[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. It will be removed from the site in the future.]
(Sources: www.bseindia.com, www.eihassociatedhotels.in and www.eihltd.com)
EIH Associated Hotels Limited (EAHL) (BSE:523127 and NSE :EIHAHOTELS) is a midcap company (market capital Rs. 3397.2 million), belonging to globally well known hoteliers, Oberoi group. EIH Limited (EIHL), is the flagship company of Oberoi group (BSE:500840) and EAHL is an associate company. The group was founded by the legendary personality of Indian Hospitality industry, Rai Bahadur Mohan Singh Oberoi. The mission statement of the group reads as below:
“We are committed to meeting and exceeding the expectations of our guests through our unremitting dedication to perfection, in every aspect of service.”
“We are committed to the growth, development and welfare of our people upon whom we rely to make this happen.”
EIH Associated Hotels operates six Trident hotels in Agra, Bhubaneswar, Chennai, Jaipur, Udaipur and Cochin, besides Oberoi Rajvilas in Jaipur and Oberoi Cecil in Shimla and Maiden Hotels in Delhi. Oberoi brand represents the deluxe five star segment, whereas the Trident brand symbolizes five star business cum holiday segment.
The company was initially promoted by the Rane Group in 1983, as ‘Pleasant Hotels Limited’. The Oberoi group took over its management in 1988, and later the name was changed to Oberoi Associated Hotels Limited. It operated the hotel under the new brand name Trident in Chennai. On November 1, 1996, it acquired the present name. In 1997, it commenced operating its first five star deluxe hotel, ‘The Oberoi Rajvilas’ at Jaipur, thus making a foray into modern deluxe 5 star segment. Indus Hotels Corporation Limited was merged with this company in 2005, and their three hotels located in Agra, Jaipur and Udaipur got transferred to EAHL ownership. Further, EIH Limited transferred ‘The Oberoi Cecil’ at Shimla and the ‘Trident, Bhubaneswar’ to EAHL in 2006 under an arrangement. The Registered Office of EAHL is situated at 1/24, G.S.T. Road, Meenambakkam, Chennai – 600 027, Tamil Nadu, India. EIH Associated Hotels Limited owns a subsidiary called Island Hotel Maharaja Limited.
The Heritage Property: Maidens Hotel in Delhi
Maidens Hotel is one of the country’s oldest hotels, built in the 1900s, and is liked for its colonial charm and heritage architecture. Its extravagant spacious rooms with high ceilings look classy as compared to the box-sized rooms of modern 5 star hotels. Set amidst a large acreage of lush greens and the colorful shady trees, it helps you to escapes the buzz of the main city, while remaining very close to the magnificent Mughal monuments and tourist attractions as well as the shopping centers such as Chandni Chowk.
Oberoi Cecil in Shimla
Located at a quiet location at the end of the mall, this deluxe 5star brand, The Oberoi Cecil, is the haven of choice for hill station travelers looking for luxury and quiet comfort. It is beautifully built around an atrium, with elegant rooms evoking memories of the era Maharajas. Equipped with indoor swimming pool, spas, spacious billiards rooms, children’s play centers and opportunities for quiet escape to nature, the hill resort is an ideal choice for a family holiday.
Trident: Twin advantage of business and holiday
Located at some exclusive tourist locales and business centers i.e. Agra, Bhubaneswar, Chennai, Jaipur, Mumbai (Nariman Point as well as Bandra Kurla Road), and Udaipur, Trident Hotels offer dual advantage of combining business travel with pleasure of a lavish luxurious holiday. In these locations the business leaders make the best of a business meetings and events with out- door activities and enjoyment of tourist spots depicting rich cultural heritage and diversity.
Oberoi Rajvilas has won the best five star deluxe hotel award from the Govt of India (Tourism Department) and Travel plus Leisure Best Service Awards (Reader survey 2012) and is rated as one of the leading resorts in the world. It offers its unique way to experience the grandeur of Jaipur, presently India’s most classy vibrant destination. Located within 32 acres of lush green gardens, pools and fountains, in the serene Rajasthani countryside, it is an oasis of modern elegance and luxury. It is also an ideal venue for high level business meetings and gala events. With Jaipur city as its backdrop, the hotel recreates the magnificence of the historic princely Rajasthan in a magnificent fort setting with deluxe rooms, intimate classy tents and luxurious villas with private pools clustered around the lovable courtyards. The hotel is equipped with excellent board rooms, exclusive conference halls, and meeting venues for every corporate event like business meetings, board meetings and international seminars and conferences. It has the best rejuvenation facilities like holistic yoga and spa and floodlight tennis courts and elephant safaris.
The Pioneer called The Oberoi Group
The Oberoi Group companies are affiliated through the common ownership interests as well as the common vision as well as Oberoi Dharma (philosophy) of the founder Rai Bahadur Mohan Singh Oberoi. The primary business purpose of the group is to own, manage and operate the five star deluxe and five star hotels in major tourist destinations and business centers throughout India and abroad. EIH Limited is the flagship company of the group. The Oberoi Group is one of the well-known and respected hospitality groups in India. Founded in 1934, the group operates 28 hotels and three cruisers in six countries(Besides India also in Egypt, Mauritius, Kingdom of Saudi Arabia, UAE and Indonesia) under the luxury ‘Oberoi’ and five-star ‘Trident’ brands.
The Founder and his Legendary Personality
The visionary leader, Rai Bahadur Mohan Singh Oberoi, was born on 15th August, 1898, in the erstwhile undivided Punjab ( now a part of Pakistan). He was hardly six months old when he had to face the bereavement of his father. The fortune, therefore, did not smile on him easily. It was the result of an unusual initiative, resourcefulness, vision, and dedicated hard work, combined with the capacity to overcome the overwhelming odds.
