Hotel Leela Ventures

A. Hotel Leela Ventures (BSE Code: 500193) with a face value of Rs 2 is currently trading at Rs 49.9 with a 52-week high/low of Rs 52.4/16. The group owns and operates six hotels at Mumbai, Goa, Bangalore, Kovalam, Udaipur and Gurgaon with a total room inventory of 1,620 rooms. The company has entered into a management contract for its various hotels with the Kempinski Group and enjoys operational, sales and marketing support worldwide through Kempinski’s global distribution system. The company has an exclusive arrangement with Kempinski in India. This arrangement helps it in booking various facilities, especially at Bangalore and Mumbai. Going forward, the company intends to add another 1,182 rooms by FY12.

For quarter ending September 2009, the company’s topline has declined by 17 per cent but it was the bottomline that suffered a more drastic decline by being 93 per cent lower than it was during the same period last year. For Q2FY10 the company’s profit was Rs 1.75 crore against sales of Rs 91.12 crore. The reason for such a downfall may be attributed to the fall in the rentals of hotel rooms and occupancy during last year. It is estimated that the occupancy rate fell to 58 per cent from 78 per cent and the average room rents came down by 14 per cent. The current market price of the share discounts its last 12-month earnings by 20.8 times. This looks fairly valued. But going forward we believe that with the revival in the global and domestic economy, occupancy and average room rents will increase, thereby helping the company to post decent numbers in the next few quarters. Therefore our advice is to hold the scrip for a few more quarters so that it can attain your purchase price.