Byke hospitality - Truly asset light?


(hrfacebuk) #103

I am sorry and with all due respect I felt that better words/tone could have been used in the comment. Please take my view in right spirits.[quote=“Murali_Krishnan, post:101, topic:2115”]
For a speculative analyst, no trend means no scope for profit
[/quote]

Technical analysis is also a practice and a technical analyst shouldn’t be termed as ‘speculative analyst’ just because it is different from fundamental long term analysis for a long term investor. For a full time technical analyst that is his science and his work and anybody’s work should be respected as most of the time he earns his bread and butter from there.

It wasn’t an advice and was an ‘opinion’ shared. By advising from staying away from such stocks the so called ‘speculative analyst’ isn’t going to gain anything.

Cheers.

Discl: No holdings and I am not a technical analyst :slight_smile:


(Left this forum) #104

On a lighter note I don’t mind to be called as speculative analyst. :grin:

After all I am generating bread and butter from speculation or trading.
Despite of my continuous efforts on value and growth investing.

By the way I wrote on something very relevant (I think so) on what is
speculation, gambling, investing yesterday. An extract from Jim Paul’s
experience, perfect example for discussion.

Coudn’t resist but repeating the words again! Happy reading from the book
What I learned loosing million dollars with few amendments.

Future is uncertain, never completely reveal to us. We have to accept
choices either investing or speculating. Investor knows everything he needs
to know while putting a money. He built margin of safety to his calculation
to eliminate fringes if any of uncertainty. On other hand a speculator
doesn’t have the advantage of investor but has some knowledge about what
determines the outcome of his activity. It’s the application of
intellectual examination and analysis of uncertain future.

Successful investing is combination of investing and speculating skills.
Speculation is a forethought and demands reasons for decision making. He
thinks before acts! Even investment god Warren Buffett is 60% investor and
40% speculator. Now we can correlate when we don’t get answers to many
checklist questions , yet we have to take a decision and move on.

Speculation does require a PLAN. Plan is a method need to be worked out
before hand before accomplishment of objective, not to think and act
simultaneously. Without a plan either you are bettor or gambler.


(Rupesh Tatiya) #105

Notes from my research -

INDUSTRY
Indian tourism industry is slated grow at 8% rate for next many years. Indian hospitality industry - 18,400 Cr (FY13). India ranked 11th best tourist destination in Asia & 14th best overall.

BUSINESS MODEL
The company was started as Suave Hotels Limited in the year 2002 & the name was changed to The Byke Hospitality in 2010-11.

The company has following two businesses -

Hotels - Owned & Leased (O&L) - EBIDTA margin ~22%
The company owns 2 hotels (details in table) & provides hospitality services in them. The company has not bought any new hotels since FY11 but holds freehold land of ~6.5Cr.
The company has leased 7 hotels till FY16, the leases are non-cancellable (?) & for the period of 10 to 15 years. The lease rates can be revised from year to year basis.

The company claims that these hotels are targeted towards middle & upper classes with the aim to create brand Byke & provide quality service offerings. The company also provides foods, beverages, conferences, weddings etc. services at these location & the revenue via this mode is higher than actual room rents.
(TODO - Premium hotels?? Stay @Byke hotel - scuttlebutt)

The company provides vegetarian only food at its hotel locations. This seems to be targeted towards capturing Rajshthani, Gujrathi, Jain, Marathi etc. family vacations. Also this will help to get higher preference while selecting these hotels as wedding destinations. In O&L segment, actual room rent provides less revenue than F&B etc. service offerings.

Room Chartering (RC) - EBITDA margin ~14%
The chartering business involves aggregation of hotel rooms through prior booking of inventory. This is done on a ‘take or pay’ basis, 3-4 months before the tourist season. The aggregated rooms are sold onward to travel agents, largely in mini metros and tier-2 cities across the country. This is a B2B business.
The RC business wast started in FY12 & as of date contributes ~50% of the revenue.

The main assumption on which this business is based on seems to be - company has sales power to attract bookings/orders. The company has network of over 300 travel agents to help in this sale.
(Trading type business? Sustainable? Growth Plateau?)

NUMBERS
Room Capcity

Freehold Land
FY10

  • Sept 2009 - Acquired 38,700 sq. meters of land in Sawantwadi

FY14

  • Navi Mumbai - Business Class Hotel - 3.75 Acres
  • Aronda, Sindhudurg, Maharashtra - Spa Rejuvenation Centre & Resort - 10 acres
  • Ashtamudhi Lake, Kollam, Kerala - Beach Resort - 2 acres

Assets

As can be seen, leased assets have grown faster than fixed assets & fixed assets did not grow at all after FY13.