Mr. MohanSingh Oberoi, after completing his education in Rawalpindi and Lahore, went to look for his fortune in Shimla, and found a job at a salary of 50 rupees a month as desk clerk at the Cecil Hotel, which now belongs to Oberoi Group. In 1934, after learning the hospitality business, hands on, Mr. Oberoi acquired his first property, The Clarkes Hotel, by mortgaging his wife’s jewellery and all other personal assets. After four years, he signed a lease agreement to take over the Grand Hotel in Calcutta that was on distress sale, following the outbreak of an epidemic. He was able to change this into a profitable hotel. By purchasing shares of in Associated Hotels of India (AHI), gradually Mr. Oberoi acquired controlling interest in the company, and finally owned the largest and the finest hotel chain in the British India. He became the first Indian to own and run such a hotel chain. Eventually, he became the first Indian to ink an agreement with an international hotel chain, and to operate Oberoi Inter Continental, New Delhi and Oberoi Sheraton,Bombay in collaboration. Mr. Oberoi was the pioneer to work in collaboration with different international chains to woo European and American international travelers to India enabling the Oberoi Group Hotels to significantly contribute to nation’s foreign exchange. In 1966, the prestigious Oberoi School of Hotel Management was established and it got recognition from the International Hotel Association in Paris. He had already pioneered the flight catering in 1959.
With his magnificent vision and imagination, Mr. Oberon renovated and restored the dilapidated palaces and monuments into heritage hotels such as Calcutta’s Oberoi Grand, the historic Mena House Oberoi in Cairo and The Windsor in Melbourne, Australia.
In 1943, Mr. Oberoi was conferred the title of Rai Bahadur by the British India Government. He got Order of the Republic award from Egypt and the Padma Bhushan, the third highest civilian award by the Government of India.He exported the hospitality management expertise to Australia, Egypt and Singapore, where the Group took charge of the management of luxury hotels. This success greatly enhanced the global image of The Oberois.
Presently The Oberoi Group operates a Trident hotel in the city of Jeddah, Saudi Arabia, The Oberoi, Lombok, in Indonesia; The Oberoi, Sahl Hasheesh, Egypt; The Oberoi, Mauritius and The Oberoi Zahra, Luxury Nile Cruiser, Egypt. In spite of achieving unprecedented success, he retained his unique humility till his death in 2002, at the age of 103.
The Investment Prospects
EAHL is managed well and has been paying a reasonable dividend. Last dividend paid was 30% and dividend yield is around 2.8%.Revenue has gone up from 1488 million rupees in FY2009-10 to 1892 million rupees in FY 2011-12. Net profit has gone up from52.9 million rupees to 133.6 million rupees in FY 2011-12. For the same period EPS went up from 2.70 to 6.82.
Total promoter holding is 75% and the public holding is 25%, out of which more than half is held by FIIs. Among promoters, the foreign promoter holds 22% This ensures that floating stock is not very high.
Company’s equity got increased from 195.8 million rupees to 304.68 million rupees during third quarter FY2012-2013, due to issue of rights, for the purpose of repayment and prepayment of loans and general corporate purposes. The company had a long term debt of 1203 million rupees, prepaying and repaying major part of this could bring down interest costs substantially. Through rights issue company approximately collected rupees 1100 million, and around 80% of this could be used for prepayment and repayment (around 880 million rupees), as per rights offer documents.
The tabulation below compares the present EPS with EPS assuming interest costs to be zero.
The financial results of last few quarters is indicated below: (Figures in million rupees)
Period Q3 ending on 31/12/2012 Q2 ending on30/09/12 9months ending31/12/12 9months ending31/12/11 FY 2011-2012
Revenue 626.18 351.66 1363 1302.8 1892.3
Financial costs (interest) 50 65.1 179 207.5 274.1
Net profit 122.35 (40.31) 73.4 45.5 133.55
Earnings per share(Rs 10 face value) 5.45 on proportionate Equity (2.06) 3.27 2.33 6.82
EPS before financial cost 7.4 1.2 12.5 13 20.5
If the company repays/prepays the loans the interest costs will come down and EPS would go up.
Based on this analysis, keeping other factors constant, Q4 (FY 2012-13) net profit can be projected at 155 million rupees and an EPS of 5.0 on equity of Rs 304.7 million rupees. For FY 2013 – 2014, net profit is projected to be Rs 380 million toRs 400 million, EPS can be projected around 12 – 13, considering that, because of seasonality, Q2 profits are very low every year. Applying present PE ratio of 15.5, the market price can be projected to be around 160 – 190. Present market price of 108, has discounted the earnings dilution due to increase in equity to 304.7 million completely. 52 week high low prices were 163 – 101. Hence the downward risk appears to be very low at current market price. The share appears to be a good buy at present price, as well as on declines on medium term of one to two years.
The Company is dependent on international travelers, and the arrival in emerging economies is estimated to go up around2- 3 % as per World Tourism Organization (2012). The arrivals will actually vary according to pace of economic recovery in US and Europe. Over capacity in the deluxe 5 star segment is also a concern. The wholly owned subsidiary, The Island Hotels maharaja Ltd, has been incurring losses, though the net loss has been reduced from Rs 26.93 (FY2010-11)million to Rs 13.14 million(FY2011-12), and as and when it is merged with EIH Associated Hotels, subject to court approvals, the bottom line may get marginally affected. Of course, in the long run the merger would help the hotel turn around. Other risks include political turmoil during election year and law and order situation that can impact international travelers in specific locations.