Though Hotel Leelaventure leveraged higher average room rents (ARR) in the March 2007 quarter, a rising cost structure put pressure on its margins. As a result, the company’s operating profit grew merely 3.3 per cent y-o-y to Rs 47.2 crore in Q4 FY07, while sales grew 18.2 per cent to Rs 116.7 crore.

Its operating profit margin declined 530 basis points y-o-y to 40.4 per cent in the last quarter.

This pressure on Hotel Leelaventure’s margins in the last quarter was due to other expenditure as a percentage of sales going up by 410 basis points y-o-y to 32.7 per cent.

Analysts attribute this increase in expenditure to higher marketing spends and year end commissions paid to managers. In contrast, Indian Hotels’ standalone operating profit margin grew 590 basis points y-o-y to 42 per cent in the last quarter.

Meanwhile, Hotel Leelaventure’s ARR was Rs 11,939 in Q4 FY07 as compared with Rs 9,291 a year earlier, helped by its Bangalore property which contributes nearly half its total income, where ARRs had reached close to Rs 19,000 levels.

Hotel Leelaventure’s consolidated operating profit margin also declined 80 basis points y-o-y to 46.5 per cent in FY07. During the year, it also earned Rs 41 crore as profit on sale of Leela Business Park in Mumbai.

In FY07, Indian Hotels’ ARRs in key markets like North Mumbai had increased by 43 per cent y-o-y to Rs 9,600, while in New Delhi they improved 36.7 per cent to Rs 10,800.

Going forward, Leelaventure is expected to grapple with a saturating Bangalore market, and the fact that a large part of its new properties will not be ready till FY10.

In addition, analysts also point out that Leelaventure’s recent land acquisition in South Delhi has been done at a high valuation, which would result in this property taking considerably longer time to break even, once it is operational.

As a result, at Rs 52, the stock trades at about 15-16 times estimated earnings for FY08 and leaves little room for further upside.