BackSharekhan maintains BUY on Indian Hotels
Sharekhan maintains BUY on Indian Hotels
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Post 26/11 tragedy at Taj Mahal Palace and Tower that severely damaged the iconic property, the management has guided on the expected time that the heritage wing of the hotel would take to be up and running again.
While the 268 rooms of the Tower wing, which includes 9 suites and 26 Taj Club rooms have already become operational from 21 December, 2008 (current occupancy at 62%) along with its restaurants and eateries, the Heritage wing with the remaining 297 rooms will take some time before it starts receiving guests again.
These rooms in the Heritage wing have been damaged the most in the terrorist attack.
While the financial damage to the Taj due to the terror attack would not impact the balance sheet of IHCL to a great extent, it has certainly worsened the scenario for hospitality sector.
We expect Q3FY2009 to be a bad quarter for IHCL, as we expect lower occupancies (on a year-on-year basis) and subdued ARRs along with lower room count because of the closure of Taj Mahal Palace and Tower (this would be recovered under loss of profit policy) to impact the revenues and the profits as shown in the table below.
Outlook and valuation
The near-term scenario for IHCL in specific and the hotel industry in general will remain tough.
We believe while earnings in near-term will continue to be under pressure, the growth for the company will come from addition of new properties.
At 8.3x its FY2010E earnings and at an enterprise value (EV) per room of Rs1 crore IHCL’s stock trades at historically low valuations.
We believe the current valuations discount the near-term pain and opine that the stock price provides a good entry point for long-term investors. We maintain our BUY recommendation on the stock with a revised price target of Rs82.
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