Asian Hotels

 

 

Asian Hotels (North) likely to gain from an influx of tourists & sportsmen for the Games in Delhi. Long-term investors can consider this stock

 

DELHI-BASED Asian Hotels (North) is one of the cheapest stocks among its peers. The company owns the strategically located Hyatt Regency in Delhi and is set to gain from the influx of tourists and sportsmen for the Commonwealth Games in Delhi later this year. Besides the company is almost debt free and has one of the best operating margins in the industry. This makes it an attractive investment for long-term investors at its current price.

BUSINESS :

It is the parent entity of the erstwhile Asian Hotels, which was demerged into three independent companies — Asian Hotels (North), Asian Hotels (East) and Asian Hotels (West) earlier this year. This was done to satisfy the ambitions of the three original promoter families of the Asian Hotels — Jatia, Gupta and Shroffs. Asian Hotels (North), owned by Jatia family, controls the flagship property of the group. With nearly 520 rooms and suites, Hyatt Regency, New Delhi, is one of the largest five-star properties in the country. This provides economy of scale and enables Asian Hotels (North) to earn one of the highest operating margins in the industry. Besides, NCR now leads the country in terms of room rates outdoing Bangalore. With the upcoming Commonwealth Games, room rates in Delhi are expected to rise further.

   Another big positive for Asian Hotels North is the strategic location of its property. Located near Delhi's diplomatic enclave and on the way to the international airport, the hotels have gained from increase in diplomat traffic, government sponsored events besides general buoyancy in business travel to the city.

   The company reported exceptionally good performance in the March 2010 quarter with net profit of Rs 26 crore, a jump of 70% on despite 40% fall in revenues due to demerger. The company reported an operating margin of 54% during the quarter and expects to sustain it in the next few quarters. There are two factors behind this bullish estimate. Firstly, there is a strong momentum in foreign tourist inflow and business travel that has translated into increased occupancy rates and higher average room rates. Secondly, there is a scope for a further rise in average room rates as they are still below their levels a year ago.

GROWTH PLANS :

Its flagship Delhi property is set to get even bigger with the addition of 35 additional rooms by September this year followed by a brand new tower with a total built area of around 1.66 lakh square feet. Scheduled to be commissioned by the middle of next calendar year, it will house service apartments and retail outlets. The project is expected to raise Asian Hotels (North) capacity by nearly 60%.

   The company would fund this growth by issuance of equity shares to qualified
institutional buyers or raising foreign currency convertible bonds to raise around Rs 250 crore.

VALUATION:

The company at present is quoting at a price-to-earnings multiple of 8 times (standalone). This is, by far, the lowest a hotel company is quoting. For instance, even the segment leader Indian Hotels Company, on a standalone basis, is quoting a price-to-earnings multiple of 60 times. More so, with increasing positive cash flow from operations and debt-to-equity ratio of just 0.23, the company is the least leveraged hotel player at present. Long-term investors are advised to buy into the company's stock at the current market price.