Pakistan Hotels Developers Limited

Pakistan Hotels Developers Limited (PSX: PHDL) as a private limited company in 1979 under the Companies Act, 1913 (now Companies Act, 2017). Two years later, in 1981 it was converted into a public limited company.

The company operates in the hospitality industry; it owns and operates Regent Plaza Hotel and Convention Centre in Karachi.

Shareholding pattern

As at June 30, 2020, the relatives of the directors are the major shareholders of Pakistan Hotels Developers Limited, with over 57 percent shares held under this category. Within this, Mr. Masroor F. Baweja has the largest number of shares at 8 percent. The directors collectively own close to 34 percent shares in the company, with Mr. Zubair Baweja owning nearly 12 percent. Close to 6 percent shares are with individuals and 3 percent held under “others”.

Historical operational performance

Topline of Pakistan Hotels Developers has contracted twice in a span of the last eight years; once in FY17 and then again last year in FY20. Profit margins have also been fluctuating through the years, reaching an all-time low in FY17, increasing until FY19 and then again dipping in FY20.

During FY17, net revenue for the company fell drastically by nearly 53 percent. This was due to a fire incident on December 5, 2016, that is the second quarter of FY17, in the hotel premises that led to a complete halt in business operations until the end of the year. By the mid of the third quarter of FY17, soft banquet operation was restarted, along with few rooms’ accommodations while the rest of the operations had to remain suspended until after necessary work could be completed. With a drastic drop in revenue, the company incurred a loss for the year of Rs 11 million, compared to a profit of Rs 133 million in FY16.

By the second month of FY18, the company resumed operations with 50 guest rooms out of the total capacity. Overall net revenue was higher by 19 percent. While cost of sales made a lower percentage of revenue at nearly 46 percent compared to previous year’s 54 percent that helped raise gross margins, the company’s losses aggravated during FY18 as well. This was due to a higher administrative, selling and general expenses. The most prominent increase here that rose its share in revenue was the compensation made to the affectees that was recorded at over Rs 58 million compared to a little over Rs 18 million last year. Thus, the company incurred a loss of Rs 17 million, taking net margin to a negative almost 4 percent.

Topline increased by 15 percent during FY19. This was attributed to an increase in occupancy and related food and beverage sales as the company’s business operations resumed to normal capacity post the fire incident. However, cost of sales increased to 47.5 percent of revenue, compared to nearly 46 percent in FY18. This was due to “increase in salaries and wages, guest supplies, and heat and power prices”. Thus, the company was able to post a profit for the year. A lowering of administrative expenses also contributed towards the improvement in operating margin recorded at a positive 12.4 percent, and bottomline; the company posted a profit of Rs 28 million.

Two years after the fire incident, when the company had started to gradually return to its pre-incident revenue levels, the Covid-19 pandemic broke out that was rather unfortunate for the airline and hotel businesses. Given that the company operates in the hotel and hospitality industry, it comes as no surprise that it was severely affected by the outbreak of pandemic which led to border closures and an abrupt halt in travelling globally. Revenue for the company dropped by nearly 32 percent; this is also evident from the average occupancy contracting to nearly 15 percent, from almost 23 percent in FY19. The effect of inflationary pressures and high costs was reflected in the higher cost of sales and services that rose to claim almost 64 percent of revenue- a level last seen in FY13 (62 percent). Thus, gross profit more than halved year on year, while net profit was less than half a million in value terms.

Quarterly results and future outlook

With a strict lock down in place in several countries of the world, and limited travel across borders, the negative effect of it on the industry was seen more pronounced in the beginning of FY21. For the first quarter of FY21 revenue was down to about Rs 25 million compared to Rs 85 million in the same period last year. With the economy gradually opening up, the second quarter of FY21 was relatively better as revenue increased to Rs 86 million, although it was considerably lower year on year. The half yearly results reveal contraction in earnings from positive to negative during 1HFY21 year on year. Given the lower revenue, costs also made a larger share in revenue for FY21, and the period ended with the company incurring a loss again of Rs 19 million as compared to a profit of Rs 25 million during 1HFY20.

The company opened up the hotel by the mid of the first quarter of FY21; while the company foresees a positive outlook in the long-term growth due to CPEC developments, better law and order and a more encouraging image of the country globally, the Covid-19 situation still poses the biggest risks to the business profitability.