Indian Hotels gains 3.5% as company reduces costs by 51% in June quarter

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It was a well-accepted fact that hotels would be one of the most impacted sectors in the June 2020 quarter as sixty days of lockdown was imposed in the quarter. This was reflected in the financial performance of hotels companies which announced their financial results last week.

n an industry, which is capital-intensive in nature, the present pandemic is a double whammy. But India’s largest listed hotels company by room count Indian Hotels has managed this pandemic the way a sector leader is expected to manage.
In the quarter ending June this year, despite massive fall in business, the company managed
its costs well. In the June 2020 quarter, the company’s total expenditure—which includes its xed and variable costs fell by 51% on year on year comparison to Rs409 crore.
This development has impressed the street as the company’s stock gains close to 3.5% over its Friday’s closing price.
In the quarter, the company implemented a well-designed costs-saving and revenue enhancing programme called “RESET 2020.” In a series of initiatives under this programme, the company sold a few of its hotels, increased home delivery of its food through mobile application and focused more on digital In the quarter ending June this year, despite massive fall in business, the company managed its costs well.
These initiatives helped the company save costs which in turn added close to Rs77 crore to its revenues and Rs104 crore to its earnings in the June 2020 quarter. It is mulling over the options of selling its non-core assets and selling and leasing back a few of its hotels.
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Besides this, in its post earnings conference call last Friday late evening, the company’s management said that it will put on hold any near-term capital
expenditure plans. The company’s management said that breakeven of its
hotels is possible at 40-42% of overall occupancy along with Average Room
Revenue (ARR) of Rs5000.
At the end of the June 2020 quarter, the company’s overall occupancy rate was
37%, which is nearing 40% in July, said the management in the conference call.
Besides this, the company recorded ARR of Rs4848 at the end of the June 2020
quarter. This means that the company is close to breakeven.
Analysts point out that this ability of Indian Hotels to save costs and sell noncore assets and a few hotels is the right focus and strategy to deal with
demand uncertainty in the present pandemic situation. Given the company’s
parentage, its relatively better balance sheet than most listed hotels and asset
light model (close to 43% rooms on management contract), analysts believe
that the company will benet materially once demand from leisure and
business segments improves.
The management said by the end of the December 2020 quarter, the average
occupancy rate of its hotels is likely to improve to over 50% and would further
grow to 60% in the March 2021.
Analysts point out that in the present pandemic situation demand for hotels
rooms shift in favour of big brands such as Indian Hotels (known for Taj and
Ginger brands), which are known for high level of hygiene and quality of
services. In this context, Indian Hotels, which is present in almost all
categories of hotels—budget, mid-market and luxury—is expected to see
relatively higher business than mid-sized hotels.
In the June 2020 quarter, on year on year comparison, the company’s revenues
declined by 85% to Rs143 crore. In the June 2020 quarter, it posted net loss of