A Project Report on Ration Analysis of Hotel Industry

8/4/2019 A Project Report on Ration Analysis of Hotel Industry

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A Project Report on Ration

Analysis of Hotel Industry

Subject: Accounting For Managers

Submitted To: Prof. AmitGodse



Table Of Content



ACKNOWLEDGEMENT

We wish to express our deep gratitude to Prof. AmitGodse, Professor of

Accounting For Managers for providing his uncanny guidance, support and

motivation throughout the preparation of the project report. We are also thankful

to Head Librarian of SumantraGhosal Library, IBS Mumbai, for her support that

triggered us for the project work We would also like to thank all the staff

members and our co-students who were always there at the need of the hour and

provided with all the help and facilities, which we required for the completion of

the thesis.



Introduction:

Current Scenario of the Hospitality Industry

Over the last decade and half the mad rush to India for business opportunities has

intensified and elevated room rates and occupancy levels inIndia. Even budget

hotels are charging USD 250 per day. The successful growth story of 'Hotel

Industry in India' seconds only to China in Asia Pacific.

'Hotel Industry inIndia' have supply of 110,000 rooms. According to the tourism

ministry, 4.4 million tourists visitedIndialast year and at current trend, demand

will soar to 10 million in 2010 - to accommodate 350 million domestic travelers.

'Hotels inIndia' has a shortage of 150,000 rooms fueling hotel room rates

acrossIndia. With tremendous pull of opportunity,Indiais a destination for hotel

chains looking for growth. The World Travel and TourismCouncil,India, datasays,Indiaranks 18th in business travel and will be among the top 5 in this decade.

Sources estimate, demand is going to exceed supply by at least 100% over the

next 2 years. Five-star hotels in metro cities allot same room, more than once a

day to different guests, receiving almost 24-hour rates from both guests against 6-

8 hours usage. With demand-supply disparity, 'Hotel India' room rates are most

likely to rise 25% annually and occupancy to rise by 80%, over the next two years.'Hotel Industry inIndia' is eroding its competitiveness as a cost effective

destination. However, the rating on the 'Indian Hotels' is bullish.



TAJ Group Of Hotels

The Indian Hotels Company Limited (IHCL) and its subsidiaries are

collectively known as Taj Hotels Resorts and Palaces and isrecognised as

one of Asia's largest and finest hotel company. Incorporated by the

founder of the Tata Group, Mr. Jamsetji N. Tata, the company opened

its first property, The TajMahal Palace Hotel, Bombay in 1903. The Taj,

a symbol of Indian hospitality, completed its centenary year in 2003. Taj

HotelsResorts and Palaces comprises 93 hotels in 55 locations across

India with an additional 16 international hotels in the Maldives,

Malaysia, Australia, UK, USA, Bhutan, Sri Lanka, Africa and the Middle

East.

Taj Hotels Resorts and Palaces is committed to replicate its domestic

success onto international shores with plans to build an international

network of luxury hotels, which will provide an exemplary product-

service combination and in the process create a global brand. The

current international portfolio includes luxury resorts in the Indian

Ocean, business and resort destinations in the Middle East and Africa,

serviced apartments in the UK, the first hotel in Australia and three a

top-end luxury hotels in the US.



Over the years, the Taj has won international acclaim for its quality

hotels and its excellence in business facilities, services, cuisine and

interiors. the Taj has pioneered innovation in fine dining across the

world.

Bhagwati Group was founded in 1989 by visionary thinker &

entrepreneur par excellence Mr.NarendraSomani, The chairman &

Managing Director who with his revolutionary business acumen and

enterprising attitude created this enterprise from scratch. Bhagwati

Banquets & Hotels Ltd. A renowned public limited company, listed at

BSE and NSE exchange, with its vision and novel innovations has

created an admired empire in the field of food and hospitality industry.

BBHL is a company offering the best of both worlds. A unique

understanding of the culture and communities combined with the

collective expertise of an executive team contributing over 22 years of

experience in the service industry.

