Is it the right time to check into hotel stocks?

A: The outlook for the hotel sector remains good considering the tourist arrival growth, which is at 13-14%. Domestic crowd that is trickling has added a kind of double impact for hotel companies.

Last year, there was substantial growth in ARR, Average Room Rent, and OR, occupancy rate, and the same has continued in the month of April and May. April and May has seen a decent growth in ARR of about 20% across India, except for Jaipur.

In case of occupancies, except for Hyderabad where there is a drop of 200 basis points in OR, in all other cities there is a rise of 100-150 basis points. So the trend for 2005-06 is well continuing into the first two months atleast. We are positive for 2007 and 2008 for both ARR and occupancies.

A: The top pick ofcourse will be the biggest stock in the hotel pack-Indian Hotels because it has a pan India presence. It has 64 properties, so one is not exposed to any specific pocket or any specific city. And when the entire nationwide ARRs are up and occupancies are up, Indian Hotel should benefit the most.

In terms of earnings, the company did about Rs 42 on a consolidated basis in 2006 and we are looking close to about Rs 60-62 earnings for 2008 and close to about Rs 58-Rs 60 earnings for 2007. One would say that we are a bit conservative for 2008 at this point in time, because we would like to see over the next six months how ARR actually pans out. Atleast in the first two months, it is very interesting. On the valuation front, it trades around 20 times and historically if one sees Indian Hotels, it always trades at 25 times its forward earnings.

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