Buy Taj GVK Hotels; target of Rs 190: ICICI Direct

ICICI Direct's research report on Taj GVK Hotels

TajGVK reported weak numbers due to a miss in revenue estimates Revenues declined 3.8% YoY to Rs 63.1 crore (below I-direct estimate of Rs 65.5 crore) On the margin front, the EBITDA margin declined 127 bps YoY to 22.7% (below I-direct estimate of 23.1%) mainly due to a fall in revenues and higher employee expenses (up 7.2% YoY) On a standalone basis, the company reported a net profit of Rs 2.3 crore. At the consolidated level, net profit was at Rs 87 lakh mainly due to a loss of Rs 1.4 crore from Mumbai property (Taj Santacruz).

Outlook

Rise in spending by domestic tourist, surging investments in industries increase in government spending and robust MICE activity are expected to drive occupancy (from 58.0% in FY17 to 67.0% in FY19) and ARR (2-3% CAGR) levels in Telangana region. However, a turnaround of JV venture (Mumbai property) holds key. This remains a short-term concern. The stock is trading at an EV/room of Rs 1.0 crore/room (below industry average of Rs 2.5-3.0 crore/room). Given this, we maintain BUY rating on the stock with a target price of Rs 190/share (i.e. at 19.5x FY19E EBITDA).

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