TAJ GVK HOTELS & RESORTS Muted quarter:: Edelweiss

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TAJ GVK HOTELS & RESORTS
Muted quarter; busy season ahead



􀂄 Muted sales growth; H2FY11 to be exciting
Taj GVK Hotels & Resorts (Taj GVK) reported INR 598 mn sales, 11.8% Y-o-Y
growth and 1.4% sequential decline. The company posted ORs of 65% for its
hotels in Hyderabad compared to 52% in the other major city hotels. Chandigarh
clocked 65% and Chennai 57% ORs for the quarter. ARRs were flat on sequential
basis due to seasonal factor. The company is expected to increase ARRs between
5% and 10% across all its properties in H2FY11E with ORs of 70-75%. With the
MICE segment doing extremely well in Hyderabad city, H2FY11 is expected to be
eventful. We maintain our 70% ORs and 5% increase in ARRs for FY11E, although
we believe due to the out-performance of Chennai hotel, we could see some
upward revision.
􀂄 Slight dip in EBIDTA margins; busy season ahead
The company reported 32% EBIDTA margins compared to 35% in Q2FY10 and
37% in Q1FY11. Due to slight increase in employee and other expenses, margins
have declined. With the expected increase in ARRs in H2FY11 along with better
ORs, we maintain our EBIDTA margin estimates of 42% and 42.5% for FY11 and
FY12, respectively. In H1FY11, PAT margins were 14.5% and we maintain our
20.4% and 21.4% PAT margin estimates for FY11 and FY12, respectively.
􀂄 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 Q4YF11. Along with this, the INR 200 mn car parking facility
expansion at Taj Krishna is also running on track for Q4FY11 opening. Due to the
increased demand for convention centers and banqueting facilities at Hyderabad,
the company is planning a convention center at the joint premises of Deccan,
Hyderabad and Taj Krishna. The new car parking facility will help the company tap
this fast emerging banqueting opportunity.
􀂄 Outlook and valuations: Positive; maintain ‘BUY’
With its leadership position in the CBD area of Hyderabad, Taj GVK is
strengthening it further by adding new facilities. With ARRs hike in H2FY11 along
with healthy demand from the MICE segment, we believe the company is in a
sweet spot. At CMP of INR 152, the stock is currently trading at EV/EBIDTA of
9.1x and 7.0x FY11E and FY12E, respectively. On a replacement cost basis, the
company is trading at INR 10 mn FY12E, one of cheapest in the entire industry.
We maintain our ‘BUY’ recommendation with price target of INR 220.