 Sectoral Analysis Hotels- Large

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Sectoral Analysis Hotels- Large

In 2004-05, Indias hotel sector recorded one of the highest P/E multiplesin the bull run beating ratios of other hot sectors like IT, banking, cement

and auto. As on September 30, 2005, the consolidated trailing P/E for the

124 listed hotel industry scrips stood at 35.36. The corresponding P/Es for

IT industry stood at 31.31, cement, 34.82 and auto 21.12. Retail sector at

40 plus P/E and pharma at 36 plus P/E are the few sectors recording

higher P/E ratios.

Sales at Indian Hotels rose by 27 % to Rs 202.26 crore in the quarter

ending on June 05 on higher Average Room Revenues (ARR) and

occupancy figures. The OPM for Indian Hotels rose to 20.3 % from 12.8 %

while operating profits (OP) rose to 41.02 crore. Others like East India

Hotels (EIH) (Oberoi hotels) also saw an OPM increase from 6.1% to

18.4%. The OP also rose by 300 % to Rs 25.82%.

Icras hospitality industry analyst Yogesh Malhotra said that the operating

margins raised because most of the costs at hotels were fixed while the

variables costs were less. With more tourists using the same facilities, the

same resources generated more revenues as the yields maximised. Most

major players drew expansion plans for adding capacity anticipating a

further increase in demand.

The hotel industry employment figures also increased between 24 to 27 %

in 2004. Since the peak season for the industry starts from October, the

industry hopes to capitalise on the increasing tourist.

Year 2004 was a good year for Indian hospitality since the occupancies

shot up by at least 10% at hotels across the country. The Incredible

India campaign had positive effect with foreign travellers visiting the

country in vast numbers. The political stability of the United Progressive

Alliance (UPA) government enhanced confidence in the economic growth

of India, making business travel rise exponentially.


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The companies considered for analysis are:

1. Asian Hotels

2. EIH Ltd

3. Indian Hotels

4. Leela Ventures Ltd

Asian Hotels Ltd:

Asian Hotels Ltd is one of the leading player in the Indian hospitality

industry operating a chain of deluxe category hotels under the brand

Hyatt Regency Hotels. The company presently operates three five-star

deluxe in three metros Delhi, Kolkata and Mumbai with the name Hyatt

Regency Delhi, Hyatt Regency Mumbai and Hyatt Regency Kolkata.

Price earnings:

2000 2001 2002 2003 2004 2005 2006 2007 200

8

2009

Asian

Hotels

6.39 9.02 12.3

7

17.5

694.2

3

33.1

1

26.2

4

18.6

4

9.76 10.8

9

Indust

ry avg

12.4

3

16.3 20.6

432.1

3

38.2 62.5

4

58.1

7

16.5

4

11.4

8

13.7

7

From the table we can see that in 2004, the Price earnings tremendously

shot up to 94.23 as compared to the average of 38.2. Asian Hotels ltd also

showed returns of 82.02 % over the BSE stock index. Increasing sales

along with higher operating margins and operating profits are some of the

reasons behind this growth.

Price to Book Value:


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2000 2001 2002 2003 2004 2005 2006 2007 200

8

2009

Asian

Hotels

0.88 0.8 0.62 0.61 1.58 2.81 4.56 4.4 1.9

4

0.98

Indust

ry avg

0.95 0.86 0.88 0.77 1.74 2.55 4.57 4.03

5

3.1

1

1.45

In 2006 the Price to Book value rose by 60%. This shows that the Price is

moving much faster than the Book Value. A lower Price to Book ratio

means that the stock is undervalued. However, it could also mean that

something is fundamentally wrong with the company. This ratio varies byindustry. It also gives some idea of whether you're paying too much for

what would be left if the company went bankrupt immediately.

Price/ Cash EPS:

2000 200

1

2002 2003 200

4

2005 200

6

2007 2008 200

9

Asian

Hotel

s

5.56 7.3

4

8.67 10.55 16.

53

17.6

8

18.

84

14.9 8.22 7.6

7

Indus

try

avg

6.22

25

7.3

55

10.33

25

11.08

75

17.

17

19.1

95

23.

