The EIH board has approved fund raising of Rs. 350 crore through rights issue to shore up liquidity and strengthen the balance-sheet in the wake of an uncertain business environment. The company would issue 5.38 crore shares at Rs. 65/share (including premium of Rs. 63/share). The rights entitlement ratio has been set at eight shares for every 85 shares held in the company. While this would lead to equity dilution of 8.6% on a post diluted equity base of 62.5 crore, it would have a positive impact on EPS given the current lower RoE of 4.2% for FY22E (due to restricted business) vs. average cost of debt of ~9.2%. Assuming debt repayment of Rs. 250 crore in the current fiscal, we expect loss of FY21E to get reduced by 9.4%. For FY22E, we expect EPS to improve 4.8% to Rs. 2.3/share. Further improved liquidity buffer would place the company in a better position to cope up with the current business uncertainty. On the valuation front, the stock is available at EV/room of Rs. 1.5 crore (refer exhibit 3), factoring in the impact of equity infusion that is still at a discount of ~50% from the current replacement value. Hence, we remain positive on the company from a long term perspective and recommend subscribing to the rights issue.
Valuation & Outlook
The current pandemic environment has thrown up severe challenges for the entire hotel industry. However, EIH, with its strong b/s and strategic property locations is poised to benefit from a favourable demand supply matrix in the long run due to likely postponement or reduction in new room supplies in the industry. We maintain our BUY rating on the stock with a revised target price of Rs. 105/share (i.e. @ 19.5x FY22E EV/EBITDA).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_EIH_CoUpdate_Sep20.pdf
Shares of EIH LTD. was last trading in BSE at Rs.86.55 as compared to the previous close of Rs. 86.4. The total number of shares traded during the day was 206396 in over 5120 trades.
The stock hit an intraday high of Rs. 89.75 and intraday low of 85.5. The net turnover during the day was Rs. 18173522.