BBHL has one of its kind and unique banqueting models in India.

Looking forward and creating benchmarks in the hospitality segment,

the company opened first of it’s kind star category Banqueting hotel

with best of the amenities in the year 2002 under the brand name "TheGrand Bhagwati".

BBHL with the above success has already chartered the future map

fueling more growth. For this, company has built an exclusive Five Star

hotel convention centre & Club in the city of Surat. The company now is



expanding Pan India with its Restaurants, Banquet halls & outdoor

catering operations in the city of Jaipur, Bangalore, Nagpur, Pune,

Mumbai, Hyderabad, Jodhpur, Indore etc.

Kamat hotels limited

Kamat Hotels (India) Limited was incorporated on 21st March, 1986 in the State

of Maharashtra by Late Mr. Venkatesh Krishna Kamat and his associates with the

main object of setting up and running of hotels and related business. The

Company obtained the Certificate of Commencement of Business on 31st March,

1986.

The Group – Kamats had a humble and modest beginning. A clear vision along

with determination and hard work, have gone a long way in helping the Group

achieve successful results and has laid the foundation of the most successfulRestaurant Chain in India, which of course had gained a strong foothold in the

hospitality Industry. The brand equity “Kamats” has also gone up substantially

over the years and the name is synonymous with value for money and represents

a philosophy of best quality of service at the most affordable prices.

KHIL has firmly established four hotel brands viz. The Orchid – An Ecotel Hotel in

the 5-Star segment and VITS Luxury Business Hotel in the 4-Star segment, Gadh

Hotels and Lotus Resorts. The focus of the Company is in positioning its hotels to

the business segment in the upscale , full service category. In addition, the



Company consciously follows the policy of environment conservation in the

operation of its hotels in all aspects viz. design, construction and operations. This

environment positioning gives a dual advantage to the Company in terms of

marketing & visibility coupled with lower cost of operations.



Types of Ratios:-

Ratios

Profitability Ratios Financial Ratios Turnover Ratios

a) Gross Profit Ratio a) Current Ratio a) Working Capital

b) Net Profit Ratio b) Liquidity Ratio Turnover

c) Operating Profit c) Debt-Equity Ratio b) Debtors Turnover

d) Proprietary Ratio c) Creditors Turnover

d) Operating Ratio e) Current Assets to d) Stock Turnover

e) Return On Capital Fixed Assets Ratio e) Fixed Assets

Employed Turnoverf) Return on Equity f) Sales to Capital

g) Return On Total Employed

Assets



PROFITABILITY RATIOS

1) Gross Profit Ratio:This ratio shows the margin left after meeting the purchases and

various manufacturing Costs. Higher the ratio higher the Profitability and a

high margin for covering the other expenses like Administration, Selling and

Distribution expenses. The gross profit ratio represents the gross margin.

It is important for the business to maintain this ratio on higher side

otherwise it will be difficult to cover other expenses.

Gross Profit Ratio:

INTERPRETATION

The total income of the TAJ hotels has increased by 13.46% and so has the

Gross profit ratio. The reason for the increase in the revenues is the boom

in the hospitality sector. The gross profit ratio of the hotel, of 57.41%, is

quite reasonable, indicating the control of the inventories department. The

Taj (in

Cr.)

Kamat (In

Lacs)

Bhagwati(In

Lacs)

Industry

Average

Gross Profit (rs.) 1673.50 5697.53 6989.57

Net sales (rs.) 2914.90 12327.84 12104.99

Gross Profit

Ratio

57.41 46.22 57.33 53.65



ratio also indicates that the costs of production amounts to Rs.42.39. It is

also near the industry average, indicating a comfortable position of the

hotel.

On the other hand, Kamat is having a gross profit ratio of 46.22%, which is a

bit low compared to the industry average of 53.65%. This means that the

costing department of the company needs to reduce costs and other

operating expenses otherwise their distributable profits will suffer.

Bhagwati Group of Hotels, has a reasonable profit earning of 57.33%, near

to the industry average. This indicates that the costs of the hotel are under

control of the costing department. The hotel has reasonable profits to

satisfy their operating and non operating expenses.

