Comparative analysis of hotel industry: Find out the performance of the only three listed hotels in the third quarter

All the three hotels listed in Nepal Stock Exchange (NEPSE) has published their third quarter’s financial highlights. Since Tourism industry is the hardest hit by the global pandemic Covid-19, the hotel industry’s profitability has been hit severely.

The three hotels have been compared below based on major indicators:

Share Capital:

Among the three hotels, Taragaon Regency leads the way with the highest Paid-up capital of Rs. 1.88 Arba which is followed by the Oriental Hotel with Rs. 1.12 Arba. Soaltee Hotel stands last at Rs. 73.67 crores. The par value of TRH and OHL is Rs. 100 while SHL’s par value if Rs. 10.

Unlike banks and financial institutions and Insurance companies. The Hotel Sector doesn’t have a minimum paid-up capital requirement.

Reserve and Surplus:

OHL leads the way in terms of Reserve and Surplus with Rs. 1.13 Arba among three Hotels. TRH, despite having the highest paid-up capital has the lowest Reserve and Surplus of Rs. 55.56 crores. Similarly, SHL has Rs. 95.30 crores in its Reserve Fund.

Revenue from Operation:

The major source of any hospitality industry comes from selling its services like rooms and other services which come along with it to its customers. Among three hotels, SHL has earned the most Revenue with Rs. 1.16 Arba showing a higher turnover than its competitors. Similarly, TRH and OHL have reported Revenue of Rs. 85.83 crore and Rs. 69.03 crore respectively.

With the fear of global pandemic and lockdown enforced by the government, the top line of the hotel industry has been hit severely.

Net Profit:

SHL, having the highest revenue ranks second in terms of Net Profit. TRH earned the most profit after tax amounting to Rs. 25.78 crores followed by SHL and OHL at Rs. 14.05 crore and Rs. 11.46 crore respectively.

Since the revenue of all three hotels decreased, the Net Profit of all three hotels has been decreased. This Quarter’s Net Profit of SHL has been decreased by 39.16%, TRH by 27.70, and OHL by 44.71%.

Annualized Earnings per share (EPS):

The annualized EPS of TRH and OHL stands at Rs. 19.26 and Rs. 13.55 respectively. In the case of SHL the annualized EPS stands at Rs. 2.55 with the par value of the share at Rs. 10.

Net Worth per share:

Like in the EPS of SHL, its par value has to be considered in Net worth per share. Its Net worth per share stands at Rs. 23.01 for an Rs. 10 per share. Similarly, the Net worth per share of TRH and OHL stands at Rs. 134.12 and Rs. 200.35 respectively.

Return on Equity:

This ratio indicates how efficiently the company is using the shareholder's fund. The most efficient company in terms of utilizing equity is TRH with ROE of 10.55%. SHL has an ROE of 8.33% whereas OHL has the lowest ROE of 5.07%.

Debt-Equity Ratio:

The companies despite being in a capital-intensive industry, are not highly leveraged. All three companies having the Debt-Equity of less than 1 indicates that most of their assets are financed from the equity of the company. Among the three companies, SHL has the least D-E ratio with 0.002 times. Similarly, TRH and OHL have the D-E equity ratio of 0.01x and 0.28x respectively.

Current Ratio:

The minimum requirement of the current ratio is 1.5x which indicates that the company has 1.5 times the asset than it has liabilities. Looking at the current ratio of all three companies, they sit in a fair liquidity position. OHL has the highest ratio of 2.28x followed by TRH with CR of 2.01x. similarly, SHL also fulfills the requirement of the Current ratio with 1.51x.

Price to Earnings Ratio:

There are always two ways of interpreting the P/E ratio. On the one hand, high P/E ratio indicates that the scrip is overvalued and costing more than its earning capacity. On the contrary, higher P/E also indicates the goodwill and image of the company because investors are willing to pay a premium for per unit earning.

The P/E ratio of SHL is the highest at 82.81x followed by OHL and TRH at 30.31x and 13.46x respectively.

 What to expect in the future?

Since the major revenue of hotel industry comes from the frequent flow of customers, due to the lockdown enforced by the government all around the world, the inflow of foreigners will be lower than before which will be affecting the occupancy of the rooms for every hotel until this whole pandemic gets settled down and everything comes back to normal. This will directly affect profitability. Also, as per the management, due to lower profitability, the company can also be facing liquidity crunch for next quarter.

Since the most awaited event for Nepal, “Visit Nepal 2020” has been postponed till 2022 and the decline of people traveling for quite some time may hinder the hotel industry for a while and may take few months to recover.

But on the wider side, after this situation gets settled, the tourism sector will prosper. Also, Nepal’s Budget 2077/2078 show some hope for the industry.

Overall performance: