Religare puts CMP of Hotel leelaventure at Rs 44

RESEARCH: RELIGARE
RATING: NA
CMP: Rs 44

Hotel Leelaventure (HLVL) is all set to capitalise on the expected revival in demand for premium hotels as foreign tourist arrivals (FTA) improve and firm up ahead of the Commonwealth Games in 2010 and the Cricket World Cup in 2011.

The company’s proposed expansion in major cities like Delhi and Chennai would diversify its revenue mix while lowering its risk from concentrated operations in Mumbai and Bangalore. The following has emerged as the key highlights:

Diversification to de-risk operations: Currently, HLVL operates five-star deluxe hotels in Mumbai, Bangalore, Goa, Kovalam, and Udaipur; besides, it also operates a hotel with service apartments at Gurgaon under management contract. The company, however, faces high concentration risk as it generates 74% of its revenues from Mumbai and Bangalore.

To dilute this risk, the company plans to enter Delhi and Chennai in ‘10. In contrast, other big players like EIH and Indian Hotels have higher proportion of management contracts. Further, presence in regions with high ARRs also translates into higher margins for the company.

HLVL has bought back 12.2 million denominated bonds and $33 million FCCB bonds. This has reduced its debt equity ratio from 2x in FY08 to 1.3x FY09. Currently, HLVL trades at a P/E multiple of 19.4x FY11E earnings.