0812-012 – Hotel Leela – 21-Dec-08

 

Hotel Leela – 0812-012 (Stock Watch) By Kalidas

  

Stock

HOTEL LEELA

Sector

HOTEL

Market

India

Ref No

0812-012

Symbol

HOTELEELA

Web site

www.theleela.com

Date

08/12/22

 Price 08/12/19

21.60

Target ST

39.00

Target LT

62.00

52W High

76.90

52W Low

16.90

 ST Hold

12M

LT Hold

24M

Current PE

5.44

% Down Peak

-80%

Downside

-15%

Upside

+85%

PE 2009

4.80MyEst

Div Yield% CMP

2.4%

Buy Range

18~25

Sell  Range

33.50~39

 Comments

Current credit crisis and terrorist attack on Taj have affected this stock. Many fear that the FCCB in Euro 51 Mln (convertible @ 46+)  and USD 100 Mln in 2012 may exert pressure on Leela’s finances, but those repayments are far off.  Leela has conversion price reset clause.  The repayments are far off. Leela has conversion price reset clause that can be exercised every September, So if the stock market does not recover by Sep09 and the stock still trading lower, the price could be adjusted downward to enable conversion.

 

I have different opinion. This hotel is growing at compounded rate of over 20%, its interest cost is declining, and depreciation is rising (that means that more hotel rooms are coming to the market). It earns 78% from Mumbai and Bangalore and one more hotel was supposed to come on stream in Gurgaon in Oct 08 (the property is owned by others, they only manage it). The company’s return on equity is over 20%, debt is manageable, and profit is nearly 5 times to cover the debt servicing. Interest rates are falling, good for the company, and its emphasis on high value payer clients who outsource in Hyderabad, Mumbai, Bangalore and now Gurgaon. Tourism related income will be less important. They have more business travelers.  Further, promoters have increased their stake from 49% to 51% or so.  For financials, use click this link Hotel Leela’s Financials

 

There is dearth of 5 star hotels in India. This luxury sector is by far is strongest growth sector in India. Leela will be direct beneficiary for loss of Taj clients in Mumbai. It is a single focused company, easy to understand. Hotel stocks are traditionally related to Real Estate. However, I relate only with the earnings. Even if the hotel is valued higher on paper, they are not going to sell it out. Just focus on earnings. My guess is that the hotel may earn anywhere between Rs 4.80 to 5.40 in next 12 months, and presuming that the intensity of crisis is reduced by Sep 2009, the stock price may recover to Rs 39 or about. However, I will start taking profits at Rs 33.50 plus

Negative Opinion in the Market (for information purpose only)

There is some opinion in the market that the stock may come down to Rs 10 or below – why? Because their chart shows them. When the company makes Rs 4/shr, why should it drop to less than Rs 10 – I do not have convincing answer; so I chose to ignore that opinion.

Stock Behavior

The stock is a bit tricky. Some time difficult to predict. Not many seem to like this counter. I normally buy when the volume goes up above 1 millions shares on upside move, It is generally time to buy for quick gain. The stock does nothing for most of the day and jacks up only during last hour. So when you notice volume above 1 million during the day, grab some of them. If the stock does go up well, buy more next day, because upward trend is established.  I am buying on 12 months view. Not day trading. Similarly, when the volume exceeds 1 millions on the downside, sell 70% of holding.

SWAP

If you own the following stocks or slow movers, you may sell them to raise the cash and Buy the above stock. The idea is to enhance the potential return in short time frame. Please note that in down market, such swaps may worsen your position. However, if you are careful as well as lucky to have bought stocks near low, the SWAP will not only recover lost capital but also return handsome gain.

SELL

Any high value (Above Rs 210) and high PE stocks (above 10)

Cr

 

BUY

Hotel Leela. You may get 10 times shares at half the P/E of other

Dr

 

Decision Reviewed on (Date YMD) due to material events later: (for future use)

                     

 By Kalidas

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