Revenue Breakup

As can be seen above, 61Cr revenue is from F&B in FY16 put of total O&L revenue of ~115Cr. So O&L room rentals by itself is just ~25% of total revenue. One has to look at F&B performance, RC performance in conjunction with O&L rentals to make future projections.

MANAGEMENT
The promoters changed hands in FY11 with Anil Patodia, Vinita Patodia, Kamal Poddar taking over the company. This is what led to remarkable growth in the company.

The management initially issues shares to self on preferential basis through FY11 (75 lacs at the price of 34) & FY12 (10 lacs at the price of 44). The number of shares have been unchanged since FY12.

The management has generally walked the talk on the expansion plans set out after offsetting for general economic conditions & aggressive euphoria during good times. The discontinuation of lease of The Byke, Paawana in Rajsthan & selling of hotels (Sunshine Beach Resort, Hotel Goan) in Goa also shows managements willingness to let go of assets not suiting its business model.

Management Team
Mr. Anil Patodia, Chairman & MD
Mr. Satyanarayana Sharma, WTD
Mr. Pramod Patodia, ED

STRONG POINTS
Leasing Vs. Buying - Truly Asset Light?
Due to high interest rates, leasing makes better economical sense than buying properties & paying interest. This helps to retain capital & expand. (See example table below)

The table incorporates a lot of simplistic assumptions & my conclusions can be completely wrong. On the left hand side, I take average occupancy ratio of Byke & on the right hand side I take industry average occupancy ratio. These numbers can be played with with different parameters. I can share excel sheet if someone is interested.

Following are lease & accomodation expenses of Byke

If lease expense of 9Cr is assumed as per above table, then it can be seen that average monthly rent per room that Byke has to pay is lower at 12000 & leasing becomes even more profitable in high interest rate scenario.

It is clear that, interest rate, occupancy ratio & lease prices remain important parameters for financial performance of company.

Securing long term leases at reasonable prices remains key in this model. In leasing model, the cost of lease would continue to recur for 40-50 years whereas in the buying model, after loan is repaid - the asset would continue to give free returns. So in essence, asset light = less burden at start.

Also termination of lease is much simpler in case some property falls out of favor compared to selling of asset. Examples of termination are - The Byke, Paawana, Mandawa, Rajasthan. The lease was terminated in FY15.

High Occupancy Ratio - 70% Vs. 40% Industry Average
It seems to me that focus on middle classes with value hotels is winning formula in India. Also letting out hotels for weddings, corporate events also seem to increase the occupancy ratio.

Balance Sheet
For a company in hotel business, the balance sheet of Byke hospitality is just beautiful. Although I must concede that I have not studied some other hotel business in great depth. The debt to equity ratio never went above 0.25 in last 5 years. Operating cash flows seem decent enough.

Management
The recent turnaround story of Byke started after new management took over. They have growth oriented vision with requisite caution. If they execute on their plan of increasing hotels in reasonable time frame, the business will do well even from here. The management’s attempt to build a brand & 30% repeat customers is also a good effort in right direction.

RISKS
Competition, No Pricing Power, Low Entry barriers
Since hotel industry has virtually no entry barriers (other than capital), there is absolutely no pricing power. If someone figures out that hotel has demand in certain area, one can open a new hotel & provide all similar services. (e.g. Look at number of hotels in Shirdi, Maharashtra). Keeping balance sheet debt free & creating a good, credible brand can protect this to some extent.
The pricing power is further undercut by discounts offered by online players like OYO etc. with their rounds of VC funding.

Room Chartering Business
This business has grown wonderfully well for Byke over the years. With Byke’s ability to get 90%+ occupancy rates, this business has added to growth without taking much toll on Balance Sheet (other than WC days, advances etc.). But there is zero competitive advantage here & someone can easily do what Byke does. Also there might be cases where hotel owners refuse to book inventory with Byke & would rather keep it for themselves. Or they can deal directly with agents cutting Byke from the chain.

Regulation & Taxation
Government’s view on taxation (service tax/luxury tax etc.) & regulation can also affect hotel business. Things like land acquisition/conversion, legal proceedings can hinder the growth.

A NOTE ON ONLINE ROOM AGGREGATORS (OYO, TREEBO, MAKEMYTRIP, STAYZILLA ETC.)
As per new articles & some research, only 25% bookings are done online, 59% are done through offline channels.

