201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 1 Company Profile TAJ GVK - “ACCUMULATE” - BONUS CANDIDATE 26 th Sep,2011 Accumulate the stock within price band Rs 88-98 About Taj GVK BSE Code 532390 CMP Rs. 89.20 Market Capitalization Rs. 559 Cr Face Value (Rs.) 2 Price/BV 1.74x Book Value (Rs.) Rs. 51.27 /- 52 Wk High (BSE) Rs. 175.55 (Oct 07, 2010) 52 Wk Low (BSE) Rs. 85.00 (Aug 26, 2011) Potential Upside Rs 140 Taj GVK Hotels & Resorts (Taj GVK) is a joint venture of the Taj group and GVK group and was incorporated in 1999. Indian Hotels Company (IHCL) holds 25.52% of the JV, GVK group holds 11.29%, Caspian Capital & Finance Ltd holds 35.47% while Bhupal family holds2.71% IHCL is a strategic investor in the company. All major decisions including on investments are taken by the board including the representatives from IHCL. IHCL also manages all the properties and receives ~ 6% as management contract fees Taj GVK currently operates five premium properties, totaling 903 rooms in cities of Hyderabad, Chennai and Chandigarh. Hyderabad accounts for more than 50% of the total rooms and revenues.
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201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 1
Company Profile
TAJ GVK - “ACCUMULATE” - BONUS CANDIDATE 26th
Sep,2011
Accumulate the stock within price band Rs 88-98
About Taj GVK
BSE Code 532390
CMP Rs. 89.20
Market Capitalization Rs. 559 Cr
Face Value (Rs.) 2
Price/BV 1.74x
Book Value (Rs.) Rs. 51.27 /-
52 Wk High (BSE) Rs. 175.55 (Oct 07, 2010)
52 Wk Low (BSE) Rs. 85.00 (Aug 26, 2011)
Potential Upside Rs 140
Taj GVK Hotels & Resorts (Taj GVK) is a joint venture of the Taj group and GVK group and was incorporated in
1999. Indian Hotels Company (IHCL) holds 25.52% of the JV, GVK group holds 11.29%, Caspian Capital &
Finance Ltd holds 35.47% while Bhupal family holds2.71%
IHCL is a strategic investor in the company. All major decisions including on investments are taken by the board
including the representatives from IHCL.
IHCL also manages all the properties and receives ~ 6% as management contract fees
Taj GVK currently operates five premium properties, totaling 903 rooms in cities of Hyderabad, Chennai and
Chandigarh. Hyderabad accounts for more than 50% of the total rooms and revenues.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Shareholding pattern as on 30th June, 2011
Shareholding Pattern More than 1 %
Name of the Shareholder No. of Shares Shares as % of Total No.
of Shares
Birla Sun Life Trustee Company Pvt
Ltd A/c Birla Sun Life Frontline Equity
Fund
984,000 1.57
Franklin Templeton Mutual Fund A/c
Franklin FMCG Fund
2,823,264 4.50
Kamal Kabra 711,000 1.13
Total 4,518,264 7.21
74.99%
0.19% 7.67%
17.15%
Promoters FII DII Others
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 3
Current Operational Properties……
Taj Krishna
Taj Krishna, the flagship 5-star deluxe property of TAJGVK, with a 261 room inventory, is a
magnificent structure in Banjara Hills. It immediately reflects the E-culture of Hyderabad, without forgetting
its illustrious aristocratic past. A distinguished mark of the finest quality standards, it comes as no surprise
that Taj Krishna is a member of "The Leading Hotels of the World.
Taj Deccan
Taj Deccan, with 151 rooms and set in a six acres lush green landscaping - Taj Deccan offers a variety of
options for every business requirement ranging from rooms spread across various categories to Banqueting
facilities which meet the requirements of guest for all kinds of social gatherings ranging from 20 - 2000 guests
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 4
Taj Banjara
Nestled away from the busy traffic of Banjara Hills, with its own private approach and overlooking the lake is
Taj Banjara, unique in every respect and equally popular with Tollywood & Bollywood. Taj Banjara has 122
rooms and offers the best of kebabs and biryani at the popular Kebab - e - bahar - outdoor dining by the
lake for dinner.
