Indian Hotels Company Ltd:-Buy on dips

Scripscan:Indian Hotels Company Ltd
cmp:50
Traded in:Nse-bse

Story:IHCL’s has major expansion plans that will take its room inventory from 10,487 rooms currently to 19,354 rooms by ’11.The company is almost tripling its room inventory under its budget hotels category ‘Ginger’ .From the existing 1,100 rooms, it is targeting 3,500 rooms.It’s also rolling out international resorts and a couple of other properties, which will ensure ample supply from the company. Room inventory, across categories,has started increasing from February ’08 and will continue till September ’10.The expected capital expenditure for such an expansion will be close to Rs 2,072 crore.As per Ficci-Evalueserve estimates, India needs 1.5 lakh additional rooms by ’10. Against this, the total planned additions by leading chains will add to a little over 50,000 rooms, which will result in a potential shortage of nearly one lakh rooms by the end of ’10.This will help to sustain higher average room rates (ARR) for the industry and help IHCL to maintain its profit margins. IHCL offers a wide range of hospitality options, ranging from luxury to budget, heritage hotels to beach resorts, service apartments to business hotels.The group comprises 71 hotels at over 40 locations across India with an additional 16 located across the world. The Taj Group has classified its hotel properties under various divisions as Luxury India, Luxury International, Business, Leisure and Ginger, which account for 26%, 25%, 22%, 17% and 10% of total rooms of the group, respectively. The company derives majority of its revenue from the Luxury India segment.At the current market price of Rs 50, the stock is trading at a P/E of 6 times FY09 estimated earnings. Assuming that revenue growth remains consistent and room inventory doubles, IHCL may show a huge jump in profit.Improved results from international subsidiaries and contribution from ‘Ginger’ will prove beneficial for the company.Altogether a value buy on dips.