Submitted To: Professor Sanjay Dhamija

Financial Management
PGDM2010-
-12
II
Indian Hotels Company Limited (2006-
2010)
Aman Garg (005) | Hitesh Gupta (017) | Meenal
Mundhra (029) | Raman Chaudhary (042) | Sunil
Jain (054) | Group 8 Section A
Table of Contents
Financial Objectives of the Firm.................................................................................3
Vision and Mission...................................................................................................3
Balanced Scorecard.................................................................................................3
Triple Bottom Line Accounting................................................................................4
Wealth Maximization vs. Profit Maximization..........................................................5
Capital Expenditure....................................................................................................6
Trends in Asset Composition...................................................................................6
Total Assets.............................................................................................................6
Fixed Assets............................................................................................................7
Investments............................................................................................................7
Changing composition of long term assets (Fixed Assets + Investments)..............7
Future Capex Plans.................................................................................................8
Cash Flow Analysis..................................................................................................8
Capital Structure........................................................................................................9
Issuance of FCCBs.................................................................................................10
Rights Issue...........................................................................................................10
Bonus Issue...........................................................................................................11
Stock Split.............................................................................................................11
Cost of Capital.......................................................................................................11
Working Capital Management..................................................................................12
Trends in Current Assets.......................................................................................12
Inventory...............................................................................................................12
Receivables...........................................................................................................13
Payables................................................................................................................14
Overall Look at Working Capital............................................................................14
Total Current Assets Composition.........................................................................15
Working Capital Funding.......................................................................................15
Investment of Short Term Surpluses.....................................................................15
Dividend Policy.........................................................................................................15

Financial Management – II (Indian Hotels Co. Ltd.) Group 8 Section A

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 Overall Impact.......................................................................................................17

Financial Objectives of the Firm

Vision and Mission
The company Indian Hotels Company limited also known as Taj Hotels
Resorts and Palaces states its vision in the following statement taken from
their initiative called EARTH.

“The Taj Group of Hotels commits itself to the overall improvement of the
ecological environment, which we are all a part of. We recognize that we
are not owners but caretakers of the Planet and owe it to our children and
future generations of humankind. It is our endeavor not only to conserve and
protect but also to renew and regenerate the environment in which we
live and operate. Our commitment encompasses all actions related to our
products, services, associates, partners, vendors and communities.
We will partner and engage with our environment through EARTH:
Environmental Awareness and Renewal at Taj Hotels. For us EARTH is not a
program, nor a process; it is a way of life“.

The company expresses its mission “To embrace talent and harness
expertise to leverage standards of excellence in the art of hospitality to
grow our international presence, increase domestic dominance, and
create value for all stakeholders, both present and future”.

From the vision and mission statement of the company, it is evident that the
focus of the company is on its sustainability not only in terms of financial
performance which would allow it to create wealth for stakeholder but also of
environment that we are all a part of. The company wants to ensure that all
their actions – related to their products, services, associates, partners,
vendors and even communities – are in the direction of this vision. The
company places profitability in long term over the profits in short term.

The mission statement suggests the objective is of wealth maximization in

long term which it wants to achieve by increased market share. By presence
in international markets and higher dominance in domestic market,
sustainability for future is ensured. The company wants to be growing into
new markets and setup new hotels around the world for all price segments.
The company also understands the importance of human resource for its
Financial Management – II (Indian Hotels Co. Ltd.) Group 8 Section A
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industry and embraces talent and harness expertise in them. With such a
long term view of their actions, they want to ensure value creation for all
their stakeholders not only for present but for future as well.

Balanced Scorecard
IHCL has already taken up a Balanced Scorecard project in order to
systematically deploy the organization’s strategic objectives uniformly
across all hotels. The project is intended to provide a complete visibility of
company’s strategic objectives for all levels of management. The key
strategic objectives are captured in BSC and then cascaded across all units
and departments. All the low level scorecards are aligned with corporate
scorecard.

From the four perspectives of a Balanced Scorecard, we can figure out how
business activities at IHCL are aligned with vision and strategy of the firm.

