Investor's Eye: Update - Indian Hotels Company (Maintain Hold; price target revised to Rs77), Automobiles (Downtrend intact)

 

Investor's Eye [January 02, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE Indian Hotels Company Recommendation: Hold Price target: Rs77 Current market price: Rs59 Maintain Hold; price target revised to Rs77 The weaker rupee does not seem to have boosted growth in the foreign tourist arrivals during the holiday season. The demand from the corporate sector also remains weak and is likely to keep on the performance of the hospitality companies in India. In spite of the tough environment, we expect Indian Hotels Company Ltd (IHCL) to report a double digit growth in the stand-alone operations on the back of stringent cost control measures during FY2014. On a consolidated basis, the situation would remain tough and there is a possibility of huge one-time provisions for the write-down of investment in the Orient Express. On the positive side, IHCL has built an inventory of 15,000 rooms and is likely to show an improvement on the balance sheet with no large capital expenditure (capex) commitments in the near future. Overall, the stock is likely to remain a laggard in the interim period till the demand environment improves in line with better macro-economic conditions, though the stock is available at a discount to its intrinsic value (trades at enterprise value [EV] per room of Rs0.6 crore). Thus, we maintain our Hold recommendation on the stock with a revised priced target of Rs77 (rollover of valuations to FY2016 earnings estimates).   SECTOR UPDATE Automobiles Downtrend intact Volumes decline for most companies The downtrend in the automotive volumes which started in November 2013, after the end of festive season, continued in December 2013 as well. Most of the companies reported a volume decline during the month. Continued macro economic challenges in the form of lower economic growth and higher interest rates continue to impact the demand. M&M tractor segment outperforms; Escorts underperforms  In the challenging environment, Mahindra & Mahindra (M&M) tractor division outperformed, registering a double digit growth. Adequate rainfall along with an increase in the minimum support prices (MSP) has maintained a strong demand for tractors. In contrast, Escorts Ltd (Escorts) underperformed registering a marginal decline in the tractor volumes during the month.  Tata Motors and Eicher Motors underperform Tata Motors Ltd (Tata Motors) underperformed, reporting a double digit volume decline. While the commercial vehicle (CV) segment has been impacted by the economic slowdown, the passenger vehicle segment has been impacted by the lack of new launches. Eicher Motors reported a 30% volume decline on the back of a continued weak demand for medium and heavy commercial vehicles (MHCV). FY2014 likely to be a washout year; expect recovery in FY2015 In year-to-date (YTD) FY2014 period (April to November 2013), the sales of most of the automotive segments (excluding two-wheelers) has declined on a year-on-year (Y-o-Y) basis. While the CV sales has declined in double digits, the passenger vehicle sales has shown a mid single digit decline. With not much improvement in the economic scenario, we expect the sales to remain subdued in the remaining three months as well. We expect a recovery in the volumes in FY2015 on the back of the improvement in the economic growth, easing of interest rates and the low base created by the current slowdown phase. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards, The Sharekhan Research Team

 

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