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Debt reduction plan
The debt on Hotel Leela’s balance sheet is the biggest
cause of concern for the investor community. The
company’s current debt/equity stands at ~1.8x. If the
equity portion is adjusted for revaluation reserve then
the debt/equity shoots up to ~4.2x. The company has in
the recent past announced plans to reduce to the debt
component by ~Rs 19.5bn from the current ~Rs38bn to
Rs 18.5bn. We believe the target is aggressive but still
derive some comfort because the company has taken a
stand in this regard. We have a Hold rating on the
company with a target price of Rs 39.
Preferential/QIP allotment: The company announced
recently that it was in talks with private equity players
for preferential allotment or QIP of up to 14.95%. It
plans to raise Rs6bn though this. We believe this is
highly aggressive and believe it would be able to raise
only ~Rs3.5bn.
FCCB Issue: The company intends to raise another
Rs4bn through FCCBs. It currently has $100mn in FCCB
outstanding of which it has bought back $58.4mn
under the RBI scheme. The current FCCB is convertible
in April 2012 at a price of Rs 72.
Asset Sale: The company owns land banks in Pune,
Hyderabad and Bangalore, all at prime locations. It
intends to develop luxury residential apartments at
these locations in joint ventures with real estate
players. The proceeds from these projects would bring
in ~Rs5bn. In addition, it also plans to sell a portion of
its Chennai business park to raise another Rs2.5bn.
Debt/Equity to come down to 1.1x by FY13E: The
company’s debt/equity would come down to ~1.1x by
FY13E if its plans fructify. The debt/equity adjusted for
revaluation would also come down to ~2.3x by FY13E.
Valuation: If the debt reduction plan goes through
then our target price would increase to Rs 52 thus
giving it a Buy rating. More importantly, it would
drastically help reduce the high interest burden of the
company. We currently value the firm at 15.3x FY13E
EV/EBITDA to arrive at our target price of Rs39. At our
target the company trades at 1.5x FY13E P/BV and
Rs25.5mn FY13E EV/Adjusted Room.
Debt reduction plan
Equity Issuance
The company in the recent past has told the news media that it was in talks with private equity
companies to raise capital by issuing preferential shares or QIP. It stated that it would give investors
14.95% stake. It intends to raise ~Rs6bn through this medium. We believe the target is highly
aggressive and expect the company to garner only Rs3.5bn.
As the company’s stock currently trades at Rs42 it would be able to garner only Rs2.4bn at this
market price. But we believe it could raise this amount at a premium to the current market price.
Assuming the company sells the stake at Rs 60 – 41% premium to the current market price – it
would garner Rs3.5bn.
Exhibit 1: Equity infusion plan
Stake (%) 14.95
Existing no. of Shares (mn) 387.8
No. of New Shares Issued 58.0
TOTAL no. of shares (mn) 445.8
Price (Rs) 60.0
Premium/Discount to CMP 41.8
Amt raised if priced at requisite (Rs mn) 3,479
Source: Company, Centrum Research
As of 31st December 2010 the promoters hold 54.61% stake in the company. Post equity dilution,
their stake would come down to 47.5%. The promoter’s have expressed their intention to keep their
stake above 50% and hence we believe they would buy shares from the open market through the
creeping acquisition route.
FCCB Issuance
The company plans to raise Rs4bn by way of FCCBs. The tenure of these bonds could be 5 to 6 years
and be convertible at a price in excess of the price of preferential allotment. The company currently
has $100mn in FCCB outstanding of which it has bought back $58.4mn under the RBI scheme. The
FCCB is convertible in April 2012 at a price of Rs 72. We do not expect the conversion to happen and
have not factored that in our estimates.
Asset Sale
The company owns land banks in Pune, Hyderabad and Bangalore. It bought these before the real
estate boom and at much cheaper prices. The company had earlier planned to use it for geographic
expansion. But, realizing the stressed nature of the balance sheet, it has dropped the plan. It has
now tied up with real estate developers in an equal joint venture for the Hyderabad and Pune
properties to build luxury residential apartments. The company will provide the land while real
estate developers will be responsible for construction and marketing of the properties. We believe
these initiatives will bring in another Rs5bn over the next 2-3years.
In addition, the company also owns a business park in Chennai. It intends to partly sell this property
that could fetch close to Rs2.5bn.
Debt/Equity to come down
The company currently has ~Rs38bn of debt on its books and aims to bring it down by Rs19.5 within
the next 2-3years through these measures. We believe that the amount of Rs19.5bn is aggressive
and think the company would be able to raise only around Rs15bn.
