Pakistan Hotels Developers Limited (PSX: PHDL), previously known as TajMahal Hotels Limited was established in 1979 under the Companies Act 1913 (now Companies Act-2017) as a private limited company. It was later converted into a public limited company, in 1981. It is essentially engaged in the hotel business and operates a five star hotel by the name of Regent Plaza Hotel and Convention Center.
It has a capacity of 400 rooms which includes presidential suites, executive suites and business suites in addition to standard rooms, deluxe rooms, executive rooms, and executive deluxe rooms.
Shareholding pattern
The company is tightly held by the directors and their relatives, collectively holding 92 percent of the company. The 'individuals' category refers to the minority shareholders, which owns 5 percent of the company. The 'others' category primarily includes the joint stock companies which own about 3 percent of PHDL.
Historical operational performance
Although all the sectors in the economy are dependent on the performance of the country's economy, whether directly or indirectly, the performance of the hotel industry in particular, has a greater dependency. If the image of the country globally is positive, with optimistic business sentiments, the hotel industry can be expected to perform better.
Since the company operates in the service industry, its primary source of revenue is the rent charged for the room. During FY14, PHDL's top-line grew by 54 percent year on year, attributed to the economic development of the country, as per the company's annual report for the year. Room rent contributed nearly half of the company's revenue at 48 percent. However, net profit took up only 16 percent of the revenue due to a high expense of heat, light and power, combined with salaries, wages and other benefits.
During FY15, top-line continued to grow at an almost 20 percent year on year. During the year, oil prices declined by almost 50 percent which had a positive impact on the economies globally. Inflation also reduced during the year, which is evident from the reduction in costs of sales, as a percentage of net revenue. The cost of sales includes food and beverage among other items, which is directly, fluctuates with the inflation rate.
In FY16, net revenue grew by almost 9 percent, a lesser percent than the preceding year at 20 percent. In value terms, it was the highest recorded in seven years, at Rs740 million. Profitability improved due to a curtailment of costs along with an increase in top-line. In FY16, the company was also operating at an almost 50 percent capacity, the highest recorded thus far.
During FY17, there was a fire incident at the hotel building due to which they closed down their business for nine months. This is evident from their financials for the year with net revenue reducing by 52 percent as compared to the previous year. Their average percentage of occupancy also declined to 23 percent in FY17 from nearly 50 percent in FY16. Cost of sales also made a high percentage of revenue with administrative costs almost doubling as a percentage of top-line from 26 percent in FY16 to 47 percent in FY17.
The business recovered in FY18, with revenue increasing by 19 percent. The hotel resumed operations on August 14, 2017 with a limited number of rooms. About 211 rooms were furnished installed with the capacity to deal with fire incidents. These rooms were available to be rented by the end of FY18. If capacity utilization were to be calculated based on operational rooms, the company was operating at 42 percent. Despite the recovery in top-line, the company recorded a net loss of Rs17 million as a result of high administrative costs. This was due to compensation paid to the affectees of about Rs58 million.
Despite the challenging business environment during FY19, PHDL fared well in terms of its financials. It was able to come out of the two-year period of losses recording a net profit of Rs28 million. Where the hospitality industry was negatively impacted by the tensions elevating on the Pakistan-India border, it also brought some relief by high-profile events such as the Pakistan Super League which brought revenue in terms of visits by international players. While overall occupancy was at almost 23 percent, if calculated based on operational rooms, it was recorded at 43 percent.
Quarterly result and future outlook
A reduction in top-line combined with an increase in costs resulted in poor gross margins while operating and net profits were negative for 1QFY20. The first quarter of FY20 was marred by the overall economic performance and further worsened by tensions at the borders with India. Moreover, as a result of macroeconomic correction, inflation also increased which increased their costs of sales by 15 percent year on year. PHDL was also still in the recovery stage, operating at less than 30 percent of total capacity at the start of FY20.
Pakistan Hotels Developers Limited foresees improvement in the economy as a result of China Pakistan Economic Corridor (CPEC) which is expected to increase energy availability and infrastructure development. Moreover, the company foresees improvement in law and order situation of the country which will directly impact their business. Projection of a positive image of the country on an international level will also help to bring in tourists.
PHDL is also emphasizing on risk management to cushion against cost hikes as a consequence of rupee devaluation and inflation in addition to installing fire fighting facilities.
=============================================================== PHDL: Quarterly results =============================================================== Rs (mn) 1QFY20 1QFY19 YoY =============================================================== Net revenue (Rs (mn))-LHS 85 94 -9.57% Cost of sales (60) (52) 15.38% Gross profit 25 42 -40.48% Administrative, selling (34) (43) -20.93% and general expenses Other operating income 1 0 600.00% Operating profit (8) (1) 822.22% Finance cost (0) (2) -85.00% Profit before taxation (9) (3) 196.55% Taxation (2) (1) 122.22% Profit after taxation (11) (4) 178.95% EPS (0.63) (0.22) 1.863636364 ===============================================================
Source: Company accounts
================================================= PHDL: Pattern of shareholding as at June 30, 2019 ================================================= Categories of shareholders % ================================================= Directors 33.64 Relatives of directors 58.81 Individuals 5.05 Others 2.5 ================================================= Total 100 =================================================
Source: Company accounts
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