CC-14-05 Hotel Leela Ventures

8/8/2019 CC-14-05 Hotel Leela Ventures

1/24

SPJIMR K R Choksey

KHOJ 2008

Hotel Leela Ventures

Team ID : CC-14-05

Arijit GangulyAakash Goel

1


2/24

SPJIMR K R Choksey

Introduction

Hotel Leela Venture is a well-known hotel chain in India catering

primarily to the premium segment

The flagship company of Leela Group, which holds a 49% stake in

Hotel Leela Venture

Strongest niche player in the premium 5-Star Deluxe category

owning and operating four 5-Star Deluxe hotels in Bangalore,Goa,

Kovalam & Mumbai with a total of 1086 rooms

The company has a marketing alliance with Kempinski for

properties in India

2


3/24

SPJIMR K R Choksey

Hotel Industry

Indian hospitality industry is in the midst of a strong cyclical upturn on the

back of a buoyant economy, with a growth in business and leisure tourists

@ 25% p.a. and an existing shortage in room supply of about 100,000guest rooms

The Premium end of the market (5 Star Deluxe) in which the Companyoperates, generates around 65-70% of industry revenue

Very few projects are under implementation in Bangalore, Chennai,

Hyderabad & Pune. Hence, the next few years are likely to witness a

limited capacity addition with strong increase in annual demand of about

15%

. There are strong barriers to entry viz., scarcity of suitable plots of land at

good locations, excessive land prices in metropolitan cities

3


4/24

SPJIMR K R Choksey

Hotel Industry - Demand

Growth in business-tourist

traffic to India remains strong

in the double digits

The trends for ARR growth and

room demand remainencouraging.

Recent rupee appreciation of7-

9% could have a near-term

impact on revenues

Most hotel chains are lookingto either increase dollar tariffs

or subsequently move to rupee

tariffs for domestic as well as

international customers

4


5/24

SPJIMR K R Choksey

Hotel Industry - Pricing

With room demand outpacing

supply across markets, ARR

growth continues

During April-May 2007, ARRs

across 10 cities grew 16% Occupancies have held at 72%-

plus across key growth cities

Forecast 13% ARR growth for FY08

with sustained high occupancy of

72%

Demand-supply gap will ultimately

determine ARRs

5


6/24

SPJIMR K R Choksey

Hotel Industry - Supply

The trend of room demand

outpacing supply, particularly

in the premium segment,

continues

New room supply fromdomestic as well as

international chains, both

building aggressively in

growth markets

T

his supply is unlikely toimpact until FY09

RevPars across most tourist

destinations were up 35%-

plus for FY07

6


7/24

SPJIMR K R Choksey

Hotel Industry Performance

The sector has

underperformed the Sensex by

10%

Concerns about the

appreciating rupee andpotential supply

The sector is trading at the low

end of its three-year historical

range of 16-20x

Low valuation unwarrantedgiven the sectors earnings

potential

7


8/24

SPJIMR K R Choksey

Hotel Industry Peer

Comparison Regional peers are trading at30x one-year forward P/Es

Indian hotels sector to play

catch-up as India offers a

stronger earnings CAGR of26%over the next 2 years, vs.

regional peer growth of sub-

10%

Indian hotels asset-light

approach improves capitalefficiency

8


9/24

SPJIMR K R Choksey

Hotel Leela Ventures

Hotel Leela Venture is a well-known hotel chain in India catering primarily

to the premium segment

The company operates four hotels (estimated 1,000 rooms) under the 'The

Leela' brand across India

The company has a marketing alliance with Kempinski for properties inIndia

Its luxury properties cater to both business and leisure travelers

With rapid growth in room demand, the company plans to expand its

presence in the growth cities of Hyderabad, Chennai, Pune and New Delhi

through management contracts

9


10/24

SPJIMR K R Choksey

Hotel Revenue and Market

Segments

10


11/24

SPJIMR K R Choksey

Hotel Leela, Mumbai

Located near Mumbai International Airport

Customers: predominantly business travellers and airline crew

Largest Ballroom in the City

Average ROOM RATE during 2006-07has been Rs 9,375 compared to Rs

6,745 for the previous year

Market Information:

Average room rate in North Mumbai grew by 42% in FY2007

No additional supply expected in 2007 / 2008

Future positive developments: Modernisation ofI

nternational Airport withFlyover connectivity to Highway/ Rapid improvement in local

infrastructure : Roads, Airports, Seaports / Mushrooming ofIT, ITES, BPO

Units in the North Mumbai area.

