FINANCIAL ANALYSIS

Asian Hotels Limited

Introduction:

The Group's principal activity is the operation and ownership of hotels in Delhi, Kolkata and
Mumbai. It provides wines and liquor, provisions, other beverages and smokes; crockery, cutlery,
silverware, linen and general stores and spares. The company was incorporated on 13th
November 1980, and the Certificate of Commencement of Business was obtained on 14th
January, 1981. The Company is listed on The Stock Exchange, Mumbai, and National Stock
Exchange of India Ltd.

Financial Reporting:

Financial Reporting includes, financial statements and accounts are prepared in accordance with
accounting standards, laws and regulations and it reflects true and fair view of the affairs of the
Company. There shall be no premature recognition of income, deferment in chargeable expenses
and no undisclosed bank account and fund. Adequate accounting Systems & Procedures is
introduced to reflect true and fair position of all business transactions.
The Companies Financial Position is depicted below through analysis of the ratios over a period
of 5 years. Also thereafter a comparative analysis of the company with similar companies in the
same industry is also portrayed.

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 ANALYSIS OF RATIOS

LEVERAGE:
In finance, leverage (also known as gearing or levering) refers to the use of debt to supplement
investment Companies usually leverage to increase returns to stock, as this practice can maximize
gains (and losses).

Year 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008

Sales 203.73 257.89 328.48 413.41 513.54
Less: Variable Costs 77.58 89.3 107.07 132.94 163.33
Contribution 126.15 168.59 221.41 280.47 350.21
Less: Fixed Cost 57.28 67.42 87.36 86.46 111.29
Operating Profit 68.87 101.17 134.05 194.01 238.92
Less: Interest 30.42 23.11 19.16 17.35 21.37
Less: Depreciation 21.00 20.55 21.00 22.11 24.63
Profit Before Tax 17.45 57.51 93.89 154.55 192.92
Operating Leverage 1.83171192 1.66640308 1.651697 1.445647 1.465804
Financial Leverage 3.94670487 1.75917232 1.427735 1.255322 1.238441

From the above analysis it is found that the company has high proportion of fixed operating costs
in proportion to variable operating costs in the Year March 04. The Firm also has high break-even
point and high operating leverage. Variable cost of the company is low and both contribution and
Unit contribution margin is high. In the respective years the proportion is found to be relatively
less which shows that the company has low contribution and low unit contribution margin.
The Financial Leverage ratio shows the capital structure of the company. The more the debt of
the firm the higher the financial leverage is. Asian Hotels Limited has a total debt of 305.56 in
March 2004 which has pushed the financial leverage to3.95. Subsequently with debt decreasing
over the next 4 years, the financial leverage is found at 1.23 in March 2008 where debt is at
138.49.

WORKING CAPITAL or CURRENT RATIO and WORKING CAPITAL

MANAGEMENT

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 This ratio indicates whether a company has enough short term assets to cover its short term debt.
In other words the ratio is mainly used to give an idea of the company’s ability to pay back its
short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).
The higher the current ratio, the more capable the company is of paying its obligations. A ratio
under 1 suggests that the company would be unable to pay off its obligations if they came due at
that point. While this shows the company is not in good financial health, it does not necessarily
mean that it will go bankrupt.

Year 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008

Current Asset 45.45 34.344 48.843 54.8964 97.2706
Current Liabilities 75.75 64.8 90.45 101.66 145.18
Working Capital -30.3 -30.456 -41.607 -46.7636 -47.9094
Current Ratio 0.6 0.53 0.54 0.54 0.67

Working capital, also known as net working capital or NWC, is a financial metric which
represents operating liquidity available to a business. Positive working capital is required to
ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both
maturing short-term debt and upcoming operational expenses. The management of working
capital involves managing inventories, accounts receivable and payable and cash. If current assets
are less than current liabilities, an entity has a working capital deficiency, also called a working
capital deficit.
Asian Hotels Limited is found be having a working capital deficit as its ability to pay and satisfy
the short term debt is not sufficient. In the span of five years the company has negative working
capital. The Company has its current ratio below 1 again suggesting that company is unable to
pay off its obligations at their due points. The company at this stage could be said to be sick, but
not bankrupt.