OYO
After reading several articles online, it seems that OYO rooms is paying upfront to hotel owners to buy inventory for a duration (like a month). Then they go ahead with their kit & do all the sanitation. They claim that OYO are offering room to end customer with lower cost & it has been deduced that they are making a loss. There are several questions that have been raised by several articles on their balance sheet, accounting methods & viability. One article went as far as calling it a ponzi scheme.

The important thing is many people called hotel directly & asked them to match OYO price & hotels gladly did due to guaranteed payment by OYO. I think the same thing can happen to Byke. Need to figure out how Byke handles it (dedicated agents? But then can’t these hotels deal directly with agents?).

Stayzilla
The company focuses exclusively on home stays & alternate accommodation & have moved away from hotels.
Raised $13 million from Matrix Partners and Nexus Venture Partners.

Treebo
Raised 112 crore from Bertelsmann India Investments.

MISCELLANEOUS
AR FY 11

  • Total demand for branded hotel rooms - 2L, supply - 1.2L rooms
  • Sales grew by 121% & PAT grew by 139%
  • The Byke brand created
  • Expansion plan outlines in AR -
    • Target to purchase/lease properties in following regions
      • Goa
      • Maharashtra (Mahabaleshwar, Lavasa, Alibaug, Lonavala)
      • Gujarat (Vadodara & Daman)
      • Rajasthan (14% foreign tourists, Jaipur & Jodhpur)
    • Online travel portal
    • proposal to set up Byke rejuvenation center, Aronda, Konkan region
  • Promoter holding at 45%

AR FY12

  • Foreign tourists - Dec 2011 - 7.15L compared to Dec 2010 - 6.8L
  • NPM went down to 4.9% from 6.8%
  • The Byke - Spa & Rejuvenation Center started at The Byke - Old Anchor, Goa

AR FY13

  • In process to join hands with State tourism departments of India by taking over their operational management of their state owned hotels. (As per AR FY16, this plan seems to have fizzled out).
  • OPM Margins expanded from 10% to 17% this FY (why??)
  • The company has become niche in “Pure Veg” segment
  • Company Considers booking for third-party hotels & earning commission
  • Aggressive expansion plan with 9 upcoming properties at - Shimla, Jodhpur, Aronda (Goa), Kollam (Kerala), Navi Mumbai, Mussoorie, Ooty, Hampi, Mahabaleshwar
  • Satyanarayan Sharma sold his stake of 5.77% in this FY

AR FY14

  • In the next 3 years we are committed to embark on an expansion program to offer 1,500 rooms under our brand, spread across around 25 properties and reach 50,000 rooms through room chartering. (Currently 10,000 rooms available via room chartering) (copied from AR)
  • The company has expanded in Goa & Rajasthan as per plan set out in FY11. Rest still under watch.
  • The 8 hotels (Goa - 3, Matheran - 2, Jaipur - 1, Mandawa - 1, Manali - 1) has 539 rooms in total & created 80 Cr revenue in FY14.
  • Company sold 345,000 room nights in room chartering business - adding revenue of 75Cr.
  • Aim to increase to 25 hotels by FY17 & to 50 by 2020.
  • Company has 27 sales offices & 350 travel agents. Third party tie up at 8000 locations.
  • In this FY, neither leased assets nor owned assets grew a lot. It seems growth primarily came from room chartering business.

AR FY15

  • The Byke, Pawana, Rajasthan lease was discontinued in FY15
  • RC nights - purchased -> 398,000 (FY11 - 105, 950), sold -> 373,250 (FY11 - 34,500)

AR FY16

  • Plan to add 8 more properties over next 2 year, adding 450-500 rooms.
  • RC nights - purchased -> 519,967 (94% occupancy)

Disc - I hold tracking quantity & find it too difficult to value this business. This is not a buy/sell recommendation. I am not a SEBI registered analyst. Please do your own due diligence before investing.


(Rohit Balakrishnan) #106

While trading volumes was something even I considered at the time of giving the stock a pass… Another thing is the chartering revenues of the company are akin to trading revenues, and are a straight addition to the bottom line. Now would you want to give rich earnings multiple to trading income.


(Rupesh Tatiya) #107

Yes, this is exactly the difficulty in putting a multiple to this business. You are right on money!


(Rupesh Tatiya) #108

Byke hospitality Q3FY17 results out -

Excellent results on 9M basis. For Q3FY17, growth is at 13% YoY basis which is understandable due to demonetization, still 13% growth is excellent.
Number of rooms in O&L segment went upto 797.