Learning and Growth: The Company recognizes the importance of human

resources in this sort of industry. The company spends almost a quarter of its
expenses as staff costs that includes training and development of the
employees apart from salaries. The company’s annual report mentions many
other initiatives also, such as an Online Learning Management System to
groom their frontline associates and a Taj Management Training Programme.

Business Process: IHCL has undertaken many steps to enhance the service
levels and make them in line with the world class. It benchmarks itself with
key international luxury chains. This service excellence philosophy of IHCL
has at its core, delivery through people, processes and culture. Its services
such as butler service, concierge, car hire have all been designed to suit the
needs of its customers. The centers of excellence have been strengthened to
train staff to meet the standards of luxury hotels. Tata Business Excellence
Model (TBEM) plays significant role in achieving this. The use of IT to get
leverage is also considered important. Initiatives like Orion, a back office
system, a revenue management system, interactive TV system, National Call
Center and better inventory management are a few.

Customer: Customer is truly a king at Taj. A Customer Feedback System

was launched at Taj in November 2003. According to company’s website, the
system has till date, received around 12000 customer feedbacks. These
feedbacks are recorded, aggregated and analyzed to improve the service
quality. These feedbacks include not only complaints but also compliments

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and suggestions. Attributable to these measures, is the highly loyalty and
retention enjoyed by Taj Hotels.

Financial: The Company based on their objectives of growth has a financial

objective to retain the profits for their growth strategy in order to capture as
much market as possible.

Triple Bottom Line Accounting

The company believes that no company is separate from the environment
and communities that sustain it. Pursuing the same principle, the company
has added value to the triple bottom lines of People, Planet and Profit.

People: As a result of many initiatives, the company has won a number of

awards such as Gallup Great Workplace Award, Employee Satisfaction Scores
- Gold Standards under Gallup Survey and Worldwide Hospitality Awards
2009 – Year of the Associate Initiative. Its initiatives such as Career
Architecture, Speed+ and PACE (Performance Alignment and Competency
Enhancement) are fetching results in terms of lower attrition and productive
staff which has helped the company keep its costs low during the difficult
times of economic slowdown in the industry. Apart from various programs for
staff, IHCL has also been involved in many community building programs,
such as promoting local artisans and craftsmen.

Planet: It recognizes the need to reduce the impact of its daily operations on
the environment and takes steps to make a contribution. One of the
measures includes preparing a Corporate Sustainability Report based on GRI
G3 guidelines for sustainability reporting and adhering to the 10 principles of
UNGC. It has also been participating in Carbon Disclosure Project to report its
strategy towards performance in climate change mitigation. Also, EARTH
vision that was launched in August 2008 continues to remain in focus.

Profit: Though the profits of the company had declined in recent years, it
continues to contribute to other two bottom lines of planet and people with a
reassurance that this bottom line would also show a rise. Moreover, though
revenue had reduced during 2009-10, but Q3 of 2010-11 showed that
company is back on its path of increased revenues and profits which it can
use in its objective of growth in domestic and international markets.

Wealth Maximization vs. Profit Maximization

As described earlier the vision and mission statement of the company
suggests that the financial management of the company is more concerned
Financial Management – II (Indian Hotels Co. Ltd.) Group 8 Section A
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about wealth maximization. It ensures that in pursuit of profits, other aspects
such as community and environment are not ignored. In fact, the company is
involved in many initiatives that ensure protection of environment. One such
initiative taken up by the company is EARTH (Environmental Awareness and
Renewal at Taj Hotels).

Also, since the company wants to ensure greater value for not only the
present stakeholders but also future ones, they are constantly trying to grow
into new markets, both domestic and international in order to increase
market share. This approach, they believe would be able to sustain them in
the long run.

