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POSTED BY ON August 2, 2011 4:44 pm COMMENTS (4)
i am holding 5350 equity shares of hotel leela bought at@rs.46.50 in jan. 2008. kindly suggest better scrip for switch from hotel leela for long term.
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@jagdees
salute and thank you for your thorough nice fundamental analysis of the scrip and your advice!
@Bharat shah
Thanks for your reply. Following is my 2 cents about the scrip.
About the sector:
1. The industry had spectacular performance between 03-08. But last 2 years has been bit painful for the hotel sector due to after-effects of 26/11 attacks and global economic downturn.
2. Excess capacity lead to severe erosion of pricing power and revenues which acted as double whammy in the downturn.
The sector brighten up when the economy as a whole picked up. Nevertheless, the sector fortunes depends on global economic health and hence cyclical one.
About the scrip-Leelaventure:
1. The bad fortune of the hotel industry did not spared the company and hence its EPS fell off from 3 in FY2009 to 1 in FY2011.
2. Beyond that the company loaded the balance sheet with too much debt such that its debt to equity ration is almost 4. (Industry leader – indian hotels has debt/equity of 0.9 only). Due to the current high interest environment, lot of its profits goes to interest payment. The company recently spoke about reducing the debt by equity sale and such that. But still it is herculean task to bring down to more normal level.
3. The sector by its very nature of capital intensive stuff, the Return of capital employed will be average (around 8%). But this company even fares worse than the industry peer with its ROCE of 2%.
4. Finally valuation, It rules at the PE of 44 i.e. simply u r paying 44 rupees for every rupee it earns!!! Even if its fortune brightens a bit and gives an EPS of 2.0 in next 2 year, even then the PE will be around 21. simply ridiculous.
Due to its poor ROCE, high debts (that too in this high interest rate regime) and high valuation, i would prefer to sell the scrip. With the proceeds, you can help your loved ones 🙂 to invest in a diversified mutual fund through sip mode.
(Disclaimer: As i noted above, hotel sector as a whole bit brighten up in 2011 and hence the stock may climb higher. But given the risks in the balance sheet, poor overall performance and hostile interest rate environment, it is not worth to take the risk of holding the scrip).
Regards
Jagadees
@jagdees
thank you for your response!
first the last1
though i never bought any investment on tip, let me confess, i did not buy it(even any investment) through thorough research. i know some basics of fundamental study i.e. can understand the annual report, p&l , balance sheet, some ratios, but not thoroughly.and now i don’t want to learn , as i am now 64 and i think, only fundamental research knowledge is not enough. large data base with updation is also required. as i can correctly spell, i made this investment on my experience with this scrip in immediate past 2-3 yrs.(which eventually was good time for indian equity market and i also made some money in the scrip!) and also aware of its earning etc. at that time. latter i understood the unsuitability of direct investment v/s through mutual fund, so i switched all my family investment to mutual funds in last 2 years , the portfolio monitored regularly and found satisfactory w.r.t. the market. however this scrip is not touched , as it is strictly not of my family, but of some love ones. during the period, it went high @ 20% 2-3 times, but not sold for want of any strategy , and regular monitoring. the dilemma is due to one more fact that if i am correct ,the scrip seems for traders, and not for investor.
i think , i spell my thoughts. you may suggest something, if you can.
@Bharat
Can you tell us more on why you bought the stock?
How you came to the conclusion that u want to get rid of this stock? If it is due to poor performance of the company, then on what basis u concluded the same?
Is this is the only stock in your portfolio? or any other stock and equity mutual funds?
The reason behind asking those questions is just to have clear picture whether you bought the stock on any funda/tech analysis or based on tips
1. If you bought the stock on some research, then we can try and help to identify the mistakes (if any) in the process and can help to learn from the mistakes.
2. If you bought the stock on tips and have no idea whats going on, then the advice would be just book profit/loss in the stock and keep the money in diversified mutual fund.
Hope it helps
Regards
Jagadees
Regards
Jagadees