The Hindu Business Line : Stock Takes

ABG Shipyard saw a 30 per cent growth in topline and 39 per cent increase in net profits for the year ended FY-07. Growth during the March quarter, however, remained tepid with the bottomline growing by just 6.7 per cent. A huge order-book, not backed by facilities to execute the same may be reasons for the slowdown. However, with the recent acquisition of Vipul Shipyard (in May 2007) and the expansion at Dahej facility, which is likely to begin operations in April 2008, t he company would be able to accelerate its pace of execution over the next couple of years.

The Vipul yard acquisition is strategic in nature as it is located next to ABG’s yard in Surat. As ABG Shipyard has also taken over the current order-book of Vipul (which is about Rs 40 crore), the company can start using the fac ility once it completes Vipuls’s orders. The acquired shipyard is expected to augment ABG’s capacity by 25 per cent.

Of the orders worth Rs 4000 crore on hand, 40-45 per cent comes from the oil and gas sector. This includes orders to build specialised vessels such as icebreakers and other sophisticated models. We expect these to bring better operatin g margins (which improved from 16 per cent to 18 per cent) over the past financial year.

The subsidy available to the company for exports, under the shipbuilding subsidy scheme of the Government, amounted to Rs 80 crore for FY-07 alone. However, the company is yet to receive even the earlier subsidies booked by it. Going b y this delay, investors may need to exclude this from the total income earning potential of the company, until disbursals from the Government flow in.

On a hospitality drive

Indian Hotels reported the strongest performance among hotel majors for fiscal 2007. While smaller chains such as Taj GVK and Hotel Leelaventure reported a 30-40 per cent growth in profits, Indian Hotels saw a 70 per cent jump in profits in FY-07 and a 48 per cent jump on a consolidated basis.

According to an internal survey by the company, occupancy rates in Delhi, Bangalore, Hyderabad and Chennai have dropped on the back of fresh supply. Over 1,500 rooms have been added across these cities in the premium category. However , hotels continue to mark up room rates on the back of strong demand. Revenue per available room (RevPAR), which combines the impact of room rates and occupancies, continues to be on an uptrend in most cities, although the growth is relatively subdued in Bangalore and Hyderabad. This probably explains why hotels such as Taj GVK or Hotel Leela have not recorded as strong a performance in recent quarters.

By the same token, Indian Hotels, by virtue of its wide geographical spread, has been insulated from city-specific pressures on room rates, which makes it a safer pick. Second, with its considerable resources, the Taj group is leading the expansion drive among hotel chains and is likely to account for a higher share of the fresh supply in top cities. Its higher market share will make it less vulnerable than smaller chains to drop in occupancy rates.

International expansions by the company have been seen as a major positive so far, although no figures are available on the kind of contribution these new properties are likely to make to the group in the future.

Interest costs have risen significantly over the past year and now account for about 4.5 per cent of sales. With operating margins continuing to expand, however, this is unlikely to slow down profit growth significantly in the near ter m.

BL Research Bureau

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