MultiBager: Taj GVK Hotels and Resorts

Taj GVK Hotels and Resorts is an outperformer rating with target price of Rs 225 in its May 06, 2008 report. "We forecast sales and EPS CAGR of 25% and 24% over FY08-FY10E. The stock currently trades at 10.5x FY09E EPS and 8.4x FY10E EPS, which is attractive in the context of our forecasted growth. Coupled with a clean balance sheet and industry-leading return metrics (low leverage of 0.4x, RoE greater than 30%, dividend yield of 2%), we think Taj GVK is a quality branded play in the hospitality segment going at commodity-like valuations. We initiate coverage with an outperformer rating and a P/E-based target price of Rs 225, an upside of 55% from current levels. At our target, the stock would trade 13x FY10E EPS, a 15% discount to current multiples commanded by players such as Indian Hotels, EIH and Hotel Leela. Our target price is validated by our DCF valuation, which yields an objective of Rs. 236. Key risks to our recommendation would be an aggressive build-out by other players in Hyderabad, slower-than-expected roll-out of Taj GVK’s new properties and a softening of demand trends in Taj GVK’s key markets of operation".