2) Net Profit Ratio:

It establishes relationship between the Net Profit and Net Sales. Higher the

ratio higher is the Profitability to the company. It measures overall

efficiency of the functions of a business firm like production, administration,

selling, financing, pricing, tax management, etc., A firm with high net profit

ratio would be in an advantageous position to survive in the face of falling

sales prices, rising costs of production or declining demand for the product.

Taj (in Cr.) Kamat (in

Lacs)

Bhagwati (in

Lacs)

Industry

AverageNet Profit

(rs.)

141.25 137.32 957.64



INTERPRETATION

The net profit ratio of Kamat Hotels Ltd. of 1.11 is really low compared to

the industry average of 4.62. This indicates that the expenses of the hotel

are really high and they are not able to retain enough profits. On the other

hand, Taj group of Hotels and the Bhagwati group of Hotels and banquets

are able to save their portion of profits. This indicates that the expenditures

of the Taj and bhagwati group are low compared to the Kamat hotels Lmt.

and it needs to control its expenditure.

The Bhagwati Group of Hotels are earning good profits compared to TAJ

and Kamat group of hotels. This indicates that Bhagwati is having more

distributable profits, compared to the other 2 hotels.

3) Operating Ratio:

This ratio indicates the ratio of operating costs to the sales. It measures

Profitability. Higher the ratio indicates Lower efficiency because a major part

of sales is eaten-up by operating costs and vice-versa. This ratio can be

further analyzed to find out the percentage of each type of Expenses to the

Sales.

Taj (in

Cr.)

Kamat (in

Lacs)

Bhagwati (In

Lacs)

Industry

Average

Net Sales

(Rs.)

2914.90 12327.84 12104.99

Net Profit

Ratio

4.85 1.11 7.91 4.62



Operating Profit

(Rs.)

474.54 3875.26 6009.38

Net Sales (Rs.) 2914.90 12327.84 12104.99

Operating Profit Ratio 16.28 31.44 49.64 32.45

INTERPRETATION

The operating profit ratio indicates that the Bhagwatigroup of hotels are

earning nearly half of their sales as their operating profits. The operating

ratio should always be minimum as it indicates that the company is earning

good returns on the operations front.

The Taj group of hotels has a really low operating ratio. The management

should consider decreasing their operating expenses and increase returns.

The kamat hotels ltd. is near the average, indicating that the operating

expenses of the hotel are under control.

4) Interest Coverage Ratio

This ratio indicates whether the company is able to service its interest

obligations out of the current years profits. A ratio of less than 1 would indicate

that their promoters would have to increase their contributions in the business in

order to meet their interest obligation. A higher interest ratio would indicate that

the company is in a better position to negotiate for lesser rate of interest with the

bankers.



Taj (in

Cr.)

Kamat (in

Lacs)

Bhagwati (in

Lacs)

Industry

Average

Profit After Tax (Rs.) 141.25 137.32 957.64

Interest 122.85 2437.00 676.14

Depreciation 879.44 8704.41 1342.99

Interest Paid 169.59 3242.84 599.71

Interest Coverage

Ratio

6.74 3.48 4.96 5.06

Interpretation

The interest coverage ratio of TAJ group of hotels shows an optimum

position of the group amongst the bankers. The taj group is in a position to

bargain really well on the interest grounds with the banks. The ratio

indicates that all the companies are in a position to clear their interest

obligations with ease.

Still, the Kamat Hotels Ltd. needs to work on their revenues front to bring

their ratio up to the industry level. Nevertheless, they are in a position to

clear their interest obligations.



The Bhagwati Group of Hotels, is doing well on the interest coverage front.

They are close to the industry average, indicating their better position in

the industry and their bargaining power with the banks.

5) Earnings Per Share

This indicates the earnings made by the shareholders on every equity they hold.

Thus higher earning is always desired. The earnings per share is used by the

investors to interpret the earnings of the company. A higher EPS attracts more

investors to the company, resulting to large investor base.

