The Hindu Business Line : Taj GVK: Buy

FRESH exposure can be considered in the Taj GVK stock. Hotel stock, which was on an upswing because of a boom in tourism, has been under pressure, postearthquake/tsunami. There is now an uncertainty over the impact the disaster may have on tourist arrivals in India, as negative travel advisories were issued. Leisure destinations along the coast are, however, likely to be more severely affected than the inland tourist spots.

Taj GVK, which operated only in Hyderabad till now, has been relatively unaffected by the disaster. The demand from the business traveller is likely to remain robust as Hyderabad is anIT/BPO hub.

The company's foray to Chandigarh and Chennai augurs well for revenue growth and also reduces the risks of just presence in Hyderabad. These factors have had the stock trading firmly amid the selling pressure in the market.

The presence in Hyderabad has worked in favour of Taj GVK. Hyderabad is now second only to Bangalore when it comes to growth in occupancy rates.

A number of hotel properties are coming up in the vicinity, but given the long gestation periods involved, Taj GVK, with three properties in the city — Taj Krishna, Taj Banjara and Taj Residency — is likely to sustain its strong market share in the near term. ITC's Hotel Kakatiya Sheraton is the only other five-star hotel now operating in Hyderabad.

Taj GVK's dominant position has also translated into better tariffs. In the quarter ended December 2004, its operating profits rose 41 per cent.

The operating margins for the quarter stood at 45 per cent, which compares well with Hotel Leela, which enjoys the best ARRs (average room rates) in the country.

With the long-term prospects for tourism in India remaining bright, most hotels are on an expansion mode and Taj GVK has also jumped onto the bandwagon. It is also expediting the expansion by taking the acquisition route. The company had acquired a property in Chandigarh from ITDC in 2002; the hotel is expected to be operational within this fiscal.

Taj GVK also recently acquired a 200-room property in Chennai for Rs 32 crore. It would spend an additional Rs 80 crore on renovation and expects it to be operational in calendar 2006.

The acquisitions have been funded by a mix of internal accruals and debt. Debt, as of now, is still marginal, though the company has raised its borrowing limit to Rs 200 crore.

With a net worth of Rs 100 crore, further expansion would have to be funded by debt or issue of more equity. The revenue growth should, however, compensate for the dilution in per share earnings.

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