Time for reforms

Its time to get rid of some laggards in the portfolio and bring in some suitable replacements from the corresponding sectors.

Royal Orchid Hotels - May be its time I got rid of this scrip. Bought at a price of 209, more than a year ago, the share went green only a couple of weeks back. It suffered a nasty blow during the May-mayhem. The share price tumbled to 100, leaving me in dire straits. Its Q3 numbers are scheduled to be announced on Jan 30th. Will hold it, only if it declares something phenomenal. Another issue with this scrip, is its thin volumes and low profile.

Performance of Royal Orchid over the last 12 months

Suitable Replacement ?

Performance of Indian Hotels over the last 12 months

Indian Hotels seems like a good choice. The company of-late has been ambitious, keen on expanding and to top it all, belongs to the giant Tata group. It was in limelight recently after it acquired the Ritz-Carlton Hotel, Boston for a whopping $170 million. It also had an incredible Q3.

Result Highlight:

* Taj Group has added 9 properties during the current financial year and the number of hotels have increased to 76 with inventory of 9,256 rooms, resulting in an increase of 637 rooms and Rs. 559 Cr. income.

* During the quarter, the company has signed a License Agreement for a new 5 star hotel being built at Bangalore with 350 rooms, executed a management contract for a proposed hotel in Panjim, Goa, and commissioned its first Wild Life Lodge at Mahua Kothi, Bandhavgarh National Park.

* The company has launched its new Ginger Hotel at Pune and with this there are now 6 Gingers operating and 25 sites within the fold for new builds.

* The company has concluded all the formalities related to purchase of Ritz Carlton Hotel, Boston for USD 170 million and it has been renamed as Taj Boston having 273 rooms and Banqueting space of 16,500 Sq.ft.. The ownership and management was taken over on January11, 2007.

* The Company has made an investment of Rs. 18 Crore in Amalgam Foods Ltd. to acquire its 74% equity to enter into ready to eat and ready to cook segment through its SUMERU brand.

* IHCL’s total income for Q3FY2007 and Nine Months FY2007 have increased by 26% and 28% respectively on yoy basis to Rs. 412.33 Crore for Q3FY2007 as compared to Rs. 328.5 Crore for Q3FY2006 and to Rs. 975.6 Crore as compared to Rs. 761.74 Crore for Nine Months FY2006 respectively.

* EBITDA for Q3FY2007 has increased by 35% to Rs.155.84 Cr. as compared to Rs. 115.45 Cr. for Q3FY2006 and it has increased by 45.5% for Nine Months FY2007 to Rs. 318.34 Cr. as compared to Rs. 218.77 Cr. for Nine Months FY2006.

* The city occupancies increased , Average Room Rents increased across the country by more than 30% and the Revenue Per Available Room (RevPAR) increased by 25 to 45 % during the current financial year.

Valuation:
The shares of the company are traded at a P/E multiple of 25 at a current market price of Rs. 158 per share of Rs.1 each (26*2007E EPS of Rs.6.40). The P/E gets further discounted to 19.5 for the earnings of 2007-08 with an EPS of Rs. 8.10 per Equity share. The performance of the subsidiaries is expected to improve in view of the increase in demand, occupancy and room rents.