Working capital Management of the company is said to ensure, that the firm is able to continue
its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and
upcoming operational expenses.

Year 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008

Closing Cash & Cash -0.35 -3.54 4.16 -10.21 -9.5

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Equivalents

Seeing the company’s closing cash & cash equivalent it is understood that the company is unable
to satisfy its maturating short term debts and the future operational expenses. It is found to be
only operating its main line business and not involving in any financing or investing activities.

CAPITAL STRUCTURE and DEBT-EQUITY RATIO

Capital structure refers to the way a company finances its assets through some combination of
equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of
its liabilities

Year 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008

Equity 22.8 22.8 22.8 22.8 22.8
Preference Share 0.00 0.00 0.00 0.00 0.00
Secured Loans 303.56 257.62 202.59 207.76 138.49
Unsecured Loans 2 0 0 0 0
Debt Equity ratio 1.14 0.93 0.66 0.56 0.24

This Company has no Debentures or Preference share issue to include in the Capital Structure. It
is a straight Equity based capital that the company follows with its equity share constant at 22.80
in all the five consecutive years.
Debentures are backed only by the general creditworthiness and reputation of the issuer. The
company issued debenture only in March 2004 which raised the debt-equity ratio. In the
subsequent years there was no issue of Debenture. Debt-to-equity ratio (D/E) is a financial ratio
indicating the relative proportion of shareholders' equity and debt used to finance a company's
assets. The company has high Debt Equity ratio in the Year March 2004 due to its high total debt
of 305.56. This indicates that the solvency of the company is at Risk. In the subsequent years it is
found that the company has regained its financial position and geared up its debt equity ratio.

Preference Share is a special equity security that resembles properties of both equity and a debt
instrument and generally considered a hybrid instrument. This company has preference share base
of Nil for the years March 2004-2007. In the Year March 2008 the company issued 20.00 Crores
preference shares.

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DIVIDEND POLICY and DIVIDEND PAYOUT RATIO

Dividends are the portion of corporate profits paid out to stockholders. When a corporation earns
a profit or surplus, that money can be put to two uses: it can either be re-invested in the business
(called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations
retain a portion of their earnings and pay the remainder as a dividend.
The payout ratio provides an idea of how well earnings support the dividend payments. More
mature companies tend to have a higher payout ratio.

Year 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008

Earnings per Share 2.21 11.18 24.87 40.12 57.83
Dividends per Share 2 6 10 10 1
Pay-out Ratio 0.90497738 0.53667263 0.402091 0.249252 0.017292

Asian Hotels Limited is found to have declared interim dividends in the year 2008-09 of 1% was
declared and paid to the holders of two crore 1% Cumulative Redeemable and Non-convertible
Preference Shares of the face value of Rs. 10/- each.
The company declared Final dividend of Rs. 2/- per share over and above the interim dividend of
Rs.8/- per share already paid, for the financial year ended 31st March, 2007.

PROFITABILITY RATIO

Year 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008

Profit Before Tax 17.45 57.51 93.89 154.55 192.92
Net Income 199.95 249.63 324.7 407.43 512.93
Sales 203.73 257.89 328.48 413.41 513.54
Total Assets 572.85 534.79 510.43 1,402.24 1,641.63
Shareholders Equity 22.8 22.8 22.8 22.8 22.8
Profit margin Ratio 98.14 96.8 98.85 98.55 99.88
Return On Assets 0.35 0.47 0.64 0.29 0.31
Return on Equity 5.91 6.87 8.53 9.62 12.04

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Return on Investment - - - - -

TURNOVER RATIOS

Year 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008

Inventory Turnover Ratio 22.10 32.12 41.30 49.78 64.90
Debtors Turnover Ratio 23.34 34.70 40.65 36.04 34.80
Investments Turnover Ratio 25.54 39.37 49.86 63.27 64.90
Fixed Assets Turnover Ratio 0.34 0.44 0.58 0.71 0.33
Total Assets Turnover Ratio 0.36 0.48 0.64 0.71 0.63
Asset Turnover Ratio 0.31 0.40 0.50 0.27 0.33

