IHCL posts profits on lower interest costs

Written by fe Bureau | Mumbai | Updated: Oct 29 2011, 07:36am hrs
Indian Hotels Company (IHCL), that runs the Taj group of hotels, said its revenue on each available room or RevPar, an important metric that indicates the financial performance of a hotel property, fell by 4% to R4,680 in the September quarter, even as sluggish US operations, with three properties, continued to be a drag on the companys balance sheet.

Rating agency Icra said the additional supply of rooms in most cities in India will continue to keep room rates under check, with a less than 10% hike in average room rates or ARRs expected during the peak season that has started in October. A net profit of R8.12 crore for the September quarter, announced by the company Friday, as against a net loss of R6.30 crore in the corresponding period last year, was brought about by reducing interest costs on IHCLs borrowings to R45.84 crore from R63.60 crore in the six months period, by extending the tenure of short-term loans into long-term and partly converting rupee loans into foreign currency loans.

The company has kept its debt levels under check, with no plans to raise any fresh borrowings from the market. Shares of IHCL closed up 0.65% to R69.80 on Friday on the BSE.

We have managed to keep our debt at the same level like last year at R2,300 crore (standalone), while bringing the interest costs down, said Anil P Goel, executive director (finance), IHCL. The companys debt around the same period last year stood at R2,600 crore. We will meet our requirements through internal accruals. The consolidated debt on IHCLs balance sheet as on September is R3,400 crore, with a debt to equity ratio of 1.1. Total income of IHCL for September quarter stood at R357.58 crore as against R328.50 crore, showing a growth of 9%. During the quarter, the companys staff costs went up to R116.67 crore from R95.96 crore in the same quarter last year, a growth of 22%. The staff costs have gone up due to the opening of the new properties during the quarter including the Taj Falaknuma Palace and Yeshwantpur, the company said.

The slumpy addition of inventory, particularly over the past two years, in markets like the NCR, Hyderabad, Bangalore and Pune, coinciding with a period of demand slowdown has impacted tariffs across cities, said Subrata Ray, senior group vice-president, Icra.

As a percentage of existing inventory, room addition is particularly high in the Chennai, Hyderabad and Bangalore at over 75-100%. The NCR, Mumbai and Pune are likely to witness over 50-60% increase in inventory during the medium term. The current uncertainty could, however, impact supply if it leads to any credit crunch for the industry, he added.

IHCL has been impacted by its US operations and sees it to turn cash positive in the next 12-14 months. The company is in the process of setting up an apex company to manage its international portfolio, which it said should be officially formed in the next six to seven months and help it in the US turn around.

We are in the last leg with approvals awaited from the Reserve Bank of India (RBI). The new company will be responsible for the international portfolio and help in better management and be able to raise debt on its accounts, said Goel.

Raymond Bickson, managing director, IHCL, said, Our activities are limited at the moment on international level due to the burden that comes straight on the IHCL balance sheet.

IHCL has raised ARRs by 7-13% in the peak season that kicks-off from this month. The company did not divulge its outlook for the coming quarter but said it expects it to be better than last year.

During this year, the company will be adding another 1,840 rooms to its portfolio of 12,795 rooms. The maximum addition would be under the management contract.