Buy EIH for target of Rs 140 - Elara Capital

• Rating : Buy
• Target Price : INR140
• Upside : 21%
• CMP : INR116 (as on 31 May 2010)

EIH rides domestic revival wave

Better topline, cost cuts improve margins

EIH reported an 8% YoY consolidated topline growth in FY10 to INR10.38bn; 5% higher than our estimates. The company gained 740bp in EBIDTA margin at 28.4% (INR 2.94bn) by controlling employee costs and other operating overheads. EIH reported net profit of INR663mn in FY10 as against INR1.7bn in FY09 due lower 'loss of profit' accounted in FY10.

EIH benefits from strong domestic sector revival

Domestic business has shown clear signs of a revival with occupancy and ARR sustaining healthy levels seen from Q3FY10 onwards. EIH has received early bird benefits of the revival due to its concentrated presence in key metro locations which waved the flag first.. Consequently, occupancy in key metros clocked a high of ~75% and ARRs of INR 9000-10500 in Q4FY10 - ARRs in particular showed an uptick in the fourth quarter, which could be validated further by the strong topline numbers.

Boost from full year operation of Trident BKC, Oberoi in FY11

EIH had launched Trident, BKC in Dec'2010 with /effective revenues from the new hotel for four months in FY10. 'The Oberoi' has also started functioning since May'2010 after being closed for more than a year. We expect EIH to post a robust 27% topline growth for FY11 on the back of the improved occupancy and ARRS and a full year operation of these key properties.

Maintain Buy; Target price revised to INR140

We have revised our other income estimates downwards on lesser clarity on the insurance claim timeline. We expect EIH to present a healthy earnings growth going ahead. The companyis currently trading at an undemanding valuations of INR18mn FY12E EV/Adj Room. We maintain our Buy and have revised our Target Price on EIH to INR140, valuing it at INR 22mn FY12E EV/Adj. Room, presenting a 21% upside.

Source : Equity Bulls

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