This is not a good practice by the company, informing about every addition of new property but no updates on This news. I also checked on tripadvisor and there were many reply to the customers by the hotel management about Byke management’s departure.
GST Impact: rates for budget hotels may go down.
What could be impact of this on The Byke Hospitality?
results out and press release verifies exit from Puri hotel.
Byke Hospitality Q4 Update
Con Call Updates
There is strong pick up in occupancy rates across industry with 65% occupancy rate.
Owned and Leased Business
As the presentation mentions, company has 9 properties with total room capacity of 733 rooms. The company has exited operations at hotels listed below -
- The Byke Sunflower, Goa - This is a small property with 22 rooms. The property is owned by company and company has leased it out. The Bike brand would be discontinued.
- The Byke Hidden Paradise, North Goa - This was a leased property with 40 rooms and the company has exited the lease.
The reason for exiting above properties given by management is as follows -
The company wants to focus on big properties (60+ rooms) which has potential for revenue from multiple streams like - F&B, Weddings, Conferences etc. Above properties did not fit that bill and hence management decided to exit. Another reason given by management is that - they want to position The Byke brand as mid budget hotel brand and these properties did not fit the bill as they were lower budget.
The company had to exit The Byke Vijoya, Puri property as well. This was apparently due to some issue with owner. The company has filed FIR against the owner and the matter is now sub-judice.
The company said they will update their checklist so that such thing does not happen in future again. They learn new things every time they exit some property. When they exited The Byke Paawana, Mandawa property, they learned not to have properties at places where destination itself can not generate tourism demand.
The company is waiting to receive OC for Borivali property. The property is ready and they can commence operation within a week of receipt of OC. The company has projected to add 300 rooms in FY18. They are looking at 4-6 properties with size of 60+ rooms. The company usually spends 6-7L per room for renovation when hotel is taken on lease.
Room Chartering Business
The company had projected that entire bookings of this business would be moved online. Such an online portal is in soft launch. The company has 312 agents at the end of FY17.
The company is thinking of entering into franchisee business with The Byke brand. The rationale given by management is that if they wanted to expand rapidly (like 30-40 hotels in a year), they can not do that with O&L. This model allows them to expand without significant investments. The possible model would be management contract with some revenue sharing arrangement. The ompany will study various models for next 2 quarters and expects to franchise first hotel in Q3 or Q4 of FY18. The company is looking for hotel owners who are well capitalized and where The Byke brand can help the hotel with added revenue/profits. The company aspires to do 500 rooms in this model by FY19. Since The Byke brand will be used, the hotels would be pure vegetarian and company will provide training to the franchise employees. I feel that these some of these hotels might get converted into O&L business once management has better feel of supply-demand etc.
The management claims that GST is overall good for business in terms of ease of doing business. The company operates in 5-6 states and the tax rates are different for F&B, room revenue, banquet halls, restaurants etc. and they have to compute 3-4 taxes in bill which are different for different states. Under GST the proposed rates are as follows -
The industry wants 28% rate to be kicked in from price of Rs. 7500 per night onwards and they are making representations to finance ministry.
Disc - I hold tracking quantity
Thanks Rupesh for posting the summary. Few concerns -
This continuous moving out of Byke from lease agreements immaturely results in room renovation investment going down the drains. (6-7 lac per room). It’s good that they follow this up with an improved learning curve not to enter into small sized, low budget hotels and leasing hotels at places which do not have a tourist pull.
Regarding success of franchisee model, i think key success mantra would be if Byke’s brand recall is big. Does Byke have that sort of Brand recall at the moment? Is there any visibility? They claim they do have some recall because of vegetarian food.
Have any of the boarders stayed in any of Byke’s properties? How is food and hospitality and ambiance? Will one be willing to come back to the property again? I have checked reviews on travel websites though any firsthand experience by fellow VPers would be great.
Please find the enclosed answers -
Yes, moving in and out of leases causes renovation cost to go down the drain. So far there have been a little elevated level of move outs but I would like to track them for 2-3 more years and see how they perform.
Overall I still feel leasing is better way than owning the hotels. There is bound to be construction of new hotels and this will make the older ones to go out of fashion. Having these 10-15 year leases with exit clause after 3 years makes for much better business structurally (at Byke’s size) compared to buying land, building hotels and building brand.
So I am not alarmed yet at them moving out of leases.
Although I have never stayed or visited a Byke hotel, I do not think brand recall is big. This is the case of over energetic management looking for ways of expansion. I have a feeling Franchise model might not make a lot of progress and might take back seat in another year’s time.
