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Shanthi Venkataraman

Leisure properties such as Taj Malabar are making a rising contribution.

INVESTORS with a medium-term perspective can consider exposure inthe stock of Oriental Hotels, which trades at about 26 times its trailing earnings per share. The increase in the arrival of foreign tourists, the pick up in domestic travel and the return of the IT boom have augured well for the hotel industry over the past year. Oriental Hotels, which has acted as a vehicle for the Taj Group of Hotelsin the South is also enjoying a buoyant period.

The company has seven properties in the South, operating in the luxury, leisure and business segments, all under the `Taj' brand name. Its main market is Chennai, with its two properties — Taj Coromandel and Fisherman's Cove — catering to the business and leisure traveller. In terms of occupancy and average room rates (ARR), Chennai lags behind the likes of Bangalore and Hyderabad, which have been the hubs of IT and BPO businesses.

The demand in the city is, however, expected to pick up, as efforts are on to develop the IT corridor and other technology parks. The city ranked fourth in terms of growth in occupancy rates in 2003-04.

Oriental Hotels has been able to maintain its market share in Chennai in the past two years, even as competition is hotting up from other hotels. Between April and October, its growth in occupancy has been in line with that of other 5-star, deluxe hotels at about 15 per cent. It also saw a 15 per cent growth in room rates, well above the average.

The surge in its revenues per average room would have a beneficial impact on its bottomline.The company's other properties are predominantly leisure destinations. Revenues and earnings, therefore, are seasonal in nature. At the same time, the presence ofleisure properties insulates the company from the impact of extraneous events such as the SARS episode, which influence tourist arrivals. With domestic tourism picking up, the hotel was one of the few to make profits in 2002-03. With air-travel becoming cheaper, the improvement in domestic travel is likely to be more sustainable.. Leisure properties, such as Fisherman's Cove and Taj Malabar, are also increasingly becoming a destination for conventions and corporate travellers, giving revenues a boost.

Mid-priced hotels are likely to garner a greater share of domestic travellers, while customers in the premium segment are likely to head out for destinations outside India. In this backdrop, the company would have to look increasingly towards business hotels to further its growth prospects. Its plans to set up a 200-room business hotel in Whitefield, Bangalore, would, therefore, provide room for further expansion in revenues and earnings.

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