Buy Taj GVK Hotels; target of Rs 100: Angel Broking

“TajGVK reported a 5.8% yoy decline in its top line to Rs66cr (Rs70cr) for 3QFY2012. The company’s OPM came in at 28.2%, as against 32.1% in 3QFY2011, down 1,129bp yoy. Occupancy rates (OR) especially for Hyderabad remained weak during the quarter. Chennai hotel showed strong improvement over 3QFY2011, with its overall OR coming in at 71% and average room rate (ARR) at Rs5,300. We are positive on the outlook of the company, given that the key markets of the company, Hyderabad and Chennai, are showing signs of stabilizing. We maintain our Buy recommendation on the stock.”

“ARR fluctuated across Hyderabad properties due to the ongoing issues over Telangana. Taj Krishna reported a 16.2% yoy decline in OR to 57%; but, at the same time, its ARR improved by 16.4% yoy to Rs8,500 in 3QFY2012 from Rs7,300 in 3QFY2011. Taj Deccan and Banjara also witnessed a decline in OR to 65% and 60%, respectively, from 67% each in 3QFY2011. ARR also declined for these properties on a yoy basis to Rs5,400 and Rs5,152, respectively. Taj Chandigarh’s OR declined to 63% in 3QFY2012 from 72% in 3QFY2011; and its ARR declined to Rs6,841 in 3QFY2012 from Rs8,000 in 3QFY2011. Taj Chennai was the only hotel to witness an increase in OR to 71% from 65%; and its ARR increased to Rs5,300 in 3QFY2012 from Rs5,200 in 3QFY2011. The company commenced operations at its new Begumpet property during the quarter.”

“We maintain our positive outlook on the entire hotel industry, as increasing foreign tourist arrivals and economic growth will lead to a further increase in demand for hotel rooms. TajGVK is expected to benefit from the addition of its 189-room property in Begumpet, which has taken its owned rooms to 1,086 from 897 currently. The stock is currently trading at attractive valuations of 9.0x itsFY2013E EPS. We have valued the stock at 12x its FY2013E earnings. We maintain our Buy view on the stock with a revised target price of Rs100,” says Angel Broking research report.  

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