Sayaji Hotels, India's leading premium three star hotels and food chain, operates a chain of restaurants and hospitality properties in India. Sayaji currently operates three properties in Vadodara, Indore and Pune. In fact, Indore property enjoys dominant position in Indore city with its central location and enjoys very little competition. It also has two subsidiaries - Barbeque-Nation Hospitality Ltd. and Malwa Hospitality Pvt Ltd.
The 6-year old Barbeque Nation, with the concept of Live Grill allowing customers to make food on their personal grills, is fast gaining reputation as a fine dining restaurant especially for non-vegetarians. It is growing at a rate of 25% on the same store basis and is present in 14 cities, including 7 top cities, already. Sayaji plans to concentrate on the same for its growth.
In May 2006, Clearwater Capital bought 14.92% stake for Rs.11.81 Cr by purchasing 17.9 lakh shares at a price of Rs. 66 per share. It had also invested in FCCBs worth $7.5 million which were converted into equity at Rs 75 per share last year, giving it 32.87 per cent stake with the promoter stake at 38.1%. It also came up with an open offer last year at a price of Rs 115.73 (including interest payment for delay in the offer), but could not find many takers.
In June ’11, Clearwater sold 4.85 % stake which has brought down its stake to about 28%. Promoters hold close to 40% and the US-based foreign FII Acacia Partners holds 7.54% in Sayaji Hotels
About 3 years ago it was @40 and currently @135 – more than 3 times in 3 years is certainly not a bad return by any standard.
There could be 2 scenarios (or a combination of both) which could play out here:
1. They spin off Barbeque Nation into a separate company/subsidiary (former will be a shareholder friendly move) so that everyone can participate in the growth of both the hotels as well as restaurants business. My feeling is that the restaurant business will surely grow well compared to the hotels business. Also note that there is no specialty restaurant company in India, so that will command a premium valuation in itself (you don’t have to look far; just look at how Jubilant, Dominos, is faring, and you will know what I mean). Following the spinoff, they can sell a partial stake or the whole business itself at premium valuations for reasons just mentioned. That there will be enough takers is a given.
2. Clearwater Capital decides to sell its stake in Sayaji to another entity again at a decent profit (remember it paid 75 last year, so you can make your own calculations as to how much it will command). Or it may decide to execute step 1 and buy out one of the 2 businesses.
Post the de-merger, the sum of parts will surely be greater than the whole. Look at how things have panned out at Reliance and others where such actions have happened. At least one of the parts gives enough returns to cover the other and the investor may take a call on which part is to be retained.
The only variable is when the above can happen. Looking at the turbulence in the market currently, nothing may happen in the short term. But the future certainly looks fairly bright if not shining already.
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