HOSPITALITY Good times to continue: Q3FY11 Result Preview: Edelweiss

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

HOSPITALITY
Good times to continue: Q3FY11 Result Preview: Edelweiss


􀂄 Key highlights of the sector during the quarter
Hotels across cities are witnessing better occupancies Y-o-Y due to strong revival in
business sentiments. As per DGCA, air traffic jumped 23.5% during April-November
2010 against the corresponding period in 2009, signaling strong revival in the
overall business environment. Occupancies are up 10-15% across major cities Y-o-
Y, with cities like Delhi, Kolkata, and Chennai witnessing more than 70% occupancy
in October 2010. In the current tourist season, hotels are looking forward to ORs of
75-80% after a long lull. ARRs are expected to show strong growth and are
expected to remain buoyant in Q4 as well. FTA growth in January-November 2010
was 10.4% (4.93 mn arrivals) against 14.8% during November 2010 Y-o-Y.

Due to adverse publicity during Commonwealth Games 2010, FTA’s during October
2010 were not as per expectations. 2011 Cricket World Cup during February and
March 2011 are expected to keep ORs high.
􀂄 Result expectations for the sector and stocks under coverage
With ORs of 75-80% and 10-15% Y-o-Y rise in ARRs, we expect hotel companies to
report EBIDTA margins of 35-40%. After a turbulent 2009 and 2010, we expect the
current quarter to be one of best quarters for the Indian hospitality sector due to
the healthy business environment and general feel good factor in the economy. Due
to the continuous writing off of members by MHRIL, we expect membership
additions to remain under pressure. We expect the changes adopted by the
company to take a few more quarters to reflect positive results. Cox & Kings is
expected to post a normal 15-20% growth in sales. Same store sales (SSS) growth
in the case of Jubilant Foodworks (JFL) is expected to come off from the 40% plus
reported in H1FY11 due to the high base effect.
􀂄 Outlook over the next 12 months
With strong revival in the economy, we expect hotel companies to report robust ORs
and ARRs over the next 12 months. Strong revival in domestic air traffic during
January-November 2010 is indicative of buoyancy in leisure and business traffic.
Sports events like Cricket World Cup in Q4FY11 are expected to be conducive to
hotels for reporting strong numbers. MHRIL is facing strong headwinds to increase
its membership base as growth in the number of rooms has slowed down
dramatically. With international operations already contributing more than 50% to
sales, we expect CNK to report strong growth in numbers (we have not factored in
any acquisition from CNK). The SSS growth of JFL is expected to come off due to
high base effect going forward.
􀂄 Recommendations
Top picks: Indian Hotels, Taj GVK.