TAJGVK

1QFY2011 Result Update| Hotels
July 27, 2010

TAJGVK BUY
CMP Rs162
Performance Highlights Target Price Rs240
Y/E March (Rs cr) 1QFY2011 1QFY2010 % chg (yoy) 4QFY2010 % chg (qoq) Investment Period 12 Months
Net Sales 61.0 47.8 27.6 63.3 (3.7)
Stock Info
Operating Profit 22.8 15.6 46.7 26.3 (13.2)
Sector Hotels
OPM (%) 37.4 32.6 41.5
Market Cap (Rs cr) 1,016
Net profit 10.1 4.9 106.7 12.2 (16.9)
Beta 0.9
Source: Company, Angel Research
52 Week High / Low 179/86
For 1QFY2011, TAJGVK reported a robust 27.6% yoy growth in net sales to Avg. Daily Volume 84,566
Rs61cr (Rs47.8cr). With occupancy rates (OR’s) and average room rates (ARR’s)
on the rise, the fixed costs are getting absorbed resulting in a multiplier effect on Face Value (Rs) 2
EBITDA (up 46.7% in 1QFY2011) and PAT (up 106.7% to Rs10.1cr during the BSE Sensex 18,078
quarter). EBITDA margin improved by 480bp yoy to 37.4% (32.6%) in Nifty 5,401
1QFY2011. Going ahead, we expect the company to post a decent performance
Reuters Code TAJG.BO
on the back of improving industry dynamics. Considering the company’s growth
prospects and attractive valuations at current levels, we maintain our Buy rating Bloomberg Code TAJG@IN
on the stock.

Decent set of numbers on improving OR’s and ARR’s: TAJGVK’s Hyderabad Shareholding Pattern (%)
properties delivered an improved yoy performance during 1QFY2011, mainly on
Promoters 75.0
back of OR’s surging to 63% (57%). On the ARR front, only Taj Krishna witnessed
a 25% yoy surge, while the ARR’s of Taj Deccan and Taj Banjara remained MF / Banks / Indian Fls 10.4
unchanged on a yoy basis. The Chandigarh property delivered the best FII / NRIs / OCBs 1.6
performance on a yoy basis with OR’s rising by 16% to 74% (58%) and ARR’s
Indian Public / Others 13.0
improving by 4.3%. TAJGVK’s Chennai property is stabilising fast and witnessed
OR’s surging to 50% yoy (30%), while ARR’s marginally dipped by 3.6% to
Rs5,300. We expect the OR’s and ARR’s to pick up further in the coming quarters
Abs. (%) 3m 1yr 3yr
Outlook and Valuation: With economic recovery gathering steam, we expect the Sensex 2.2 17.6 18.7
hotel industry dynamics to further improve. At the CMP, TAJGVK at trading at
attractive valuations of FY2012E EV/Room of Rs1cr and 13.3x FY2012E EPS of TAJGVK (5.8) 52.2 0.9
Rs12.2. Considering TAJGVK’s robust growth prospects and attractive valuations,
we believe the company is the best poised among its peers. We maintain our Buy
rating on the stock, with a Target Price of Rs240.

Key Financials
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 237.5 229.2 298.3 342.4
% chg (7.8) (3.5) 30.1 14.8
Net Profit 52.8 36.3 56.2 76.3
% chg (25.1) (31.3) 55.1 35.6
EBITDA Margin (%) 42.4 37.8 40.6 42.8
EPS (Rs) 8.4 5.8 9.0 12.2
P/E (x) 19.3 28.0 18.1 13.3
P/BV (x) 3.8 3.5 3.0 2.5
RoE (%) 20.9 12.8 17.7 20.3
RoCE (%) 23.6 15.1 20.3 23.5
EV / Sales (x) 4.9 5.1 3.9 3.2 Viraj Nadkarni
EV/Room (Rs cr.) 1.3 1.3 1.2 1.0 022-40403800
EV/EBITDA (x) 11.4 13.4 9.6 7.5 virajm.nadkarni@angeltrade.com