Hyderabad Market Overview……….
Hyderabad has traditionally been a major centre for the IT and ITeS sectors. However, with the economic
downturn in 2009 these sectors saw declines while new sectors such as finance and biotechnology have
become more active in Hyderabad. However until the downturn, Hyderabad saw significant levels of
economic development in the form of a new international airport, extensive improvements in road
infrastructure, and announcements of new industrial parks and SEZs proposed for development across the city,
especially in Gachibowli, HITEC City, and Shamshabad.The city of Hyderabad has witnessed one of the
highest growths in demand in 2010-11 in India as compared to 2009-10. The city's mid-market occupancy
levels were one of the most severely affected in 2009-10 owing partially to the ripple effects of global
recession along with the persisting Telangana issue.
The strong recovery witnessed in 2010-11 highlights the city's potential for growth and resilience. The
RPDs (Rooms Per day) in the luxury segment has been more or less stable in 2010 -11 compared 2009-
10. The city has witnessed addition of new inventory of more than 500 rooms during the year, which
were however absorbed by the addition in demand and hence not affecting the occupancies of the
existing hotels in any substantial way. Moreover, with a continued focus on economic development by
planning authorities, the high level of optimism among companies based in the city, and assuming there
is a timely resolution to the Telangana issue, Hyderabad's hotel market is expected to see improvements
in the future. The Greater Hyderabad Municipal Corporation has also initiated checks on the star hotels
in the city on various parameters ranging from cleanliness, hygiene, parking facilities, statutory
compliances to green initiatives like reduction in usage of plastic so as to spur confidence in vacationers
as well as corporates to choose Hyderabad as a favoured destination.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 5
Taj Chandigarh
TAJGVK's is Chandigarh’s first ever branded property; the Taj Chandigarh was successfully launched a
little over 5 years ago with a room inventory of 149 rooms. Taj Chandigarh celebrates the dynamic spirit of
Chandigarh in its sophisticated architecture and interiors. The newly built hotel, located in Sector 17, the city's
prime business and shopping area Taj Chandigarh is the city's finest hotel and is well suited to both business
and leisure travelers to Chandigarh.
Chandigarh Market Overview….
The city of Chandigarh has always been a hub for film shootings with its scenic landscapes and plush gardens.
Cricket has also been a mainstay with the Mohali cricket stadium forming a permanent venue in any cricket
series that is played in the country. The Mohali cricket ground witnessed a historic event in 2010-11 in the
form of the Indo-Pak ICC Cricket World Cup semi-final which provided lot of visibility as well as business to
TAJ Chandigarh. Further, with more international flights slated to operate from the city, sanction for the
Metro project and the growth of the IT industry in and around Chandigarh, the hospitality industry is
bound to get a boost from the corporate as well as tourist activity. The occupancy levels and the average
room rates in the city did see a rise in the year 2010-11. However, the next two years are bound to see
new room inventory coming into Chandigarh with brands like Marriott, Aloft and Sheraton slated to
open up hotels.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 6
Taj Club House Chennai
Taj Club House with 220 rooms is one more proof of TAJGVK's dedication to being recognized as a
global synonym for the warmest greeting in the hospitality industry. Taj Club House has all it takes to
make it the ideal venue for the discerning business traveler. A vibrant new-age atmosphere, a feast of dining
options, warm contemporary accommodations and impeccable levels of service, that are at once attentive and
unobtrusive
Chennai Market Overview……
Similar to most major cities, Chennai also witnessed significant rate corrections in 2010-11. However, the
city-wide occupancy increased over the last year, owing to improved performance in the second half of
2010- 11. Although the hotels witnessed a decline in demand from the IT/ITeS industry concentrated on
the OMR, the fast-developing industrial regions of Sriperumbudur, Ambattur, and Egmore helped in
sustaining occupancies. The delay in hotel openings of large hotel projects also helped in maintaining
stable occupancy levels. The diverse nature of demand in Chennai, comprising of IT/ITeS, automotive
industry, as well as other manufacturing industries located in Sriperumbudur will sustain the growth in
demand going forward. The expansion of existing manufacturing facilities and setting up of new plants
is responsible for attracting extended stay demand to the city, and is also responsible for travel by
foreign corporate guests with high paying propensity. However, a significant increase in supply of
branded hotels with sizeable inventories, especially in the upscale and luxury segments is expected over
the next few years.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 7
Average Room Rates (ARR) are More are fairly Stable……..
