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Friday, October 5, 2007

Buy Hotel Leela venture

Investor with medium to high risk appetite can consider investment into Hotel Leela venture with a horizon of 24 months+. Hotel Leela venture operates in the premium 5-star deluxe category owning 4 hotels in Bangalore, Goa, Kovalam and mumbai with a total of 1086 rooms.

At the current market price of Rs. 49 the stock trades at 15 times it FY08E EPS. Offlate hotel industry in Bangalore is witnessing decline in ARR (Average Room Rate) and Bangalore accounting 46% of it's revenue can impact the company's topline. On the other hand the declining ARR will be offset by better realization from the mumbai property which contributes to 32% of it's revenue.

Since there is no major additions coming on before FY09, the current market price justifies it's forward earnings. Investor considering investment into this stock can buy on declines.

Betting on upcoming projects as below

1) The company is Expanding operation by developing projects in Delhi, Chennai, Pune, Hyderabad and Udaipur.
2) Entered into a Contract for management of The Leela Kempinski Gurgaon, Delhi (NCR) 319 room, and The Leela Residences Kempinski gurgaon 90 serviced residences.
3) Additional 29 more rooms are being added in Goa and also setting up an IT park and a Commercial Complex in Chennai.

The above projects are expected to be completed by FY09 and FY10. The company plans to double it's room count after the implementation of the above projects. The company has opened sales and marketing offices in London, Dubai and appointed GSA in singapore.

After the complete expansion in place the company's revenue is set to grow @75% p.a. The stock can prove on to be a good multibagger play.

Fundamentals

1) The average occupancy rate is around 80%.
2) Strong presence in 5-star deluxe category.
3) Aggressive capex to add exponentially to the revenues.

Risks

1) A slowdown in economy can reduce the occupancy rate and also the ARR.
2) Bangalore accounting for 45% of its revenues, earnings remain vulnerable to decline in tariffs and occupancies.
3) With number of luxury service apartments increasing in last couple of years, corporate occupancy is set to decline.
4) Strong rupee appreciation can offset the margin's partially for dollar based room tariff's.

Posted by Srivatsan

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Fundamental Analysis

Fundamental Analysis is the cornerstone of Investing. In fact, some would say that you aren't really investing if you aren't performing fundamental analysis.

During fundamental analysis we look at a stock from three aspects

Company

At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition.

Industry

At the industry level, there might be an examination of supply and demand forces for the products offered.

Economy

Fundamental analysis might focus on economic data to assess the present and future growth of the economy.

To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient.