Hotel Leelaventure

Shareholders can retain their exposure to the stock of Hotel Leelaventure, which owns and operates a chain of luxury hotels across the country.

While falling occupancy levels and room rentals in the aftermath of the global recession, Mumbai terror attacks and the more recent swine flu scare have weighed on the company’s financial performance so far, what instils some confidence is that there are signs of improving prospects in the coming quarters.

With the effects of the financial meltdown easing and economic activity beginning to pick up, the company may well be able to attract higher occupancies hereon, its established brand presence and properties in lucrative business markets giving it an added edge.

The expected opening of its new properties in New Delhi and Chennai by the next fiscal year also portends additional revenue triggers.

At current market price of Rs 39, the stock trades at about 37 times its likely FY10 per share earnings. Besides high valuations, a high debt may also weigh on its earnings prospects.
Improving prospects

The luxury hotels market, which derives a considerable portion of its revenues by catering to foreign tourists, had suffered a severe blow over the last two years.

But in what may be an encouraging sign of things to come, the recent statistics on foreign tourist arrivals (FTAs) suggest improving prospects.

After declining significantly to 13.8 per cent during the first quarter of FY10 , FTAs have fallen only 1.8 per cent in the September quarter.

Not surprisingly, the company has reported better numbers on a quarter-on-quarter basis. While revenues appreciated 7.9 per cent over the quarter, profits surged by 68.3 per cent, albeit on a low base.

What’s more, the company has seen a marked increase in booking levels across its properties in recent times. It has reported an increase in average occupancy levels in Bangalore (its main revenue driver) and Gurgaon up to over 70-75 per cent levels. However, the average room rates are still a far throw from the peak levels seen earlier.
Potential revenue trigger

The next big opportunity for the company may come from the Commonwealth Games that Delhi will host in October 2010. Government estimates expect nearly 1,00,000 tourists during the 15-day period. An estimated 30,000 guest-rooms are required for this eventin addition to the existing 11,000 accomodation.

The management expects to commission its next hotel at Chanakyapuri, New Delhi, (located near the Diplomatic Enclave) by July 2010, well before the commencement of the event.

While the high demand would certainly boost occupancy levels for the new property, the ARRs may be capped since a handful of other star-rated hotels are also expected to come up around the same time in the region.
room inventory

At present, the company operates six hotels across Mumbai, Goa, Bangalore, Kovalam (Kerala), Udaipur and Gurgaon totalling to 1,523 guestrooms and 90 serviced apartments.

While the New Delhi property would add another 250 rooms to the inventory, the slated inauguration of its Chennai property in the later half of next fiscal would add another 380 to the overall count.

But the key to making the best of the new properties would be to capture market share before competitors do. Considering that both the regions are on the expansion of other hotel chains as well, any further delay in capex could prove detrimental.

Timely execution of these projects will also help bring down Leela’s revenue dependence on its Bangalore property (about 40 per cent of FY-09 revenues).

Over the long-term, Leela also has plans to open hotels in Agra, Hyderabad and Pune, for which it has already bought the land.
Gearing, a concern

Though the company has bought back a substantial portion of its FCCBs, , it still has a significant debt on its book; total debt (at about Rs 2,450 crore) at the end of last fiscalstood at more than three times its net worth.

At the end of last fiscal, the company had FCCBs worth Euro 39.20 million (about Rs 275 crore) due for maturity in September 2010 and another $67 million (about Rs 315 crore) debt maturing in April 2012. Earnings therefore may trail revenues for some time to come.

via BL