Hold Kamat Hotels; Target : Rs 135 ::ICICI Securities (pdf link)

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H i g h e r   i n t e r e s t   c o s t   d e n t s   b o t t o m l i n e …  
Kamat Hotel reported its Q3FY12 numbers which were in line with our 
estimate. Company reported net sales of | ~ | 34.7 crore during Q3FY12 
(I-direct estimate: | 35 crore) and  EBITDA of | 11.6 crore (I-direct 
estimate: | 12.1 crore). The revenue growth was on the back of marginal 
growth in average occupancy level while ARR growth remained muted, 
whereas operating expenses grew by 10% YoY to | 21.1 crore during the 
same period. As a result its EBITDA margin declined ~172 bps YoY to 
33.5%. Besides this interest cost also saw a sharp increase of over 60% 
YoY to | 9.3 crore as the company started charging interest cost on debt 
pertaining to the Mumbai expansion to the P&L, post its launch in current 
quarter. Consequently, company reported net loss of | 0.04 crore (I-direct 
estimate: | 2.5 crore). 
Topline growth in the grip of subdued ARR 
During Q3FY12, Kamat Hotel’s topline grew by only 7% YoY to | 34.7 
crore mainly due to incremental  revenue from room additions. 
Occupancy level in Mumbai improved by 100 bps YoY while ARR during 
the period remained subdued due to supply of additional rooms and 
lean season for business activity across the company’s main operating 
region Mumbai, which contributes over 85% of topline.  
  
Margin shrinks on higher operating cost 
Operating costs for Q3FY12 grew  10% YoY to | 23.1 crore. Among 
operating cost components, raw material, employee cost and power & 
fuel cost increased by 9%, 17% and 11% YoY, respectively. As a result, 
operating margins declined 172 bps YoY to ~33.5%. 
V a l u a t i o n s  
We believe the company’s main operating region Mumbai is yet to 
witness transition from an occupancy led cycle to the recovery in room 
rates. At the offer price of | 135, the stock is trading at 20.3x and 13x its 
FY12E and FY13E revised EV/EBITDA, respectively. We believe it is fairly 
valued at the open offer price. Hence, we recommend that investors 
tender their shares in full

Book ProfitKamat Hotel, Target : Rs 135:: ICICI Securities,

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Open offer: Opportunity to book profit…
Clearwater Capital has finally announced an open offer for acquiring a
26% stake (post FCCB conversion) after converting its entire FCCB worth
US$18 million into equity shares. Kamat Hotels had raised this FCCB in
FY07 to fund its expansion plans (mainly for Mumbai Orchid expansion).
The conversion price for this FCCB, which was set at | 225 per share, was
again re-set to | 135 during June 2010. We believe this open offer gives
investors an opportunity to book profit at the offer price, given its fair
valuations in a neutral environment for the sector.
Promoter to continue to have controlling stake in company
Post FCCB conversion, the promoter holding will come down by 13.9% in
the company. However, they will continue to have a controlling stake in
the company. Hence, the risk of a change in owner does not exist for this
company.
FCCB conversion to have positive impact on EPS
We expect interest cost saving of | 2.5 crore (i.e. 8% YoY saving) on debt
reduction of | 55 crore. This, in turn, would increase overall FY13
profitability by 48% while outstanding shares would increase by 27% to
1.90 crore post FCCB conversion. Taking this into account, we have
increased our FY13E EPS guidance by 20%.
Acceptance ratio to remain 100%, opportunity to book profit in full
The combined holding of the promoter and Clearwater Capital post
conversion stands at over 82%. This gives other investors an opportunity
to get full acceptance ratio in the open offer for a 26% stake. Considering
this, we recommend that our investors tender their shares in full, given
the neutral environment for hotel players in Mumbai.
Valuations
We believe the company’s main operating region Mumbai is yet to
witness transition from an occupancy led cycle to the recovery in room
rates. At the offer price of | 135, the stock is trading at 18.8x and 14.3x its
FY12E and FY13E revised EV/EBITDA, respectively. We believe it is fairly
valued at the open offer price. Hence, we recommend that investors
tender their shares in full.

Hold Kamat Hotels ;Target : Rs 116 ::ICICI Securities

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H i g h e r   c o s t   d e n t s   m a r g i n s …
Kamat Hotel’s Q2FY12 results were marginally below our expectation
wherein the company’s net sales improved ~6% YoY to | 29.8 crore (Idirect estimate: | 30.9) while PAT was up by 2% YoY at ~ | 0.16 crore (Idirect estimate: ~| 0.19 crore). The  revenue growth was on the back of
marginal growth in average occupancy level (up ~100 bps YoY to 63%)
while ARR across major operating regions remained flat. The EBITDA
margin declined ~509 bps YoY to 28.3% mainly on the back of 14% YoY
growth in operating expenses to | 21.3 crore. However, with the lower
interest outgo and depreciation cost, the company reported ~2% YoY
jump in its net profit to ~| 0.16 crore supported by a sharp rise in other
income.

ƒ Topline growth in the grip of subdued ARR
During Q2FY12, Kamat Hotel’s topline grew by only 6% YoY to |
29.8 crore mainly due to the lean season and decline in MICE
activity across the company’s main operating region Mumbai, which
contributes over 85% of topline. Occupancy levels across Mumbai
remained subdued at 63% (up ~100 bps YoY) while ARR grew by a
mere 2-3% across regions.

