0812-012 – Hotel Leela – 21-Dec-08
Hotel Leela – 0812-012 (Stock Watch) By Kalidas
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Stock |
HOTEL LEELA |
Sector |
HOTEL |
Market |
India |
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Ref No |
0812-012 |
Symbol |
HOTELEELA |
Web site |
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Date |
08/12/22 |
Price 08/12/19 |
21.60 |
Target ST |
39.00 |
Target LT |
62.00 |
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52W High |
76.90 |
52W Low |
16.90 |
ST Hold |
12M |
LT Hold |
24M |
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Current PE |
5.44 |
% Down Peak |
-80% |
Downside |
-15% |
Upside |
+85% |
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PE 2009 |
4.80MyEst |
Div Yield% CMP |
2.4% |
Buy Range |
18~25 |
Sell Range |
33.50~39 |
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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. |
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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. |
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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. |
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SELL |
Any high value (Above Rs 210) and high PE stocks (above 10) |
Cr |
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BUY |
Hotel Leela. You may get 10 times shares at half the P/E of other |
Dr |
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Decision Reviewed on (Date YMD) due to material events later: (for future use) |
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By Kalidas
Link to this page
sir,
at first, sorry. i booked my profit at your target price. took the initial pain for holding it, but your continuous feedback on the stock helped me to reach the destination. thanks a lot sir.
i do not have any $ account to buy your book and also i resides at kolkata. pl. let me know from where i can buy the book with your autograph?
rajarshi
kolkata,india.
Kalidas Says …. Thursday, June 04, 2009
Don’t worry. I will accept Rupee payment. There will be instructiions.
rajarshi
3 Jun 09 at 11:00 AM
sir,
atlast hotel leela is moving. what to do? book some profit or hold till your target of rs. 39?
rajarshi
kolkata
india
Kalidas Says …. Saturday, May 30, 2009
Buy more and stay with it till next quarter result is out
rajarshi
20 May 09 at 6:36 AM
Dear Kalidas,
When even pigs and donkeys are flying guy in the past few trading sessions, Hotel Leela is hovering around 22 levels. Any reason. I am adding up at these levels. Do you see any further downturn in this scrip?
Thanks
ksr
5 May 09 at 10:55 AM
sir,
on 6th april,09 leela informed nse that as on 31st march,09 they bought back 12.2m euro fccb maturing sept 2010 out of 51.4m euro and 33m us$ out of 100m us$ maturing april 2012 with substantial discount to the nominal value.
they also informed that redumption premium payble on maturity on the euro fccb is 25.5% whereas for the us$ bonds, it is 46.61%.
their udaypur hotel has already been opened and new delhi and chennai will open in 2010.
in an interview with cnbc couple of week back, the management did not rule out the possibility of stake sell to raise money for building hotels in agra,pune and hyderabad.
at the end of dec,08 qtr. ruseell credit, subsidiary of itc bought 1.13cr shares from market and increased it to 1.40 crs i.e. 3.72% of total shareholding by the end of mar,09 qtr.
now, sir , what should a retail investor do? invest more or book small profit?
rajarshi
kolkata,india
Kalidas Says …. Monday, May 04, 2009
When they buy back the FCCB at substantial discount, it will add up to bottom line, that is, their profit will rise by the difference between the original issue price and current market price at which they bought back. This is extremely positive event for the company.
Further, they could have enough funds to buy back these FCCB also suggest their level of liquidity. They have money, either own or borrowed, to buy back the FCCB which is very sensible. The profits for the company will rise and it may be reflected in the current quarter. Some analysts may say that it is one off event – but it is profit, that’s it.
When the company bought back the FCCB, it will certainly drain some cash out of it. This is why they need money to support their on going operation. When they approach the new investors for stake sale, they will certainly paint rosy pictures, more profit which may be due to FCCB buy back.
It is perfect. The management is going into right direction. Stay with this hotel as long haul. It will give you very good return. I will not sell this stock so easily.
rajarshi
2 May 09 at 1:02 AM
Please, can you PM me and tell me few more thinks about this, I am really fan of your blog…
Susan Silvers
11 Mar 09 at 10:26 PM
sir,
hotel leela informed nse today that they have repurchased 30million us$ out of 100million $ fccb maturing april 2012.
this is just for your information.
rajarshi
kolkata,india.
Kalidas Says …. Tuesday, February 24, 2009
Their bonds are trading at almost 50% discount ( I have not checked but was told by a friend). If they bought back $30 millions, they will book profit gains of $ 15 millions or Rs 75 crores.
It is stock positive. Further, they are buying back because they have money. That is another good news. Stay with the stock.
rajarshi
23 Feb 09 at 7:38 AM
sir,
Hotel leela recently informed NSE that they have repurchased 8.25milion euro out of 51.4milion 1% euro fccb maturing sept2010.
what will be the implication?
rajarshi
kolkata,india
Kalidas Says …. Monday, February 16, 2009
defintely good. The FCCB are trading in the world market at 40% to 60% discount. If Hotel Leela has bought back the bonds from the market at discount, the possible implications will be as under:
Face Value 8.25 Millions Euro = about Rs 53 crores (not much)
Possible discount 40%
Profit on buy back = Rs 2o crores or more
This will be added back to Net Profit.
FCCB means would have been convertible if the conversion price had been exceeded by current stock price. Since the conversion price set was much higher, there was risk that the company may to pay entire amount on maturity, that is, Rs 53 crores. By buying back these bonds at discount one year ahead by 40%, it is as good as making 40% on fixed deposits.
The fact that the company did buy back these bonds, it means that they do have money. And if they have money, you do not have to worry about the company.
It is a stock positive news
rajarshi
14 Feb 09 at 1:35 AM
The old airport in Bangalore was almost opposite to Hotel Leela. Now the new airport has opened since May 2008 and it is 47 kms. away from Hotel Leela. The business for hotel Leela has affected. Will this have any negative effect on the stock price?
Rang-Jama, Bangalore, India
Rang-Jama, Bangalore, India
24 Dec 08 at 11:35 AM