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Jaypee Hotels - Hidden Gem (Ashish Chugh)

Thursday, June 21, 2007

If you look at the recent land transactions for hotel properties in Delhi, Emaar-MGF has bought land for two hotel properties in a place called Jasola for about Rs 388 crore. Then Parshavanth has got land for a hotel in Dwarka at about Rs 450 crore.

In the more recent times, Hotel Leela has bought a hotel plot in South Delhi for Rs 611 crore. All these companies are going to spend a couple of hundred crores towards the construction of hotels. And then you take the construction time and the initial teething problems. Against that backdrop, if you look at Jaypee Hotels, it owns two hotel properties in Delhi and one hotel property in Agra. Besides these three, this company manages Jaypee Greens also, which is a golf resort in Greater Noida and Jaypee Residency Manor, which is located at Mussoorie. They get management fee for managing these two resorts.

Jaypee Vasant Continental is a 120-room hotel and it is located at one of the most up-market areas of Delhi, it is also close to the airport. The second hotel in Delhi is called Jaypee Siddarth, which is located close to Connaught place. The property in Agra is a 350-room hotel spread over about more than 25 acres.

If you see the valuation of this company at the current price, the market cap of this company is just about Rs 330 crore. Add to it the debt in the balance sheet and the total valuation comes to about Rs 370-Rs 380 crore. This valuation does not even cover the cost of the land, which the other players have paid for constructing the hotels. One may argue that the difference between the existing hotels in Delhi and the ones coming up, is that the new hotels are entitled to income-tax exemption for five years. However to claim that exemption, you first have to make profit.

With asset creation at such higher prices, the room rentals in Delhi are expected to go up substantially. If that were to happen Jaypee Hotels, would be one of the biggest beneficiary along with the other established 5-star hotels in Delhi.

For financial year '06-'07, Jaypee did revenues of about Rs 128 crore and made a profit of about Rs 14 crore, which translates into an EPS of Rs 2.50. At the current price of about Rs 60 at a PE ratio of 23-24, this stock may seem to be fully priced. However, given the potential for the hotel sector, keeping the Commonwealth games also into account and the fact that the room rentals can go up substantially from these levels, the stock probably has a long way to go.

Posted by FR at 9:13 PM  


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Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.