3QFY2012 Result Update | Hotels

February 1, 2012

TajGVK
Performance Highlights
Y/E March (` cr) Net sales Operating profit OPM (%) Net profit 3QFY2012 66.0 18.6 28.2 6.1 2QFY2012 58.4 18.8 32.1 4.3 % chg (qoq) 13.0 (0.6) (384)bp 41.2 3QFY2011 70.1 27.7 39.5 12.9 % chg (yoy) (5.8) (32.7) (1,129)bp (52.8)

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Hotels 471 0.7 121 / 63 18,845 2 17,301 5,236 TAJG.BO TAJG@IN

`75 `100
12 Months

Source: Company, Angel Research

TajGVK reported a 5.8% yoy decline in its top line to `66cr (`70cr) for 3QFY2012. The companys OPM came in at 28.2%, as against 32.1% in 3QFY2011, down 1,129bp yoy. Occupancy rates (OR) especially for Hyderabad remained weak during the quarter. Chennai hotel showed strong improvement over 3QFY2011, with its overall OR coming in at 71% and average room rate (ARR) at `5,300. We are positive on the outlook of the company, given that the key markets of the company, Hyderabad and Chennai, are showing signs of stabilizing. We maintain our Buy recommendation on the stock. OR declines in Hyderabad properties on a yoy basis: OR and ARR fluctuated across Hyderabad properties due to the ongoing issues over Telangana. Taj Krishna reported a 16.2% yoy decline in OR to 57%; but, at the same time, its ARR improved by 16.4% yoy to `8,500 in 3QFY2012 from `7,300 in 3QFY2011. Taj Deccan and Banjara also witnessed a decline in OR to 65% and 60%, respectively, from 67% each in 3QFY2011. ARR also declined for these properties on a yoy basis to `5,400 and `5,152, respectively. Taj Chandigarhs OR declined to 63% in 3QFY2012 from 72% in 3QFY2011; and its ARR declined to `6,841 in 3QFY2012 from `8,000 in 3QFY2011. Taj Chennai was the only hotel to witness an increase in OR to 71% from 65%; and its ARR increased to `5,300 in 3QFY2012 from `5,200 in 3QFY2011. The company commenced operations at its new Begumpet property during the quarter. Outlook and valuation: We maintain our positive outlook on the entire hotel industry, as increasing foreign tourist arrivals and economic growth will lead to a further increase in demand for hotel rooms. TajGVK is expected to benefit from the addition of its 189-room property in Begumpet, which has taken its owned rooms to 1,086 from 897 currently. The stock is currently trading at attractive valuations of 9.0x itsFY2013E EPS. We have valued the stock at 12x its FY2013E earnings. We maintain our Buy view on the stock with a revised target price of `100.
Key financials

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 75.0 6.9 3.0 15.1

Abs.(%) Sensex TajGVK

3m (1.0) (21.0)

1yr (4.0) (31.3)

3yr 90.8 67.4

Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA Margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV / Sales (x) EV/Room (` cr) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 228.3 (3.9) 36.3 (31.3) 37.6 5.8 13.0 1.6 12.9 15.4 2.6 0.7 6.9

FY2011E 259.3 13.6 43.3 19.5 37.1 6.9 10.9 1.5 14.1 16.5 2.3 0.7 6.3

FY2012E 262.5 1.3 28.8 (33.6) 30.7 4.6 16.4 1.4 8.7 11.3 2.4 0.6 7.7

FY2013E 322.1 22.7 52.1 81.3 36.3 8.3 9.0 1.2 14.5 17.1 1.8 0.5 5.0

Sharan Lillaney
+91 22 3935 7800 Ext: 6811 Sharanb.lillaney@angelbroking.com

Please refer to important disclosures at the end of this report

TajGVK | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance highlights

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Power, Fuel and Oil (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`) Adjusted PAT
Source: Company, Angel Research

3QFY2012 2QFY2012 % chg (qoq) 3QFY2011 % chg (yoy) 66.0 7.1 10.7 14.9 22.6 5.7 8.7 19.6 29.7 47.4 18.6 28.2 4.0 5.6 0.3 9.3 14.1 3.2 34.4 6.1 9.2 6.3 1.0 6.1 58.4 5.7 9.8 12.4 21.2 5.6 9.6 16.0 27.3 39.7 18.8 32.1 3.2 5.0 0.8 11.3 19.4 7.0 62.0 4.3 7.4 6.3 0.7 4.3 41.2 41.2 41.2 183bp (54.6) (18.1) 19.3 (0.6) (385)bp 26.5 12.9 22.8 2.1 20.7 13.0 23.7 70.1 6.9 9.9 11.7 16.7 5.3 7.5 18.5 26.4 42.4 27.7 39.5 3.0 5.3 0.1 19.6 27.9 6.6 34.0 12.9 18.4 6.3 2.1 12.9 (52.8) (52.8) (52.0) 40.5 (52.8) (919)bp (52.5) 11.7 (32.7) (1,129)bp 33.9 6.8 6.1 8.6 27.4 (5.8) 2.5

