Why are hotel stocks buzzing?

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The hotels stocks are buzzing over the last couple of days. CNBC-TV18's research analyst Rahul Arora, puts it to increase in demand over supply in the hotel industry. He says that all the 5-star hotels in the country put together, there are about one-lakh rooms. But about 4 million tourists came in 2005. Going forward, this number is expected to go up by about 15-20%.

As a result, the room rents have gone up by about 30% on an average in the quarter that ended in December. In respect of 5-star hotels, the hike is in excess of 50%.

This has a bearing on the valuation of the hotel stocks. For example, Jaypee Hotels is up about 15% and is trading at about 43 times. The industry average is expected to be above 25 times 2006 levels. Even Taj GVK is about 42 times one year forward. Kamat Hotels is about 30 times in 2006, Hotel Leela is about 33 times.

Stock	Open:	Close: 27 Dec/05	% Change
Jaypee Taj GVK Kamat Hotels Hotel Leela Indian Hotels	Rs 121.1 Rs 253.45 Rs 197.7 Rs 345 Rs 1298.8	Rs 63.15 Rs 175.60 Rs 134.45 Rs 278.85 Rs 977.15	91.7% 44.3% 46.5% {UP} 23.7% 32.9%

 

 

 

 

 

 

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Rahul adds that going forward, supplies are going to be an issue. He says that even if one takes other valuation matrix like EV to EBITDA or EV to sales, the numbers still look very big. Jaypee is about 20 times on EV to EBITDA basis and the East India Hotels is about 24 times EV to EBITDA. Indian Hotels about 50 times 2006 and about 36 times EV to EBITDA.

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