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TAJ GVK HOTELS & RESORTS
Disappointing results; recovery taking time
Average sales growth; gradual recovery
Taj GVK Hotels & Resorts (Taj GVK) reported INR 701 mn sales, up 9% Y-o-Y and
17% Q-o-Q. It posted ORs of 65-75% for its hotels in Hyderabad against 65% in
Chennai and 77% in Chandigarh. ARRs grew flat to marginally, both Q-o-Q and Yo-
Y. The company sounded cautious on any big jump in ARRs, as there is enough
supply coming in the next 2-3 years across its major markets - Hyderabad,
Chennai and Chandigarh. With the MICE segment doing extremely well in
Hyderabad, the company is hopeful of getting strong business from the
conferences happening in the city. However, due to less-than-expected uptick in
ARRs in 9mFY11, we expect zero growth in ARRs (5% estimated earlier). For FY12
too, we revise down our ARR growth estimates to 5% from 10%.
Cutting FY11 and FY12 EBIDTA, PAT estimates
We are reducing our FY11 and FY12 EBIDTA estimates by 20% and 22%,
respectively, due to lower-than-estimated rise in ARRs. Taj GVK reported 40%
EBIDTA margins against 32% in Q2FY11 and 40% in Q3FY10. Owing to 5-10% Qo-
Q increase in ARRs, operating margins have improved for the company. With
the opening of Begumphet property, in Q2FY12, we expect EBIDTA margins to
decline to 36.2% in FY12 from 37.5% in FY11. PAT margins improved 600bps Qo-
Q and were down 0.6% Y-o-Y.
Begumpet and Krishna expansion on track
Capex of INR 900 mn at Begumpet, with 190 rooms, is on track and is expected
to be commissioned in Q1YF12. Along with this, the INR 200 mn car parking
facility expansion at Taj Krishna is also running on track for Q1FY12 opening. The
new car parking facility will help the company tap this fast emerging banqueting
opportunity.
Outlook and valuations: Valuations attractive; maintain ‘BUY’
Taj GVK is strengthening its leadership in the CBD area of Hyderabad by adding
new facilities. At CMP of INR 100, the stock is currently trading at EV/EBIDTA of
7.9x and 6.5x FY11E and FY12E, respectively. On a replacement cost basis, the
company is trading at INR 6.9 mn FY12E, one of cheapest in the entire industry.
We continue to value the company at 10x (30% discount to its peers) FY12
EV/EBIDTA and reduce our target price to INR 165. We maintain our ‘BUY’
recommendation.
Company Description
Incorporated in 1999, Taj GVK Hotels & Resorts (Taj GVK) is a joint venture of the Taj
and GVK group. The Tata group company, Indian Hotels Company (IHCL), holds 25.52%
of the JV, and other promoters 49.47%. IHCL is a strategic investor in the company. All
major decisions including on investments are taken by the board including the
representatives from IHCL. IHCL also manages all the properties and receives
management contract fees as part of the operating agreement.
Taj GVK currently operates five premium properties, totaling 900 rooms in cities like
Hyderabad, Chennai and Chandigarh. Hyderabad accounts for more than 50% of the
total rooms and revenues. To diversify the operations and reduce its dependence on the
Hyderabad market, the company opened hotels in Chandigarh (149 rooms) and Chennai
(220 rooms).
Investment Theme
With its leadership position at the CBD area of Hyderabad, no other major hotel group
has its presence in the entire Banjara Hills area. With its current 3 properties in
Hyderabad, the company is adding another property at a relatively lower category to
have presence across all the required segments. Strategic expansion of car parking
facility at Taj Krishna to attract higher MICE and banqueting business is expected to help
the company in the long term. To diversify, the company has opened hotels in
Chandigarh and Chennai. With one of the best operating and return ratios in the industry,
the company is one of the best managed operations in the country.