Capital Expenditure
Trends in Asset Composition
Particulars 2006 2007 2008 2009 2010

1,360.0 1,371.6 1,585.4 1,561.2

Fixed Assets 843
5 0 0 6

2,026.8 2,445.6
Investments 656.57 962.81 977.58
8 3

2,260.5 2,742.6 3,170.7 4,814.1 5,343.8

Total Assets
8 2 3 0 7

1,084.2 1,544.6 1,764.5 1,619.5 1,473.2

Net Sales
6 3 1 7 9

Fixed Assets as a
37.29 49.59 43.26 32.93 29.22
% of Total Assets

Financial Management – II (Indian Hotels Co. Ltd.) Group 8 Section A

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Investments as a
29.04 35.11 30.83 42.10 45.77
% of Total Assets

Sales / Fixed
1.29 1.14 1.29 1.02 0.94
Assets

Sales / Total
0.48 0.56 0.56 0.34 0.28
Assets

Total Assets
There has been an increasing trend in the Total Assets in the last decade.
They have more than doubled from 2001 to 2010. The increase can be
mainly attributed to the expansion and acquisition initiatives in domestic and
foreign markets.

Fixed Assets
Fixed assets have consistently formed around 30-45% of the Total Assets.
There has been a sharp increase in Fixed Assets in 2007 and thereafter.
Much of this can be attributed to the renovations of the Jai Mahal Palace,
Jaipur, Taj Holiday Village, Goa, Taj Bengal, Kolkata, Taj West End, Bangalore,
and Taj Palace, New Delhi. The company also completed its first phase of
expansion in the US market, with the acquisition Ritz Carlton, Boston.
An added expenditure was incurred in 2009-10 in the restoration of the Taj
Mahal Palace & Tower, Mumbai, after the terror attack in November 2008.

The Fixed Asset Turnover has remained more or less the same. It hovers
around 1.00. This shows that the performance of the company has been
good and consistent.

Investments
Investments have increased considerably in the last two financial years,
especially in 2010. They formed about 25-30% of the Total Assets till 2008
but have been over 40% for the last two years. The investments doubled in
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2009 as compared to previous year because of huge expenditures on new
projects and renovations and investments in international subsidiaries.

Changing composition of long term assets (Fixed Assets +

Investments)

From the above it can be seen that the share of investments has risen in
recent times, on account of investment in subsidiaries. In FYo6 it was only
29% of the total long term assets, while in FY09 it became as high as 45.77%
of the total assets.

Future Capex Plans

(Aug 2010) IHCL has drawn a plan to invest Rs. 959 crores over the next
couple of years in new projects. It is considering listing its subsidiary Roots
Corporation. They have lined up a robust expansion strategy for the next 5
years which includes nine new projects in the Middle East, North Africa,
South America, Abu Dhabi, Egypt, Morocco, Mexico and the British Virgin
Islands under various management contracts.

Cash Flow Analysis

Particulars 2006 2007 2008 2009 2010

Net Profit Before

Tax 272 474.64 580.47 362.3 218.25
Net Cash From
Operating
Activities 237.89 529.55 474.36 294.31 450.64
Net Cash (used
in)/from Investing - -
Activities -43.86 -354.88 -492.97 1105.74 1056.43
Net Cash (used
in)/from Financing
Activities -158.7 -270.1 5.33 1182.59 627.41
Net
(decrease)/increas
e In Cash and Cash
Equivalents 35.33 -95.43 -13.28 371.16 21.62
Financial Management – II (Indian Hotels Co. Ltd.) Group 8 Section A
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Operating Activities: Net cash from operating activities was higher at Rs.
450.64 crores as compared to Rs. 294.31 crores in the previous year. While
operational profits were lower during the year, a lower tax outflow and better
working capital management enabled the company retained higher liquidity.

Investing Activities: Net cash used for investing activities was mainly on
account of Rs. 1056.43 Crores spent towards expansion plans, renovation of
existing properties and replacement/up-gradation of existing fixed assets.
• Rs. 276.45 crores spent towards construction of new properties and
restoration of the Taj Mahal Palace & Tower, Mumbai.
• Rs. 1232 crores invested in subsidiaries for renovation of the Pierre,
New York and repayment of the existing debt in various subsidiary
companies. This was partially funded by divestments of certain
investments.

