The sector continues to have pricing power reflected in the rise in average room rates (ARRs) across cities.

The demand for hotel rooms in the country still continues to outstrip supply though the gap between the two appears to be narrowing in some cities.

While the rooms sold per day by the industry were up 3 per cent at 13,255 in FY07, occupancies in cities like New Delhi, Hyderabad and Bangalore have been coming down in the past year thanks to addition of rooms.

However, the sector continues to have pricing power reflected in the rise in average room rates (ARRs) across cities. Given this backdrop, Indian Hotels, which runs the Taj chain of hotels and owned by the Tata group, has turned in fairly good numbers.

The top line, for the standalone entity, grew a smart 38 per cent in the year ended March 2007 to Rs 1,544.51 crore, while the operating profit margin rose an impressive 780 basis points to 36.4 per cent, thanks to expenditure remaining in check. The net profit has been boosted by higher other income.

Despite the fact that the company has taken over three new properties overseas in the last couple of years, which are still to operate at optimum levels, and added rooms in the country, the growth in consolidated revenues for FY07 was strong at 36.7 per cent to Rs 2,665.87 crore. Moreover, the operating margins have improved slightly to 28.5 per cent.

With foreign tourist arrivals on the increase at 4.6 million in 2006-07, up 15 per cent over the previous year, the demand for five-star hotel rooms is unlikely to slow down for the next few years.

Indian Hotels currently has an inventory of 9,901 rooms and is in the process of constructing five hotels. At Rs 145, the stock trades at just under 20 times estimated FY07 earnings and is attractively valued.