Rs Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
Taj Krishna 7,500 7,200 7,500 8,000 7,500
Taj Banjara 5,300 5,000 5,500 5,500 5,200
Deccan Hyderabad 5,300 5,000 5,500 5,500 5,200
Taj Chandigarh 7,300 7,500 8,000 7,800 7,000
Taj Chennai 5,300 5,500 5,200 5,300 5,200
Occupancy Rates (OR)……..
Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
Taj Krishna 60 58 63 64 53
Taj Banjara 66 71 73 79 52
Deccan Hyderabad 67 72 69 74 63
Taj Chandigarh 74 65 77 74 75
Taj Chennai 50 57 65 75 63
ARR &OR were slightly subdued in Q1FY12 due to off season scenario as well as due to political disruption in the
Hyderabad region where the company has 3 properties and a room inventory of 534 rooms.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 8
Upcoming Properties & Expansion Initiatives….
Taj Vivanta
The civil works and interiors for the new five star hotel project site at Begumpet, Hyderabad is in
advanced stages and is nearing completion. As per asset light strategy of the Company, the owner of
land has put up the structure and the Company is doing the interiors. The project would consist of ~189
rooms with cost of interiors estimated at around ~ Rs 100 -106 Cr and is expected to be operational
in Sep 2011.
Spa & Additional Car Parking
The Company is proposing the construction of a 12000 sq ft spa and an additional Car parking
facility along-with enhanced landscaping and connecting bridges at the existing premises of Taj
Krishna, at an cost ~ Rs 20-25 Cr. The excavation works have been completed and the construction
work on the car-parking facility has commenced and the completion of this project is expected to be
operational in Q4FY12.
Ginger Hotel
The company is also planning to enter the value for money segment through the 'Ginger' brand in Andhra
Pradesh. The excavation works on the first Ginger hotel on a site located near the Hyderabad International
Airport have been completed. The hotel is to be constructed on ~ 1 Acre of land near with an
inventory of ~ 250 Rooms which is expected to be operational in FY13. The total investment outlay
is ~ Rs 40-45 Cr the company has already spent ` Rs 20 -25 Cr for the same till date.
Capitalizing on Land Bank in Bangalore
The company is also in the initial phases for exploring opportunities in the IT hub of Bangalore to
capitalize on its six-acre land bank in Bangalore.
Total No of Rooms Inventory ……
Hotels Location Status Existing Post Expansion
Taj Krishna Hyderabad Operational 261 261
Taj Banjara Hyderabad Operational 122 122
Taj Deccan Hyderabad Operational 151 151
Taj Chandigarh Chandigarh Operational 149 149
Taj ClubHouse Chennai Operational 220 220
Taj Vivanta Begumpet,Hyderabad Will Be Operational Soon N.A. 189
Total No of Rooms 903 1092
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 9
Tourism & Hospitality Industry Overview…..
One of the biggest challenges that India has faced on it path to economic development is the poor state of its
infrastructure. The Union Budget 2011-2012 has stressed the requirement for improved infrastructure and
has proposed several measures that will increase the investment in this sector and accelerate growth. With
an improved network of highways, railways and airports visitors and tourists will be able to explore the
country and visit places that might have been inaccessible or left out, thus providing impetus to the
hospitality industry too.
The growth in the services sector which accounts ~57 % of GDP is expected to move from 9.6 % in
2010-11 to 9.9 % in 2011-2012 due to growth in hotels, transport, communications and finance
Further in 2011-12 the room demand is expected to increase by 11-12 % where as supply is expected
to increase by only 10 %.The Occupancy Rate (OR) is expected to cross 65 % while ARR (Average
Room Rate) is expected to grow 5%. Consequently hotel revenues are expected to grow 15-17 %.