Please refer to important disclosures at the end of this report 1

TAJGVK |1QFY2011 Result Update

Exhibit 1: 1QFY2011 Performance
Y/E March (Rs cr) 1QFY2011 1QFY2010 % chg FY10 FY09 % chg
Net Sales 61.0 47.8 27.6 229.2 237.5 (3.5)
Consumption of RM 5.9 4.6 27.4 21.2 20.1 5.5
(% of sales) 9.6 9.6 9.3 8.5
Staff Costs 11.2 10.4 7.9 41.0 36.7 11.6
(% to sales) 18.4 21.8 17.9 15.5
Power & Fuel Costs 5.2 4.5 17.6 18.6 15.2 22.5
(% to sales) 8.6 9.3 8.1 6.4
Other expenses 15.8 12.8 24.0 61.7 64.7 (4.6)
(% to sales) 25.9 26.7 26.9 27.2
Total Expenditure 38.1 32.2 18.4 142.5 136.7 4.3
Operating Profit 22.8 15.6 46.7 86.7 100.8 (13.9)
OPM (%) 37.4 32.6 37.8 42.4
Interest 2.6 3.3 (19.0) 12.2 6.6 83.6
Depreciation 5.0 4.8 4.3 19.6 13.7 43.8
Other Income - - - 1.2
PBT (excl. Extr.
15.2 7.5 102.8 54.9 81.7 (32.8)
Items)
Extr.
- - - 0.6
Income/(Expense)
PBT (incl. Extr. Items) 15.2 7.5 102.8 54.9 82.3 (33.3)
(% of Sales) 24.8 15.6 24.0 34.7
Provision for
5.04 2.58 95.5 18.7 28.9 (35.4)
Taxation
(% of PBT) 33.3 34.5 34.0 35.4
Reported PAT 10.1 4.89 106.7 36.3 53.4 (32.1)
PATM (%) 16.6 10.2 15.8 22.5
Equity shares (cr) 12.5 12.5 12.5 12.5
EPS (Rs) 1.6 0.8 106.7 5.8 8.5 (32.1)

Net sales up 27.6% mainly on rising OR’s and ARR’s: TAJGVK posted decent
growth in net sales of 27.6% yoy to Rs61cr (Rs47.8cr) for 1QFY2011. The
growth in top-line came mainly on the on the back of the surge in OR’s and
marginally through surge in ARR’s on a yoy basis. The Telangana issue seems
to have tapered down its effects on the Hyderabad properties as TAJGVK’s
Hyderabad properties witnessed OR’s improving by 6% yoy to 63% (57%) in
1QFY2011. Among the company’s Hyderabad properties, Taj Krishna
witnessed OR’s jumping by 12% yoy to 60% (48%), while in case of Taj Deccan
and Taj Banjara, OR’ remained same on a yoy basis at 69% and 65%,
respectively. ARR’s of Taj Krishna and Taj Banjara, in Hyderabad were stable
on a yoy basis, while Taj Deccan witnessed a 10.4% rise in ARR’s to Rs5,300
(Rs4,800).

July 27, 2010 2


EBITDA and PAT record robust growth as higher top-line absorbs fixed costs: Due
to the fixed cost structure of the hotel business, players benefit significantly in the
up-cycle. In case of TAJGVK too with rising OR’s and ARR’s driving up top-line
during the quarter, the fixed costs got absorbed resulting in multiplier effect on
EBITDA and PAT. As compared to the 27.6% yoy growth in top-line in 1QFY2011,
total expenditure increased 18.4% thereby boosting operating profits. During the
quarter, the company posted EBITDA of Rs22.8cr (Rs15.6cr), registering 46.7% yoy
growth. The growth at the operating level further percolated to the bottom-line
thereby enabling TAJGVK to post a phenomenal 106.7% yoy growth in PAT to
Rs10.1cr (Rs4.9cr) in 1QFY2011.

Exhibit 2: Quarterly performance trend

70.0 40.5 41.5 45.0
37.4
60.0 34.9 40.0
32.6
35.0
50.0
30.0
40.0 25.0
19.0 18.9

(%)
15.7 20.0
(Rs cr)

30.0 13.0
10.2 15.0
20.0
10.0
10.0 5.0
- -
1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011
Net Sales (LHS) EBIDTA (LHS) PAT (LHS)
OPM % (RHS) PAT margin% (RHS)


Other developments

The civil works and interiors for the new five-star hotel project site at
Begumpet, Hyderabad is progressing as per schedule. As per the company’s
asset light strategy, the owner of land has put up the structure and the
company is doing the interiors. The project will have around 189 rooms with
the cost of interiors at around Rs80cr, and is expected to be operational by
2011.