ƒ Margin shrinks on higher operating cost
Operating costs for Q2FY12 grew 14% YoY to | 21.3 crore. Among
operating cost components, raw material, employee cost and power
& fuel cost increased by 13%, 19% and 25% YoY, respectively. As a
result, operating margins declined 509 bps YoY to ~28%.
V a l u a t i o n s
At the CMP of | 110, the stock is trading at 10.2x and 8.7x its FY12E and
FY13E EV/EBITDA, respectively. We believe the company’s main
operating region Mumbai is yet to witness transition from occupancy led
cycle to the recovery in room rates. We expect revenue CAGR of 22% in
our forecast period FY11-13E on the back of addition of new rooms in
Orchid Mumbai. We value the stock  at 10x FY13E EV/EBITDA with a
revised target price of | 116 (earlier target price: | 95) and a HOLD rating.

Buy Kamat Hotels; Target :Rs 95 ::ICICI Securities,

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B e t t i n g   o n   A s s e t   V a l u e …
Kamat Hotels reported net sales of | 30.3 crore (up 6.3% YoY, down 7.8%
QoQ) for the quarter ended June’11. This remained marginally below our
expectations (I-direct estimate: | 31.6 crore). The growth in revenue came
in from Nashik (growth of 13% YoY) and Pune region (growth of 20%
YoY) while growth in Mumbai (growth of 5% YoY), which is a key driving
factor remained subdued. Operating costs for the quarter also remained
higher and grew 12% YoY to | 21.3 crore. Among operating costs
components, raw material, employee costs and power and fuel cost
increased 22%, 11% and 15% YoY, respectively. However, with the lower
interest outgo, the company reported ~105% YoY jump in its net profits
to | 0.35 crore (I-direct estimate: profit of | 0.2 crore).

ƒ Demand continues to remain sluggish
Kamat Hotels’ Q1FY12 topline grew by only 6% YoY to | 30.3 crore
on account of subdued demand for hotel rooms especially in
Mumbai, contributing over 85% of topline. Occupancy levels for
Orchid Mumbai increased marginally by 100bps YoY to 71%, while
VITS Mumbai reported 400bps YoY drop in average occupancy
levels to 79% on account of subdued demand.

ƒ Higher employee and raw material cost takes toll on margins
Operating costs for Q1FY12 grew  by 12% YoY to | 21.3 crore.
Among operating cost components, the raw material and power and
fuel cost increased by 22% and 15% YoY, respectively. As a result,
operating margins declined by 366 bps YoY to ~30%.
V a l u a t i o n s
At the CMP of | 80, the stock is trading at 10.9x and 7.4x its FY12E and
FY13E EV/EBITDA, respectively. We believe the Mumbai region is still in
the nascent stage of recovery and is yet to make the transition from
occupancy led cycle to the one supported by rising room rates. We lower
our F12E and FY13E EPS by ~36% and ~19% respectively. We value the
stock at 9.0x FY13E EV/EBITDA and lower our target price to |. 95 with a
Buy rating on the stock.

ICICI Securities, Kamat Hotels- Buy Target : Rs 118

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H i g h e r   o p e r a t i n g   c o s t   d e n t s   m a r g i n s …
Kamat Hotels reported net sales of | 32.9 crore (up 5% YoY, 1.2% QoQ).
This remained in line with our expectations (I-direct estimate: | 34.2
crore). The growth in revenue came on the back of an increase in
occupancy level in Orchid and VITS. On the other hand, operating costs
for the quarter remained higher and grew 30.7% YoY to | 23.1 crore.
Among operating costs components,  raw material and employee costs
increased 27.4% and 47.4% YoY, respectively. The company reported a
net loss of | 1.35 crore (I-direct estimate: profit of | 3.9 crore) mainly due
to a sharp rise in interest cost to | 5.6 crore from | 1.6 crore in Q4FY10.
ƒ Muted topline growth
Kamat Hotels’ Q4FY11 topline grew by a mere 5% YoY to | 32.9
crore despite a gradual pick-up in demand for hotel rooms from
corporate travellers and recovery in demand from the MICE
segment compared to the last quarter. Occupancy levels have
improved across all four brands. Revenue growth remained lower
on subdued ARR growth in Orchid Mumbai.
ƒ Higher employee and raw material cost takes toll on margins
Operating costs for Q4FY11 remained higher and grew notably by
30.6% YoY to | 23.1 crore. Among operating cost components, the
raw material and employee costs increased 27.4% and 47.4% YoY,
respectively. As a result, operating margins declined by 1377 bps
YoY to 29.7%.
V a l u a t i o n s
We expect FY11-13E revenue CAGR of 25% taking into account addition
of nearly 128 rooms at its existing property in Mumbai. At the CMP of |
97, the stock is trading at 10.1x and 8.3x its FY12E and FY13E EV/EBITDA,
respectively. We remain positive on the company on account of the
favourable long-term room demand-supply scenario in Mumbai
compared to other metros. We value the stock at 9.0x FY13E EV/EBITDA
and arrive at a target price of | 118 with a BUY rating

Add Kamat Hotels: Target :Rs 97; Lower room rates hit growth: ICICI Sec

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Kamat Hotels reported net sales of | 32.5 crore (up 10.1% YoY, 16.1%
QoQ) that remained below our expectations (I-direct estimate: | 35.2
crore). The growth remained lower mainly on account of lower than
expected growth in average room rates compared to last year.
Operating costs for the quarter also remained higher and grew 14.8%
YoY. Among operating costs components, raw material and employee
costs increased 30.1% and 55.5% YoY, respectively. The company
reported a net profit of |.2.4 crore (I-direct estimate: | 2.5 crore) that
declined 56.6% YoY, as last year’s net profit included provision writeb
a ck to the tune of | 5.9 crore.