Apeejay Surendra Park Hotels - Potential Value Unlocking

[vjf_0907]

Park Hotels India is engaged in the hospitality business operating under the brand names of "THE PARK ", "THE PARK Collection ", "Zone by The Park ", "Zone Connect by The Park " and "Stop by Zone ". The company also owns the iconic brand Flury’s which is present in 82 outlets pan India.

Presence: The company currently operates 27 hotels, which are spread across different categories such as luxury boutique, upscale, and upper midscale. These hotels are present in various cities in India including Kolkata, New Delhi, Chennai, Hyderabad, Bangalore, Mumbai, Coimbatore, Indore, Goa, Jaipur, Jodhpur, Jammu, Navi Mumbai, Visakhapatnam, Port Blair, and Pathankot, offering a total of 2,395 keys as of Mar 31, 2024. The company has 6 hotels scheduled for launch in the next 12 months, with a total of 228 keys. The Kolkata project alone is expected to generate around Rs. 100 crore
of cash annually for the next three years, starting FY 2025-26.

The promoters of the Company are Karan Paul, Priya Paul and Group companies. The company raised Rs 920 crore via an IPO in Feb 2024, out of which Rs 550 crore has been utilized to repay the entire outstanding debt of the company

Key Financials

	Mar-22	Mar-23	Mar-24	Mar-25E
Sales	255	506	579	598
Operating Profit	46	159	192	235
OPM %	18%	31%	33%	39%
Other Income	12	18	13	15
Interest	60	62	66	14
Depreciation	40	49	51	61
Profit before tax	-42	65	89	175
Tax %	-33%	27%	22%	35%
Net Profit	-28	48	69	114
EPS in Rs	-1.61	2.75	3.22	6.50
Net Worth	508	555	1198	1312
Total Debt	654	617	100	125

Key Strengths of the company:

Highest Occupancy Rate in Industry: The company has one of the highest occupancy rates in India with ~90% occupancy across all its major hotels.
Growth in F&B income: The share of F&B income in ASPHL’s revenues has historically been high (43% in FY2024) compared to its peers. Addition of Flury’s brand where the company is looking to aggressively expand number of outlets will further support the 10% historical growth in this segment
Deleveraged balance sheet: Its net worth improved to Rs. 1,198.0 crore as on March 31, 2024 from Rs. Rs. 555.7 crore as on March 31, 2023, and the gearing reduced to 0.1 times as on March 31, 2024 from 1.1 times as on March 31, 2023. Company is currently net cash and has unutilized funds of ~Rs 12 crore from the IPO.

Key Weaknesses:

**Expansion plan:**The company has planned greenfield hotel projects, on its existing owned land, in Kolkata (EM Bypass) and Pune. which will have 250 and 200 rooms, respectively. While the Kolkata project is to be entirely funded from the proceeds of real estate monetisation, the cost of the Pune project will also be ~Rs. 200 crore. Since the company is already operating at 90%+ occupancy at its existing hotels, further revenue growth in the hotel segment would be contingent on project execution of these two projects
Cyclical Industry: The operating performance of hotels remains vulnerable to seasonality, general economic cycles and exogenous factors, the company will need to continue investments in renovation and
refurbishment of hotels to ensure delivery of high quality of service.

Key Operational Metrics

	Q4 FY23	Q3 FY24	Q4 FY24	FY24
RevPAR	6414	6562	6847	6170
Occupancy	93.20%	90.10%	91.70%	92.10%
ARR	6884	7286	7463	6699

Valuation: The company is trading at 34x 1Y fwd P/E which is at a discount to existing players. Company has appreciated 15% from the IPO price but still has a good runway for growth, and is now significantly deleveraged, which will help support expansion plans. EV/EBITDA is also reasonable at 16x.

Disclosure: Invested.

