>HOTEL LEELA (ICICI DIRECT)

Hotel Leela, a well established hotel player in the premium segment, operates over 1,500 premium segment hotel rooms. The locations to which it operates include Mumbai, Bengaluru, Goa and Kovalam. The company enjoys high ARRs in Bengaluru and Goa properties due to its brand recognisition. Since company derives its major chunk of revenues from foreign tourists in leisure destinations and from IT/BFSI segments in business destinations, the company is well placed to reap the benefit of the overall improvement in tourists’ traffic in both these segments.

Time to check in…

■ Hotel sector in a turnaround phase Hotel sector is going through the turnaround phase with the recovery signs getting visible from overall improvement in the tourists traffic across business and leisure destinations. At the same time with a lesser expected upcoming room supplies due to cutback announced earlier by various real estate players, the outlook for existing hotel players have significantly improved.

■ Addition of new rooms to spur revenue growth for FY11E and FY12E The company is currently working on two major ongoing projects. This includes hotel at Chanakyapuri, Delhi which is expected to get completed before Commonwealth games and hotel at Adyar beach Chennai. Post completion, the company’s inventory will increase to about 2,250 rooms. With these additions along with improving RevPAR (revenue per available room) we expect revenue to grow by 35.0% and 25.0% for FY10E and FY11E respectively. Apart from this company also owns plots of land in Agra, Hyderabad and Pune.

■ To continue to witness robust quarterly performance going forward In Q3FY10, Leela reported robust QoQ growth in revenues and first ever positive growth on YoY. Going forward in Q4FY10, we expect the company to post even better results compared to last year and the current quarter due to lower base effect, rise in occupancy and incremental revenue flow from its two new five star hotels Leela Palace Kempinski, Udaipur and another hotel in Gurgaon.

Valuation At CMP of Rs.46.8, the stock trades at 14.2x FY12E EPS and 13.3x FY12E EV/EBITDA. We believe the company would continue to witness the growth in revenues due to improvement in foreign tourist arrivals (FTAs) data and limited room supplies due to sharp cutbacks. Our FY11E and FY12E EPS growth estimates stand at 74.6% and 30.0% respectively. Investments in this counter can be considered with a short term upside of 10%.

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