Marred by economic sluggishness, Pakistan’s premium hotel sector was already under pressure prior to Covid-19. Then virus came along and dashed the hopes for a rebound. Pakistan Services Limited (PSX: PSEL), which is the owner and operator of the Pearl Continental (PC) hotel chain, recently released to the bourse its financial results for the half year ended December 31, 2020. The numbers pertain to one hotel group, but they reflect the challenges that a difficult pandemic year has left for the high-end hotel sector.
PSEL primarily runs six high-end PC hotels in Karachi, Lahore, Rawalpindi, Peshawar, Bhurban and Muzaffarabad. During 1HFY21, its topline (on an unconsolidated basis) slumped by nearly two-fifth over same period last year to Rs3.2 billion. The two major revenue streams – rooms and food & beverages –both took a large hit, as customers slowly returned in Jul-Dec period, but not enough as normal times.
At the height of Covid-19, four of the company’s leading hotel locations had to close down during lockdowns last year, battering the revenues. To illustrate the adversity faced after Covid onset, PSEL revenues in peak corona quarter (Apr-Jun 2020) were down 85 percent year-on-year! As a result, PSEL experienced cash flow problems in 2020 and approached lenders for rescheduling/restructuring of loans.
Room occupancy has been taking a blow right since March 2020, as Covid-related traveling situation clipped domestic and foreign visitor traffic under both leisure and business categories. Besides, the indoor restaurants had to either shutter or operate at a much-reduced capacity to remain compliant with the government’s coronavirus SOPs. Rooms took a relatively bigger blow than food & beverages.
However, given that the lockdowns were avoided in the second wave during the winters, it is likely that the the worst is behind the hotel industry. PSEL financials lend credence to this plausibility. For instance, its net revenues declined by 47 percent year-on-year in Jul-Sep 2020 – however, the pace of decline had slowed to 33 percent year-on-year in Oct-Dec 2020. Also, while PSEL had reported an operating loss of Rs42 million in Jul-Sep, the hotelier returned a sizable operating profit of Rs252 million in Oct-Dec.
Better operating performance in 2QFY21 helped PSEL come back to operating profitability at the half-year close, but the hotel chain still has some way before normal profitability is restored. Further topline recovery in two remaining quarters may help PSEL close the fiscal on a profitable note. But it will also depend on how efficient management is with its cost of services and operating expenses, as well as whether it shows prudence in ensuring that finance costs do not pose additional strain on the bottomline.