Bhagwati Banquets & Hotels--Buy

MUMBAI: In the last nine months, the stock of Bhagwati Banquets & Hotels has shed 32% against 21% decline in the ET Hospitality Index-a composition of hotels and resorts companies. Investors need not be worried about this decline in the company's stock considering the fact that the business fundamentals of the company remain intact.

Bhagwati Banquets & Hotels is one of the efficient players in the hotels industry in Gujarat. It has a strong focus banquets, restaurants and catering services. It is one of the strongest players preferred for business meetings in Gujarat. At present, the company derives 85% of revenue from banquets, restaurants and catering services, while the remaining revenues come from its hotels rooms. Besides this, the company is now focusing on rebalancing its entire portfolio. It is having increasing contribution from managed and franchised hotels and banquets. It is a fee-based business. This is an economical way of generating good business since the developing partner provide the capital and in such way the company can generate strong returns on capital.

The company also has earmarked strong expansion plans but at a very low capital expenditure. The company plans to run its properties profitably. According to a report by Risk Capital Advisors, the company is also focusing on Food & Beverages and catering segments by offering its brand name and expertise. These initiatives would result in steady cash flows and improve its Return on Capital Employed (RoCE). It is estimated that the company's RoCE would improve to 21% in FY14 earnings from 11% in FY11. Investors should hold onto the company's stock with one-year horizon.