Buy Hotel Leela Venture; target Rs 39: SKP Securities

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Buy Hotel Leela Venture; target Rs 39: SKP Securities

SKP Securities is bullish on Hotel Leela Venture (HLVL) and has recommended buy rating on the stock with a target of Rs 39 in its January 13, 2012 research report.

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SKP Securities is bullish on Hotel Leela Venture (HLVL) and has recommended buy rating on the stock with a target of Rs 39 in its January 13, 2012 research report.

"Hotel Leela Venture (HLVL) operates hotels and resorts in India. The company's portfolio comprises of five star deluxe hotels primarily in Mumbai, Bangalore, Goa, Delhi and Udaipur with a current capacity of 1275 rooms and also manages one hotel at Gurgaon with a capacity of 412 rooms. Company's main focus is on the high end premium market catering to discerning business travelers and tourists."

"Hotel leela has five fully owned properties in key cities Bangalore, Goa, Mumbai, Udaipur and New Delhi and one property at Gurgaon is under O&M contract. Going forward company is focusing towards management contract or joint venture agreements with property owners which will reduce the initial expenditure towards acquisition and development of properties. In FY12 Hotel Leela had started operation of its Delhi property with a capacity of 260 rooms. Company is expecting ARR of over Rs. 20000 from its Delhi hotel. Company's Chennai hotel with 329 guest rooms and suites is expected to become operational in FY13. In coming years, Delhi and Chennai will contribute major revenue to the topline."

"Presently, total demand for branded hotels in India is about 2,00,000 rooms whereas supply is only about 1,20,000 rooms, therefore there is a huge gap to be filled in. In FY11 occupancy levels of the overall industry grew by 1.7%. Hotel Leela with its strong presence in major cities is well poised to benefit from of growing demand. Occupancies and ARR for its all hotel properties are increasing rapidly after the recovery, which will positively reflect in topline of the company. Hotel Leela has recently announced the sale of its Kovalam property for a total cash consideration of Rs. 500 crore. Company will continue to manage this hotel through a long term management contract. This initiative has been taken to ease the company's total debt."

"At current market price of Rs 32/-, Hotel Leela is trading at EV/EBITDA of 23.3x and 15.7x of FY12E and FY13E EBITDA, respectively. We have valued the stock at 15x its FY13E EV/EBITDA (which is inline with its historical average). We hereby initiate coverage on HLVL Ltd. and recommend buy rating with a target price of Rs. 39/- (22% upside) in 12 months," says SKP Securities research report.

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To read the full report click on the attachment