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The shares of EIH Ltd, operators of Oberoi Hotels, have doubled since January this year. EIH shares are up 110 per cent this year as compared to 35 per cent rise in the BSE Sensex. This sharp spurt in EIH’s shares has made Mukesh Ambani owned RIL’s value in EIH shares to go up to Rs 1,300 crore now from Rs 700 crore early this year. The EIH stock is up in spite of Indian hospitality sector oing through a slowdown. Here are reasons why investors are bullish on EIH:
Open Offer Rumours: Ever since Ambani bought 18% stake in EIH to ward off any takeover attempt by rival ITC, the investors are speculating that sooner or later Ambani will raise his stake in the company via an open offer. Though RIL denies any plans to increase its stake in EIH, investors say Ambani’s strategy will be similar to TV18 Broadcast Ltd, where Ambani changed his mind after saying that RIL’s investment is not for management control.
Board Changes: EIH board now has Ambani’s close confidant Manoj Modi and his wife Nita Ambani. Both joined the board in November 2011 within one and a half year of RIL’s investment in the company in August 2010. An old timer independent director Rajen Raheja quit the board in July this year.
Financial performance: The company’s sales have remained static in the last three years growing at an average of 4.8%, as per Bloomberg data. Its Ebidta margins are hovering at around 20%. In the September quarter, the company made a loss of Rs 1.31 crore. The rise in market capitalization is not in sync with its results. For fiscal 2015, the company’s sales are expected to grow by 8.5% to Rs 1670 crore and by 12.4% to Rs 1,876 crore by 2016, as per Bloomberg estimates.
Better prospects: Analysts say with a stable government at the Centre and easy visa regime, the tourism industry and the hospitality industry will be a big beneficiary. Hotel companies like EIH will be a big beneficiary of the boom in foreign tourist arrivals. The coming Christmas season will be a make-or-break for the hotel companies to get out of the slowdown witnessed in the last four years.
Currency gains: With the Indian currency hovering at Rs 62 to a dollar, hotel companies will be a big beneficiary as foreign tourists bring in dollars to pay for their stay in India. The rupee is expected to fall more against the US dollar in 2015 – which means a bonanza for EIH and other hotel companies.