Financing Activities: During the year the Company raised Rs. 1030 crores
of debt by issue of 2% Secured non-Convertible debentures with a yield to
maturity of 9.5% for Rs. 300 crores and two issues of 2% Unsecured Non-
Convertible debentures of Rs. 250 crores and Rs. 150 crores with a yield to
maturity of 9.85% and 9.25% respectively. In addition, the company has
invited fixed deposits from the general public and shareholders through
which it raised 330 crores. A term loan from a bank of Rs. 100 crores, which
matured during the year, was repaid.

Capital Structure
The following table shows the composition of the long term funds deployed
by the company in the business.

Long Term Funds (Rs.

Crore)

FY10 FY09 FY08 FY07 FY06

Total Share Capital 72.35 72.34 80.26 60.29 58.41

Reserves 2,620.9 2,975.29 1,956.2 1,738.39 1,657.83

7 9

Shareholder’s Funds 2,693.3 3,047.63 2,036.5 1,798.68 1,716.24

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 2 5

% of total 50.40 63.31 64.23 65.58 75.92

% YoY -11.63 49.65 13.22 4.80 51.60

Secured Loans 1,752.7 1,598.02 755.58 776.40 423.73

7

Unsecured Loans 897.78 168.45 378.6 167.54 120.61

Total Debt 2,650.5 1,766.47 1,134.1 943.94 544.34

5 8

% of total 49.60 36.69 35.77 34.42 24.08

% YoY 50.05 55.75 20.15 73.41 -46.02

Total Long term 5,343.8 4,814.10 3,170.7 2,742.62 2,260.58

funds 7 3

% YoY 11.00 51.83 15.61 21.32 5.62

Debt Equity ratio 0.98 0.58 0.56 0.52 0.32

Interest Coverage 3.43 5.51 8.42 7.41 9.32

It’s apparent from the above table that the proportion of equity in the capital
structure has been constantly declining. From as high as 75.92% in FY06, it
has come down to 50.40% in FY10. And correspondingly, the proportion of
debt has risen to 49.60% in FY 09. The debt equity ratio has changed
drastically from a modest 0.32 in FY06 to 0.98 in FY 10. However in absolute
terms, both debt and equity have increased significantly.

The coverage ratios depict that the margins are sufficient enough to cover
the finance charges and this helps the company’s case for future borrowings.

The changes in the equity capital structure have happened on account of the
following events:

• Ordinary Shares, of the face value of Re. 1/- each, were issued as fully
paid Bonus Shares by capitalization of Reserves and Securities
Premium Account

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 • Ordinary Shares, of the face value of Re. 1/- each, were issued as fully
paid shares, pursuant to exercise of option for conversion by holders of
Foreign Currency Convertible Bonds (FCCBs).
• Ordinary Shares, of the face value of Re. 1/- each, were allotted as fully
paid shares, pursuant to amalgamation with the Company.
• Ordinary Shares, of the face value of Re 1/- each, were allotted as fully
paid shares, being Warrants exercised pursuant to Rights Issue of
Ordinary Shares by the Company.

The company has net debt of Rs 2650.55 crores of which secured or

unsecured non convertible debentures constitute a major portion. We can
see that the company is able to issue these debentures at relatively low
interest rates.

The coverage ratios depict that the margins are sufficient enough to cover
the finance charges and this helps the company’s case for future borrowings.

The current debt/equity stands at 0.98:1. Interest coverage ratio stands at

3.43 times, which is comfortable at current levels and expected EBIT growth
rate in future would provide further cushion on interest coverage. While the
high growth rate would support more debt, increasing leverage does expose
the company to go in for further equity dilution.

The Funding arrangement used by the company was:

Issuance of FCCBs
Indian Hotels Company Ltd’s (IHCL) offered USD 150 million (including
greenshoe of USD 15 million) foreign currency convertible bonds (FCCB) on
February 3, 2004,which was oversubscribed by more than 20 times. The
proceeds were to be used to fund the company’s acquisitions, expansion and
modernization plans in India and overseas.

The bonds are convertible into ordinary shares or GDS of the company at the
option of the bondholders at a conversion price of approximately Rs 502 per
share. These bonds carry a coupon rate of one per cent per annum at a yield
to maturity (YTM) of 3.15 per cent per annum at the end of five years, if not
converted into ordinary shares or GDSs during the period. Thus, the yield to
maturity compares with that of five year-treasuries. If all the bonds are
converted into shares, the equity base would dilute by 30 per cent.

