Hotel Leela

 

The Hospitality Major Is Trading 36 Times Its Trailing Earnings And 5 Times Its Books

AFTER a period of falling revenues, thanks to the economic slowdown and resultant fall in corporate and leisure travel, the hotel industry is witnessing the first signs of a revival. The occupancy levels are once again rising, thanks to attractive room rates, and hotel lobbies are once again full of foreign tourists and corporate executives rushing in from one meeting to another. The rising business confidence in the sector, it seems, has enthused many promoters to raise their stake in their companies. Promoters of Hotel Leela Venture recently increased their stake from 52.5% to 55%, demonstrating their faith in the company's business prospects. 

   The market responded positively to the development and the stock was up 2.5% on Wednesday. In the past one year, the company's stock has given around 140% returns, while the Sensex has given 73% for the same period. This is a second major development for the company in this year. Earlier FMCG major ITC, through its 100% subsidiary Russell Credit, had increased its stake in the company to 5.11% in the September quarter. It held a 4.17% stake in the company in the June quarter. Interestingly, ITC is also in race to acquire a controlling stake in East India Hotels. It remains to be seen where Hotel Leela Ventures features in the ITC grand plans to emerge as the undisputed leader in the Indian hospitality industry. Meanwhile, the company is planning to redeem the outstanding € 51.4 million (Rs 345 crore) foreign currency convertible bonds (FCCBs) and will decide on funding options by January 15. These bonds are due in September 2010. The company could choose between external commercial borrowings or internal accruals. The company has two series of FCCBs; the other series is for $100 million (Rs 470 crore), which will be due only in March 2012. 

   As on March 31, 2009, the hospitality company bought back and cancelled 23.7% of the outstanding € 51.40-million bonds amounting to € 12.20 million. It also bought back and hence cancelled $33 million worth of bonds constituting a third of its total dollar-denominated bonds. The amount of bonds outstanding, after this repurchase, is € 39.20 million and $66.6 million, respectively. At the end of FY09, the company had total debt outstanding of around Rs 2,500 crore on its books. The stock is currently trading 36 times its trailing earnings and nearly five times its book in FY09. This makes it one of the most expensive stocks in the sector.