The company is proposing the construction of service apartments (43 nos.),
7,000 sq. ft. spa and an additional car parking facility at the existing premises
of Taj Krishna, at an estimated cost of Rs75cr. The excavation work for the car
park facility has been completed and the construction work has commenced.

The company has been allotted around 6 acres of land at Yelahanka near
Bangalore for hotel projects. The company is also planning to enter the
value-for-money segment through the Ginger brand in Andhra Pradesh. The
work on the first Ginger hotel on a site located near the Shamshabad
International Airport is expected to commence shortly.

July 27, 2010 3


Investment Arguments

Strengthening its foothold in the Hyderabad market: TAJGVK is the market
leader in the Hyderabad market, where it has a share of 29% in premium
segment rooms. In order to further strengthen its foothold and to tap mid-
market room demand, the company is coming up with a
189-room property in Begumpet. It also plans to add service apartments and
retail space at its existing Taj Krishna property. We believe that TAJGVK would
emerge as a prime beneficiary in Hyderabad, after the expansion.

Diversification strategy to de-risk business model: In FY2008, 78% of the
TAJGVK's room inventory was located at Hyderabad. To diversify its presence,
the company came up with Taj Mount Road in Chennai, in December 2008.
With this, it has toned down Hyderabad’s concentration to 59% of the total
room inventory in FY2009. It is also planning to enter Bangalore and is
exploring the possibility of entering the mid-market segment through tie-ups
with IHCL's Ginger. We believe that this strategy will prove beneficial in the
long run, as it would reduce over-exposure in the Hyderabad market.

Asset-light strategy to keep the balance-sheet healthy: TAJGVK is adding 189
rooms at its Begumpet property, using an asset-light strategy. This would
require a lower capital outlay as compared to a green-field expansion and we
expect the company's debt-equity ratio to be at comfortable levels of 0.2x in
FY2012E, which provides TAJGVK with adequate room to plan further
expansions, without hampering its balance sheet quality.

Outlook and Valuation

With the economic recovery gathering steam, we expect business destinations like
Hyderabad, Chandigarh and Chennai to significantly benefit, where TajGVK has a
significant presence. Signs of improving demand are visible, with occupancy rates
improving, which would consequently be followed by higher ARR’s in the coming
quarters. We maintain our positive stance on the hotel industry on the back of the
improving dynamics.

Considering the improving demand, the company’s dominant position in
Hyderabad, the growing demand for its recently launched Chennai property, and
its on-track expansion plans, we estimate top-line and bottom-line to witness
CAGR of 22.2% and 45% respectively, over FY2010-12E. At Rs162, the stock is
trading at attractive valuations of 13.3x its FY2012E EPS of Rs12.2 and FY2012E
EV/Room of Rs1cr. We maintain our Buy rating on the stock, with a Target Price of
Rs240.

July 27, 2010 4


Exhibit 3: One-year forward P/E band
350
300 29x

250
21x
200

(Rs)
150 14x

100
7x
50
0

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10
Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10
Oct-04

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Exhibit 4: Key Assumptions
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
No. of rooms (owned) 682 682 897 897 1,086 1,086
Occupancy rates % 76 77 68 58 66 68
ARR's (Rs) 7,237 7,568 7,937 6,492 6,915 7,187

Exhibit 5: Peer Valuation
Mcap EV/Room (Rs cr) P/E (x) P/B (x) # EV/EBITDA (x) RoE (%) #
RoCE (%)#
(Rs cr) FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E
TAJGVK 1,016 1.2 1.0 18.1 13.3 3.0 2.5 9.6 7.5 17.7 20.3 20.3 23.5
Hotel Leela 1,853 2.8 2.2 24.7 18.1 2.3 2.1 16.5 11.4 9.8 12.2 5.3 8.3

Source: Company, Angel Research; Note: # Excluding revaluation reserves for Hotel Leela

