While it has undoubtedly been a tumultuous year in terms of volatility what with the market rising to nearly 20K around Nov. '11 before falling close to nearly 17K a few weeks back, there are indications that the coming year may bring a glimmer of hope. While these figures are not in doubt, there have been individual stocks which have given returns of upwards of 25%, some even doubling or tripling in this year after plumbing to new all-time lows – Wockhardt for one, the realty pack for another, and the de-listing MNC candidates to name a few. So it might well be a stock pickers market going forward for some time to come.
Having said this, how does one go about this exercise? It is well and truly said there is no bad time to buy good stocks and I for one firmly believe it this maxim. And this belief also stems from the happenings around which have only gone to reinforce this. Over the last 10 years, there have been umpteen cases where stocks which were written off by so-called experts have gone on to become multi-baggers and that too multi-fold. All it needed was conviction in the management to turn things around. Sample this: Bata India, the shoe major quoted around 50 in mid ’05 and quotes around 765 today – a whopping 15 times in 7 years. Around that time, its Canadian parent had chalked out a strategic revival plan and handed over the reins to one of its experienced APAC heads. The strategy apparently has worked and Bata not only recovered from its state then but went on to prosper.
These are times to buy quality at reasonable price and hold onto it, wait for the better times. Right now things are not looking that good and are choppy. There is seldom a perfect situation (as per our thoughts) to invest. Hence, our quest for complete clarity is utopian and may lead us to wait eternally. So which are the ones that fit the bill? Here is one of them:
If ever there was a brand which is so up-market and yet is not getting its due, at least currently, it is EIH. With the brand Oberoi synonymous with luxury and all that is good, market is just not willing to look beyond the current troubles it is going thru, mainly that of high interest burden due to the capex for increasing the room capacity and falling occupancy in the luxury segment due to the global economic turmoil. However it appears that Reliance’ Mukesh does not see it in the same light. About 2 years back, when the stock was nearly double its current price, Reliance thru its wholly owned subsidiary picked up 14.2% stake at a 22% premium @184/share (subsequently, it increased it by another 0.6%). At that time, RIL maintained that it was purely a financial investment. Whether it remains just that or turns into something bigger, remains to be seen in the period ahead. At that time it was considered as a white knight to thwart any takeover threats from tobacco-to-hotels major ITC, which also holds a strategic 14.9 per cent stake in EIH (bought way back in 2001 and increased gradually).
With 2 of the most influential Indian industrial houses pitching for it, it does appear that EIH is well on its way to regain its former glory. Things may not happen immediately but how it actually plays out will be seen in the years to come. The other important development to be considered is the interest of global luxury hotel brands in Indian landscape. Already some of the global biggies such as Intercontinental, Sheraton Marriott and others have a significant presence in the major metros and popular global tourist destinations such as Goa. Four Seasons and St. Regis are already in Delhi-NCR, while others like Mandarin Oriental and Fairmont will debut in the country in the coming period.
If nothing works out for either Mukesh and/or ITC (more likely the former, since ITC is already well-established in the hotels business), they may well cash out at a neat profit to one of the global majors. It may make sense to check in now at the current price which is very near to its yearly low, and that too when one of India’s most respected businessmen has seen value in it at more than twice the current market price.
EIH owns the property Oberoi Hotels at Nariman Point which is roughly valued at 3000 cr. as per current market estimates while it has a current market-cap of about 4200 cr. And EIH owns 24 such properties. They also have flight catering business. Each such unit is roughly vaued at 150 cr. and they have 10 such units. So leaving aside the Oberoi property and the flight catering business, rest of the business is free at current valuation. It must also be remembered that 2 years back Reliance bought 14% stake in EIH at 180/share and then further subscribed to their rights issue bringing their holding cost to about 145. So here is a share which has huge embedded value, has caught the attention of the largest corporate in India (and a canny investor led by one of the richest people in the country), has tremendous brand value but is quoting at half the price it paid for its stake in it.
ReplyDeleteIt is indeed true that travel and tourism business has been anything but great in the last 2-3 years which has caused the current state of affairs of some of the best known brands in this business, be it in travel (Thomas Cook, Cox & Kings both of which are quoting at half or even less than that of their former prices/valuations in good times), or hospitality (Taj of Indian Hotels which also has not had a great run in the last 2-3 years). But once things turn around, these are the ones which will take off handsomely, much more than any other business, considering their current valuations/prices.