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Taj GVK Hotels -Capacity additions drive revenue growth…
Taj GVK Hotels came out with its Q3FY11 numbers that remained
marginally above our estimates. The company reported net revenues of
| 70.2 crore, up 9.4% YoY, as against our expected net revenues of |
68.3 crore. The revenue growth mainly came from incremental revenues
from the new Chennai hotel property and partially from the rise in
average occupancy levels that increased from 64% in Q3FY10 to 68% in
Q3FY11. However, operating margins witnessed a marginal contraction
of 79 bps YoY on account of incurring of higher operating costs
connected with the new hotel. As a result, net profit for the quarter
grew 5.9% YoY to | 12.9 crore.
Revenue grows on launch of new inventories and rise in occupancy
Average occupancy levels for the quarter increased by 400 bps YoY to
68% in Q3FY11. Average occupancy levels in Hyderabad declined from
73% to 68% YoY while Chennai recorded an improvement in occupancy
levels from 40% to 65% due to last year’s low base effect. Chandigarh,
however, performed well with average occupancy and ARRs rising by 400
bps to 77% and 11.1% YoY, respectively. As a result, the company was
able to post 9.4% YoY growth in its operating revenues. However, due to
incurring of higher operating costs, it reported a 79 bps contraction in its
operating margins, although it remained the best in the industry so far.
PAT growth remains muted on margin contraction, high interest
With the decline in margins and 14.5% rise in interest costs, net profit of
the company grew by only 5.9% YoY to | 12.9 crore, though it remained
above our estimates.
Valuations
At the CMP of | 100, the stock is available at 7.8x and 6.3x its FY11E and
FY12E EV/EBITDA, respectively. This is at a discount to its comparable
peers (i.e. at 12.0x FY12E EV/EBITDA). Despite concerns over rise in room
supply, in Hyderabad, Taj GVK is expected to maintain its market share in
our forecast period FY10-12E, as it is competitively positioned in terms of
room rates against its competitors. Hence, we have assigned an ADD
rating to the stock with a target price of | 108 (i.e. at 7.0x FY12E
EV/EBITDA).
Future expansion plans
The company is exploring the possibility of entering the value for money
chain segment through Ginger brands in Andhra Pradesh. This involves a
total investment outlay of | 42 crore for 250 rooms. Apart from this, the
company is focusing on its premium segment hotel project Taj Begumpet
in Hyderabad, which is expected to get completed in Q4FY11E. The
company is also exploring opportunities in IT hub Bangalore for which it
has also acquired a six-acre land in Bangalore (Shivna Haldi area).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Taj GVK Hotels -Capacity additions drive revenue growth…
Taj GVK Hotels came out with its Q3FY11 numbers that remained
marginally above our estimates. The company reported net revenues of
| 70.2 crore, up 9.4% YoY, as against our expected net revenues of |
68.3 crore. The revenue growth mainly came from incremental revenues
from the new Chennai hotel property and partially from the rise in
average occupancy levels that increased from 64% in Q3FY10 to 68% in
Q3FY11. However, operating margins witnessed a marginal contraction
of 79 bps YoY on account of incurring of higher operating costs
connected with the new hotel. As a result, net profit for the quarter
grew 5.9% YoY to | 12.9 crore.
Revenue grows on launch of new inventories and rise in occupancy
Average occupancy levels for the quarter increased by 400 bps YoY to
68% in Q3FY11. Average occupancy levels in Hyderabad declined from
73% to 68% YoY while Chennai recorded an improvement in occupancy
levels from 40% to 65% due to last year’s low base effect. Chandigarh,
however, performed well with average occupancy and ARRs rising by 400
bps to 77% and 11.1% YoY, respectively. As a result, the company was
able to post 9.4% YoY growth in its operating revenues. However, due to
incurring of higher operating costs, it reported a 79 bps contraction in its
operating margins, although it remained the best in the industry so far.
PAT growth remains muted on margin contraction, high interest
With the decline in margins and 14.5% rise in interest costs, net profit of
the company grew by only 5.9% YoY to | 12.9 crore, though it remained
above our estimates.
Valuations
At the CMP of | 100, the stock is available at 7.8x and 6.3x its FY11E and
FY12E EV/EBITDA, respectively. This is at a discount to its comparable
peers (i.e. at 12.0x FY12E EV/EBITDA). Despite concerns over rise in room
supply, in Hyderabad, Taj GVK is expected to maintain its market share in
our forecast period FY10-12E, as it is competitively positioned in terms of
room rates against its competitors. Hence, we have assigned an ADD
rating to the stock with a target price of | 108 (i.e. at 7.0x FY12E
EV/EBITDA).
Future expansion plans
The company is exploring the possibility of entering the value for money
chain segment through Ginger brands in Andhra Pradesh. This involves a
total investment outlay of | 42 crore for 250 rooms. Apart from this, the
company is focusing on its premium segment hotel project Taj Begumpet
in Hyderabad, which is expected to get completed in Q4FY11E. The
company is also exploring opportunities in IT hub Bangalore for which it
has also acquired a six-acre land in Bangalore (Shivna Haldi area).
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