It is a known fact that “Taj GVK Hotels”, is the market leader among the Hyderabad hoteliers. It operates three 5 star hotels in Hyderabad with 526 rooms out of 1,500 rooms in the city. It also operates one 5 star hotel in Chandigarh with 152 rooms out of 325 rooms in the city. Andhra Pradesh Tourism and GMR group are promoting Hyderabad as meeting, Incentive convention and entertainment (MICE) destination. This would create significant demand for hotels in the future. Taj GVK is on the look out for land hotel development at various locations including Bangalore, Jaipur, Hyderabad (near airport), Amritsar and Kodaikanal. The company has shown progress in Bangalore and Jaipur for acquiring land.

The April-June quarter was one of the weak quarters for the hotel industry. The net sales were up by 3% YOY at Rs. 585M verses the estimated target of Rs. 630M. EBITDA was up by 1.4% YOY at Rs. 263M verses the estimated target of Rs.293M. EBITDA margin was down by 90BP YOY at 45% (estimated percentage was 46%) on the back of lower than estimated revenues. PAT remained flat at Rs. 151M (against the expected target of Rs.163. The valuation is extremely attractive, considering the following factors:

1. Taj GVK’S predominantly owned properties.
2. 2) 20% EPS CAGR through FY10E
3. High ROE and payout
4. 30-35% of dividend payout. The stock offers 20% from current levels. The Hotel’s target price is Rs. 209, the stock offers 138% upside from current levels.

Taj GVK’S 187 – room, Hyderabad – Begumpet property is expected to start operations in December 2009