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Rights Issue
Indian Hotels made unlinked offers of equity shares (one for every five held)
and 6 per cent NCDs (non-convertible debentures) with a detachable warrant
(one for every 10 shares held). The equity shares were offered at Rs 70 per
share, a steep 35 per cent discount to the current market price. The warrant
can be converted at an exercise price of Rs 150, which is at a 35 per cent
premium to the market price at the time of issue. The window to exercise
warrants conversion is limited to the month of September 2008.

Indian Hotels is mobilizing close to Rs 1,450 crore through this rights offer of
shares and non-convertible debentures. The equity base is likely to expand
by 20 per cent, post-offer, and by an additional 10 per cent, post-warrant
conversion. The proceeds of the offer will fund Indian Hotels’ massive
capacity expansion plans.

The company did Capital Restructuring through following ways.

Bonus Issue
Ordinary Shares, of the face value of Re. 1/- each, were issued as fully paid
Bonus Shares either by capitalization of Reserves or Securities Premium
Account in many of the preceding years.

Stock Split
Ordinary Shares of the company having face value of Re. 10/- each were
subdivided into 10 Ordinary Shares of Re. 1/- in 2006.

Cost of Capital
Following is the computation of Weighted Average cost of capital for the
company.

Cost of Equity

India risk-free rate (%) 7.67

(1)

Risk premium (%) 8.33

Market return (2) (%) 16

Beta (3) 0.76

Cost of equity (%) 14.0008

{1+3*(2-1))

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WACC

Total Debt (Rs. Crore) 2,650.55

Total Equity (Rs. Crore) 2,693.32

Cost of debt (%) 6.62

Tax rate (%) 30

After-tax cost of debt 4.63

(%)

WACC (%) 9.35

As we can see from the above computation of cost of capital, the cost of
equity works out to be 14%, the cost of debt is 4.63% and WACC is 9.35%.

Working Capital Management

Trends in Current Assets

Trends in Current Assets (Rs. Crore)

Year FY06 FY0 FY08 FY09 FY10

7

29.0
Inventories 25.85 2 32.85 38.91 31.25

127. 138.4
Sundry Debtors 79.64 2 1 101.7 121.62

50.3
Cash and Bank Balance 24.8 8 72.87 21.81 54.56

130.2 206. 244.1

Total Current Assets 9 6 3 162.42 207.43

999.4 693. 935.1 1,486. 1,653.

Loans and Advances 4 3 9 23 17

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 16.6
Fixed Deposits 65.33 3 1.56 1.63 392.56

Total CA, Loans & 1195. 916. 1180. 1650.2 2253.1

Advances 06 53 88 8 6

333.7 456.
Current Liabilities 5 56 579.5 510.89 586.67

150.4 153.
Provisions 2 11 46.73 153.4 700.1

484.1 609. 626.2 664.29 1286.7

Total CL & Provisions 7 67 3 7

710.8 306. 554.6 985.99 966.39

Net Current Assets 9 86 5

In the following few sections various components of Current Assets have

been analyzed.

Inventory
Inventory (Rs. Crore)

FY0 FY07 FY08 FY09 FY10

6

25.8
Inventories 5 29.02 32.85 38.91 31.25

-
12.26 13.20 18.45 19.69
%YoY % % % %
N.A.
Inventory 41.9 53.23 53.71 41.62 47.15
Turnover Ratio 4

The inventory turnover is almost similar over the past 5 years. The tourism
industry was affected directly due to the terror attacks in Mumbai in 11/2008
and global recession. The sales had dropped over the period of time after
tourism sector was hit and inventory levels were thus reduced to maintain
previous levels.