This project might also be because of some senior management who have worked in big brand hotels in the past.
When do the leased room attain break-even assuming 7 lac renovation cost and 4200 INR ARR? Would be good to know this in order to understand the overall dynamics and losses (if any) resulting from immature termination of leases. You are right that the lease model imparts more flexibility and lesser initial costs, but can also result in more ‘casualness’ in choosing new properties by the mgmt. That’s why we need to keep a tap on how many properties they are moving out every year.
By the way, how in accounts do these lease terminations (and the looses) get reflected?
Franchisee model will not be successful if they don’t have brand recall. Visibility is important in franchisee model - why would the property owner share his profits with Byke unless Byke brings anything to the table (more traffic). May be they will leverage their agent network to make visibility of franchisee hotels as well (this may not be a bad idea as they have a superb agent network, which i think is the real moat for both the segments (RC and Lease)).
Management had indicated in con calls that most of the leased hotels break even in the first year of operation.
Although I have not studied agent network of any other company, I agree that network of 300+ agents is an advantage. When one compares RC business of The Byke with OYO Rooms, I think it is the agents which make the big difference in profitability of Byke compared to Oyo. I would love to get information on agent network of other hotels.
Here is what I found about the oyo business model…
Oyo Rooms – an aggregator, not a marketplace.
Oyo Rooms Business Model is a hotel aggregator model. The services are bought by the users under the name of Oyo rooms and not any individual partner (like in Make My Trip business model). Just like uber, Oyo provides rooms with standardized quality and price.
Oyo Rooms Business Model, though a lot similar to the usual aggregator business model is slightly different from it. Oyo Rooms –
Books a part of Hotel’s inventory beforehand,
Organise those hotel rooms under their brand name – Oyo Rooms
These partner hotels provide standardized service to customers of those rooms as decided in a contract with Oyo
Bookings are made through the Oyo Rooms website and mobile application.
Now…in byke’s RC business, are rooms being billed to the final customer under Byke brand? Or it’s the agent who is final sell point billing under his own name? Is Byke just buying inventory and selling it without any value addition i.e. without ensuring minimum service quality? Or they are doing something like to oyo by maintaining the standard of service?
I think the franchisee business they want to start will be similar to Oyo. They are trying to get the online portal ready for consumers to directly maje bookings from the portal. So, Byke, with Byke brand will enter into agreements with hotel property owners and will try to replicate the Oyo model? Final billing would in this case be under Byke’s name.
These partner hotels shall provide standardized service to customers of those rooms as decided in a contract with Byke.
Bookings will be made through the Oyo Rooms website and mobile application.
In RC business, The Byke brand is not used and non vegetarian food can be served. The company buys inventory at various locations 3 to 4 months in advance and then this inventory is sold to agents one month in advance. Hence RC business is a B2B business where company acts as room aggregator between hotels and agents. So final sale point is the agent. The company claims that they select only those hotels which inherently provide minimum service quality and I do not think that Byke employees are involved in actual service like OYO.
Okay… makes sense now that they want to enter into Franchises model like OYO. They can obviously grow much faster this way, can use their agent network to improve brand visibility at sale points, and can have a niche vegetarian mid budget hotel chain. Execution obviously remains the key!
Okay… makes sense now that they want to enter into Franchises model like OYO, as room chartering is B2B only. They can grow much faster in this manner without requiring initial capital and can use their agent network to improve brand visibility at sale points for the franchisees. Niche mid budget vegetarian hotel chain.
Stellar-BykeHospitality-May31-2017.pdf (239.0 KB)
Attaching the transcript of the conference call held on 31st May after the FY2017 results announcement.
Any idea how does Byke look vis-a-vis Sinclair Hotels?
Revenue down by 40%!
What is happening? Does anyone know?
One of the notes mentions change in revenue recognition method. However, they have not said that the revenues are not comparable…
above article gave a very clear and related to The Byke’s nature of room chartering business. I could be wrong so if it so than please point it out.
I think you might be right, Ravish. The topline is downline 50% but the bottomline is almost flat (and not down 50%).
They do mention on pg.5 of the presentation that due to change in revenue recognition methodology, current year number is not comparable to last year.
So instead of reporting Rs34 Crs revenue, they report Rs.7.8Crs. Also if you look at operating expenses, they are also down (Rs.46Cr to Rs.21Crs).
One inference can be 23% gross margin if we take 7.8Crs as net received amount. Then, margin in this business is slightly higher than hotel business.