Asian Hotels

Asian Hotels could benefit post demerger. Its P/E compared to the peers is pretty attractive

Delhi-headquartered Asian Hotels is a leading owner and operator of five star hotels and resorts in the country. The company’s properties are operated by Hyatt International that provides marketing, branding and management services. Beginning with Hyatt Regency in Delhi, the company now has one property in Mumbai and Kolkata with total room inventory of around 1,200.

RE-STRUCTURING:

The company is in a restructuring mode and it will be divided into three independent companies each owned by its Asian Hotels key promoters –the Jatia Group, the Gupta Group and the Saraf Group. These three promoter families together own 63.6% stake in the company. Post de-merger, nonpromoter shareholders will get an equal numbers of shares in three companies. For every existing 10 shares held in the company, the shareholders would be allocated five equity shares in each of the three entities post the demerger.

The flagship Delhi property will remain with Asian Hotels; Kolkata property and development option at Bhubaneswar besides some cash will be spun off into Vardhman Hotels, while Mumbai and development option at Bangalore and some cash will be merged into Chillwinds Hotels. In the past all major demergers and spin offs such as the one in Reliance Group and Bajaj Auto have created shareholders value and there’s nothing to believe why it would be different in this case.

FINANCIALS:

The company’s net sales have grown at a CAGR of 11.7% in the last three years ending FY09. Its net profit has increased at a CAGR of 47% in the last three years. The company in March 2008 entered into a new business segment of power generation. With the exception of FY08, when it cut its dividend pay-out by 90%, the company has been generous in sharing profits with shareholders and never missed dividends in last 15 years.
The company is into cash conserving mode and is parking its free cash flows in safe investment vehicles.

GROWTH PROSPECTS:

With Commonwealth Games scheduled in Delhi next year Asian Hotels is likely to be a major beneficiary. With over 500 rooms, Hyatt Regency is the largest hotel in NCR region and in FY08, it accounted for nearly 48% of Asian Hotels’ annual revenue of Rs 513.5 crore. The company’s cash flow from operations has grown at a CAGR of 30% to Rs 176.56 crore in the last three years till the year ending March 2008. It has been consistently generating positive cash flows from its operations.

VALUATION:

In last one and half months, the stock has appreciated by nearly a third, but at a price-to- book value of 1.23, it’s still one of the cheapest stocks in the sector. Moreover, it’s nearly debt free and flush with cash unlike many of its peers. At its current stock price of around Rs 400, its P/E is around 14 times its earnings in last 12 months. In comparison, its peers such as EIH, Taj GVK and Hotel Leela is trading at P/E multiple of 20-30 times. All this makers it an attractive buy for long-term investors.

Sector View on Indian Hotel Industry

ICICI Securities on EAST INDIA HOTELS (EIH)
EIH recorded 7.8% growth in its revenues, which is in line with our expected revenue of Rs 241.5 crore for Q2FY09, led by better performance of its Mumbai (Trident and Oberoi) and Delhi properties. Combined together, these two properties account for nearly 71% of its owned room base. We expect EIH’s revenues to continue to grow in FY09E and FY10E once its BKC project starts operation by Q3FY09 end.

Indiabulls Securities on INDIAN HOTELS

IHCL has hotels across various segments and geographies. However, there is a growing trend towards mid- and lower-priced hotels, which are comparatively less susceptible to the fall in the occupancy rate and the ARRs. It has planned aggressive capacity expansions for its Ginger Hotels chain, and has launched the Gateway brand, which is positioned between Ginger and ICHL’s luxury chain.

PINC Research on TAJGVK HOTELS & RESORTS

While we like TajGVK Hotels and Resorts’ business model on account of its diverse product portfolio and ability to leverage its offerings to maximise revenues, we believe that the ongoing turmoil in the global economy will lead to a clampdown in discretionary spending, by both corporates and individuals. This has the potential to impact revenues and profits.

ICICI Securities on HOTEL LEELA

Hotel Leela currently operates 1,115 rooms. The company has plans to add a further 1,486 rooms over the next four years. This expansion involves a project cost of around Rs 2,000cr. However, due to the current global financial market turmoil, liquidity crunch and expected sluggish demand for premium rooms, its project execution may get delayed in cities like Pune, Hyderabad and Chennai.

KRChoksey Shares and Securities on KAMAT HOTELS

It is one of the major mid-sized players in the Indian hotel industry. It is charting an expansion plan in the western regions of the country. It is expected to increase its owned and managed room base from 755 in FY08 to around 2,500 in FY10E. With an expected EPS of Rs 27 in FY10E, the stock is available at a P/E of 1.55 and a P/B of less than 0.4.

KRChoksey Shares and Securities on VICEROY HOTELS

The stock shows promise due to its advanced project pipeline. The room base is expected to triple by FY10. It has franchisee agreement with Marriot International. The company is expanding its geographical reach. It is also successfully tapping the huge opportunity in the F&B space though its restaurant business. Viceroy Hotels currently trades at 4x FY10E Rs 6.45 EPS. It looks attractive at a P/B of 0.48.