EIH Limited

Company Profile

The Group's principal activity is to operate restaurants, bars and hotels. The Group operates in
two segments: Hotels and Others. The Group's services include airline catering, management of
restaurants and airport bars, travel and tour services, car rental, project management and corporate
air charters.
EIH, is part of the Oberoi Group, is one of the largest chains in its category with over 2,900
rooms spread across 20 locations. EIH operates hotels under the brand name Oberoi and Trident.
EIH has a substantial presence in metropolitan centers, which are more profitable locations. EIH
have entered into a strategic alliance with Hilton International Co. for co-branding hotels in India
under the Trident Hilton brand which brings together the global brand equity and extensive
worldwide marketing resources of the Hilton Group. EIH is the third largest hotel chain in India,

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 after the Taj Group of Hotels and ITC Welcomgroup, EIHs favorable business position in the
luxury hotel industry emanates from its strong brand equity, relatively large scale of operations
and the favorable geographic mix of its properties

An Analysis of the Ratios of the same is given below:-

LEVERAGE
Year Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Sales 49.79 65.77 159.04 177.97 158.14
Operating Profit 230.39 411.96 344.80 254.65 146.25
Less: Interest - - - - -
Less: Depreciation 54.24 45.33 42.69 40.88 40.39
Profit Before Tax 180.76 358.98 253.86 173.77 68.69
Financial Leverage 1.274562956 1.14758482 1.35822895 1.465443 2.129131

The company is has a reasonable fair financial condition with total debt of 251.57 in Mar '07
when the financial leverage is found to be 1.35 and in March 05 the debt is also higher at 249.14.

CURRENT RATIO and WORKING CAPITAL MANAGEMENT

Year Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Current Asset 534.08 405.07 598.36 476.74 350.29
Current Liabilities 429.85 408.91 557.29 406.74 309.89
Working Capital 104.23 -3.84 41.07 70.00 40.40
Current Ratio 1.24247993 0.99060918 1.073696 1.1721 1.130369

The company holds an ideal current ratio and Positive working capital ensure that a firm is able to
continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and
upcoming operational expenses.

CAPITAL STRUCTURE

Year Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Equity 78.59 78.59 78.59 52.39 52.39

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Preference Share - - - - -
Secured Loans 1,019.33 800.87 693.82 611.39 639.97
Unsecured Loans - 12.00 97.81 97.88 167.01
Debt Equity ratio 12.97023 10.34317 10.07291 13.53827 15.40332

The company has an equity base capital structure with debt in each year at a ideal amount. The
company has a total debt of 103.03 in March 09 in compared to March 05 where the total debt
was 249.14. The company has a strong capital base and very much solvent.

PROFITABILITY RATIOS

Year Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Profit Before Tax 180.76 358.98 253.86 173.77 68.69
Net Income 46.68 65.19 158.52 177.03 159.04
Sales 49.79 65.77 159.04 177.97 158.14
Total Assets 117.90 108.45 350.83 349.67 353.45
Shareholders Equity 78.59 78.59 78.59 52.39 52.39
Profit margin Ratio 93.75377 99.11814 99.67304 99.47182 100.5691
Return On Assets -0.83 2.05 3.29 3.46 -
Return on Equity 0.998091 2.880265 2.027612 1.962588 0.852644
Return on Investment - - - - -

CONCLUSION

Comparative Analysis
From the Above tables it can be seen that the hotel industry has witnessed a growth over the
years. The profit margin of Asian Hotels limited and EIH limited is more or less at par. Both the
companies have similar kind of capital structure, which is mainly equity base.

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Other than these the companies follow similar pattern of Dividend policy that is they provide both
interim and final dividends to its shareholders.
Asian Hotels Limited is found be a little sick compared to EIH Limited which has a strong capital
base and at the same time shows positive working capital ratio indicating the company has
enough fund to meet its urgent liabilities and expenses.
Return on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested. Asian Hotels Limited is found to have
earned less return on equity compared to EIH limited where the shareholders earned 99.81%
return on there shareholdings.

