HDFC Sec - Asian Hotels

HDFC Securities report on Asian Hotels:

Asian Hotels, AHL reported a turnover of Rs 4134 Mn in FY07 and a PAT of Rs 915 Mn, which were 26% and 61% higher yoy. For the quarter ended March 07, the turnover of Rs 1324 Mn and PAT of Rs 344 Mn were higher by 27% and 51% yoy, respectively. The topline growth was aided by 35% rise in ARRs and marginal increase in occupancy.

The strength in ARRs with an inconsequent increase in costs lead to OPMs surge 811 bps (much better than expected) and 600 bps for the quarter and year ended FY07 to 51.5% and 44.3% respectively. Though it slid below our topline estimate, it positively surprised on the margins front.

The board of AHL has decided to demerge the company and form three separate listed entities. Though the modalities of the restructuring still remain unclear, we have outlined the procedure, in brief ahead. On a rough cut basis, the fair value of the assets are assessed at Rs 20 bn against the market cap of Rs 17bn, an 18% upside. However, with limited information, taking into account strong earnings growth (ARRs to compound 7.5%) and constructive restructuring possibility, we reiterate its fair price at Rs 890 (in line with the AHL’s independent valuation estimate), offering an upside of 18% to the CMP. The fair price has been valued by assigning weights to three key parameters viz., PEG, EV/Room and DCF.

The stock quotes on FY07 basis at 4.6x its P/BV, EV/Ebitda of 9.2x, and offers 1.3% dividend yield. We reiterate “OUTPERFORMER”.