Source: CRISIL
Tourism in India is the largest service industry, with a contribution of 6.23% to the national GDP
and 8.78% of the total employment in India. Indian Tourism and Hospitality sector has reached new
heights and travelers are taking new interest in the country, which leads to grading the hospitality
sector.
Even an increase in business travel has driven the hospitality sector to serve their guests better.
Visiting foreigners has reached a record 3.92 million and consequently International Tourism
receipts have also risen to US $ 5.7 billion.
Source: Company, Inventure Research
The World Travel and Tourism Council (WTTC) has named India along with China as one of the
fastest growing tourism industries for the next 10 to 15 years.
The Indian hospitality sector is expected to show a healthy growth and according to the Ministry of
Tourism, the contribution of tourism to India's GDP is 5.9 % as compared to worldwide average of
11%
Source: WWTC, Ministry of Tourism
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 10
By 2020 the tourism industry in India is expected to increase to US$ 275.5 billion at a 9.4% annual
growth rate and also expects travel and tourism to contribute Rs 8500 billion GDP, almost 4 times
the value in 2005.
Hospitality industry closely linked with travel and tourism industry and India is experiencing huge
footfalls as a favorite vacation destination of foreigners and natives and the hospitality industry is
going into a tizzy working towards improving itself. The Indian tourism industry has outperformed
the global tourism industry in terms of growth in the volume of international tourists as well as in
terms of revenue.
Source: Annual Report 2011
Union Budget 2011-2012: Benefits for Hotel Sector…..
Under the existing provisions of section 35AD of the Income Tax Act, Investment Linked Tax Incentive is
provided by way of allowing 100% deduction in respect of any expenditure of capital nature (other than on
land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the Specified
business. The specified business includes building and operating, anywhere in India, a new hotel of two
star and above category, as classified by the Central Government under section 35AD (8) (c). This
amendment will come into effect from 1st April, 2012 and will accordingly, apply in relation to the
assessment year 2012-13 and subsequent years.
Under Section 73A, any loss of a specified business (under section 35AD) is allowed set-off against profit
and gains of any other specified business. In order to remove any ambiguity in this regard in respect of the
business of hotels, the Union Budget proposed to remove the word new from the definition of specified
business in the case of hotels under section 35AD(8) (c ). With this, the loss of an assessee on account of a
specified business claiming deduction under section 35AD would be allowed to be set off against the profit
of another specified business under section 73A, whether or not the latter is eligible for deduction under
section 35AD. It means an assessee who currently operates a hotel would be able to set off the profits of
such business against the losses, if any, of a new hotel which starts to operate after 1st April, 2010 and is
eligible for deduction of expenditure under section 35AD. This amendment will come into effect
retrospectively from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12
and subsequent years
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 11
Investment Rationale…..
Key Presence & Market Leader in the Hyderabad Market: TajGVK is the market leader in
the Hyderabad market, where it has a share of ~ 30% in premium-segment. We believe that
TajGVK would continue to enjoy its presence in the key markets of the company.
Room Capacity Addition: Taj GVK is expected to benefit from the addition of its 189-room new
property in Begumpet, Hyderabad which expected to be operational in next 10-15 days which
will take its owned rooms to 1,092 from 903 currently. Taj Vivanta is expected strengthen its
foothold presence further & tap mid-market room demand in the city of Hyderabad.
Asset Light Business Model: As per asset light strategy of the company, the owner of land has
put up the structure and the company is doing the interiors. The project would consist of around
189 rooms with cost of interiors at around Rs.106 crores, and is expected soon. This would
require a lower capital outlay as compared to a Greenfield expansion. Further the company has a
very comfortable debt/equity ratio of 0.44x as of 2011 and is expected to further improve to 0.25x
in FY13 this enables TajGVK with adequate opportunity to plan further expansions, without
impeding the quality of the balance sheet.
De-risking of Business Model: TAJ GVK had ~80 % room inventory from Hyderabad market.
However the company undertook expansion in key cities like Chennai & Chandigarh for de-
risking the business model. This has lead to diversifying its presence in other key markets. In
FY11 ~59% room revenues were in Hyderabad as compared to ~80% inFY08.