Taking into consideration this amount, the company would be able to bring down its debt from
~1.8x currently to 1.1x by FY13E. The debt/equity adjusted for revaluation reserve would be 2.3x by
FY13E from ~4.2x currently.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Debt reduction plan
The debt on Hotel Leela’s balance sheet is the biggest
cause of concern for the investor community. The
company’s current debt/equity stands at ~1.8x. If the
equity portion is adjusted for revaluation reserve then
the debt/equity shoots up to ~4.2x. The company has in
the recent past announced plans to reduce to the debt
component by ~Rs 19.5bn from the current ~Rs38bn to
Rs 18.5bn. We believe the target is aggressive but still
derive some comfort because the company has taken a
stand in this regard. We have a Hold rating on the
company with a target price of Rs 39.
Preferential/QIP allotment: The company announced
recently that it was in talks with private equity players
for preferential allotment or QIP of up to 14.95%. It
plans to raise Rs6bn though this. We believe this is
highly aggressive and believe it would be able to raise
only ~Rs3.5bn.
FCCB Issue: The company intends to raise another
Rs4bn through FCCBs. It currently has $100mn in FCCB
outstanding of which it has bought back $58.4mn
under the RBI scheme. The current FCCB is convertible
in April 2012 at a price of Rs 72.
Asset Sale: The company owns land banks in Pune,
Hyderabad and Bangalore, all at prime locations. It
intends to develop luxury residential apartments at
these locations in joint ventures with real estate
players. The proceeds from these projects would bring
in ~Rs5bn. In addition, it also plans to sell a portion of
its Chennai business park to raise another Rs2.5bn.
Debt/Equity to come down to 1.1x by FY13E: The
company’s debt/equity would come down to ~1.1x by
FY13E if its plans fructify. The debt/equity adjusted for
revaluation would also come down to ~2.3x by FY13E.
Valuation: If the debt reduction plan goes through
then our target price would increase to Rs 52 thus
giving it a Buy rating. More importantly, it would
drastically help reduce the high interest burden of the
company. We currently value the firm at 15.3x FY13E
EV/EBITDA to arrive at our target price of Rs39. At our
target the company trades at 1.5x FY13E P/BV and
Rs25.5mn FY13E EV/Adjusted Room.
Debt reduction plan
Equity Issuance
The company in the recent past has told the news media that it was in talks with private equity
companies to raise capital by issuing preferential shares or QIP. It stated that it would give investors
14.95% stake. It intends to raise ~Rs6bn through this medium. We believe the target is highly
aggressive and expect the company to garner only Rs3.5bn.
As the company’s stock currently trades at Rs42 it would be able to garner only Rs2.4bn at this
market price. But we believe it could raise this amount at a premium to the current market price.
Assuming the company sells the stake at Rs 60 – 41% premium to the current market price – it
would garner Rs3.5bn.
Exhibit 1: Equity infusion plan
Stake (%) 14.95
Existing no. of Shares (mn) 387.8
No. of New Shares Issued 58.0
TOTAL no. of shares (mn) 445.8
Price (Rs) 60.0
Premium/Discount to CMP 41.8
Amt raised if priced at requisite (Rs mn) 3,479
Source: Company, Centrum Research
As of 31st December 2010 the promoters hold 54.61% stake in the company. Post equity dilution,
their stake would come down to 47.5%. The promoter’s have expressed their intention to keep their
stake above 50% and hence we believe they would buy shares from the open market through the
creeping acquisition route.
FCCB Issuance
The company plans to raise Rs4bn by way of FCCBs. The tenure of these bonds could be 5 to 6 years
and be convertible at a price in excess of the price of preferential allotment. The company currently
has $100mn in FCCB outstanding of which it has bought back $58.4mn under the RBI scheme. The
FCCB is convertible in April 2012 at a price of Rs 72. We do not expect the conversion to happen and
have not factored that in our estimates.
Asset Sale
The company owns land banks in Pune, Hyderabad and Bangalore. It bought these before the real
estate boom and at much cheaper prices. The company had earlier planned to use it for geographic
expansion. But, realizing the stressed nature of the balance sheet, it has dropped the plan. It has
now tied up with real estate developers in an equal joint venture for the Hyderabad and Pune
properties to build luxury residential apartments. The company will provide the land while real
estate developers will be responsible for construction and marketing of the properties. We believe
these initiatives will bring in another Rs5bn over the next 2-3years.
In addition, the company also owns a business park in Chennai. It intends to partly sell this property
that could fetch close to Rs2.5bn.
Debt/Equity to come down
The company currently has ~Rs38bn of debt on its books and aims to bring it down by Rs19.5 within
the next 2-3years through these measures. We believe that the amount of Rs19.5bn is aggressive
and think the company would be able to raise only around Rs15bn.
Taking into consideration this amount, the company would be able to bring down its debt from
~1.8x currently to 1.1x by FY13E. The debt/equity adjusted for revaluation reserve would be 2.3x by
FY13E from ~4.2x currently.
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