Regards,
Rupesh


(Indie) #109

As per my understanding, chartering inherently should have higher occupancy than hotels. Under chartering, the company pre-books rooms 3-4 months before the peak season at a particular location. Since different locations across India have different peak seasons, Byke is able to maintain 90%+ occupancy in the chartering segment. In other words, chartering gives them the flexibility to change locations according to seasons. On the other hand, since hotel revenue comes from fixed locations (mainly Goa and Matheran), occupancy varies according to seasonal trend in those locations.

This is what I make out of my understanding. Your views are welcome.


(Rupesh Tatiya) #110

Q3 FY17 CONF CALL NOTES

The company claimed to see no impact of demonetization and said that it actually helped move to organized sector. In tourism & hotels industry, supply growth is outstripping demand growth. For the period between Apr 2016 - Dec 2016 supply grew by 3% whereas demand grew by 7.1%.

The company has 350 agents for marketing which are common for both the business segments.

Owned & Leased Business
The company has portfolio of 797 rooms spread across 11 properties. Out of 797 rooms, 40 rooms from The Byke Delton are yet to be operational i.e. only 747 rooms operational. The occupancy ratio of O&L was at 70%.

The company has identified 10 properties & negotiations are ongoing with lessors. The company expects to add 147 more rooms by Dec 2017. The leases are for the period of 15-18 years with renewal clause. The rent increments can be done every three years.

The company is focusing more on F&B business as it can provide more revenue with same asset. The new properties that company is looking for are aimed towards destination weddings, conferences, corporate events. The company bought the hotels in Thane & Borivali with this in mind.
At current hotels, the company provides rooms with meal package included. In Matheran, only AP plan is offered, In Goa, MAP or AP plan is offered. In Business locations like Jaipur, CP plan is offered.

EP stands for European Plan (Room only basis)
CP stands for Continental Plan(Room with Breakfast)
MAP stands for Modified American Plan (Room with Breakfast and One Major Meal - either Lunch or Dinner)
AP stands for American Plan (Room with All Meals i.e, Breakfast, Lunch & Dinner)

The average room rent in Thane hotel is 3200 rupees. The company had bought land of 1Cr in Thane to make lawn (?) and they are hosting events in this place.

Currently around 12-13% bookings happen through online portals. They are planning to move entire RC bookings online in next few months.

Room Chartering Business
In Room Chartering (RC) business, the company has sold 1.7L room (nights?) with 97% Occupancy and ARR of 2218 Rupees. The company purchases the room inventory during off seasons (3-4 months in advance) for hotels with high demand in season. The company usually gets 30% discount due to bulk purchases. The company pays 9% commission to agents and has 5-6% inventory loss. RC is a B2B business where rooms are sold to agents & they have zero cancellation policy during season. Inventory is sold one month in advance to the beginning of season to agents.


(paresh.sarjani1) #111

This going to be next big turnaround… for sure…[quote=“rupeshtatiya, post:110, topic:2115”]
In Room Chartering (RC) business, the company has sold 1.7L room (nights?) with 97% Occupancy and ARR of 2218 Rupees. The company purchases the room inventory during off seasons (3-4 months in advance) for hotels with high demand in season. The company usually gets 30% discount due to bulk purchases. The company pays 9% commission to agents and has 5-6% inventory loss. RC is a B2B business where rooms are sold to agents & they have zero cancellation policy during season. Inventory is sold one month in advance to the beginning of season to agents.
[/quote]

This is also interesting …

Thanks a lot @rupeshtatiya for the crisp write up


(paresh.sarjani1) #112

Centrum Wealth - The Byke Hospitality Ltd - Q3FY17 Result Update - 17 February 2017.pdf (706.4 KB)

Research Report on Byke by Centrum…

No doubt… one of the few companies looking for a turn around in coming quarters…and years…


(RohitMehta2017) #113

Byke Hospitality is having its investor conference in US from 28th to 31st March and in London on April 3rd. Any idea why the same post a teleconference recently? Also, anyone planning to attend?

Disclosure: Tracking Position


(atulgupta80) #114

Grandeur peak advisor a US based micro cap fund increased its holding in Byke from 2.7 to 10.18%BSE announcement

GPA has decent exposure to India across its various funds. I have noted this on their website.

However, Byke name is not yet there and last update date is 31 Dec 2016. So looks all purchase was in last three months.

Disl: Tracking position.


(sandeep kochar) #115

any idea about these meetings…


(Harsha) #116

WASATCH Advisors INC has bought 1089000 share of BH this quarter. Is this investment considered as FII ?

