HOTEL LEELA VENTURE

HOTEL LEELA VENTURE LTD. BSE SCRIP CODE 500193

We have analysed the company Hotel Leela Venture Ltd. on a fundamental basis and give a buy call with clear hold for 1-2 years. It would be a good idea to home some shares on a longer term basis. Hotel Leela was incorporated in 1981 to set up and operate 5-star hotels. The company has 3 five star hotels at Mumbai, Goa and Bangalore. Mumbai is expected to see an addition of between 9000 and 10000 rooms over the next 5-10 years.

Mumbai is one of the leading financial centers of the World and caters to all kinds of clientele both business and tourists. In the next 5-10 years the company’s bottom line would be contributed largely by Leela Mumbai.

Goa continues to be one of India's most popular beach resorts. It is also one of the best beach resorts of the world. It is an extremely promising market with the highest average length of stay by both foreign and domestic guests. We will see increased profitability from Leela Goa in times to come.

The Leela Palace Kempinski Bangalore, already recognized as one of the best properties in the world, has retained its position as the best performing hotel in the country with high level of occupancy and higher ARR. This hotel enjoys the highest RevPar in the country. In order to capitalize on the increase in demand the Company has recently increased the room capacity from 256 guest room to 352 guest rooms.

EXPANSION PLANS
(a) Construction of The Leela Palace Udaipur' which is strategically located on the lake front is in progress and is expected to be completed in the year 2009.
(b) The Company has acquired land at Adyar Beach, Chennai, Banjara Hills, Hyderabad and Yerwada, Pune for setting up new hotels considering the buoyant business climate and huge demand for hotel rooms. The Company has plans to build IT and Commercial Complexes at Chennai and Pune alongwith the hotels. The construction activity at Chennai for the hotel and commercial complex have since commenced. The work at Hyderabad and Pune would commence after necessary approvals are received. The IT Park and Commercial Complexes are expected to be completed by 2009 and the hotels during the year 2010.
(c) The hotel to be managed by the Company at Gurgaon i.e. The Leela Kempinski, Gurgaon would have approximately 319 guest rooms and 90 service apartments. The said property is being built by the Ambience Group and is expected to be ready for operation by end of 2007.
(d) The Company has recently won a bid for a plot of land admeasuring 3 acres put up by National Buildings Construction Corporation Ltd. (NBCG) at a price of Rs.611.00 crores. The freehold plot is strategically located at Vinay Marg/Africa Avenue. The Company plans to set up a `trophy' hotel at the said plot in the near future.

Subsidiaries: The company has two Subsidiaries viz. Amin Group Hotel Limited (AGHL) and Kovalam Hotels Limited (KHL). The Company and KHL has initiated appropriate steps for amalgamation of KHL with the Company and this is expected to be completed soon.

Financials

The company has a share capital of 74 crores made up of 37 crore shares of Rs.2.00 each. Almost fifty percent of the share capital is owned by the promoters : M/s Leela Scottish Lace group (46%) and remaining by Nair Group.

Among other share holders, LIC, HSBC and Morgan Stanley have considerable holdings in the company.

The company has been performing exceedingly well in the past few years. It came out with excellent Sept. 07 qtr. Numbers which showed an increase of almost 80 percent increase in net profit on YOY basis as compared to Sept. 06.

For the entire year 2006-07, the company declared a net profit of 126 crores, while the profit for H.Y. 2007-08 has already crossed 70 crores. With this trend the company may end up the full year with net profit of well over 150 crores and an eps of over 4 ( for FV Rs.2.00) and more than 20 for (FV 10).

The company has been regularly paying dividends and will continue to do so in future also.

If we take the general trend of trading at forward earnings, the share should at 20 times FY 07-08 earnings viz. Rs.4.00 i.e. P.E. should be at least 80 presently.

Our earning projections
FY 07-08 Net Profit : 150 Crores EPS 4.05
FY 08-09 Net Profit : 190 Crores EPS 5.13
FY 09-10 Net Profit : 260 Crores EPS 7.00

Presently the share should command a valuation of at least 80 going by the forward earnings. Our share price projections are 90 by April 2008, 130 by April 2009 and 180 by 2010.

People with a longer time horizon can safely invest.