Buy Royal Orchid Hotels; target of Rs 78: KRChoksey

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Buy Royal Orchid Hotels; target of Rs 78: KRChoksey

KRChoksey is bullish on Royal Orchid Hotels (ROHL) and has recommended buy rating on the stock with a target of Rs 78 in its June 8, 2011 research report.

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KRChoksey is bullish on Royal Orchid Hotels (ROHL) and has recommended buy rating on the stock with a target of Rs 78 in its June 8, 2011 research report.

"Royal Orchid Hotels (ROHL) is an established Player in the hotel industry with presence in 11 cities with 18 properties having 1622 rooms across categories like: 5-star, 4-star, Resorts and serviced apartment serviced apartments. The company is on an expansion spree and is setting up new hotels at Noida, Baruch, Surat, Mumbai, Hyderabad, Shimla. The group will make its international foray by establishing a beach Resort at Dar-es-Salaam, Tanzania by 2012 (Construction cost ~ Rs 100 Crs for which 30 acre land is already acquired). The group also operates the Presidency College of hotel management in Bangalore, which provides easy access to a ready pool of trained talent for keeping pace with the growing needs of the industry."

"The company is expanding its current capacity of 1622 Keys by additional 1115 Keys in the next 3 years to reach at a 2737 Keys count. The overall expansion is the sum of 383 keys expansion in Owned Hotels (4-Star~104, Balance 5-Star), 260 Keys in JV's, 457 Keys in Leased Hotels and 286 under Management Contracts. The company's average occupancy rates have improved from the lows of close to 50% in FY10 to over 60% in FY11, the management expects to maintain the occupancy at similar levels. The ARR's on blended basis are around Rs 4500/Room, the management anticipates a 10% y-o-y increase in ARR's from the current levels. The company's target operating margins are around 40% (margins rarely go above 60% in this business). The current EBITDA margins are close to 26% and the management has guided to improve the same in FY12."

"At the current market price of Rs 63.5 per share, ROHL is trading at a PE of 9.3x FY12E Earnings. The company is available at compelling valuations with EV/ Room of Rs 0.8 Crs FY11 and Rs. 0.6 Crs FY12E and P/BV of 0.83x FY11. We value the company at 11.5x FY12E earnings and recommend at BUY with a price target of Rs 78/Share, an potential upside of 24% from current levels," says KRChoksey research report.

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