>INDIAN HOTELS COMPANY LIMITED (MORGAN STANLEY)

F2009: Dismal year

Quick Comment: Impact on our views: Indian Hotels reported F2009 standalone revenues of Rs16bn (down 8% YoY) and standalone net profit of Rs2.3bn (down 38% YoY). Standalone EBITDA was Rs4.9bn (down 30% YoY), while operating margin was lower by 959 bps YoY. On a consolidated basis, revenue in F2009 was Rs26.9bn (down 8% YoY), while reported net profit was Rs125m (down 96% YoY). Consolidated EBITDA was Rs5.6bn (down 37% YoY), while operating margin was lower by 976 bps YoY. The weak performance during the year was for various reasons, including a slowdown in the global economy and the Mumbai terrorist attacks in November 2008, which led to a slowdown in tourism traffic. The company has not disclosed any information on the financial performance of its subsidiary companies (primarily the US, UK and Australian properties) and hence we are unable to comment on the same.

What's new: The company commissioned 1,176 rooms in F2009 leading it to have a year-end room inventory of 11,546 rooms, thus making it the largest hotel company in India. In addition, IHCL will acquire an 85% stake in ELEL Hotels & Investments Limited (which owns the
Sea Rock hotel in Mumbai) for a total consideration of Rs6.8bn. This excludes any amount that the company would spend on refurbishing the property.

Consolidated debt stood at Rs46bn at the end of March 2009 (standalone debt was Rs17.7bn) and the company had a cash balance of close to Rs4.5bn.

Investment thesis: We believe F2010 will be worse for earnings for the company as weakening demand for rooms will force down both average room revenue and occupancy rates thus pressurizing operating margins. Rising interest costs due to high leverage will also affect earnings. As a result we maintain our Underweight rating on the stock.

To see full report: INDIAN HOTELS