30 October, 2008

Indian Hotels Company

Current market price: Rs 49

Target price: Rs 113

Upside: 130.6%

Brokerage: Kotak Securities

Indian Hotels Company’s (IHCL) standalone revenues during Q2 FY09 grew by 8 per cent year-on-year (y-o-y) to Rs 368 crore. The EBIDTA margin declined 460 basis points y-o-y to 24.4 per cent, due to expenses related to the launch of Gateway brand, higher staff costs and renovation expenditure. During the quarter, IHCL has provided Rs 9.4 crore towards forex mark-to-market translation loss on outstanding foreign currency debt. Standalone net profit after exceptional items declined 4.8 per cent y-o-y to Rs 50.7 crore in Q2 FY08.

During the quarter, IHCL unveiled its new brand "The Gateway Hotel" to target upscale segment and fill the gap between premium and budget segment. Currently, 18 properties are operational under The Gateway brand and 11 properties are under construction. During the quarter, IHCL has commissioned a new hotel, Taj Residency at Trivandrum and two new Ginger hotels at Delhi and Goa. IHCL will launch two luxury hotels namely ITPL, Bangalore and Taj Mount Road, Chennai in Q3 FY09.

The stock’s correction due to the concerns over expected earnings slowdown in hotel industry led by economic slowdown and huge anticipated supply in key markets, has been over played. At Rs 60, the stock is trading at 9.6x FY09E and 8x FY10E earnings. The brokerage has revised its target price to Rs 113 (earlier Rs 171), attaching a 15x P/E multiple to FY10E earnings. Maintain buy.