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.

Stock View on AIA Engineering, Container Corp, Kamat Hotels, Bajaj Hindustan

KOTAK Securities on AIA Engineering - TARGET PRICE: RS 1,870

KOTAK Securities has maintained its “buy” recommendation on the stock saying the stock is attractively valued at current levels, in the context of its growth prospects. The brokerage says that despite sharp increases in raw material prices and sharp rupee-dollar movements the company has been able to effectively maintain its operating margins, as it has been able to pass on price hikes. “Going forward, the management is confident of maintaining the margins in the 23-25% range. We maintain our earnings estimates for AIA and expect it to report an EPS (earnings par share) of Rs 98.1 in FY09E (estimated),” the Kotak Securities note to clients said. “The current market price, said the Kotak note, discounts FY09E earnings at 16.1, which we believe is attractive considering the growth prospects for the company going forward due to capacity expansion and strong demand for the products of the company,” the note added.

ENAM Securities on Container Corp - TARGET PRICE: RS 1,035

ENAM Securities has maintained its “outperformer” rating on the stock. Enam believes that despite improving visibility on earnings (19% CAGR over FY07-09E) and sustainability of RoE (return on equities) at around 25%, the stock trades at a 12% discount to the Sensex valuation. “Compared with global peers, admittedly with high barriers to entry, Container Corporation trades at 40% discount,” the Enam note said to its clients. According to Enam, growth in India’s export-import trade and investment in rail, road and ports infrastructure would drive growth for the company. “Steep increase in rail haulage charges had dampened volume growth in the past three years. Current pricing environment remains stable, with IR to hike haulage charges twice a year,” said the note. The brokerage expects Container Corporation EXIM throughput to revert back to long average of 14% per annum. “Lower flat discounts and increase in tariff are expected to drive 244 bps expansion in EBIT margin over the next two years,” the note added.

Sharekhan on Kamat Hotels

SHAREKHANhas initiated coverage on Kamat Hotels and has advised investors to maintain a cautious view on the stock. Though the stock is attractively priced, the inability of the hotel group to fund its expansion plans is a key potential risk to the earnings estimate for FY10, the research note said. “The company’s revenues are heavily dependent on two properties — The Orchid and VITS — in Mumbai. These two properties are like to face stiff competition with incremental supply of rooms from Sahara Star. We believe, the occupancy rate of these properties may remain suppressed due to economic slowdown,” the Sharekhan report added. According to Sharekhan, the hotel group’s growth would be driven by a 37% rise in its room inventory to 773 rooms by FY10. Also, an increase in properties under management contracts will contribute to the topline growth.

MORGAN Stanley on Bajaj Hindustan - TARGET PRICE: RS 240

MORGAN Stanley has assigned an “overweight rating” on Bajaj Hindustan, as it expect the company to do well in coming months. As the largest domestic sugar producer, Bajaj Hindustan seems well positioned to benefit from the favourable domestic sugar outlook, the brokerage said in a report. “As our expectation of a tighter sugar balance unfolds, investors may start discounting the higher sugar and ethanol realisations. BJH has increased crushing and distillery capacity more than three times in three years and seems poised to drive revenue growth in a constructive pricing environment,” said the Morgan note to clients. Aggressive government intervention to control sugar prices and cane cost could be one of the risk factors, according to Morgan. “We expect a sharp rally in Bajaj Hindustan’s stock price as the company reaps the benefits of aggressive capacity expansion in a constructive sugar pricing environment. We estimate the stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data,” the note added.