Annexure

BALANCE SHEET OF ASIAN HOTELS LIMITED

Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 22.80 22.80 22.80 22.80 42.80
Equity Share Capital 22.80 22.80 22.80 22.80 22.80
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 20.00
Reserves 244.48 254.35 285.05 350.41 639.59
Revaluation Reserves 0.00 0.00 0.00 821.27 820.73
Networth 267.28 277.15 307.85 1,194.48 1,503.12
Secured Loans 303.56 257.62 202.59 207.76 138.49
Unsecured Loans 2.00 0.00 0.00 0.00 0.00
Total Debt 305.56 257.62 202.59 207.76 138.49
Total Liabilities 572.84 534.77 510.44 1,402.24 1,641.61
Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
12 mths 12 mths 12 mths 12 mths 12 mths
Application Of Funds
Gross Block 653.52 649.96 654.34 1,505.45 1,565.27
Less: Accum. Depreciation 73.02 80.67 99.72 118.45 141.03
Net Block 580.50 569.29 554.62 1,387.00 1,424.24
Capital Work in Progress 13.21 1.80 10.73 26.33 40.12
Investments 1.13 1.13 1.09 24.59 230.08
Inventories 9.22 8.03 7.96 8.31 9.78
Sundry Debtors 8.35 6.52 9.64 13.30 16.22
Cash and Bank Balance 3.60 3.62 3.84 5.05 3.02
Total Current Assets 21.17 18.17 21.44 26.66 29.02
Loans and Advances 54.70 40.29 44.95 91.39 185.13

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Fixed Deposits 0.11 0.11 0.10 29.10 17.10
Total CA, Loans & Advances 75.98 58.57 66.49 147.15 231.25
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 75.75 64.80 90.45 101.66 145.18
Provisions 22.22 31.20 32.05 81.17 138.88
Total CL & Provisions 97.97 96.00 122.50 182.83 284.06
Net Current Assets -21.99 -37.43 -56.01 -35.68 -52.81
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 572.85 534.79 510.43 1,402.24 1,641.63
Contingent Liabilities 4.70 1.97 6.08 16.58 23.44
Book Value (Rs) 117.21 121.54 135.00 163.67 290.48

Source : Asian CERC

BALANCE SHEET OF EIH LIMITED

Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 10.50 10.50 29.59 19.59 19.59
Equity Share Capital 10.50 10.50 19.59 19.59 19.59
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 10.00 0.00 0.00
Reserves 4.37 7.27 69.67 78.27 84.73
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Networth 14.87 17.77 99.26 97.86 104.32
Secured Loans 87.13 77.13 167.58 189.80 157.14
Unsecured Loans 15.90 13.55 83.99 62.00 92.00
Total Debt 103.03 90.68 251.57 251.80 249.14
Total Liabilities 117.90 108.45 350.83 349.66 353.46
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Application Of Funds
Gross Block 136.93 140.19 356.90 369.82 376.29
Less: Accum. Depreciation 32.57 36.22 86.41 97.05 106.57
Net Block 104.36 103.97 270.49 272.77 269.72
Capital Work in Progress 3.46 0.00 1.20 1.83 1.55
Investments 1.30 0.00 54.74 64.18 72.96
Inventories 3.89 4.67 6.64 7.16 7.43
Sundry Debtors 6.14 6.54 15.79 17.02 7.80
Cash and Bank Balance 2.36 4.50 11.65 9.70 4.27
Total Current Assets 12.39 15.71 34.08 33.88 19.50
Loans and Advances 22.52 20.51 51.66 49.12 50.51
Fixed Deposits 3.15 0.21 4.06 1.96 2.47
Total CA, Loans & Advances 38.06 36.43 89.80 84.96 72.48
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 30.05 32.40 63.41 67.94 59.35

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Provisions 0.04 0.16 2.39 6.13 3.91
Total CL & Provisions 30.09 32.56 65.80 74.07 63.26
Net Current Assets 7.97 3.87 24.00 10.89 9.22
Miscellaneous Expenses 0.81 0.61 0.40 0.00 0.00
Total Assets 117.90 108.45 350.83 349.67 353.45
Contingent Liabilities 1.32 0.38 3.98 6.62 9.92
Book Value (Rs) 14.17 16.92 44.95 49.96 53.26

Source : Asian CERC

References:
1. www.moneycontrol.com
2. www.corporateinformation.com
3. Financial Management – ICAI Study Guide
4. www.money.rediff.com

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