Stock Review: EIH

This stock looks good from a fundamental and strategic perspective. This is a company which is available very close to its two year low currently at close to Rs 80. They own and operate hotels under the Oberoi and Trident brand name. They have close to 30 properties which they own and manage out of which seven properties are located outside India and about 22-23 properties are in India.

They have close to eight-10 new propertie, which are under various stages of development which will take the total number to 40 properties over the next few years. Besides the hotel business, they also are into other allied businesses like cruise liners, they own a travel agency by the name of Mercury Travels, they are into flight catering and aircraft charter services.

At the current market price of Rs 80, the marketcap of the company is close to Rs 4,500 crore with a debt of close to Rs 1,400 crore on the balance sheet which means the enterprise value is close to Rs 6,000 crore. The enterprise value looks small given the valuation of various properties. In this kind of market you may have a number of companies which fit into these criteria and not just EIH.

I find investment in EIH maybe fruitful from a strategic point of view also because two large corporate houses hold the Reliance Mukesh Ambani Group acquired shares from the promoters about six months back at close to Rs 184. They currently have about 14.8% stake. At the current price of Rs 80, the stock is available at about 60% discount to the price at which Mukesh Ambani Group bought the shares from the promoters.

In case ITC increases it's holding by 0.02% or Reliance by 0.2% that will trigger a mandatory open offer as per SEBI guidelines. For an investor looking for 25-30-40% return in this stock, given the fundamentals and given the market, the stock has been depressed and 30-40% return over a one year period may not be difficult.

However, the bigger trigger would be, the number of unknowns and uncertainties with regard to whether they will make an open offer and under what circumstances and what could be the timing or trigger for the open offer. Those could be the unknowns but more money could be made by investors who choose to just buy and take the risk of the unknowns at this point in time. Those looking for 25-40% returns in this stock may not find it difficult given the current fundamentals.

In the extreme short-term, however, this stock may be under pressure because of the fact that the company just come out with the rights issue at about Rs 66. There could be supply pressures when those shares hit the market but that kind of an opportunity should be used to accumulate the stock at about Rs 80 or in case it declines to about Rs 75.