Financial Management – II (Indian Hotels Co. Ltd.) Group 8 Section A

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Receivables

Receivables (Rs. Crore)

FY06 FY07 FY08 FY09 FY10

121.6
Sundry Debtors 79.64 127.2 138.41 101.7 2

-
59.72 26.52 19.59
%YoY N/A % 8.81% % %

Debtors Turnover 12.14 12.75 15.92 12.11

Ratio 13.61

Average Debt 26.81 30.06 28.63 22.92 30.13

Collection Period

• The Debtors turnover ratio has been constant over the period of time
in the range of 12-15
• The Average Debt collection period is around 30 days over the period
of time i.e. company usually gives a credit period of 30 days to its
customers
• The Company's revenue is seasonal to a certain extent as tourists are
part of its major customers. The company had achieved very good
debtor collection period of 22 days as per financial data but actually
due to the closure of Taj Hotel in Mumbai, the sales had gone down
significantly and they were able to collect from its previous debtors
• The Company has reopened its Taj Mumbai hotel on 15-Aug-2010 and
it tends that sales will improve with it

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Payables

Payables (Rs. Crore)

FY06 FY07 FY08 FY09 FY10

Creditors and 131.96 189.24 148.58 177.78 245.3

acceptances

Payables turnover 8.22 8.16 11.88 9.11 6.01

Average payment 44.42 44.72 30.73 40.07 60.77

period

The credit period enjoyed by the company is quite high in FY10. It has almost
doubled from that of the FY08. It stands higher than the collection period,
which reduces the working capital cycle and provides working capital
financing.

Overall Look at Working Capital

Liquidity Ratios

FY06 FY07 FY08 FY09 FY10

Current Ratio 2.47 1.50 1.89 2.48 1.75

Quick Ratio 2.41 1.46 1.83 2.43 1.73

Total Current Assets Composition

The current ratio has come down from 2.48 in FY09 to 1.75. This is due to the
various provisions it received in the restoration of its Taj hotel in Mumbai.
The quick ratio has followed the same pattern as that of current ratio over
the period of time.

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Working Capital Funding
The company has enough cash & bank balances to fund the working capital.
The company had issued Commercial papers of Rs. 50 Cr in FY 08 to upgrade
its hotels at various locations. It was repaid in 1 year.

Investment of Short Term Surpluses

The Company has invested in Banks in form of Call and short term Deposits
after the global recession in 2008. It used to invest in its subsidiary
companies or Mutual funds earlier.

Dividend Policy

FY06 FY07 FY08 FY09 FY10

PAT 183.78 322.39 377.46 234.03 153.10

Dividend 77.95 96.46 114.54 86.81 72.35

Market Price 107.37 125.02 109.95 68.80 97.70

(Closing: BSE)

Face Value 10.00 1.00 1.00 1.00 1.00

No of Shares 5840485 5866309 6543301 7135644 7234727

9 20 17 42 87

Earnings Per Share 31.47 5.35 6.26 3.28 2.12

DDT 10.93 16.40 19.47 14.75 11.11

Dividend Rate % 130.00 160.00 190.00 120.00 100.00

Dividend per Share 1.30 1.60 1.90 1.20 1.00

Dividend Pay-Out 42.41 29.92 30.34 37.09 47.26

Ratio

Yield 1.21 1.28 1.73 1.74 1.02

As we can see from the data above, IHCL Profit after Tax has been increasing
until the end of year 2007-08. Profit after Tax dipped for year 2009 and this
could be accounted because of the Mumbai Terror Attack which had an

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impact on both the expenditure and revenues for IHCL. The aftermath of the
terror attack in Mumbai on November 26, 2008 saw a challenging and
difficult 2009-10 for the tourism and hospitality industry. The Tourism
industry also bore the brunt of the global economic crisis resulting in
depressed occupancies, Room rates and therefore turnover and profitability.
Due to global slowdown, terrorist activities, H1N1 pandemic, travel
advisories, etc., the foreign tourist arrivals in India during 2009 fell by 3.3%.
There is trend between the dividend paid and PAT. As the company makes
profit, it rewards it shareholders by giving higher dividend. The dividend
payout ratio hovers around 30-47%. The Company is in a growth face and
most of the retained earnings are re-invested.

