Indian Hotels: Hold

Recommendation: Hold

Trading at around Rs. 236, the Indian Hotels stock is among the better in the industry. The stock took a beating along with other hotel scrips in the last two years.

But the recent improvement in business conditions and traffic, and the depreciation of the rupee are likely to have a positive impact on the company's performance in the near term.

Financial performance: Indian Hotels' earnings performance for the first quarter of 2000-2001 was not impressive. Operating revenues rose 15 per cent to Rs. 140.37 crores compared to the corresponding previous period. In contrast, operating margins dipped by around 2 percentage points to 27 per cent and post-tax profits by 21 per cent to Rs. 17.51 crores. On the equity base of Rs. 45.12 crores, the annualised earnings per share works out to Rs. 15.

Profile: Indian Hotels Corporation, popularly known as the Taj group, operates one of the largest hotel chains. It has properties in India and abroad ranging from the luxury class to medium-priced hotels, mostly in the metros.

Prospects: The company's prospects are still uncertain. The performance was affected to a large extent by the sluggish business and tourist traffic into the country. With signs of some improvement in the fundamentals of the economy, business travel is likely to pick up in the near-to-medium term. Given the focus of the company's properties in some of the major business centres, revenues from this segment are likely to improve.

The company was affected by the slowdown in the tourist flows into India over the last two years. The South-East Asian crisis, which led to the devaluation of some of the major currencies in the region, made those destinations cheaper than India. The problem was compounded by the political instability in the country. With some signs of stability, India should become a more attractive tourist destination. Further, the recent depreciation of the rupee may help shore up margins for the company.

A cause for worry is the increasing competition in the sector. Many international hotel chains are setting up shop in the country. This may bring some pressure from the point of view of occupancy. Overall, the company's performance in the next half year will be critical to its long-term prospects. Shareholders can stay invested.