Buy Taj GVK Hotels; target of Rs 195: ICICI Securities
ICICI Securities’ research report on Taj GVK Hotels
The occupancy in Telangana declined from 59.0% in 2011 to 51.0% in 2015 mainly due to political uncertainty in AP & Telangana, slowdown in economic activity and sharp rise in room inventory. However, with the resolution of Telangana issue, occupancy has improved from 51% in 2015 to 58% in 2017. Going forward, we expect occupancy to further improve to 67% in 2019 mainly led by new development of commercial spaces, surging investments in industries and robust mice activity.
We expect occupancy (from 58% in FY17 to 67% in FY19) and ARR levels (2-3% CAGR) to improve due to slowing down of capacity additions, rise in spending by domestic travellers and demand revival in Telangana. Further, improving profitability in JV venture (Mumbai property) is expected to be a key positive. 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 a BUY rating for the stock with a target price of Rs 195/share (i.e. at EV/Room of Rs 1.2 crore).
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