HOTEL LEELA TARGET 70
Recommendation: Buy Broking firm: UTI securities Reco price: Rs 44 CMP: Rs 45.25 Target price: Rs 70 Upside: 55%
Hotel Leela\’s upcoming properties at Hyderabad, Pune,Chennai and Delhi will open in 2010 and will more than double its existing room inventory to 2640 rooms. Over the next two years, the primary growth drivers for the company will be room refurbishments at Leela Kempinski, Mumbai and 105 room additions at Bangalore amid supply shortages & double-digit demand growth at both cities.
Further, the company\’s plan of developing an IT park project at Chennai is slated to open by March 2008 and would provide additional rental incomeof Rs. 130 crore FY09E onwards. The stockhas underperformed for past six months but trades at a reasonable valuation of 13 times and 9 times for FY08 and FY09 estimated earnings.
UTI Securities research report dated 6th September 2007 has put a buy rating on HotelLeela with a price target of Rs 70.
One of the key players in the Indian five-star hospitality segment, Hotel Leela has a portfolio of 4 hotel properties at Mumbai, Bangalore, Goa & Kovalam. The company has a marketing tie-up with the Kempinski group based in Europe. Hotel Leela is the market leaderin 2 of the 4 locations and among the top 3 players in the remaining two earning an overall RevPAR premium of 1.2 over peers in the premium segment. The company believes in the ideology in providing nothing but the best to its guests and has had a policy of not compromising on ARRs even if it means slightly lower occupancies.
The stockis undervalued at cmp of Rs 44 at a P/E multiple of 11.2x FY08E and 8.6x FY09E earnings.
A Value Buy.
