The trigger :
Last month I had been on a vacation to one of their new properties Vivanta by Taj , Bekal
(Kerala) and was stunned by the beauty of the resort , with the beach on one side and backwaters on the other which cuts through the resort over which a bridge is built. Awesome
villas,exquisitely designed , extremely courteous staff and great food and all for a very
affordable price .
Why would the stock be a good investment ?
The big time expansion that is almost complete and ready to hit the markets ! Yes , there are two more Vivanta by Taj newly opened in Bangalore , apart from the already existing one on MG Road .
Bookings in Vivanta Coorg have started for the pilot launch in October mid. Few more in the NCR region , Hyderbad , Dwarka etc are also in the last stages .
Lots of flagging Gateway hotels have been revived and Ginger Hotels in tier 2 cities are seeing more demand and new ones are under construction. Now , the major expansion phase seems to be over and I believe the debt burden will not increase further.
On the financials , nothing great until now. Long term debt has increased to 2000 crores from
1250 crores from FY11 to FY12, mainly to retire some short term bonds. On my trip to Bekal ,
found that they have a strong base of regular loyal customers who only stay at Taj properties
when on a holiday. And the best part is the packages offered are very much affordable to aeverone, whereas a few years back the Taj Brand was seen to carter only the very rich.
The other positive news is that promoters (TATA Sons) are increasing stake , which stands at 37% now compared to 23% a few months back . There are talks of them increasing stake upto 50% .
It can be a stock to give a balance to a portfolio with mid/small caps offering limited downside and a slow but steady upmove.
Discl : Not invested , but will consider based on the precious feedback of Valuepickrs.
the problem with indian hotels is that all these new properties does not seem to be translating into growth in profits and at end of day stock prices tend to follow earnings.
While downside may be limited due to the assets it has, upsides may be limited and cause one to be frustrated after holding the stock for a long time and not seeing any price appreciation.
Sorry to say but I think there are many better options for long term investment as compared to Indian hotels.
Hotels are extremely capex intensive and hence returns in the long term will not generate share holder value. The pricing power usually is with the customer given the increasing capacity. As an example Leela Palace in Bangalore at its peak in 2007 was charging almost RS 20000 for a room and the occupancy was 100%. Now the tariff is close to RS 10000 and nowhere near full occupancy. Hence it is a very cyclical business.
Some observations from Recent Interview on ET now of CEO
Slowdown effect due to elections in April and may though top line has grown qtoq
Partnership with GIC to become asset lite and focus on growth
Target to increase margin to 25%
To sale non core assets
Added new 30 contract since inspiration 22 4 has opened
151 hotels in operations want to open one hotel every month and on track
Take over of existing properties also option to grow
Balanced portfolio 50% management contract by 2022
Despite Brexit London doing well us(WC & Wimbledon effect) , cape town , Dubai , Maldives doing well, struggling in srilanka after attacks terror
Management contract based hotels don’t give high upside but also not high downside
Management contract increased from 32% to 40% in last 15 months
Want to sell and manage back to reduce debt and have better profitability
Debt is now 1900cr want to bring it down further
65% EBITDA for year comes in H2 usually, last year 10% top and ebitda 20% for whole year and will deliver on promise of FY22 EBITDA margin 25% by combination of sales and repair and occupancy combination
16.“The growth engines for Taj hinge on the firms’ brand equity, market positioning as well as a recent tie-up with private equity firm GIC, which is expected to power ongoing acquisitions over three years with a Rs 4,000-crore war chest.”
17.“Part of the GIC fund may also be used to turn around and monetise existing assets,” said Chhatwal. The new platform will drive all-out acquisitions, he added, and not target green field hotels.
Disclosure( Holding 10% in portfolio)
I have invested in indian hotels based on the feb 2018 presentation of the company. I have been observing the company’s progress since the presentation was made and it seems things are playing out as promised in the aspiration 2022 document.
Margin improvement is quite visible. OPM which was 13% in March 2017 was 17% in March 2019. (screener.in)
Borrowings have been brought down from 3383 crores in March 2017 to 2326 crores.
GIC deal is something we need to watch out how it plays out. As of now it seems a good deal for Indian hotels.
Hotel occupancy is picking up and higher occupancy should lead to much better utilisation and hence improvement in bottomline can be of a much higher magnitude than topline growth.
Technically downside seems limited. Stock seems to attract support around 140-145 region during declines. 160-165 region remains strong supply zone from where the stock price tends to come down. Looks like a tight zone of consolidation between 140-164. Last week the stock price hit its all time high of 164 and retraced.
Entry and exits are easy as stock is highly liquid.
AR 2019 Chalet hotels gives good guidance regarding supply demand situation in indian hospitality industry , My notes on same.
The Indian government has also taken several steps to boost the tourism and hospitality sector. The government has introduced e-tourist visa to facilitate arrivals of nationals; as of December 2018, this facility has been extended to 166 countries. Tourist arrivals through e-tourist visa increased at a CAGR (Compounded Annual Growth Rate) of 179.12% during 2014-18 to reach 2.37 million tourists in 2018 and overall foreign tourist arrivals during
2018 grew by 5.2% to 10.55 million. The government has also encouraged domestic air travel through initiatives such as UDAN scheme (Ude Desh ka Aam Naagrik) and the opening of regional airports. These initiatives along with rising aspiration for travelling have helped domestic air travel register a double-digit growth of 18.6% with domestic air passengers surging to 139 million in 2018. (Source: IBEF Tourism and Hospitality report April 2019).
On the hospitality front, in 2018, the industry witnessed RevPAR growth of 9.6% to arrive at an absolute RevPAR of `3,927 and ADR grew by approximately 6% as per HVS Anarock - India Hospitality Review 2018, outpacing occupancy growth rate after several years. As per the report, supply is anticipated to grow by 4.0% and demand by 7.0% in 2019, creating an arbitrage in favour of demand, which continues to spur the upcycle.
However, even with the economy growing, rising consumption, tourist arrivals and domestic air travel being on the rise, the number of rooms being added by branded hotels have dropped significantly. According to a report by CARE (Indian Hotel Industry – Review and Prospects, January 2019), the expected future inventory in 11 major markets of India is just around 49,400 rooms for the next five years (FY18 to FY23), this number has fallen significantly from the proposed new room supply at 114,466 rooms in FY08. The contraction in the supply of hotel rooms has its origins in the issues faced by the real estate sector, as many ambitious hotel projects are now stifled by restricted liquidity forcing developers to either scrap them or convert hotel projects into residential or commercial projects in order to improve their cash flows. Announcements of new hotel projects have also reduced compared to the past. With increasing demand and lower room additions, occupancy and room rates for existing hotels are expected to be higher in the coming years, giving a significant advantage to an established company like Chalet Hotels.
The erstwhile concept of Operating Lease will cease to exist.
All the leases will be considered as a Finance Lease irrespective of the arrangements (subject to two exceptions).
In balance sheet Both assets and liabilities have gone up due to above
In P&L EBitda , dep & interest cost is higher while PAT is lower
@hitesh2710 The results not too bad given the tough economic situation. The company seem to be consistent on its Aspiration 2022. I request you views on the results and if possible technical analysis. Thanks.
