>Hotels Q4 FY09 (INDIA INFOLINE)

Weakness likely to persist in Q4 FY09.
Q4 FY08 had seen record quarterly revenues for the three hotel companies under our coverage. However, the slowdown in Revenue Per Available Room (RevPar) growth worked its way through 9M FY09 with Q3 FY09 bearing the burnt of recession and terror attacks in Mumbai. Dec'08 has proved a 'wipe-out' month for the indudtry as luxury market ARRs fell 15% yoy. The weakness in room rates and occupancies is likely to persist in Q4 FY09. We expect revenue declines ranging from 16-25% yoy, partly owing to the high-base effect of the last year.

Margin pressure may contiue unbated.
We expect margin pressure to continue unbated as revenues come under pressure yoy. Relatively fixed expenses such as fuel and staff are likely to impact operating margin. Indian hotels and EIH are expected to report more than 10 ppts drop in OPM.

Occupancies may improve qoq for Indian Hotels.
In the aftermath of terror attacks and holiday season, occupancies in business hotels dropped to ~50% in Dec'08, a sharp fall of over 24ppts yoy. However, we expect larger players such as Indian hotels to witness improvement in occupancy rate qoq from the Dec'08 trough. On the other hand, ARRs are likely to remain weak, due to ongoing economic weakness, especially in cities such as Bangalore where we estimate room rate decline of about 7-8% yoy and occupancies of about 63-68% in the quarter.

To see full report: HOTELS Q4 FY09