28

16.3

25

13.2

05

8.9

95

The Price to Cash EPS has shown a steady growth over years and has

declined from 2006 onwards. The Cash EPS is a measure of financial

performance that looks at the cash flow generated by a company on a per

share basis. The higher a company's cash EPS, the better it is considered

to have performed over the period. Therefore we can see that Asian

Hotels Ltd performed well both in terms of Share Price and Cash flows

maintaining a steady growth till 2006. The effect of recession is shown in

the following years.

EV/EBIDTA:


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air charters. They operate hotels under the brand name Oberoi and

Trident.

Price earnings:

2000 2001 2002 2003 2004 2005 2006 2007 200

8

2009

EIH 11.58

13.6

9

43.9

9

186.

8782.7 62.8

7

20.6 19.3

4

26.2

5

20.8

8

Indust

ry avg

12.4

3

16.3 20.6

432.1

3

38.2 62.5

4

58.1

7

16.5

4

11.4

8

13.7

7

Between January 2003 and December 2006, the EIH stock rose by 312%.

The growth slowed down a bit later because of a much higher base. In

2006, EIH reported a revenue growth of 23.4%, lower than its average in

the previous two years.

Price to Book Value:

2000 2001 2002 2003 2004 2005 2006 2007 200

8

2009

EIH 1.02 1.4 1.65 1.22 2.16 2.47 4.69 3.97 5.0

6

2.88

Indust

ry avg

0.95 0.86 0.88 0.77 1.74 2.55 4.57 4.03

5

3.1

1

1.45

Here the price to book value ratio exhibits an increasing trend except in

the year 2003. In the year 2006 it shot up due to the boom experienced

by this industry during the period and drastically rose in the year 2008

again because of the good performance of the company irrespective of

the industry performance.

Price/ Cash EPS:


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2000 200

1

2002 2003 200

4

2005 200

6

2007 2008 200

9

EIH 8.34 10.

18

20.64 20.85 25.

44

24.7

6

16.

81

15.8

1

21.4

9

15.

67

Indus

try

avg

6.22

25

7.3

55

10.33

25

11.08

75

17.

17

19.1

95

23.

28

16.3

25

13.2

05

8.9

95

The ratio has been increasing till the year 2004 followed by a decreasing

trend till 2007. This is since the EIH stock rose by 312% between 2004

and 2007 and was simultaneously accompanied by an increase in the

cash EPS during this period. As a result the overall ratio has been

declining. It shot up in the year 2008 which resulted in an increase of

35.93% and hence it has not been affected by the industry average.

EV/EBIDTA:

200

0

200

1

200

2

2003 200

4

200

5

2006 200

7

2008 200

9

EIH 7.71 9.0

3

16.1

4

16.92 18.4

9

13.9

6

11.2

9

10.1

5

13.1

3

10.6

8

Indust

ry avg

7.67

5

9.7

1

16.6 14.31

75

14.3

7

13.7 16.2

15

11.4

6

10.3

35

8.87

5

The ratio has been increasing till the year 2004 followed by a decreasing

trend till 2007. It shot up in the year 2008 which resulted in an increase of

30% and hence it has not been affected by the industry average.

Market capitalization/Sales:

2000 200

1

2002 200

3

200

4

200

5

200

6

2007 200

8

2009

EIH 1.78 2.31 3 2.13 3.21 2.81 4.94 3.93 4.9

7

3.82

Indust 1.54 1.73 1.78 1.43 2.41 3.34 5.92 4.67 3.5 2.18


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ry avg 75 25 5 5 25 3 75

The market capitalisation/sales ratio has shown a drastic increase in the

year 2006 where it rose up to 4.94 resulting in an increase of 75.8%. The

rise can again be attributed to the boom in the hotel industry.

Indian Hotels Ltd

Indian Hotels Co. Ltd. (IHCL) is the oldest listed hotel company in India

and operates properties under the brand Taj Hotels Resorts & Palaces.

The company is aggressively expanding capacities, especially through the

management contract route and is looking to establish a significant

presence in key international destinations. Jamsetji N Tata initiated an

element of Tata group; The Indian Hotels Company Limited was

incorporated in the year of 1902. The company and its subordinates are

communally known as Taj Hotels Resorts and Palaces, is one of Asia's

prime and most excellent hotel company in hospitality sector. The Taj

Mahal Palace Hotel, Bombay was started in the year 1903, which was the

company's first property.

