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Viceroy Hotels reported net consolidated revenues of | 25.2 crore for
Q2FY11, (up 20.2% YoY, 5.6% QoQ) that remained above our estimates
(I-direct estimate: | 25.2 crore) backed by an improvement in average
occupancy levels. Operating costs also remained under control,
increasing 9% YoY to | 16.3 crore. Among cost components, staff costs
representing 28% of operating cost declined by 11.9%. This, in turn,
helped the company to expand its operating margins. It improved by
659 bps YoY and 37 bps QoQ to 35.4%. With the growth in sales and
expansion of margins, the company was able to post a net profit of | 57
lakh, which was higher by 112% compared to last year. However, it
remained marginally below our expectations (I-direct estimate: | 60
lakh) due to higher interest costs and decline in the other income.
Better revenue growth backed by improvement in occupancy levels
Total revenues grew 20.2% YoY backed by an improvement in occupancy
levels (up ~400 bps YoY) and partial contribution from new hotel
Courtyard Marriott, Hyderabad. Despite this being a lean season,
revenues QoQ also grew 5.6% indicating a healthy pick-up in demand.
Margin expansions backed by reduction in operating costs
Among cost components, the employee costs declined 12% YoY to | 4.6
crore. This helped the company to expand its operating margins by 659
bps YoY and 36.9 bps QoQ to 35.4%.
Valuation
At the CMP of | 46, the stock is available at 21.8x and 17.3x its FY11E and
FY12E EV/EBITDA, respectively. Opening of the hotel in Hyderabad and
the recent 49% stake sale in the Bangalore hotel project has marginally
improved the liquidity position of the company. Also, with the opening of
two new hotels in Chennai and Bangalore this fiscal, we expect revenue
and EPS CAGR of 24% and 132%, respectively, during FY10-12E. We
have assigned a target price of | 56 (on an NAV basis) with STRONG BUY
rating on the stock (i.e. at18.0x EV/EBITDA).
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