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Buy Viceroy Hotels – ICICI

April 2, 2008

Viceroy Hotels, which currently owns a single property in Hyderabad, Hyderabad Marriott, plans to quadruple its room count from the current 355 to 1,405, by FY10. Apart from increasing its room base in Hyderabad, it also plans to expand its reach to Chennai and Bangalore under the Marriott brand.

Having established four strong brands under two of its wholly-owned subsidiaries, Viceroy Hotels plans to expand its F&B (Food & Beverage) business to more cities. It currently operates 11 outlets which it plans to increase to 19 by FY09E and further to 35 by FY10E. We believe this aggressive expansion in the F&B space would be earnings accretive.

Viceroy Hotels has followed a strategy of keeping its ARR (average room rate) competitive and sustained improvement in occupancy levels year-on year. We expect the hotel to boost operating margins in FY08 to 31% and further to 35.2% in FY09 on the back of strong ARRs and firm occupancy levels on a higher room base.

The hotel appeals with its robust business with sales growth expected at 56% with bottom line surging at 49% during FY07-10E. ICICI rates the stock an OUTPERFORMER and we arrive at a price target of Rs 116 through a DCF valuation. Expected EPS for FY09 is Rs 3.5 and for FY10 is Rs 9.15.

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