TajGVK reported top-line growth of 9.8% yoy to `69cr (`63cr) in 4QFY2011, below our estimates of `76cr. OPM was more-or-less in line with our estimates, coming in at 39.2%, as against 41.4% in 4QFY2010. Occupancy rates (OR), especially for the Hyderabad and Chennai hotels, showed strong improvement over the previous quarter, with the overall OR improving to 72% for the quarter, while average room rate (ARR) came in at `6,400. We are positive on the outlook of the company, given that the key markets of the company, Hyderabad and Chennai, are showing signs of stabilising. We maintain our Buy recommendation on the stock.
OR at 72%: TajGVK reported an average occupancy rate of 72% for 4QFY2011, which grew from 68% in 3QFY2011. Taj Krishna reported an OR of 64%, with an ARR of `7,800. Taj Deccan and Banjara posted a 500–600bp qoq increase in OR, while ARR remained flat qoq. Chennai’s OR increased by nearly 1,000bp qoq to 75%. Chandigarh hotel showed a marginal decline in ARR and OR.
Outlook and valuation: We maintain our positive outlook on the entire hotel industry, as increasing foreign tourist arrivals (FTA) and economic growth will lead to further rise in demand for hotel rooms. TajGVK is expected to benefit from the addition of its 189-room property in Begumpet, which will take its owned rooms to 1,086 from 897 currently. Owing to an improved outlook, we have revised our sales estimates for FY2012E and FY2013E upwards by 0.2% and 4.4%, respectively. PAT estimates for FY2012E have been lowered by 1.6% due to higher-than-estimated depreciation, while FY2013 PAT estimates have been raised by 3.5%. The stock is currently trading at attractive valuations of 11.0x and 9.0x its FY2012E and FY2013E EPS, respectively. We have valued the stock at 12x its FY2013E earnings. We maintain our Buy recommendation on the stock with a target price of `140.
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