EIH: Hold

Recommendations: EIH: Hold

Anup Menon

THE EIH stock has been one of the few from the hotel industry scrips to attract market interest.

Though it cannot be primarily attributed to the expected performance of the company, the performance has been favourably received by the market. The scrip closed the week at Rs 197. Given the company's future prospects, shareholders can stay invested and use any increase in prices of 50 per cent or more as the target price to book profits.

Earnings performance: The company's performance for the quarter ended September was fairly impressive. Sales revenues rose around 19 per cent to Rs 109.23 crore compared to the corresponding previous period. In the same period, operating margins improved from 11 per cent to 12 per cent. Post-tax earnings rose 44 per cent to Rs 11.05 crore.

The rise in the total expenditure was lower than that of the total income. Cash profits increased 30 per cent to Rs 17.83 crore compared to the corresponding previous period. The cash earnings per share rose from Rs 2.60 to Rs 3.40.

Background: EIH is a major player in the domestic hotel industry. Its `Oberoi' brand enjoys a strong reputation in both domestic and international travel circles. A large chunk of the company's revenues is derived from the Mumbai and Delhi properties. This indicates that the target customer segment has been the business traveller.

The company recently tied up with reputed international hotel chains to strengthen its presence. Given the nature of the industry, this will be a key factor influencing the earnings.

The other major aspect is the currency's depreciation. This has had a positive impact on the company's earnings. The impact will be felt by the business travellers and tourists. For instance, since international tourists prefer to pay their bills in their home currency, any depreciation of the domestic currency vis-a-vis the home currency will have a positive impact on the company's profitability.

This may be limited in the near-term since EIH does not focus on tourists, though this was true of the past. For instance, most of the projects slated under the expansion scheme are in tourist locations. Given this, the company's performance is likely to improve in the near future. Existing shareholders can stay invested.

Pic.: The Oberoi Hotel, Mumbai... A key source of revenue.