In 2001-02, the company hived off its air catering business to a new joint

venture company namely Taj SATS Air Catering by relationship with

Singapore Airport Terminal Services (SATS). The company has originated

Taj Wellingtone Mews Luxury Residences located in Mumbai with 80

serviced apartments in the year 2004, in same year the company has

launched 'Smart Basics' concept, indiOne, at Bangalore through Roots

Corporation Ltd, its wholly owned subsidiary and also launched its

exclusively developed two brands viz the high end 'Jiva Grande Spa' and

the smaller `Jiva Spa' traditional Indian ayurvedic & yogic systems, set in

internationally contemporary ambience. During the year 2005-06 IHCL

entered into its third marketing alliance. The first such alliance was


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occurred with Raffles Hotels and Resorts encompassing 14 Taj Luxury

Hotels and 15 Raffle Hotels. The second alliances were made with Shilla

Hotels and Resorts, Korea and the third marketing alliance was made with

Silversea Cruises, European Cruise Company in the year 2006-07, also thecompany tied up with Qantas Airline for frequent flier loyalty program.

The Taj brand campaign was launched in the US market in January 2007,

the campaign has two distinct elements namely the `Perspectives' and

the `Portraits'.

IHCL plans to integrate environment management in all its business areas

as a part of EARTH (Environment Awareness and Renewal at Taj Hotels).

EARTH is a company-wide movement to reinstate its vision and efforts on

environment management in all its hotels.

P/E Ratio

200

9

200

8

200

7

20

06

200

5

200

4

20

03

200

2

200

1

200

0

Indian

Hotels

Ltd

13 18.8

3

27.8

5

44.

49

29.5

8

33.

73

22.

56

9.79 10.

25

10.

06

Industry

Average

12.

425

16.2

975

20.6

375

32.

13

38.2

025

62.

535

58.

17

16.5

375

11.

475

13.

765

P/E ratio as the name depicts measures the price paid for a share relative

to the annual net income or profit earned by the firm per share. If P/E ratio

is higher than it means for earning every single unit of income, investor is

paying more amount. If we look at the Indian Hotels Ltd., we find out that

there is increase in the P/E ratio from year 2002 to year 2004 and this is

approximately increase of 244%. The main reason of rising of ratio in a

particular period is one like at that time whole industry is at the boom

phase, e.g. there is an increase in industry is around 354%. So,

correspondingly Indian hotels ratio is also increased. Another reason can


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be in those particular years IHCL had came with many new ventures

which ultimately affects the stock prices as through expansion plans they

tried to improve their reputation and earnings both. Whereas in later

years from 2006 onwards there is decline in P/E ratio around 53% , theone of the reason was company acquire new venture in year 2008 and

this will affect the earnings of company and company also raise debt in

year 08 for the same purpose. Therefore, thats why there is fall in P/E

ratio whereas industry in this period is also come down around 76%.

.

P/BV Ratio

20

09

200

8

20

07

20

06

20

05

200

4

20

03

200

2

200

1

200

0

Indian

Hotels Ltd

0.9

4

3.34 4.7

5

4.4

9

2.5

9

2.12 0.9

3

0.89 1.12 1.14

Industry

Average

1.4

5

3.11

25

4.0

35

4.5

65

2.5

45

1.73

75

0.7

7

0.87

75

0.95

25

0.86

25

P/BV is a valuation ratio and is arrived at by dividing the market price of a

share with the respective company's book value per share. If we subtract

current liabilities and debt from total assets then we get book value. P/BV

figures for companies in the services industries like software and FMCG

are high as compared to those of companies in the sectors like auto,

engineering, steel and banking. This is because companies from the

sectors like software and FMCG have low amount of tangible assets (fixed

assets etc.) on their books and, as such, the P/BV may not be a correct

indicator of valuation. If we look at the graph of Indian Hotels and Industry

average we find that the price to book value ratio is almost same every

year as the industry moves similarly company trend line also moves.