For year 2010, the Company incurred Rs. 276.75 Crores towards capital
expenditure. Major expenditure was incurred on the Company’s projects at
Falaknuma Palace Hyderabad, Dwarka New Delhi, Yeshwantpur Bangalore
and the restoration of Taj Mahal Palace and Tower, Mumbai. The growth rate
in earnings in 2009 vis-à-vis 2008 was 8.3The board recommended a
dividend of 100% or Re. 1/- per Ordinary.

For year 2009, Profit before Tax at Rs. 362.30 crores was lower than the
previous year by 38 %. Profit after Tax at Rs. 234.03 crores was also lower
by 38 % over the previous year. The boards recommended a dividend of
120% or Re. 1.20/- per Ordinary Share.

For 2008, PAT at Rs. 377.46 crores increased by 17% over the previous year.
During the year under review, all outstanding FCCBs have been converted by
the Company. During the year, your Company raised an aggregate of Rs.
1447 crores through a simultaneous but unlinked Rights Issue of Equity
Shares in the ratio of 1:5 at a price of Rs. 70/- per Equity Share raising Rs.
844 crores and 6% Non Convertible Debentures (NCDs) with Detachable
Warrants in the ratio of 1:10 of the face value of Rs. 100/- each raising Rs.
603 crores. Each Detachable Warrant can be converted into 1 Equity Share
at a price of Rs. 150/- in September 2009. Consequently, there are no
outstanding FCCBs. The Directors declared an interim dividend of 190%
(Rs.1.90/- per Ordinary Share), involving an outflow of Rs. 134.01 crores
including dividend tax. The interim dividend was paid in April, 2008. No
further dividend was proposed to be paid for the year end.

Financial Management – II (Indian Hotels Co. Ltd.) Group 8 Section A

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Overall Impact

The hotel industry is one sector which is yet to come out of woods of
recession. The industry was struck hard by financial crisis & terrorist attacks
in Mumbai. . The travel & tourism growth in 2009 slowed down to just 1%.
The global economic downturn impacted the Indian tourism and hospitality
industry which saw a decline in the foreign tourist arrivals to India from 5.13
million in FY09 to 5.5 million in FY10, thereby resulting in a increase of 7%
YoY. Also, the cut in corporate travel, both domestic and international travel
resulted in drop in the occupancy rates. The companies were then forced to
reduce the room rates to lure the foreign tourists. Analysts suggest that the
condition may improve only when peak season starts from November
09. IHCL, the India’s largest hotel chain, profits declined substantially by
73%. The company attributed overall economic slowdown as the main cause
for a drop in hotel occupancies & ARR (Average Room Rates).

Rs in
Crores

FY
2010

Net Total Net Investme ROI ROA

Profit Assets Sales nts

Indian 153.10 5343.87 1473.29 2445.63 6.26 2.86

Hotels

Mahindra 117.84 1254.35 468.75 227.16 51.88 9.39

Holiday

EIH 57.23 2676.63 774.13 378.24 15.13 2.14

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Hotel Leela 41.02 4932.80 430.12 46.19 88.81 0.83

Taj GVK 36.27 418.00 228.25 0.00 0.00 8.68

Hotels

Asian 26.88 321.05 144.96 26.51 101.40 8.37

Hotels

Mac Charles 25.25 199.34 43.53 90.88 27.78 12.67

Oriental 23.15 467.21 192.77 122.52 18.89 4.95

Hotels

Country 17.96 872.64 212.44 226.96 7.91 2.06

Club

Asian Hotel 14.28 747.08 144.96 587.32 2.43 1.91

The sector began the year FY10 on a weak note. There was a fall in foreign
tourist in the first half of the year as a result of the economic slowdown.
However, towards the second half of the year the demand picked up.
Moreover, in spite of the economic slowdown, demand from domestic
travelers continued to be strong. Rising tourist inflow and higher occupancy
kept the hotel companies afloat after the slowdown. The foreign tourist
arrivals were higher by 11.5% YoY in FY10 after a fall of 6% in FY09. Existing
hotel companies, new foreign players and real estate players continued with
their expansion plans. There are several constraints for the industry to grow,
prospects are looking good and the potential of hotel industry is great.

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