Indian Hotels - Buy - KRC view

Indian Hotels Company Ltd .

(BSE CODE:500850)

CMP	6 Months Target	Recommendation
Rs 156	Rs 190	Buy

 

	The Indian Hotels Company (IHCL) a Tata Group Company better known as the Taj group of Hotels set up in the early twentieth century has since emerged as one of the leading players in the domestic hospitality sector in India and overseas.
	Indeed the Taj Group of Hotels has spanned the length and breadth of the country, gracing important industrial towns and cities, beautiful beaches, hill stations, historical and pilgrim centres and wildlife destinations. Over the years, the Taj Group has won international acclaim for its quality hotels and its excellence in business facilities, services, cuisine and interiors. The Taj Group is one of the largest hotel chain in South Asia operations covers over 69 hotels with about 8365 rooms and more than 200 food and beverage outlets in India and abroad. Of these, 55 hotels are present in 36 locations across India and an additional 14 international hotels are in the Mauritius, Seychelles, UK, Sri Lanka, Maldives and the Middle East.
	Currently the company has 9,182 rooms at 76 hotels in 17 countries. By end FY2007-08 the company is planning about 3,000 rooms to about 12,300 rooms in 105 hotels covering 21 countries. Currently the company has 9,182 rooms at 76 hotels in 17 countries. By end FY2007-08 the company is planning about 3,000 rooms to about 12,300 rooms in 105 hotels covering 21 countries.
	The Company has a dominant position in most areas it is present in. Providing world-class personalized service to guests while authentically reproducing the traditions and heritage of India, has made the 'TAJ' brand a symbol of luxury and service the world over. The Taj Group of Hotels is grouped into strategic business units to get consistency across the different units in the same brand and standardize the product and service across the brands, making them distinct and identifiable. These brands have been classified as Luxury, Business and Leisure.
	The company plans to increase the value of Taj brand in premium hotel properties such as palaces, super deluxe and luxury hotels. For this the group will adopt renovation, upgradation and acquisition route to sustain its leadership. It also plans to introduce a chain of budget hotels and four star hotels in smaller cities, where the potential for growth is immense.
	The company is planning to add 30 budget hotels under the brand 'Ginger' in the next 3 years. It has already started Ginger hotels in Bangalore, Haridwar & Bhubaneshwar. By end 2006-07 the company will launch hotels in Pune, Mysore, Thiruvananthapuram & Durgapur. Work will shortly commence for launch in Panjim, Agartala, Tirupur, Pondicherry & Nashik. Currently development is in progress at Whitefield - Bangalore 200 rooms completion by December 2007, Falaknuma Palace - Hyderabad 60 rooms completion by December 2007, Santacruz - Mumbai 175 rooms completion by December 2008 & Racecourse Road - Coimbatore 200 rooms completion by September 2008.
	The company is planning to build one business hotel each in Delhi & Gurgaon by 2009 taking into account the Commonwealth Games in 2010.
	Net sales increased by 16% to Rs 341.40 crore. OPM jumped by 420 bps to 29%. All expense heads reported significant decline as a percentage to sales. Other expenditure fell 195 bps to 28.9%, license fee reduced by 85 bps to 5.8%, raw-material consumption cost fell 80 bps to 7.8%, staff cost declined by 50 bps to 21.4% and fuel, power and light declined by 20 bps to 7.1% of sales.
	This resulted in operating profit recording a growth of 35% at Rs 98.86 crore. Other income fell by 4% to Rs 25.21 crore. Interest cost moved up by 64% to Rs 25.67 crore and depreciation fell by 5% to Rs 20.70 crore. PBT posted a growth of 26% at Rs 77.70 crore. However, as effective tax rate increased by 575 bps to 31.5%, net profit increased by 16% only to Rs 53.24 crore.
	For the six-month period ended Sep'07, sales increased by 18% to Rs 687.90 crore. OPM also improved by 270 bps to 30.3%. Resultantly, OP increased by 29% to Rs 208.49 crore. OI increased by 17% to Rs 43.11 crore. Interest cost increased by 45% and deprecation was down by 4%. PBT increased by 33% to Rs 161.25 crore. Effective tax rate was reported at 33%, an increase of 365 bps over the corresponding previous period. This resulted in net profit increasing by 27% only to Rs 108 crore.
	The Company is looking for opportunities in China, Thailand, South Africa, Qatar and Morocco among other countries.
	The board of Indian Hotels Company has ratified an investment of US $ 211.28 million made by Samsara Properties, a 100% off shore subsidiary of the company towards acquisition of 10.01% shares in Orient-Express Hotels, a company listed on the New York stock exchange.
	During  the year your Company entered into some Marketing initiatives. The key amongst  those  were the marketing  alliance  with  Silversea  Cmises. Silversea is a well-known European cruise company known or defining  elite luxury  experience. This alliance will allow your Company to develop cross promotional  Opportunities  by leveraging  each  other's   strengths  in respective markets of dominance. Furthermore, the alliance will  facilitate in building and strengthening brand exposure for both the Taj and Silversea Cruises. Other such alliances are also being pursued
	The Company also tied up with Qantas Airline  for  their Frequent  Flier loyalty program. The Qantas frequent flier program has  1.2 million members of which majority are Australia based. The alliance  allows Company  to  have access to their data base and  thereby  gives  Company  an opportunity to do a customized communication in the  Australian market. As part of this tie up, the frequent fliers can earn 1000 miles per stay at participating Taj hotels in India
	The  global  growth rate for Travel and Tourism Industry  during  the  year 2007/08  has been extremely good with Tourism growing significantly  during this  period.  The forecast for this Industry globally over  the  next  ten years  is  positive.
	The outlook for the hotel industry in the coming  year remains bullish. With the  number  of  tourist  arrivals expected togo upto 10 million by 2010, the interest in India as a  leisure destination has tremendously gone up. This will drive tourist traffic  into India. Further, the general economic conditions in most industrial sectors remain  bullish for the coming year. This will drive business  travel  into India which will benefit the hotel industry. Certain major events like  the Commonwealth  Games planned in Delhi in 2010 would require addition to  the additional inventory of rooms which would again help the hotel industry.
	The Company would aggressively pursue its strategy both in the domestic as well  as the international market at different price points from the  Smart Basic  Hotels to the luxury segments. With its leadership position in  most markets in the luxury and leisure segments, your Company expects to achieve sustainable and profitable growth in the coming years. Thus, we recommend investors to Buy the stock for appreciation.