Happy journey may have started for Hotel LeelaVenture

Stock will continue to remain under pressure till debt & interest costs actually start receding, helping the company to come back in black

After touching 52-week low of Rs 24.3 Monday, Hotel Leela’s stock saw a spurt as it started today’s trading session with a gap of 4% and rose as high as 15% intra-day. Currently the stock is up around 8.5%. Last evening, the company announced sale of its IT Park Building in Chennai to Reliance Industries for a consideration of Rs 170.17 crore.

The company’s new chairman and managing director, Vivek Nair earlier said that it has plans to reduce its burgeoning debt (Rs 4,750 crore as on March 2012-end) by Rs 2,750 crore in near future by taking slew of measures like sale of non-core assets, partial stake sale in some hotel projects and tying up with developers. The company wants to adopt an asset light model which means taking up hotels on managing contracts.

Lenders have already approved a CDR package for the company, which is also good news. However the de-leveraging process will take time and benefits will be available only in longer term, feel analysts, who advise potential investors not to hurry for buying the stock and wait till there is a definite trend of actual reduction in debt and interest rates.

Also, macro environment is challenging and demand is subdued. Despite the busy peak season, company’s sales in December 2012 quarter grew 15% — same as reported in September 2012 quarter and lower than 23% witnessed in June 2012 quarter while losses reduced only marginally to Rs 98 crore compared to Rs 108 crore in same quarter last year.

The company has been making net losses (adjusted) for last seven consecutive quarters thanks to the huge interest burden (55% of FY12 consolidated revenues, which rose to 62% in nine months ended December 2012). In nine months ended December 2012, the company reported net loss of Rs 291 crore compared to loss of Rs 191 crore in same period last year.

Analysts expect the company to continue to report losses for the next few years though they are hopeful that the company’s initiatives will help to report profits again improve in future.