ICICI Direct's research report on Taj GVK Hotels
Taj GVK reported a weak set of Q3FY19 numbers. Revenues stayed below estimates aided by margin contraction. Revenue growth came in at ~4% YoY to Rs 86.1 crore (below I-direct estimate: Rs 93.1 crore)• On the margins front, EBITDA margins contracted 321 bps to 27.1% YoY (vs. I-direct estimate of 29.9%) led by higher other expenses (up 16.4% YoY) to Rs 30 crore. EBITDA came in at Rs 23.3 crore, down ~7% YoY (vs. I-direct estimate of Rs 27.8 crore)• PAT fell ~4.3% YoY to ~Rs 9.4 crore led by lower operating margins. During Q3, the operating agreement for Taj Club House, Chennai was renewed with IHCL for 10 years with effect from January 2019.
Outlook
Occupancy levels in the company’s area of operations are expected to increase from 63.0% in FY18 to 70.0% in FY20E led by a rise in spending by domestic travellers and a demand revival in Telangana. In addition, room demand (CAGR of 6.5% in FY18-20E) outpacing supply (CAGR of 4.8% in FY18-20E) is expected to keep occupancy buoyant in coming years. Given this, we maintain our BUY rating with a revised target price of Rs 207/share (i.e. at EV/room of Rs 1.2 crore/room vs. replacement cost of Rs 2 crore/room and EV/EBITDA of 17x based on FY20E EBITDA).
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