July 27, 2010 5


Profit & Loss
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Net Sales 242.9 257.5 237.5 229.2 298.3 342.4
Other operating income - - - - - -
Total operating income 242.9 257.5 237.5 229.2 298.3 342.4
% chg 28.6 6.0 (7.8) (3.5) 30.1 14.8
Total Expenditure 129.1 136.4 136.7 142.5 177.2 195.9
Net Raw Materials 20.0 21.2 20.1 21.2 23.9 28.4
Other Mfg costs 26.5 28.6 29.1 18.6 38.8 40.7
Personnel 24.7 29.9 36.7 41.0 44.7 44.5
Other 57.9 56.7 50.8 61.7 69.8 82.2
EBITDA 113.9 121.0 100.8 86.7 121.1 146.6
% chg 34.9 6.3 (16.7) (13.9) 39.7 21.0
(% of Net Sales) 46.9 47.0 42.4 37.8 40.6 42.8
Depreciation& Amortisation 11.2 11.5 13.7 19.6 19.0 19.4
EBIT 102.7 109.5 87.1 67.1 102.1 127.2
% chg 39.7 6.7 (20.4) (23.0) 52.1 24.6
(% of Net Sales) 42.3 42.5 36.7 29.3 34.2 37.1
Interest & other Charges 3.1 2.8 6.6 12.2 17.3 12.4
Other Income 1.3 1.6 1.2 - 1.7 2.6
(% of PBT) 1.3 1.5 1.5 - 2.0 2.2
Recurring PBT 100.8 108.3 81.7 54.9 86.5 117.3
% chg 44.1 7.4 (24.6) (32.8) 57.5 35.6
Extraordinary Income/(Exp.) (0.01) 0.02 (0.56) - - -
PBT (reported) 100.8 108.3 81.1 54.9 86.5 117.3
Tax 36.5 37.9 28.9 18.7 30.3 41.1
(% of PBT) 36.2 35.0 35.6 34.0 35.0 35.0
PAT (reported) 64.3 70.4 52.2 36.3 56.2 76.3
ADJ. PAT 64.3 70.4 52.8 36.3 56.2 76.3
% chg 39.1 9.5 (25.1) (31.3) 55.1 35.6
(% of Net Sales) 26.5 27.4 22.2 15.8 18.8 22.3
Basic EPS (Rs) 10.3 11.2 8.4 5.8 9.0 12.2
Fully Diluted EPS (Rs) 10.3 11.2 8.4 5.8 9.0 12.2
% chg 39.1 9.5 (25.1) (31.3) 55.1 35.6

July 27, 2010 6


Balance sheet
SOURCES OF FUNDS
Equity Share Capital 12.5 12.5 12.5 12.5 12.5 12.5
Preference Capital - - - - - -
Reserves& Surplus 173.4 220.4 258.5 280.7 329.9 394.9
Shareholders Funds 186.0 232.9 271.0 293.2 342.4 407.5
Total Loans 73.4 74.5 139.0 162.0 184.0 124.0
Deferred Tax Liability 8.1 8.9 12.2 12.2 12.2 12.2
Total Liabilities 267.4 316.3 422.3 467.5 538.7 543.7
APPLICATION OF FUNDS
Gross Block 258.1 268.6 463.1 534.8 625.9 650.9
Less: Acc. Depreciation 64.5 75.9 89.1 108.0 127.1 146.5
Net Block 193.7 192.8 374.0 426.8 498.8 504.4
Capital Work-in-Progress 76.0 138.6 69.4 45.0 25.0 25.0
Goodwill - - - - - -
Investments - - - - - -
Current Assets 61.9 50.3 32.7 49.3 85.1 95.1
Cash 25.3 11.3 2.1 12.9 37.7 40.7
Loans & Advances 27.6 29.7 19.7 25.1 32.7 37.5
Other 9.1 9.3 10.9 11.3 14.7 16.9
Current liabilities 67.0 67.2 55.5 55.3 71.9 82.6
Net Current Assets (5.0) (16.9) (22.8) (6.0) 13.2 12.6
Mis. Exp. not written off 2.7 1.8 1.7 1.7 1.7 1.7
Total Assets 267.4 316.3 422.3 467.5 538.7 543.7

