Thank you for that clear analysis. Viceroy is a dark horse at Rs 102 and should be accumulated by long term investors.ALong with
Indian Hotels this remains the best combination to play the sector.
I have a small theory for calculatinmg the enterprise value for Hotel stocks.Assuming that a hotel room is rented out at Rs 8000 per day and is occupied for a period of 275 days the total annual revenue from tha room should be Rs 7500 x 275 = Rs 20,62,500.
Now at a RoE of 18% if a company wants to earn Rs 20,62,500 it should need to put in Rs 1.14 crores. I take it at a discount of 10% so broadly a room should have a replacement value of Rs 1 crore.
Presently Viceroy trades at a market cap of Rs 233 crores. In Fy 09-10 this should be a 1250 room hotel chain and could trade at amarket cap of Rs 1250 crores. This should create a 5 bagger in 4 years with considerable ease.
In the above calculation errors would cancel out each other.
1) The Average room rent could be higher/lower then Rs 7500
2) The occupancy rate should be more/less then 300 days
3) The required RoE could be less then 18%. If that is the case the replacement rate for the rooms go up even more.
4) Wwe have already discounted the final figure for contingencies.
Looking at PE/EPS willl create confusion as this hotel is yet to throw back cash. ALso I assume that the company would be debt free since hotels have a HUGE cash flow.
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Like the stock market, hotel rates are also at all time highs. Several 5 star hotels in Bombay are now charging USD 350 per night on a base category room and USD 550 per night for a premium category room (Not a suite). Plus it is very difficult to get a base category room these days as they are booked well in advance. Got to know about the above rates yesterday and these rates are much higher than the rates prevailing a month ago when rates were increased initially. Given this it seems to be a great time to get into hotel stocks so maybe I might take an initial exposure in Viceroy today and add more when corrections happen.
