Bhagwati Banquets & Hotels (BBH) - Buy - Unexplored Consumption Story - Risk Capital Advisors

- Niche player in Banquets, Restaurants and catering services in Gujarat. With 85% revenue contribution coming from these services; while rest 15% revenue comes from Hotel rooms. Realising the benefits of asset light and high margin business of Banquets, Restaurants and catering, company is looking for growth in asset light services.

- Shift toward asset-light model: BBH is now focusing on rebalancing their Hotels, Banquets and F&B portfolios by increasing contributions from managed and franchised hotels and Banquets. This fee-based business is attractive as growth is powered by multiple sources like RevPAR growth, unit additions and incentive fee escalation. The business is also capital efficient [as owner/developer partners provide the capital] and the company can generate much better returns on capital.

- Steady Cash flow and ROE Improvement: BBH has major expansion plans but with minimal capex. It is now focusing on running their properties profitably. BBH has opened booking centres in different cities and tied with the leading online booking portals. BBH is also focusing in F&B and Catering segments through offering brand name & expertise. While this would result in steady cash flows, we believe it would result in substantial value creation and improvement in ROCE & ROE.

- Buy, TP Rs 105: F&B and B&C business contributes almost 85% of total revenue while Hotel contributes only 15% in spite of that it is the most undervalued stock both locally and globally among Hotel & Restaurant category. Company is taking important steps which will help company to turnaround the business by FY 14 onwards. We expect ROCE and ROE will improve to 23.7% and 22.5% by FY 15E from existing 13.3% and 0.3% respectively. This will lead to Re-rating of the stock in due course.

Source : Equity Bulls

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