Net sales down by 5.8% yoy

During 3QFY2012, the company posted a yoy decline of 5.8% in its net sales, largely due to low OR in Hyderabad because of the political unrest in the city as well large inventory build-up during the year. Going ahead, we expect sales growth to pick up from the current levels going ahead.

February 1, 2012

TajGVK | 3QFY2012 Result Update

Exhibit 2: Sales trend

72 70 68 66 64 62 60 58 56 54 52 70 69 66 63 61 60 59 58 30 25 20 15 5 0 (5) (10) 10

(` cr)

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

Sales (LHS)
Source: Company, Angel Research

yoy Growth (RHS)

OPM declined by 1,129bp yoy to 28.2%

TajGVK reported OPM of 28.2% for 3QFY2012, which witnessed a decline of 1,129bp yoy, largely due to the launch of its new property at Begumpet, where all pre-operating expenses were accounted for in the P&L. Operating profit came in at `19cr, down 32.7% yoy. We expect margins to come back to historical levels as the Begumpet property starts contributing to the revenue.

Exhibit 3: OPM trend

30 25 20 26 22 19 18 28 20 45 40 35 30 20 15 10 5 0 19 19 25

(` cr)

3QFY12

15 10 5 0

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

EBITDA (LHS)
Source: Company, Angel Research

OPM (RHS)

PAT down by 52.8% yoy to `6cr

PAT declined by 52.8% yoy to `6cr during 3QFY2012, largely due to margin compression during the quarter. Going ahead, we expect the company to post higher PAT growth on the back of sales contribution from its new Begumpet property and OPM expansion.

February 1, 2012

3QFY12

(%)

(%)

TajGVK | 3QFY2012 Result Update

Exhibit 4: PAT growth trend

14 12 10 12 10 7 6 4 6 13 12

(` cr)

8 6 4 2 0

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

Source: Company, Angel Research

February 1, 2012

3QFY12

TajGVK | 3QFY2012 Result Update

Investment arguments
Strengthening its foothold in the Hyderabad market: TajGVK is a market leader in the Hyderabad market, where it has a share of nearly 30% in premium-segment rooms. The company has commenced operations at its Begumpet property, which would strengthen its foothold further. The company also plans to add service apartments and retail space in its existing Taj Krishna property. We believe TajGVK would emerge as a prime beneficiary in Hyderabad after the expansion. Diversification strategy to de-risk the business model: In FY2008, 78% of TajGVK's room inventory was located in Hyderabad. To diversify its presence, the company came up with Taj Mount Road in Chennai in December 2008. With this, the company has toned down Hyderabads concentration to 59% of the total room inventory in FY2009. The company is also planning to enter Bengaluru and is exploring the possibility of entering the mid-market segment through tie-ups with IHCL's Ginger. We believe this strategy will prove beneficial in the long run, as it would reduce over-exposure in the Hyderabad market. Asset-light strategy to keep the balance sheet healthy: TajGVKs Begumpet property has been commissioned using an asset-light strategy. This resulted in a lower capital outlay as compared to a greenfield expansion. Accordingly, we expect the company's debt-equity ratio to be at a comfortable level of 0.3x in FY2013E, which provides TajGVK with adequate room to plan further expansions, without hampering its balance sheet quality.

Outlook and valuation

We maintain our positive outlook on the entire hotel industry, as increasing foreign tourist arrivals and economic growth will lead to a further increase in demand for hotel rooms. TajGVK is expected to benefit from the addition of its 189-room property in Begumpet, which has taken its owned rooms to 1,086 from 897 currently. The stock is currently trading at attractive valuations of 9.0x its FY2013E EPS. We have valued the stock at 12x its FY2013E earnings. We maintain our Buy view on the stock with a revised target price of `100.

