Buy Indian Hotels: Citigroup

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Buy Indian Hotels: Citigroup

Broking house, Citigroup is bullish on Indian Hotels Company and has reiterated buy rating on the stock.

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Indian Hotels BSE | NSE 25/05/12 Are Mutual Funds betting on Indian Hotels?

Broking house, Citigroup is bullish on Indian Hotels Company and has reiterated buy rating on the stock.

Citigroup report on Indian Hotels Company:

What's new:

"Indian Hotels (IHC) has approved amalgamation of some subsidiaries and associates - Asia Pacific Hotels (100% sub), Indian Resorts Hotels (18.8% stake), Taj Lands End (19.9% holding), Gateway Hotels & Getaway Resorts (45.24% stake), and Kuteeram Resorts (25% stake) with the company."

Scheme of amalgamation:

"IHC will merge these companies with effect from 1 April 2006 on issuing fresh equity shares for their outstanding equity capital based on a swap ratio. However, all shares held by IHC in these subs/associate shall stand cancelled and no shares shall be issued pursuant to the scheme of amalgamation."

Swap ratio for amalgamation:

"1) 2:7 shares of Rs 10 each for Indian Resort Hotels; 2) 10:47 share of Rs 10 each for Gateway Hotels and Getaway Resorts; and 3) cancellation of IHC's existing direct and indirect stake which give 100% control in Asia Pacific, Taj Lands End and Kuteeram Resorts; this remains subject to the requisite approvals of the regulatory authorities."

Rationale:

"We believe this is primarily to consolidate single property hotels in key growth cities like Goa (285 rooms), North Mumbai (334 rooms) and Bangalore (106 rooms) within the company for better control and efficient management."

Impact:

"Prima facie, we believe this amalgamation is positive. While this would result in marginal 2% equity dilution for IHC, we see this contributing towards incremental revenues and earnings. We await more details. Reiterating a Buy."