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January 7, 2008 SANJAY  CHHABRIA    HOTEL STOCKS    


Taj GVK Hotels Ltd(Rs 183((Rs 2 paid up))- Taj GVK(TGV) is a joint venture between the Tatas (26% stake held by Indian Hotels) and the GVK Group. Taj GVK currently operates four luxury hotels - three in Hyderabad and one in Chandigarh. In Hyderabad, the company operates the Taj Krishna - its flagship luxury hotel, Taj Residency and Taj Banjara (both business hotels). Taj GVK is a market leader in the hotel industry in Hyderabad and Chandigarh with consolidated room strength of 534 in Hyderabad and 150 in Chandigarh . The company is expanding its capacity to have an inventory of 1,400 rooms in the next three to four years. Total Promoter holding in TGV is 74.64% and public holding is 10.69% .Taj GVK has three hotels (one luxury property and two business hotels) in Hyderabad totaling to 529 rooms, which is 50% of the total five-star rooms available in the city. Given the strong position that the city enjoys on the services as well as on the pharmaceutical front, demand will outpace supply in the next three to five years.

The strong economic growth, rising confidence about the Indian economy and India's status as a beautiful tourist destination since the last three years has led to a continued inflow of foreign tourists. Taj GVK, which enjoys monopoly positions in Hyderabad and Chandigarh, continues to benefit from the demand supply gap in these cities. With a dominant presence in Hyderabad and strong performance at the Chandigarh property, TGV is well-placed to tap the growth opportunities in the hospitality sector. Taj GVK had announced strong results for the twelve months ended March 2007. For the full year, while the topline and operating profits have risen by 29% YoY and 35% YoY to Rs 242 cr. and Rs 114 cr. respectively , the bottomline had grown by a significant 39% YoY to Rs 64.3 cr.. On a equity of 12.54 cr. the EPS on a Rs 2 paid up share stood at Rs 10.3 and the dividend declared was 150%(Rs 3 per share).  For the half year ended Sept. 2007, TGV has posted almost flat results with net profit of Rs 31.25 cr. on net sales of Rs 115.7 cr.

At the current market price of Rs 183, Taj GVK's stock is trading at a price to earnings multiple of 15 times its expected FY08 earnings(Rs 12). The company is well poised to capture the boom in the tourist inflow. Also, it is expanding its room inventory from the current 684 rooms to 1,400 rooms by FY10. This may affect margins in the medium term, but given the favourable industry scenario, it is a good move from a long-term perspective. The Indian hotel industry is witnessing great times due to rising occupancies and room rates. .The company is well poised to capture the boom in the tourist inflow.  In view of the robust long term growth prospects. Investors can accumulate the TGV stock at this level and add on declines (in the range of Rs 160- Rs 180) for a price target of Rs 275-280 over the medium-long term.

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