Sayaji Hotels - Rs.49.00

Established in 1982 and promoted by the Dhanani family of Indore, Sayaji Hotels Ltd. (Sayaji) currently manages two 3 star hotel properties, one each in Vadodra (Baroda) and Indore. Located in the heart of city, the Indore Hotel is the flagship hotel and enjoys good patronage. It has 230 rooms and suites, 5 restaurants, 9 banquets and wedding halls, a health and fitness club, pub & discotheque, state-of-the-art Quorum lounge, a full-fledged club and entertainment centre with swimming pool, bowling alley, lawn tennis, golf, virtual games, squash, billiards, saloon and spa etc. On the other hand, its Vadodra property has 73 rooms with 3 restaurants and 5 banquet halls. To a large extent, Sayaji is immune to the cyclical nature of the hotel industry as most of its occupants are business travellers. Interestingly, its ratio of food & beverages (F&B) sales to room sales is 1.6 times as against, the industry norm of 0.7. Presently, Sayaji enjoys 75% and 12% market share in Indore and Vadodara respectively.

To cash in on the booming hotel industry, Sayaji is coming up with a hotel project in Pune, for which it has recently signed a MOU to purchase land admeasuring 1,80,000 sq. ft on Banglore-Mumbai Express highway. This Rs.95 cr. project will comprise 200 rooms, 100 service apartments, 3 F&B outlets and 5 Banquet Halls. Further, it is planning to build a 360 room 5 Star hotel in Bangalore at an investment of about Rs.120 cr. It has also ventured into the retail sector and has started a multi cuisine restaurant at Pali Hill, Mumbai with the brand name ‘Barbeque Nation’. It has plans to set up more such restaurants in Mumbai at Lokhandwala, Worli, Chembur and Navi Mumbai by the end of 2006. Sayaji is working towards establishing a chain of 100 restaurants across major cities in India with a capex of Rs.50 cr. in the next two years. This means that the company’s revenue growth is going to be driven by F&B outlets as well.

To fund its expansion plans the company has finalized to issue Foreign Currency Convertible Bond (FCCB) of up to US $8 million to Clearwater Capital Partners (Cyprus) Ltd. and fresh 34.15 lakh equity shares on preferential basis to promoters and high net worth investors at a rate of Rs.66 per share. Incidentally, Sayaji has virtually has no tax liability due to previous accumulated losses and subsidy from Department of Tourism (DOT), which is expected to continue for the next two years at least. For FY07, it is expected to report total revenue of around Rs.50 cr. and net profit of around Rs.7 cr. resulting in an EPS of Rs.8 on its current equity of Rs.8.60 cr. On partly diluted equity of Rs.12.50 cr. (i.e. excluding FCCB) its EPS comes to Rs.5.50, whereas on full diluted equity of Rs.18 cr. the EPS works out Rs.4. With average room rate (ARR) and occupancy rates on the rise coupled with its aggressive retail expansion, Sayaji is expected to perform much better in coming years. Investors can accumulate this scrip at sharp dips with a price target of Rs.75 (70% appreciation) in 12-15 months.