Disl: Invested in this stock from last 3 months.


(Mridul) #117

Very detailed and thorough post on Byke… Thanks!

I understand your dilemma in assigning price multiples to this company due to trading nature of their RC business. This business is actually intriguing, more so because of the performance it is posting year after year. Very impressive, i must say! 94% occupancy rate is just superb.

I am wondering why the Hotels (that are selling the rooms inventory to Byke) are selling to Byke rather than doing it themselves or to the agents directly? I mean everybody knows everybody here, and 95% occupancy do suggest there is very good demand for these rooms, so what is stopping the bypassing of Byke here? Must be something, as otherwise, numbers won’t be this consistent for this long.

I think this might be due to the payment guarantee and ‘peace of mind’, which Byke offers to Hotels, by getting there rooms 3-4 months in advance. Byke’s goodwill is the moat here giving them pricing power (in buying and selling of this room inventory). Byke’s able agent network is also a contributing factor towards this consistent success. On surface this might look like simple trading of rooms, but inherently the business is not that simple. I mean OYO is operating in similar RC business (primarily B2C) from last few years but is operating at huge losses. Many are questioning their model now. On the other hand, B2B RC business of Byke is firing on all cylinders. So on buying side, their goodwill and size is the key. On selling side, their agent network is the key. This trading business looks inherently simple from outside, but this isn’t actually the case.

Going forward they have plans to increase their leased hotel count along with chartering more and more rooms. So, i see a balanced approach going forward. But at 28 trailing p/e market will need 20-25% CAGR growth consistently. Any dip there would result in the stock taking a beating.


(Mihir Naik) #118

Mridul,

I had the same question before. Why BYKE in between? I asked the same in one of the con-call. Vikas answered very clearly that Hotels is a cyclical business. Individual hotel owners need cashflow in off season to manage their fixed expenses. Byke has certain working capital involved in RC which is their advantage. They throw the money upfront while the hotels are in need.

Hotels have 2 advantages. 1) Assured Sell of Rooms 2) Cash received at required time.

Byke has 2 advantages. 1) Cheaper Price Rooms 2) Can deploy capital at higher rates {provided they can sell all the rooms}

I see this as an inefficiency in whole hotel chain and Byke is very well positioned to exploit it. I believe, there will be many more small or large player like Byke who is also doing the same.

On one occasion, I asked Vikash, How big this opportunity is? Do you continuous growth going forward in RC? If you are given 500 crores as a working can you deploy and sell the same? HE ANSWERED VERY CONFIDENTLY ON CONCALL, YES ITS POSSIBLE.

Also, as you mentioned OYO, OYO is not mainly into Inventory Booking. I think, they are more into Marketplace model. Their only advantage is ease of booking, many properties at one place, assuared due diligence as they claim. OYO and Byke fundamentally operates differently.

I has also asked about this to management on concall, whether do you see OYO as your threat, they answered me like this. Budget Hotel Rooms market is very big in India. Even growing at very good rates. It can withstand many more players like oyo.

I hope this answers your question.


(Hrusikesh) #119

Hello Folks,
I recently came to know that Byke Vijoya (Puri) lease is cancelled. I sent an email to the company asking for the reason but yet to hear from them. Does anybody here know the reason or has the company ever mentioned what went wrong in any of the calls?
I see that Byke’s website doesn’t mention the Puri property. All I found is few replies by the Vijoya Hotel’s management to some angry customers’ reviews in TripAdvisor. Here is an example:

"Bringing to your notice, The Byke Hospitality Ltd. who were managing our hotel has left, so we are neither accepting the reservations they made on basis of advance payments nor associated with their group in anyway. Like earlier, our hotel is serving non-vegetarian delicacies with all other existing facilities and some new additional facilities such as new coffee shop with sea view, new lobby and reception with sea view, new multi-cuisine restaurant with special family dining room with sea view, new mini conference hall, etc. "

Disclosure: Byke forms a good chunk of my portfolio.


(Mridul) #120

@mihir … That’s a concern…why this won’t happen? Is it just because byke is buying 3 months in advance …but at 30% discount?

Also…there working capital to sales is rising from last 3 years…owing to RC business…


(Harsha) #121

Hi All,

Any news on the above comments? Is the Byke Vijoya(Puri) closed?

Disc: Invested


(jirohit) #122

i spoke to hotel guys and they said Byke had left in Jan 2017 after 10 months. But this needs to be verified with Byke management as if the lease was for 15 years, there are always exit clause of penalty etc.