Links
https://www.bseindia.com/xml-data/corpfiling/AttachHis/ea3a792e-c58c-4f30-bef8-1e284b0ad9c8.pdf

Apeejay Surrendra Park IPO Details - IPO Date, Price, GMP, Analysis & Review

[vjf_0907]

Peer Comparison

NSE Code	Current Price	Market Capitalization	Price to Earning	Debt to equity	Sales (TTM)	Price to book value	RoCE (%)	RoE(%)
INDHOTELS	611	87036	64.3	0.29	6853	9.34	15.0%	14.5%
CHALET	766	16716	66.8	1.62	1467	9.03	10.0%	13.5%
EIHOTEL	372	23235	34.8	0.05	2540	5.90	24.0%	17.0%
ORIENTHOT	136	2435	59.5	0.33	383	3.93	11.0%	6.6%
JUNIPER	390	8673	188.54	0.47	850	3.27	6.81%	1.7%
PARKHOTELS	179	3814	55.28	0.08	585	3.18	13.2%	5.8%

[praky]

Hi, is there a way to validate the occupancy rate? 90%+ is unbelievable. Any idea about what occupancy rate they reported in q1?

Also the number of keys will increase by 10% for FY25. Are the revenue and PAT also expected to increase by 10%?

[vjf_0907]

Have visited Park Hotel in Navi Mumbai (Owned) and The Park Calangute Goa (managed). While the Navi Mumbai property averaged 88-90% occupancy in May, the Calangute property was consistently booked at 100%. Q1 occupancy rates would be published today.

Revenue is a function not only of the number of keys but also the ARR of the new rooms coming up. The room expansion will happen in a phased manner during FY25, however with Flury’s expansion and an ARR increase of ~5%, we can easily build in a 10-12% growth rate. PAT will be significantly higher since interest cost savings of Rs 15 cr per quarter will accrue from Fy25 onwards.

[prattyk]

Can we get the EV/EBIDTA comparision with other hotel stocks? Being debt free will reflect will in this ratio in the future?

[vjf_0907]

Updated peer comparison with EV/EBITDA. Also included lemon Tree

NSE Code	Current Price	Market Capitalization	Price to Earning	EV/EBITDA	Sales (TTM)	Price to book value	RoCE (%)	RoE(%)
INDHOTELS	611	87,036	64.3	40.86	6853	9.34	15.0%	14.5%
CHALET	766	16,716	66.8	32.07	1467	9.03	10.0%	13.5%
EIHOTEL	372	23,235	34.8	25.87	2540	5.90	24.0%	17.0%
ORIENTHOT	136	2,435	59.5	30.31	383	3.93	11.0%	6.6%
JUNIPER	390	8,673	188.54	31.93	850	3.27	6.81%	1.7%
PARKHOTELS	174	3,713	53.81	19.78	585	3.17	13.2%	5.8%
LEMONTREE	116	9,163	52.66	21.78	1111	9.48	11%	18.0%

[Metalhead44]

Have you done any comparative study wrt to Samhi Hotels? Which one has more potential and being a winner in the long run? When I compared , I just looked at screener data and except the 2000 crs dept which samji hotels has, I didn’t see any differentiation. Please share your view. Thanks

[anshu_saurabh]

Hi, check their latest quarterly presentation.
In Q1FY25, Occupancy rate was 94%.

Disclaimer: I am liking EIH and PARKHOTELS both, but not invested.

[vjf_0907]

Samhi is not a direct competitor since it has adopted an acquisition led strategy which is underpinned by its process of acquiring and successfully turning around hotels to grow its business. Unlike brands such as EIH, Lemon tree Hotels or Park, the company operates hotels under reputed chains such as Marriott, Hyatt and Sheraton. However, it offers the mid-premium segment such as Fairfield by Marriott or Hyatt Place which are usually 4-star hotels

Samhi hotels has reported losses for the last three consecutive year, which is primarily attributed to high leverage and lead time to turnaround underperforming hotels

[robin1]

I have visited The Park kolkata which is situated in the heart of town. My view of restaurant, food and banquet hall was “meh”. Out of three two restaurants were non operational and one was operating on maybe 30-40% occupancy during my stay there.