Price/Cash EPS

20

09

20

08

200

7

200

6

20

05

200

4

2003 20

02

20

01

200

0


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Indian

Hotels

Ltd

9.0

8

15.

21

21.

46

32.

21

18.

78

18.0

7

10.89 6.1

6

7.3 7.47

Industry

Average

8.9

95

13.

205

16.

325

23.

28

19.

195

17.1

7

11.08

75

10.

3325

7.3

55

6.22

25

A measure of financial performance that looks at the cash flow generated

by a company on a per share basis. This differs from basic earnings per

share (EPS), which looks at the net income of the company on a per share

basis. The higher a companys cash EPS, the better it is considered to

have performed over the period. But here we are calculating price to cash

EPS it means we are here see how much proportion of earnings we are

getting in cash. So, we can see that there is also increase in ratio as

compared to industry average upto 2006 but again from year 2006

onwards it starts declining as one of the main reasons is paying higher

interest on debt which was raised for the amalgamations.

EV/EBIDTA

200

9

200

8

20

07

200

6

200

5

200

4

200

3

20

02

20

01

20

00

Indian

Hotels

Ltd

7.99 11.9

7

14.

2

21.4

7

15.8

7

15.6

4

10.4

4

7.3

7

7.0

1

7.3

7

Industry

Average

8.87

5

10.3

55

11.

46

16.2

15

13.6

925

14.3

7

14.3

175

16.

6

9.7

1

7.6

75

Economic Value or enterprise value is one and the same thing. Here we

find out that what the enterprise value in proportion to earnings is before

depreciation, interest and taxes. This ratio is generally used for cash

based businesses. And this ratio is capital structure neutral means this

ratio doesnt affected by capital structure whether debt increased or


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for improved asset sweating and capital efficiency despite the equity

dilutions and extended gestation cycle. Along with its associates and

subsidiaries, IHCL has targeted the commissioning of 8.8k rooms by the

end of FY11, through various options. This would take the total number ofrooms under its management to ~19k from the current 10.1k rooms.

Leela Venture Ltd

Hotel Leela Venture Ltd is one of the leading players in the Indian

hospitality industry. The company operates in both, the leisure and

business sectors. The Leela palaces and resorts include a chain of five star

luxury hotels and resorts. The company properties include The Leela

Kempinski in Mumbai, The Leela Palace in Goa, The Leela Palace

Kempinski in Bangalore and The Leela Kovalam in Kerala. The company

became a popular name in the hospitality industry in India due to their

high quality of service to their customers.

Founded in 1957 by Capt. C.P. Krishnan Nair, the Rs.450 crore Leela

Group is engaged in the business of ready-made garments and luxury

hotels and resorts.

P/E Ratio

200

9

200

8

200

7

20

06

200

5

200

4

20

03

200

2

200

1

200

0

Leela

Venture

Ltd

4.9

3

10.3

5

16.7

2

37.

19

27.2

5

39.

48

5.6

9

0 12.

94

27.

03

Industry

Average

12.

425

16.2

975

20.6

375

32.

13

38.2

025

62.

535

58.

17

16.5

375

11.

475

13.

765

By looking at the statistics we found that P/E ratio in year 2002 of leela

venture ltd. Is almost 0 whereas in the same year industry grow with a %

of 44. The main reason at that time was during the year 2002-03, Leela

Hotels Ltd, a wholly owned subsidiary company merged with thecompany. In year 2002 adjusted profit which was brought forward in the


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5

A ratio used to determine the value of a company. A low ratio indicates

that a company might be undervalued. EV/EBIDTA ratio is useful for

transnational comparisons and to find attractive takeover candidates. In

initial years, companys ratio is higher than the industry average it means

company is giving more returns to the investors or company has valued

high from investors perspective. But later on it starts declining it means

company is undervalued except in year 2006 because at that time whole

industry was at boon and leela also gain high profits which makes it

valuable in eyes of investors. If we look at the years 2008 as well as 2009

we found that company is again starting gaining its strength and making

its position strong in the market.