Key Risks
Heavy reliance on Hyderabad, execution delays in the expansion plans and general
economic slowdown are some of the risks for the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TAJ GVK HOTELS & RESORTS
Disappointing results; recovery taking time
Average sales growth; gradual recovery
Taj GVK Hotels & Resorts (Taj GVK) reported INR 701 mn sales, up 9% Y-o-Y and
17% Q-o-Q. It posted ORs of 65-75% for its hotels in Hyderabad against 65% in
Chennai and 77% in Chandigarh. ARRs grew flat to marginally, both Q-o-Q and Yo-
Y. The company sounded cautious on any big jump in ARRs, as there is enough
supply coming in the next 2-3 years across its major markets - Hyderabad,
Chennai and Chandigarh. With the MICE segment doing extremely well in
Hyderabad, the company is hopeful of getting strong business from the
conferences happening in the city. However, due to less-than-expected uptick in
ARRs in 9mFY11, we expect zero growth in ARRs (5% estimated earlier). For FY12
too, we revise down our ARR growth estimates to 5% from 10%.
Cutting FY11 and FY12 EBIDTA, PAT estimates
We are reducing our FY11 and FY12 EBIDTA estimates by 20% and 22%,
respectively, due to lower-than-estimated rise in ARRs. Taj GVK reported 40%
EBIDTA margins against 32% in Q2FY11 and 40% in Q3FY10. Owing to 5-10% Qo-
Q increase in ARRs, operating margins have improved for the company. With
the opening of Begumphet property, in Q2FY12, we expect EBIDTA margins to
decline to 36.2% in FY12 from 37.5% in FY11. PAT margins improved 600bps Qo-
Q and were down 0.6% Y-o-Y.
Begumpet and Krishna expansion on track
Capex of INR 900 mn at Begumpet, with 190 rooms, is on track and is expected
to be commissioned in Q1YF12. Along with this, the INR 200 mn car parking
facility expansion at Taj Krishna is also running on track for Q1FY12 opening. The
new car parking facility will help the company tap this fast emerging banqueting
opportunity.
Outlook and valuations: Valuations attractive; maintain ‘BUY’
Taj GVK is strengthening its leadership in the CBD area of Hyderabad by adding
new facilities. At CMP of INR 100, the stock is currently trading at EV/EBIDTA of
7.9x and 6.5x FY11E and FY12E, respectively. On a replacement cost basis, the
company is trading at INR 6.9 mn FY12E, one of cheapest in the entire industry.
We continue to value the company at 10x (30% discount to its peers) FY12
EV/EBIDTA and reduce our target price to INR 165. We maintain our ‘BUY’
recommendation.
Company Description
Incorporated in 1999, Taj GVK Hotels & Resorts (Taj GVK) is a joint venture of the Taj
and GVK group. The Tata group company, Indian Hotels Company (IHCL), holds 25.52%
of the JV, and other promoters 49.47%. IHCL is a strategic investor in the company. All
major decisions including on investments are taken by the board including the
representatives from IHCL. IHCL also manages all the properties and receives
management contract fees as part of the operating agreement.
Taj GVK currently operates five premium properties, totaling 900 rooms in cities like
Hyderabad, Chennai and Chandigarh. Hyderabad accounts for more than 50% of the
total rooms and revenues. To diversify the operations and reduce its dependence on the
Hyderabad market, the company opened hotels in Chandigarh (149 rooms) and Chennai
(220 rooms).
Investment Theme
With its leadership position at the CBD area of Hyderabad, no other major hotel group
has its presence in the entire Banjara Hills area. With its current 3 properties in
Hyderabad, the company is adding another property at a relatively lower category to
have presence across all the required segments. Strategic expansion of car parking
facility at Taj Krishna to attract higher MICE and banqueting business is expected to help
the company in the long term. To diversify, the company has opened hotels in
Chandigarh and Chennai. With one of the best operating and return ratios in the industry,
the company is one of the best managed operations in the country.
Key Risks
Heavy reliance on Hyderabad, execution delays in the expansion plans and general
economic slowdown are some of the risks for the company.
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