July 27, 2010 7


Cash Flow Statement
Profit before tax 100.8 108.3 81.1 54.9 86.5 117.3
Depreciation 11.2 11.5 13.7 19.6 19.0 19.4
Change in Working Capital 0.8 (0.2) (1.6) (0.5) (3.4) (2.2)
Less: Other income 1.3 1.6 1.2 - 1.7 2.6
Direct taxes paid 36.5 37.9 28.9 18.7 30.3 41.1
Cash Flow from Operations 75.0 80.2 63.1 55.4 70.1 90.9
(Inc)./ Dec in Fixed Assets (97.3) (213.7) (389.3) (167.1) (161.1) (55.6)
(Inc)./ Dec in Investments 14.0 - - - - -
(Inc)/ Dec in loans and
11.3 (2.1) 10.0 (5.4) (7.6) (4.8)
advances
Other income 1.3 1.6 1.2 - 1.7 2.6
Cash Flow from Investing (70.7) (214.2) (378.1) (172.5) (167.0) (57.9)
Issue of Equity - - - - - -
Inc./(Dec.) in loans (12.2) 1.1 64.5 23.0 22.0 (60.0)
Dividend Paid (Incl. Tax) (18.8) (20.1) (12.5) (12.5) (6.3) (10.0)
Others 38.0 139.1 253.8 117.4 105.9 40.0
Cash Flow from Financing 6.9 120.1 305.8 127.8 121.6 (30.0)
Inc./(Dec.) in Cash 11.3 (13.9) (9.2) 10.7 24.8 3.0
Opening Cash balances 14.0 25.3 11.3 2.1 12.9 37.7
Closing Cash balances 25.3 11.3 2.1 12.9 37.7 40.7

July 27, 2010 8


Key Ratios
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 15.8 14.4 19.3 28.0 18.1 13.3
P/CEPS 13.5 12.4 15.3 18.2 13.5 10.6
P/BV 5.5 4.4 3.8 3.5 3.0 2.5
Dividend yield (%) 1.9 2.0 1.2 1.2 0.6 1.0
EV/Room (Rs cr.) 1.2 1.2 1.3 1.3 1.2 1.0
EV/Sales 4.4 4.2 4.9 5.1 3.9 3.2
EV/EBITDA 9.4 8.9 11.4 13.4 9.6 7.5
EV / Total Assets 4.0 3.4 2.7 2.5 2.2 2.0
Per Share Data (Rs)
EPS (Basic) 10.3 11.2 8.4 5.8 9.0 12.2
EPS (fully diluted) 10.3 11.2 8.4 5.8 9.0 12.2
Cash EPS 12.0 13.1 10.6 8.9 12.0 15.3
DPS 3.0 3.2 2.0 2.0 1.0 1.6
Book Value 29.7 37.1 43.2 46.8 54.6 65.0
Dupont Analysis
EBIT margin 42.3 42.5 36.7 29.3 34.2 37.1
Tax retention ratio 63.8 65.0 64.4 66.0 65.0 65.0
Asset turnover (x) 0.9 0.8 0.6 0.5 0.6 0.6
ROIC (Post-tax) 24.5 22.5 13.3 9.5 12.3 15.2
Cost of Debt (Post Tax) 2.5 2.5 4.0 5.3 6.5 5.2
Leverage (x) 0.4 0.3 0.4 0.5 0.5 0.3
Operating ROE 32.3 27.8 17.0 11.6 15.0 18.3
Returns (%)
ROCE (Pre-tax) 40.2 37.5 23.6 15.1 20.3 23.5
Angel ROIC (Pre-tax) 61.8 65.8 24.8 16.4 21.4 26.6
ROE 38.1 33.6 20.9 12.8 17.7 20.3
Turnover ratios (x)
Asset Turnover (Gross
0.9 1.0 0.6 0.5 0.5 0.5
Block)
Inventory / Sales (days) 4.2 5.0 6.5 7.1 6.2 6.5
Receivables (days) 10.0 8.1 9.0 10.6 9.7 10.3
Payables (days) 166.4 179.5 163.8 141.8 131.0 143.9
Working capital cycle (ex-
(24.2) (41.5) (40.8) (34.8) (26.5) (28.1)
cash) (days)
Solvency ratios (x)
Net debt to equity 0.3 0.3 0.5 0.5 0.4 0.2
Net debt to EBITDA 0.4 0.5 1.4 1.7 1.2 0.6
Interest Coverage (EBIT /
32.7 38.7 13.1 5.5 5.9 10.3
Interest)

July 27, 2010 9


Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please
refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and
its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement TAJGVK
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No

Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

July 27, 2010 10

TAJGVK

More Related Content

What's hot

Similar to TAJGVK

More from Angel Broking

Recently uploaded

TAJGVK