New Delhi-based Bharat Hotels is among the first few casualties in the hotel sector. Although the second half of the financial year is considered to be better for the hotel sector, Bharat Hotels has failed to maintain the growth levels of last year for the quarter ended December 1998.

Reflecting the recessionary trend in the hotel industry, ITC Hotels too reported a 31 per cent drop in net profit for the third quarter ended December 31, 1998.

The other hotel companies, too, are expected to announce the financial performance in the weeks to follow. Even if they do not announce a fall in the earnings, there may not be any spectacular improvement. This is likely to keep hotel stocks subdued forsome more time, unless the market sentiment improves on budget expectations. The boards of EIH Ltd, EIH Associated and Hotel Leela Venture are meeting on January 28 and February 6 to take up the quarterly performance.

Notwithstanding the gain in some of the hotel scrips in the recent past, these scrips, an operator fancy some time ago, hardly gain any attention today. Over the past two years, hotel stocks have been on a downslide and a few have even hit their several year lows. Others are trading close to their respective 52-week lows. The recent rally of around 500 points in December-January, too, failed to generate any considerable interest in hotel scrips and have underperformed the Sensex by a huge margin.

Bharat Hotel's scrip in the past year has dropped from Rs 110 to Rs 30, which is its seven-year low, on Wednesday. The scrip rose marginally to Rs 31.5 on Thursday. EIH at Rs 268 is well below its 1998 high of Rs 400.

Indian Hotels at Rs 393 is also trading well below its 1998 high of Rs600.Falling occupancy rates and low tariffs are visible from Bharat Hotel's falling turnover/revenues for the quarter as well as the nine-month period ended December 1998. Revenues for the nine-month period fell to Rs 43.98 crore from Rs 10.54 crore for the corresponding period of last year.

Although the company has over the years reduced its debt to become a debt-free company, profits have failed to sustain the earlier levels. Net profit for the nine-month period fell from Rs 22.76 crore to Rs 13.48 crore and from Rs 9.11 crore to Rs 8.36 crore for the third quarter. Further, the profits for the nine months are way below last year's full year figure of Rs 31.78 crore. With just one quarter left, the turnover for the first nine months at Rs 43.98 crore is just 50 per cent of the full year figure of Rs 86.7 crore.

After breaking its tie-up with the Hilton group, Bharat Hotels entered into an operating agreement with Inter-Continental Hotels and Resorts for the operation of the Delhi property in mid-1998.Bharat Hotels still continues to retain full financial control, while Inter Continental is responsible for day-to-day operations. The company has envisaged a total investment of Rs 300 crore for the three properties at Srinagar, Goa and Mumbai. To part finance these projects, the company took a loan of $50 millions and the balance has been generated through internal accruals.

ITC Hotel's net dropped to Rs. 5.4 crore as against Rs. 7.8 crore in the same period last year. Net income during the three-month period stood at Rs. 34.93 crore,down 4.9 per cent from the previous year's Rs. 36.76 crore.

The ITC Hotel chain has embarked on ambitious plan of expansion and the next few years would see new properties coming up at Mumbai and Calcutta. Both these hotels will be in the super deluxe category, as will the new tower block coming up at Maurya Sheraton here. The chain is also likely to enter the Himachal Pradesh circuit with the addition of two new heritage properties at Shimla and the Corbett National Park.It is also planning to set up a budget hotel at Calcutta and another at Siliguri. But with the falling profitability as a result of the low occupancy rates and low tariffs, it remains to be seen that will the expansion of room capacities pay off.