Festival Season to Boost Demand: Oct 2011 Onwards till May 2012 is a season time The
company enjoys a higher occupancy rates as well as higher Average Room Revenue during this
period so Q3 &Q4 are healthy quarters for the entire industry and co is expected to perform well
Strong Brand Recall & Management Experience: Taj GVK has a strong brand recall and
enjoys strong management experience being the part of Indian Hotels Company Ltd group of
hotels. Taj GVK has a healthy capital structure which is capable of supporting higher levels of
borrowing. The company has D/E 0.44x which enables the management for levering up if
required for future capex.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 12
Depreciating Rupee to Attract More Foreign Tourists: The depreciating Indian Rupee of late
has made the travel to India even more cheap since the depreciation of INR against all major
currencies will provide the benefits for value for money for both leisure as well as business
travelers even more and with the season time on the verge of onset from Oct 2011 to Mar 2012
the ARR & OR is expected to further improve as increasing foreign tourist arrivals (FTA).
The above graph shows steep depreciation in Indian Rupee against the US dollar.
Healthy Financial Position & Likely Bonus Candidate: TAKGVK has reserves of Rs 309 Cr
as of FY11 and the comfortable debt position of 141 Cr. The company has the habit of
rewarding shareholders with a 100% dividend on the FV of Rs 2/-.We expect the company can
reward shareholders with a bonus 2:1 i.e. 2 equity shares for every 1 existing share Since Co
has equity capital of just 12.54 Cr. The company has an ROE 13.48% & ROCE of 16.65%
which is one of the best in the hotel industry. Further operationally it is one of the best managed
chains in the hotel industry.
Taj Krishna Strategic expansion: The expansion of the car parking facility at Taj Krishna will
enable to attract higher meetings, conferences & exhibitions and banqueting business is expected
to help the company in the long term. The construction of a 12000 sq ft spa and an additional
Car parking is expected to commence operations in Q4FY12.
Other Plans: The Company is also in the initial phases for exploring opportunities in the IT hub
of Bangalore to capitalize on its six-acre land bank in Bangalore. The Company is also planning
to enter the value for money segment through the ‘Ginger’ brand in Andhra Pradesh. The
excavation works on the first Ginger hotel on a site located near the Hyderabad International
Airport have been completed.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 13
Risks & Concerns…….
The hotel sector may be unfavorably affected by changes in global and domestic economies, changes in
local market conditions, excess room supply, reduced international or local demand for hotel rooms
and associates services, competition in the industry, government policies and regulations,
fluctuations in interest rates and foreign exchange rates and other natural and social factors.
Since demand for hotels is affected by world economic growth, a global recession could lead to a
downturn in the hotel industry and could affect the company’s prospects
Any adverse events such as political instability, conflict between nations, terrorist attacks or spread of
any epidemic or security threats to any countries may affect the level of travel and business activity.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 14
259.06 238.21 229.25
260.66 296
357
0
50
100
150
200
250
300
350
400
FY 08 FY 09 FY 10 FY 11 FY 12E FY13E
Turnover(Rs in Cr)
331.39
443.37 459.77 488.60
535.47 519.75
0
100
200
300
400
500
600
FY 08 FY 09 FY 10 FY 11 FY 12E FY 13E
Net Fixed Assets (Rs in Cr)
11.23
8.42
5.78 6.91
8.27
10.67
0
2
4
6
8
10
12
FY 08 FY 09 FY 10 FY 11 FY 12E FY 13E
EPS (Rs.)
108.29
81.69
54.96 65.73
78.8
101.68
0
20
40
60
80
100
120
FY 08 FY 09 FY 10 FY 11 FY 12E FY 13E
PBT (Rs in Cr)
231.12 269.36
291.17 320.10
357.15
405.72
0
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100
150
200
250
300
350
400
450
FY 08 FY 09 FY 10 FY 11 FY 12E FY 13E
Networth (Rs in Cr)
160%
100% 100% 100% 110%
125%
0%
50%
100%
150%
200%
FY 08 FY 09 FY 10 FY 11 FY 12E FY 13E
Dividend %
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 15