[anjanmehta]

I find it difficult that 90% occupancy is sustainable and even if it is - growth opportunity in occupancy rate is near difficult.

[vjf_0907]

Excerpts from the Annual Report

The Company expanded its portfolio to 33 hotels across 23 destinations, adding 374 rooms through the opening of 8 new hotels

THE Park New Delhi achieved the highest Average Room Rate (ARR) of INR 9,001 in FY 2023-24, representing a 16% YoY increase. THE Park Chennai also saw the ARR rising 11.6% to INR 6,620 in FY 2023-24

THE Park Collection, focused on small luxury hotels in travel destinations, currently operates 3 hotels with 64 keys and is set to expand with new hotels in Patiala in Punjab, and Chettinad in Tamil Nadu in FY 2024-25

Retail F&B brand, Flurys, demonstrated impressive growth, expanding to 82 outlets as of Mar 2024. Company is targeting to grow the network to 120 outlets in FY2024-25

Summary of Total income is provided below

Park Hotels aim to improve key performance metrics such as ARR and RevPAR through various initiatives including effective cost management, menu re-engineering, optimising revenue management systems, identifying new revenue opportunities, analysing booking trends, and implementing a centralised reservation system to maximise occupancy rates and overall revenue

international software and technology platforms such as Oracle MICROS, Simphony, and Opera PMS are being utilized to ensure seamless business operations.

Expanding in key markets like Pune, Kolkata, and Visakhapatnam, with ultimate goal to double room keys to 4,780. EM Bypass project will start from Jan 2025 onwards.

Entire term debt has been repaid and company has cash of Rs 54 crore on books in Mar 2024. This should be adequate to fund capex requirements for FY25

[aditya.archi]

Apeejay Surrendra Park Hotels Limited (ASPHL)

Apeejay Surrendra Park Hotels Limited (ASPHL) is a prominent player in India’s hospitality sector, with over five decades of experience in luxury boutique and midscale hotels. Known for its flagship brand, The Park Hotels, ASPHL has established itself as a leader in creating unique, design-driven properties in key urban locations across the country. The company’s portfolio includes 33 operational hotels, spanning luxury, upper midscale, and economy segments. Additionally, ASPHL’s iconic F&B brand, Flurys, contributes significantly to its diverse business model. The company’s commitment to innovation and service excellence ensures its strong position in India’s growing hospitality market​.

Hotels Bifurcation-

Operates 4 segments of Hotels-

1. The Park Hotel- Luxury Hotels in metros
2. The Park Collection- Luxury Resorts/Hotels in select tourist destinations (have less rooms)
3. Zone & Zone Connect- Upper Midscale segment
4. Stop by Zone- Motels (economy)

Hotels in place-

Total Keys- 2395 over 33 Hotels

Key Differentiation-

Operating at- 92% occupancy (100% in kolkata hotel, 93% in Mumbai and Chennai Hotel)

ARR- 6699

RevPAR- 6170

*They have the highest occupancy rates in the industry. Even during the covid maintained 62% occupancy rates.

Guidance-

Occupancy will be maintained at 92%, moreover can increase it to 93-94%.

Revenue Bifurcation-

Room rent- 58%

F&B- 32%

Flurys Coffee Shop- 10%

(ASPHL) boasts a vibrant portfolio of 88 restaurants, nightclubs, and bars, renowned for their exceptional ambiance and energetic nightlife. The nightlife at The Park Hotels has earned a stellar reputation, with its bars and nightclubs being popular destinations among patrons for offering dynamic, immersive environments. Additionally, strong presence in nightclubs and bars compensates for the downturn if ever happens in the industry,

FLURYS- The Coffee Shop / Tea Room

The bakery is quite famous and well known and is one of the most iconic confectionary brand in the country.