Taj(in Cr.) Kamat (In

Lacs)

Bhagwati (in

Lacs)

Industry

Average

Net Profit After Tax

(Rs.)

141.25 137.32 957.64

No. Of Equity

Shares

733237171 14303681 29286400

Earnings Per Share 1.93 0.96 2.93 1.94

Interpretation



The EPS of TAJ group of 1.93 is appreciable. It indicates that the company is

providing returns to the investors on the investments made. But investing

in Bhagwati group of Hotels would be a right choice. The Shareholders of

Bhagwati Group are earning around Rs.2.93 per share, which is quite above

the industry average of 1.94 and the TAJ group of hotels.

Investing money in Kamat Hotels Ltd., of all the 3 companies, would yield

less returns. So of the 3 companies, as per the EPS, it is recommended to

invest in Bhagwati Group of hotels and secondly in TAJ group.

6) Fixed Assets Turnover Ratio:

This ratio indicates the amount of Sales realized per rupee of

investments in the Fixed Assets. Fixed Assets are those which are utilized in

the business for purpose of improving its earning capacity.

A high ratio indicates that a higher amount of Sales generated per

rupee of investment in the Fixed Assets and Vice-Versa.

TAJ

(in Cr.)

KAMAT

(in Lacs)

BHAGWATI

(in Lacs)

INDUSTRY AVERAGE

Net Sales 2914.90 12327.84 12104.99

Fixed Assets 1725.74 30372.96 23561.79

Ratio 1.69 times 0.41 times 0.51 times 0.87 times

Interpretation:

It can be interpreted from the above table that on an average

industry utilizes 0.87 capacities of fixed assets for generating its sales.





This indicates that the capital is less blocked in case of Taj as

compared to Kamat and Bhagwati.

The Kamat Hotel is also blocking its capital for less number of period.

The Bhagwati’s Stock is more blocked as compared to other two

hotels and this is not good sign for the company because most of the

time the stock is kept for longer period. This indicates improper

management of inventory by the hotel. Due to this short term

solvency position of the Hotel is also affected.

This also indicates increase in burden on working capital.

8) Total Asset turnover Ratio:

This ratio indicates the effectiveness with management uses its assets

to generate sales. A relatively high ratio tends to reflects intensive use of

assets. This ratio measures the effectiveness and profit earning capacity of

the concern.

TAJ (in Cr.) KAMAT (in

Lacs)

BHAGWATI (in

Lacs)

INDUSTRY AVG

NET SALES 2914.90 12327.84 12104.99

TOTAL ASSETS 2261.10 70133.51 30543.02

RATIO 1.29 times 0.18 times 0.40 times 0.62 times

Interpretation:

It can be interpreted from above table that on an average

industry generates 0.62 times of sales on its total assets.



The taj hotel generates 1.29 times of sales on its total assets

which is a good indicator for the company and it double of

the industry avg.

It is also an indicator that it is efficiently utilizing its total

assets.

The kamat hotel is generating 1/3 of the total sales as

compare with the industry standards which indicates that the

hotel is not efficiently utilizing its total assets.

As far as hotel bhagwati is concern it is generating 0.40 times

of sales on its total assets which is less than the industry

average.

9) Debt Equity Ratio:-

Debt equity ratio suggests the proportion of total debts to the shareholders

funds employed in the business. It is used to analyze the amount of debts

borrowed by the company against the total equity available with the company. A

debt equity ratio of above 1 suggests that the company has borrowed more funds

compared to the equity actually available to discharge the debts. The debt to

equity ratio should always be less than 1.

Taj (in

Cr.)

Kamat (in

Lacs)

Bhagwati

(in Lacs)

Industry Average

Total Long Term Debts 1838.73 8422.37 1608.21

Proprietor’s Funds 3228.91 19139.75 14291.75

Debt Equity Ratio 0.56:1 0.44:1 0.11:1 0.37:1



A Project Report on Ration Analysis of Hotel Industry

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