An average sales growth of 25% over the past five quarters, average operating profit growth of 38% over the same period and operating margin of 42%. These are the kind of numbers that would probably be expected of a software company. Instead, these are the growth indicators of Asian Hotels.This stock may benefit shareholders after restructuring
Hotels have been doing extremely well for the past four years, thanks to a boom in all segments of tourism – domestic and international – and business travel. The sudden boom has created a supply gap and has ensured high occupancy levels at higher average room rates.
However, despite its strong fundamentals, the stock of Asian Hotels Limited (AHL), which operates the Hyatt brand of hotels in Delhi, Mumbai and Kolkata, is not doing well. This is partly because of the uncertainty surrounding a major restructuring AHL is undergoing. The company is being re-arranged into three undertakings based on the recommendations of the corporate restructuring committee appointed by the board. Each promoter will be assigned to run a locational area of its operations (Delhi, Mumbai and Kolkata). Will this help the stock?
The trifurcation of the company will probably give an opportunity for each of the promoter groups to enhance shareholder value for the three new entities. The three main promoters have been running the three hotels independently for some time. The split in the company formalises this. The question is: will the restructuring go more in favour of the promoters rather than the shareholders? The presence of a smart player like Infrastructure Development and Finance Company, a new significant shareholder, will probably ensure that the split creates value. The stock, however, continues to languish and has underperformed the broader market.
For now, the stock is reasonably valued with its market-cap discounting its five-quarter average sales (annualised) by 3.55 times and its operating profit by 8.29 times. There is extraordinary value in it, provided the restructuring is not anti-investor. After all, hotel companies are expected to continue to do extremely well, since the gap in demand-supply is likely to continue for some time.