Market Cap/Sales

200

9

200

8

200

7

20

06

200

5

200

4

20

03

20

02

20

01

200

0

Leela

Venture

Ltd

1.49 2.83 5.25 7.6

1

4.0

8

1.54 0.6

3

1.0

4

1.1

2

0.62

Industry

Average

2.18

75

3.53 4.67

25

5.9

25

3.3

4

2.41 1.4

35

1.7

825

1.7

3

1.54

75

It is calculated by dividing the company's market cap by the company's

revenue in the most recent fiscal year or, equivalently, divides the per-

share stock price by the per-share revenue. The metric can be used to

determine the value of a stock relative to its past performance. It may

also be used to determine relative valuation of a sector or the market as a

whole. While looking at the table, we found that market cap to sales ratio

is higher in year 2006 even greater than the industry average, as in later


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years it start decreasing because of decline in tourism rate due to terror

attacks and health consciousness.

Conclusion

Hotel Leela venture Ltd. Has massive plans to strengthen its capacity and

presence in key cities. However, weakening economic scenario and health

scare will have a huge negative impact on the hospitality and aviation

sector that will impact the margins and affect the average room rates and

occupancies. Company has huge debt on its books (both convertible and

unconvertible), which will either weigh directly on its income statement in

form of huge interest cost going forward, or massively diluted earnings

per share (or both), which should make existing investors uncomfortable

being invested in the company. The stock is presently trading at a P/E of 8

times, going forward which is expected to increase to 10 and 14 times in

FY10 & FY 11 respectively. The Earning per share is expected to decrease

from 3.87 in the current year to 2.05 in FY 10.

We initiate a sell call on hotel Leela with a downside potential of 10% from

its current levels. Investment advice is based on Globally weak travel

industry; threat of swine flu, high debt and huge FCCBS which according

to us will not be converted at the price stated by the company.

Beta Analysis:

CompanyName

200

0-2001

200

1-2002

200

2-2003

200

3-2004

200

4-2005

200

5-2006

200

6-2007

200

7-2008

200

8-2009

avg

AsianHotelsLtd

0.3477

0.5202

0.4466

0.6678

0.9495

0.458

0.5984

0.4877

0.4418

0.5429

EIH0.3147

0.2133

0.3284

0.372

0.6612

0.5221

0.6071

0.8347

0.4019

0.4989

Indian

HotelsLtd 0.6086 0.5655 0.4918 0.7259 0.6279 0.6854 1.301 0.848 0.4689

0.

6979


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LeelaVentureLtd

0.8328

0.6528

0.7823

1.0173

1.1084

0.6263

0.5985

1.0493

0.5705

0.7715

Industry

Average

0.5259

0.4879

0.5122

0.6957

0.8367

0.5729

0.7762

0.8049

0.4707

The value of BETA measures the systematic risk or volatility of a security

in comparison to the market as a whole. Beta shows the tendency of thesecuritys return to responds to swings in the market. The market has a

beta of 1.0, and individual stocks are ranked according to how much they

deviate from the market. A stock that swings more than the market over

time has a beta above 1.0. If a stock moves less than the market, the

stock's beta is less than 1.0. High-beta stocks are supposed to be riskier

but provide a potential for higher returns; low-beta stocks pose less risk

but also lower returns. A beta of 1 indicates that the security's price willmove with the market. A beta of less than 1 means that the security will

be less volatile than the market. A beta of greater than 1 indicates that

the security's price will be more volatile than the market.

The overall beta value of the Hotel Industry in less than 1 (nearly 0.6278).

This value signifies that all the shares in this industry are less volatile in

comparison with that of the market. In year 2004-2005, all the shares of

this industry are depicting a significant increase in comparison with

previous year. Because during this year hospitality industry celebrated the

record tourist arrivals. Asian hotel Ltd has an average of 0.5429 which

shows that this security is less volatile than market. Leela Venture Ltd is

an outlier in this industry having the beta value of 0.7715; from 2004-

2006 and in 2007-2008 the beta value was more than 1 which shows that

this stock was more volatile during that period in comparison with that of

market. Whereas EIH and Indian Hotels LTD are the shares which are


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consistently maintaining their beta value of 0.4989 and 0.6979; only in

2006-2007 the beta value of Indian hotels ltd was more than 1; this shows

that over the period of time these shares are less volatile in comparison

with the market.

Sectoral Analysis – Hotels- Large

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