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C. Raja Rajeshwari

Leveraging the strength of the Taj brand

FRESH investments can be considered in Indian Hotels at the current market price of about Rs 270. The stock holds potential to appreciate in the medium-to-long term in the light of its improved performance.

Performance looking up

Topline grew 15 per cent to Rs 129.5 crore in the April-June 2003 quarter over the corresponding previous quarter on improved business environment and aggressive marketing by the company. The occupancy rate rose from 52 per cent to 60 per cent on a quarter-on-quarter basisHigher expenditure pushed operating margins down to 18 per cent from 22 per cent in the corresponding previous quarter.

Payroll costs (up 4 per cent) rose due to wage settlements and pay hikes. Advertising and sales promotion costs rose by Rs 5 crore on a quarter-on-quarter basis. But this is essential for the attracting bookings for the September-December season. The profit before tax, excluding extraordinary items, stood at Rs 1.3 crore for the April-June 2003 quarter compared to Rs 3.2 crore in the corresponding previous quarter.

Short-term prospects

The company's near-term prospects look bright, if the occupancy rate sustains or increases from current levels. For the April-June quarter, the room rates were steady, instead of the usual phenomenon of dipping. With a number of international players in the market, competition is hotting up. To counter this, the company has taken up an extensive brand restructuring exercise. It has taken measures to improve its brand visibility by participating in trade fairs and FAM (familiarisation) tours.

Future prospects

To shore up its bottomline, Indian Hotels has initiated a number of steps, of which many are on track and set to pay off in the medium-to-long term. The company has set aside Rs 200 crore for its expansion activities in 2003-04.

The company is selling its property in Chiplun on the Mumbai-Goa Highway, which will bring in cash of Rs 3.1 crore. It also plans to sell those properties which do not contribute significantly to the brand or revenues. This is in line with the company going asset-light by owning fewer properties.

Indian Hotels' luxury serviced-apartments in Taj Wellington Mews in Mumbai are set to open by the year end. There are plans to build such apartments at Taj Lands End in Mumbai. These apartments are aimed at NRIs and international business travellers on extended stay and is is expected to bring in stable revenues and remove some cyclicality of the business.

Indian Hotels has also set a target of opening 16 spas in India by 2005-2006. Five are slated for completion this year. The company is setting up an eco-tourism venture at the Ranthambore tiger sanctuary in Rajasthan. This will enhance the existing property as a game experience destination. Indian Hotels plans to develop four such properties in association with an African company.

The expansion plans underscore Indian Hotels' confidence in the travel and tourism sector. A strong presence in the luxury segment, coupled with a brand name that commands considerable equity, makes the company one of the better plays in the hospitality industry.

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