Stock Review: Kamat Hotels

 

In the past seven trading sessions, the stock price of small-sized hotels company Kamat Hotels has increased by more than 25%, outstripping the 3.7% jump in the ET Hospitality index.

The renewed investor interest in the stock follows the news that the company plans to amalgamate its restaurants and resorts business with its core hotels business.

The company has announced to amalgamate Kamats Restaurants, Kamat Holiday Resorts (Lotus Resorts, Murud) and Lotus Resorts Goa unit owned by Kamats Holiday Resorts (Silvassa).

The company has been in the restaurant business for more than 70 years and it is one of the profitable business ventures of the Kamat Group. It has 35 restaurants that carry its flagship brand 'Kamat.' In the coming quarters, the amalgamation of the restaurants segment should enhance Kamat Hotels' topline growth (full year) by around 20% and the bottomline (full year) by . 5 crore.

On a consolidated basis,the hotels chain had reported net sales of . 102 crore and a net loss of . 9 crore during financial year 2010. A higher interest burden, which doubled to . 35 crore in FY10, has impacted the company's earnings in the past two fiscals.

On a consolidated basis, the company has a debt of over . 400 crore. In the coming quarters, it plans to reduce one-fourth of the debt by selling off its five-lakh square feet land in Pune. In the next two years, it would also be able to reduce its debt by converting its . 200 crore foreign currency convertible bond into equity. This would reduce its debt-equity ratio to 0.5 from two.

The company's average occupancy rate has improved by 5% to 75%. The average room rate has also improved by equal percentage points to . 7,000 in the past 12 months.

This augurs well, given the proposed addition of rooms at its various properties. For instance, Mumbai-based Orchid Hotels would double its rooms to 245 by FY12. Its resorts in Udaipur and Karnataka are also undergoing a phased expansion. Further, their cost of operations is lesser since they operate on a management contract model. Given these growth drivers, the first half of FY12 looks promising for Kamat Hotels.