Aravali Securities-A Palace of your Own

Buy at 21.....Target Rs 40

The Ernst and Young re-structured Aravali Securities will not only return to black in FY07, it will reward shareholders with dividend, and a shared ownership in Boutique Hotels. The latter owns and runs Udaipur's finest palatial property Hotel Devi Garh.

Some of the celebrity guests to have stayed in the DeviGarh Palace include the scions of the Royal family of Britain, actress Demi Moore, actor Richard Gere and celebrity receptions like those of billionaire Sant Chatwal's son Vikram were held in Devi Garh.

Adjudged by the British Tatler, Cosmopolitan, Vogue, British Airways and Air France as one of the Best 100 Boutique Hotels in the World, this is one stock investors need to lap up.

Aravali Securities which has announced the de-merger of its Hotels Division-Boutique Hotels India Limited (BHIL), is likely to complete all legal formalities by August 31st 2006. This will enable a listing of the BHIL stock by September 2006 on an automatic basis, as the general public which are the shareholders of Aravali Securities will hold more than 50 per cent of the Equity of BHIL.

As per the scheme worked out by Ernst and Young, shareholders of Aravali will be allotted 1.92 shares of Boutique Hotels for every 10 shares in Aravali FOC. Boutique Hotels owns a 7 star Palace Hotel- DeviGarh in Udaipur. (www.deviresorts.com). The Hotel has a 12 month occupancy of 90 per cent with a ARR of Rs 1500. The palace comprises of 56 suites.

Boutique Hotels will have an Equity of Rs 6 crore post demerger from Aravali Securities, and will in all likelihood report an EPS of Rs 15 for the FY07. The stock will be listed by September 2006 and should fetch a market valuation of Rs 150. In addition Boutique Hotels will set up a 7 Star Hotel luxury spa in Jaipur, adjoining the Jal Mahal Palace. As per the estimates of the State Government of Rajasthan, there is a shortfall of 7000 Hotel rooms in the City.

In a high powered meeting of the State cabinet CM Vasundhara Raje has cleared Boutique Hotels' proposal for a luxury spa, with an investment exceeding Rs 50 crore. The land for this luxury spa has been sanctioned by the State at 60 per cent of the market price or at about Rs 3300 per square metre.

Another 18 acres of land have been allotted by the State Government of Kerala for the setting up of a Luxury spa in Allepey-the pristine backwaters of Kerala. This Rs 50 crore project will be funded with a placement of 2 mn shares at about Rs 125-150, raising Rs 30 crore. The debt element will be Rs 20 crore, and the spa will have an opening in the summers of 2007.

The "spa" model has been vetted and found to be the ideal expansion strategy for Boutique Hotels by Ernst and Young. That apart the de-merged Aravali will hold about 33 lakh shares of Sirpur Paper and land worth Rs 50 crore in Delhi. This land will be sold in FY07, and help Aravali return to the dividend list shortly