What is fuelling the scrip of hotels with negative net worth?

ShareSansar, June 10:

Despite their negative net worth, the price of hotel scrips is rising steadily in the secondary market. Is it an abnormal phenomenon, a temporary one in the wake of sluggish growth in many other sectors, or the investors are upbeat about the prospect of hotel industry.

ShareSansar tries to figure it out by talking to some of the key actors in the stock market.

Bharat Ranabhat (Broker no. 35) agrees that the price is higher than insurance and commercial banks.

However he is quick to add that hotels’ earnings are rising, and that the future for this industry is good as tourism is growing.

But he also cautions that the ‘overpriced scenario’ might not last long.

Nanada Kishore Mundara (Broker no. 28) is more optimistic.

“See investors think of the future,” says he. “It is overpriced right now. But slowly the net worth will come to positive figure maybe within 2 years.”

He further says that already Soaltee among the three listed hotels is paying good dividend, and the rest are very likely to follow the suit –sooner than later.

“Talking about Soaltee, it is an asset-based company,” he adds. “Its property is nearly 1 thousand crore. Who does not want to invest in such a hotel?”

He thinks the price of the hotel index might rise by 20- 30 percent more.

Sandeep Jalan (Broker no. 56) is even more upbeat as he believes that within next year, all hotels will have positive net worth, owing to impressive growth of tourism sector.

“All their debts will be paid,” says he. “Oriental might come up with Rs 6 to 8 crore profit by the next net fiscal year.  All in all, the price will continue to rise as future for the hotel industry is good.”

President of the Brokers’ Association Narendra Sijapati says that the rapid rise of the hotel scrips is not just related the growth of the industry, but also propelled by sluggish growth in the banking sector.

“A lot of long-term investors are attracted to hotels to better manage their portfolio due to slowed growth of the BFI scrip, which covers around 80 percent of the market capitalization,” Sijapati explains.  

Plus the demand for hotel’s share is high but there is very limited number of shares, he adds. This is another reason the hotel scrips are rising.

“And also do not forget that hotels’ returns are increasing,” he further says. “Little wonder that the price of hotel industry is on the bullet train at the moment.”

Sijapati, however, is not sure as to how long the hotel index would continue to grow.

That’s the take of the experts. But there are a few things that an investor should take into account before investing in any hotel scrip.

One of the biggest challenges is that the hotel sector does not have a regulator. And this has led to lack of transparency of many companies – both listed and unlisted.

We have also compiled the 180-day traded price of all the three listed hotels for your purview.