Stock Market Result Update on TajGVK for 2QFY2012

Stock Market Result Update on TajGVK for 2QFY2012 with a Buy recommendation and a Target Price of `121 (12 months).

TajGVK reported a 1.8% yoy decline in its top line to `58cr (`60cr) for 2QFY2012. OPM came in at 32.1%, as against 32.0% in 2QFY2011, up 6bp yoy. Occupancy rates (OR), especially for Hyderabad, remained weak during the quarter due to political unrest in the city. Chandigarh hotels showed strong improvement over the previous quarter, with overall OR at 63% for the quarter, while average room rate (ARR) came in at `7,000. We are positive on the outlook of the company, given that its key markets, Hyderabad and Chennai, are showing signs of stabilizing. We maintain our Buy recommendation on the stock.

OR fluctuates in Hyderabad properties yoy: With the ongoing issues over Telangana, OR and ARR fluctuated across Hyderabad properties. Taj Krishna reported a 2% yoy increase in OR and its ARR improved to 7,700 from 7,200 in 2QFY2011. On the other hand, Taj Deccan and Banjara witnessed a decline in OR to 67% and 57% from 72% and 71% in 2QFY2011, respectively. ARR remained flat for these properties yoy at 5,000. Taj Chandigarh and Club House reported 63% OR each, while both witnessed a decline in ARR to 7,000 and 4,700 in 2QFY2012 from 7,300 and 5,200 in 2QFY2011, respectively. Going ahead, we expect 2HFY2012 to be better as it is seasonally stronger for the industry. Also, Taj Begumpet is expected to be fully operational in 3QFY2012.

Outlook and valuation: We maintain our positive outlook on the entire hotel industry, as increasing foreign tourist arrivals (FTA) and economic growth will lead to a further increase in demand for hotel rooms. TajGVK is expected to benefit from the addition of its 189-room property in Begumpet, which will take its owned rooms to 1,086 from 897 currently. The stock is currently trading at attractive valuations of 11.5x and 9.1x its FY2012E and FY2013E EPS, respectively. We have valued the stock at 12x its FY2013E earnings. We maintain our Buy view on the stock with a revised target price of `121.