Taj returns to profit after three consecutive loss-making years

Owning company chairman confident market will absorb increased supply of 5-star rooms

Tal Lanka Hotels PLC, owners of the Taj Samudra in Colombo, has returned to profit after three consecutive loss-making years in the year ended March 31, 2017, posting a profit of Rs. 103.7 million, up from a loss of Rs. 116.9 million the previous year and losses of Rs.180.8 million and Rs.530 million in the two years prior.

The owning company however retains accumulated losses of Rs. 1.15 billion in its books but commands ownership of one of Colombo’s top five-star hotels built on a sprawling leasehold site of over 11 acres of land fronted by the Galle Face Green and the Indian Ocean.

The hotel which is managed by India’s well-known Taj group attracts a large clientele of up-market travelers from India but, according to a shareholder, has paid no dividends since it was commissioned over 30 years ago.

“I don’t remember any dividend being paid but I can’t be sure,” he said. “Sometime ago shareholders were hosted to an annual lunch, a practice that was followed by some other non-dividend paying hotels too. But the Taj, like the others, discontinued the practice and none of them issue vouchers for two free lunches like before.”

The owning company’s chairman, Mr. Rakesh Sarna, has said in the recently published annual report for 2016/17 that hotels in Colombo had recorded 64% average occupancy in the year under review though the city average rates had shown a decline.

“The city has witnessed room night supply growth over the past three years in the budget and mid-market segment, a welcome addition to a market previously dominated by five-star and five-star deluxe hotels,” he said.

“These hotels have been quickly absorbed in the market given their popularity with the price conscious travelers; however, they have added pressure on the existing five-star hotels, thereby restricting their ability to increase rates.”

Sarna complained that the constant depreciation of Sri Lanka rupee has adversely affected the average room rate due to which market wide average room rates depict a decline or only marginal increase in US dollar terms. He noted that the rupee was volatile against the dollar averaging Rs. 149 to the dollar last year and expected this trend to continue over the next five years.

He quoted the Sri Lanka Tourism Development Authority saying the highest guest arrivals were from China followed by India, UK, Germany, France, Russia and Australia.The company’s revenue was up 6% from Rs. 2.66 billion the previous year to Rs. 2.83 billion during the year under review. The gross margin increased by Rs. 73 million from the previous year.

Sarna reported that the company’s finance expenses were down by Rs. 160 million to Rs. 223 million during the year under review primarily due to decrease of loss on foreign exchange.

The owners continue to invest in the hotel and are now in the final stage of installing new guest elevators with more rooms to be renovated next year and work to upgrade the property planned targeting an increased market share.

“Going forward we expect commercial demand to drive business for the branded hotels, given the increased interest in the modernization of the city and the infrastructure development in the country,” he said.

“…..though supply pressure may affect market performance in the short term, we believe that the city will continue to remain a vital destination for tourism in the country, and gradually absorb new supply to establish itself as a robust hotel market.”

No dividend has been proposed for the year under review with earnings per share at Rs. 0.74 against the previous year’s loss of Rs. 0.84 per share.

Tal Lanka has a stated capital of Rs. 1.4 billion and total assets of over Rs. 5.3 billion against total liabilities of nearly Rs. 3 billion. The company’s share traded during the year at a high of Rs. 31.20 and a low of Rs. 20 closing the year at Rs. 21. This compared to the previous year’s trading range of Rs. 34 to Rs. 20 closing at Rs. 23.40.

Tal Hotels and Resorts Ltd. with 58.14% with IHOCO BV with 24.62% are the major shareholders followed by the EPF with 5.55%.

The directors of the company are Messrs. RK Sarna (Chairman), BK Chaudhary, R. de Mel, RK Chaudhary, Tilak de Zoysa, G. Sunderam, V. Govindasamy, P. Verma, U Narain, S. Singh and C. Subramanian.

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