Buy Indian Hotels; target of Rs 101: IIFL

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Buy Indian Hotels; target of Rs 101: IIFL

IIFL is bullish on Indian Hotels and has recommended buy rating on the stock with a target of Rs 101 in its June 6, 2011 research report.

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IIFL is bullish on Indian Hotels and has recommended buy rating on the stock with a target of Rs 101 in its June 6, 2011 research report.

"Indian Hotels, FY11 saw average occupancies across luxury hotels in major cities up 200-900bps yoy except for pockets of weakness like South Mumbai. Although Hyderabad and Chennai saw room inventory additions in FY11, robust demand meant occupancies were up 500-800bps. Our talk with metro-focused companies suggests H2 FY12 could see moderate 5-8% ARR hikes in major metros. Bangalore may be an exception and may see a subdued 3-4% rise as impending supply looms."

"Tata Sons has infused Rs5bn through preferential & part conversion of warrants at Rs104/share which would help lower leverage (FY12E net D/E down to 1.1x from 1.5x in FY10). With a lightened balance sheet, the focus is now on turnaround of US operations, which posted cash loss of USD 22mn in FY11. In its post results meet, company indicated Pierre, its flagship US property in NY, could have additional USD 200 ARR headroom above its FY11 avg of USD 618, which would then put it at par with other comparable properties. FY11 consolidated EBIDTA margin fell to 15.8%, close to its FY02 level of 15.3% and not far from previous cyclical trough. We expect FY11 to be the low point in current margin cycle as sustained upswing in occupancies and moderate ARR hikes in H2 FY12 lead to revival in domestic operations. Encouragingly, IHCL Q4 FY11 standalone margin of ~35% was highest since Q3 FY09."

"Occupancies are likely to maintain their upward momentum in current fiscal across majority of markets; also, steady domestic economy and upswing in foreign tourist arrivals is likely to support a reasonable 5-8% ARR hikes across luxury property portfolio in H2 FY12. In addition, IHCL would add another ~730 owned rooms over next 2 years, which would aid volume expansion. Another key trigger could be turnaround of US operations (~14% of total revenues), which would help ease pressure on consolidated profit. Stock trades below its historic 1-yr fwd EV/EBIDTA of 15.5x which leaves enough room for upsides. BUY for 9-mth Target price of Rs101. Key risk to our call includes lower than expected ARR increase and subdued momentum in turnaround of US operations," says IIFL research report.

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