11


12/24

SPJIMR K R Choksey

The Leela Palace, Bangalore

Landmark property of the Group

Higher Operating margin

Highest RevPAR in India

Highest ARR across the country. FY07- Rs 18,851

Centrally located; proximity to airport and IT & ITES centres

Average ROOM RATE during 2006-07has been Rs 18,851 compared to Rs

16,301 for the previous year

Market Information:

Room demand has outpaced supply. Occupancy rate for the city remains at over 70%

Further supply in Five Star Deluxe segment only by end 200

105 additional rooms added in February 2007 at marginal cost thereby increasing the

total rooms to 357.

12


13/24

SPJIMR K R Choksey

The Leela, Goa

Pioneer in the development of South

Goa as a tourist destination

A full fledged CASINO on a Luxury Yacht

off the Resort, on the river Sal, will be

commissioned during this year Demand growth anticipated at over

20% p.a.

ARR on a rise due to supply deficit/ no new

additions

Government plans to upgrade Goas airport

to Internationa standards

Permanent venue: International Film Festival

ofIndia

Allowance of open charter policy

13


14/24

SPJIMR K R Choksey

Financial Performance

14


15/24

SPJIMR K R Choksey

Capital Expenditure Plans

Udaipur

81 room Five-Star Deluxe resort under construction

Property strategically located on the Pichhola lake-front on a land area of 13,000 sqm

Chennai

Land acquired for setting up a 380 room hotel and IT Park Expected to be operational in 2010

Hyderabad

Land acquired for setting up a 250 room hotel

Expected to be operational in 2010

Pune

Land acquired for setting up a 200 room hotel


Delhi

Land acquired for setting up a 205 room trophy hotel


15


16/24

SPJIMR K R Choksey

Investment Thesis

SOLID EARNINGS VIS--VIS THE HOTEL SECTOR Leela's solid 65% earnings growth, vs. 38% for the sector, in FY08E

Over the years it has given consistent earning and has maintained its profit margins

against the other players

U

NDERPERFORMANCE VIS-A-VIS THE SENSEX Underperformed the Sensex by 22% over the last three months While concerns on the company's high dependence on Bangalore remain, with growth

momentum strong over next one-year due to room additions

Stock trading at 16x P/E

POTENTIAL CATALYSTS FOR FUTURE GROWTH

With Mumbai refurbishments (133 rooms) complete and Bangalore room expansion(101 rooms) starting in 4QFY07, we see additional rooms and sustained high ARRs

leading to improving future earnings growth

With the growing demand in the hotel sector in India and Leela positioned favorably in

the major metros there is a good opportunity for it to increase its earnings

16


17/24

SPJIMR K R Choksey

Investment Thesis

MANAGEMENT CONTRACT AND LEASE INCOME SHOULD ENHANCEREVENUE STREAMS The company has plans to setting up an IT Park, with around 450,000 sq ft already

developed in Chennai, which will be ready by Mar'08 for leasing

Contribute incremental income of Rs124m and Rs135m in FY09E and FY10E

Plans to leverage 'The Leela' brand and its experience in managing hotels through

management contracts and joint ventures in India and overseas

Revenue from management contracts is currently absent, but is expected to contribute

Rs87m per annum from FY09

The company is exploring new opportunities in Dubai, Abu Dhabi and Jaipur

NEW HOTELS IN THE PIPELINE Capex plan of Rs19.5bn for the next three years mainly for developing five new

properties

The land required has already been acquired

17


18/24

SPJIMR K R Choksey

Valuation P/E

Stock at a premium to sector valuations of 16x

Trading at lower end of the stock's two-year historical P/E band 16-25x

Premium due to Leela's earnings outperformance vs. the sector

Strong upside potential from here

Even at a P/E of 18X the stock is valued at Rs 73/share

18


19/24

SPJIMR K R Choksey

Valuation - FCFF

Cost of Capital calculated at 11.6%

Incorporated all additional cash flows from new ventures into the model

Incorporated a growth of 13% ARR growth and maintained 70%

occupancy

Assumed dividend policy : Company plans to pay dividend not exceeding 30% of distributable profits or 1.2% of

market capitalisation, whichever is higher

Remaining profits used for funding new projects

All Capex is assumed to be funded using debt capital (over and above the

profits) No significant changes in taxation policies

Projected a share price of Rs. 100 as the fair value of the stock

19


20/24


21/24

SPJIMR K R Choksey

Hotel Leela Ventures Going

Forward Continue to focus on high-end premium market catering to businesstravellers and tourists

Maintain high standards of quality for guest facilities and services

Focus on strengthening offerings in the MICE segment

Focus on continuously improving operational efficiencies

Make strategic capital improvements

Selectively expand operations through owned or leased properties,

acquisitions as well as through management agreement

21


22/24

SPJIMR K R Choksey

THANK YOU

22


23/24


24/24

SPJIMR K R Choksey

Stock Movement

24

CC-14-05 Hotel Leela Ventures

Documents

Transcript of CC-14-05 Hotel Leela Ventures