Limited downside seen in Indian Hotel , says Rajen Shah, CIO, Angel Broking.
Shah told CNBC-TV18, "It's a wonderful time to get into Indian Hotel. About six months back the Sensex then was about 18,000- 18,500 and I had recommended East India Hotels at about Rs 83- 84 levels fortunately East India is at the same level though the markets have come down by almost about 15% from that level. Why I am talking about this is that six months back when EIH was at Rs 83-84 even Indian Hotel was at Rs 84. While EIH is at same level, Indian Hotel has come down from level to current levels of Rs 53. In fact at Angel Broking we have switched from EIH to Indian Hotel because Indian Hotel looks very promising at this point of time though even EIH looks very promising but since this stock has come down significantly we have switched from EIH to Indian Hotels, we own this stock in our PMS."
He further added, "There are some interesting facts I would like to bring to the knowledge of audience, way back in 2001 there was leading global hospitality consulting firm Panel Care Foster they had valued the assets of Indian Hotel, this I am talking around September 2001 after the unfortunate WTC attack, they had valued the assets of Indian Hotel at Rs 500 per share, the stock then was 10 paid up, today its 1 paid up so Rs 50 per share where the assets valued by the leading hospitality consulting firm."
"If you see over the past ten years property prices have quadrupled; anything has gone up four times in the last ten years so logically that Rs 50 works out Rs 200 at the current prices. We also need to keep in mind that in 2001 Indian Hotel had about 65 properties, today they have 109 properties. Forty properties of these 109 properties are owned properties and even logically if you take price of 300 crore property, 40 owned properties will work out 12,000 crore whereas current market cap is about 4,000. So you are getting something which is worth Rs 200 for about Rs 50 so almost at 30% of its actual intrinsic value. This story is that over the next four years Indian Hotel is getting very aggressive and in fact what the management has said is that over the next four years every month its opening new property. So over the next four years we will see 48 properties coming into Indian Hotel and at the end of four years the total number of properties would be somewhere around 158-160."
"Two things have happened; rupee has depreciated 20% so that should be positive news for foreign tourists those who are looking at India so for them India become 20% cheaper. Second, I believe that this phase which we are going through in the Indian economy and Indian market that should be over in the next maybe 6-9-12 months; these phases do come and they go also equally fast so another 12 months even if you discount that this slowdown would carryon. I think that 2013-14 would be extraordinary for the hotel industry and Indian Hotel could end up reporting very good numbers also Mr. Ratan Tata clearly mentioned at the AGM and even Mr. Raymond Bickson has mentioned that the foreign operations of this company which are currently are not too good shape should turnaround in the next 18 months."
"So, on all that Indian Hotel looks cheap it's a growth stock and a value stock and the other interesting thing I would like to bring to the knowledge that Tata Sons they have picked up 3.6 crore shares at the price of Rs 104 and the stock is available at Rs 53 and Tata Sons will again be picking up 4.8 crore shares at a price of Rs 104 sometime before June because the warrants are getting converted into shares and I am very sure that Tata`s would certainly subscribe to that and convert those warrants into shares. So while the promoter group itself is putting in 900 crore by pumping money at Rs 104 per share I think it makes sense for us to get in at Rs 54. Downside is very limited; upside could be as high as 100% in two years."
Shah told CNBC-TV18, "It's a wonderful time to get into Indian Hotel. About six months back the Sensex then was about 18,000- 18,500 and I had recommended East India Hotels at about Rs 83- 84 levels fortunately East India is at the same level though the markets have come down by almost about 15% from that level. Why I am talking about this is that six months back when EIH was at Rs 83-84 even Indian Hotel was at Rs 84. While EIH is at same level, Indian Hotel has come down from level to current levels of Rs 53. In fact at Angel Broking we have switched from EIH to Indian Hotel because Indian Hotel looks very promising at this point of time though even EIH looks very promising but since this stock has come down significantly we have switched from EIH to Indian Hotels, we own this stock in our PMS."
He further added, "There are some interesting facts I would like to bring to the knowledge of audience, way back in 2001 there was leading global hospitality consulting firm Panel Care Foster they had valued the assets of Indian Hotel, this I am talking around September 2001 after the unfortunate WTC attack, they had valued the assets of Indian Hotel at Rs 500 per share, the stock then was 10 paid up, today its 1 paid up so Rs 50 per share where the assets valued by the leading hospitality consulting firm."
"If you see over the past ten years property prices have quadrupled; anything has gone up four times in the last ten years so logically that Rs 50 works out Rs 200 at the current prices. We also need to keep in mind that in 2001 Indian Hotel had about 65 properties, today they have 109 properties. Forty properties of these 109 properties are owned properties and even logically if you take price of 300 crore property, 40 owned properties will work out 12,000 crore whereas current market cap is about 4,000. So you are getting something which is worth Rs 200 for about Rs 50 so almost at 30% of its actual intrinsic value. This story is that over the next four years Indian Hotel is getting very aggressive and in fact what the management has said is that over the next four years every month its opening new property. So over the next four years we will see 48 properties coming into Indian Hotel and at the end of four years the total number of properties would be somewhere around 158-160."
"Two things have happened; rupee has depreciated 20% so that should be positive news for foreign tourists those who are looking at India so for them India become 20% cheaper. Second, I believe that this phase which we are going through in the Indian economy and Indian market that should be over in the next maybe 6-9-12 months; these phases do come and they go also equally fast so another 12 months even if you discount that this slowdown would carryon. I think that 2013-14 would be extraordinary for the hotel industry and Indian Hotel could end up reporting very good numbers also Mr. Ratan Tata clearly mentioned at the AGM and even Mr. Raymond Bickson has mentioned that the foreign operations of this company which are currently are not too good shape should turnaround in the next 18 months."
"So, on all that Indian Hotel looks cheap it's a growth stock and a value stock and the other interesting thing I would like to bring to the knowledge that Tata Sons they have picked up 3.6 crore shares at the price of Rs 104 and the stock is available at Rs 53 and Tata Sons will again be picking up 4.8 crore shares at a price of Rs 104 sometime before June because the warrants are getting converted into shares and I am very sure that Tata`s would certainly subscribe to that and convert those warrants into shares. So while the promoter group itself is putting in 900 crore by pumping money at Rs 104 per share I think it makes sense for us to get in at Rs 54. Downside is very limited; upside could be as high as 100% in two years."
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