>EAST INDIA HOTELS (ICICI DIRECT)

Demand yet to check in…

East India Hotel’s (EIH) revenues declined 14.6% YoY to Rs 216.1 crore lead by continued slowdown in demand for hotel rooms. As a result, its net profits for the quarter also de-grew 49.9% YoY to Rs 19.1 crore. However, the company has been able to maintain its operating margin over 30% through various cost control measures.

Highlight of the quarter
The company reported net sales of Rs 216.1 crore against our expected net sales of Rs 242.8 crore for Q1FY10. Its net sales declined by 14.6% YoY. This was mainly lead by continued slowdown in demand for hotel rooms. As a result, its operating margin continued to remain under pressure. However, the company has been able to maintain its operating margin over 30% through various cost control measures. Operating margin for the quarter was 30.3%, a decline of 440 bps YoY. The company reported net profit of Rs 19 crore, down 49.9% YoY.

Valuations
At the CMP of Rs 117, the stock is trading at 31.7x and 20.0x its FY10E EPS of Rs 3.7 and FY11E EPS of Rs 5.8, respectively. This looks expensive compared to its peer companies. Considering the company’s sluggish Q1FY10 performance, we retain our target price of Rs 93. We have arrived at this price through the DCF methodology. We continue to maintain our
UNDERPERFORMER rating on the stock.

To see full report: EIH