Exhibit 5: One-year forward P/E band

350.0 300.0
Share Price (`)

250.0 200.0 150.0 100.0 50.0 0.0 Jan-06 Jan-07 Price Jan-08 9x Jan-09 12x Jan-10 15x Jan-11 18x 21x Jan-12

Source: Company, Bloomberg, Angel Research

February 1, 2012

TajGVK | 3QFY2012 Result Update

Profit and loss statement

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Income/(Exp.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY09 237 237 (7.8) 137 20 29 37 51 101 (16.7) 42.4 14 87 (20.4) 36.7 7 1 1 82 (24.6) (1) 81 29 35.6 52 53 (25.1) 22.2 8.4 8.4 (25.1) FY10 228 228 (3.9) 143 21 38 35 48 86 (15.0) 37.6 20 66 (24.1) 29.0 12 1 2 55 (32.8) (0) 55 19 34.0 36 36 (31.3) 15.9 5.8 5.8 (31.3) FY11 259 259 13.6 163 25 40 47 51 96 12.3 37.1 21 76 14.5 29.2 11 1 2 66 19.7 66 22 34.1 43 43 19.5 16.7 6.9 6.9 19.5 FY12E 263 263 1.3 182 26 46 60 50 81 (16.3) 30.7 24 56 (25.6) 21.4 14 1 3 44 (33.7) 44 15 34.0 29 29 (33.6) 11.0 4.6 4.6 (33.6) FY13E 322 322 22.7 205 32 47 67 59 117 45.1 36.3 29 88 56.6 27.3 10 1 2 79 81.3 79 27 34.0 52 52 81.3 16.2 8.3 8.3 81.3

February 1, 2012

TajGVK | 3QFY2012 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 463 89 374 69 33 2 20 11 55 (23) 2 422 483 107 375 84 36 3 22 11 63 (27) 2 434 492 128 364 124 46 5 26 14 54 (8) 1 482 667 152 514 20 45 5 24 15 66 (21) 1 514 707 181 525 20 48 5 24 19 79 (32) 1 515 13 258 271 139 12 422 13 280 293 125 16 434 13 309 321 141 19 482 13 326 339 156 19 514 13 367 380 116 19 515 FY09 FY10 FY11E FY12E FY13E

February 1, 2012

TajGVK | 3QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)./ Dec in Fixed Assets (Inc)./ Dec in Investments (Inc)/ Dec in loans and advances Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (116) 65 (13) 1 53 (9) 11 2 (38) (14) (13) 2 (24) 1 2 3 (54) 16 (6) (5) 5 2 3 5 (68) 15 (10) (1) 4 0 5 5 (40) (40) (10) (1) (51) (0) 5 5 29 53 (126) 10 19 63 (36) (0) (2) 22 52 (49) (5) 15 65 (70) 2 27 91 (40) FY09 82 14 (13) FY10 55 20 7 FY11E 66 21 (12) FY12E 44 24 12 FY13E 79 29 10

February 1, 2012

TajGVK | 3QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Room (Rs cr.) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 0.5 1.4 13.1 0.4 1.4 5.4 0.4 1.4 6.7 0.4 1.9 4.0 0.3 1.0 8.4 0.6 6 9 164 (41) 0.5 7 11 152 (44) 0.5 6 12 131 (30) 0.5 7 14 120 (28) 0.5 6 13 130 (36) 23.6 24.8 20.9 15.4 19.1 12.9 16.5 21.5 14.1 11.3 11.5 8.7 17.1 18.0 14.5 36.7 64.4 0.6 13.3 4.0 0.4 17.0 29.0 66.0 0.5 10.0 6.1 0.5 11.9 29.2 65.9 0.5 10.4 5.6 0.4 12.4 21.4 66.0 0.5 7.2 6.2 0.4 7.6 27.3 66.0 0.6 11.3 5.1 0.4 13.5 8.4 8.4 10.6 2.0 43.2 5.8 5.8 8.9 2.0 46.7 6.9 6.9 10.2 1.0 51.3 4.6 4.6 8.5 1.6 54.1 8.3 8.3 12.9 1.6 60.6 8.9 7.1 1.7 2.7 0.7 2.6 6.0 1.4 13.0 8.4 1.6 2.7 0.7 2.6 6.9 1.4 10.9 7.4 1.5 1.3 0.7 2.3 6.3 1.3 16.4 8.9 1.4 2.1 0.6 2.4 7.7 1.2 9.0 5.8 1.2 2.1 0.5 1.8 5.0 1.1 FY09 FY10 FY11E FY12E FY13E

February 1, 2012

TajGVK | 3QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

TajGVK No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 1, 2012

10