It currently operates 82 Flurys bakeries, with plans to expand aggressively by adding 30-40 new outlets annually. The brand has received a strong response from customers, particularly in Mumbai, where its recent introduction has been met with overwhelming success. The outlet near the Gateway of India has consistently exceeded expectations, and a new location in Colaba is set to open soon. Additionally, two kiosks have been launched at Mumbai Airport. Management remains highly confident in Flurys’ growth potential and believes it will continue to surpass expectations.

The bakery is on 3 formats-

1. Kiosk- 150 sq ft (capex- 20 Lakh)
2. Cafe- 400-600 sq ft (capex- 40-60 Lakh)
3. Restaurant- 1000 sq ft (capex- 1cr)

Also, Cafe business is little seasonal-

H1- 40% sales

H2- 60% sales

Flury is earning 13% EBITDA margin. Will increase to the north of 20% in coming quarters and will be maintained there.

Hotel biz EBITDA margin- 36%

Won’t Flurys be a drag on consolidated EBITDA margins?

No, opening of luxury property- The palace hotels will earn significantly higher EBITDA margins and will compensate for the same.

35% EBITDA margin is stable on a consolidated basis. Has 2-3% headroom to grow if operating leverage kicks further.

Future Plans-

Many projects are under development for future expansion-

23 Hotels & 2385 keys- planning to be opened. This is almost a 100% increase from the present keys in place.

Q2 FY25-

Opening of 2 flagship Palace Hotels-

1. The Chettinad Palace (15 rooms)
2. The Ran Baas Palace, Patiala (37 rooms)

ARR for these 2 properties will be 13000. Occupancy will increase substantially. Getting a good response for these 2 hotels. Room bookings are already taking place.

Future Openings-

1. FY27: 200 rooms in Pune- at capital outlay of 200 crs
2. FY28: 100 rooms in Vizag- at capital outlay of 100 crs
3. Fy 29- 200 rooms in EM Bypass + 100 apartments (JV with Ambuja Nautica)

At a capital outlay of 900 crs. The proceeds from the sale of apartments will be used for the construction of the hotels.

4. FY 29- 80 rooms in Navi Mumbai

Plus the opening of 30-40 outlets of Flurys coffee house every year.

Total Capital Outlay will be around 1000 crores by FY29, fully funded by internal accruals. Can take a little debt to speed up the construction process. 1000 crores is net after accounting for the sale of apartments,

Future expansions are being driven by an asset-light model. The company’s owned hotels are situated on proprietary land banks, and further owned hotel developments will be constructed on these owned land assets.

Q1 FY25

Why did PAT increase significantly?

Because from the IPO proceeds, the Company paid off the debt of 550 crores, Huge savings on interest cost happening.

Only 100 crores of debt remains in the balance sheet as of now.

12 Crores of interest payment will be happening p.a. reducing from 66 crores p.a.

Additionally, in this quarter they took 19 crores one off hit. (details mentioned in the slide)

Also, management mentioned Q1 was soft due to elections and heat waves.

And seasonality is there in business: Q4>Q3>Q2>Q1.

The company consistently undertakes renovations to enhance customer experiences, with 10% of its inventory typically under renovation at any given time. Currently, upgrades are underway for several hotel rooms and nightclubs. These ongoing renovations allow the company to maintain and elevate the immersive experience it is known for.

Park Hotels enjoys a high percentage of repeat customers, thanks to the company’s effective use of AI and ML to track user data and maintain ongoing engagement with guests. Additionally, the well-structured loyalty program ensures a strong, loyal customer base, further enhancing customer retention.

The markets they are operating in has seen a robust demand growth of 9.3% outpacing the supply growth of 5%. And this phenomenon will continue further leading to double digit ARR growth.

Flurys saw 17% YoY growth and will continue to surprise further.

Only 100 crores of debt remains in the balance sheet as of now.

12 Crores of interest payment will be happening p.a. reducing from 66 crores p.a.

Management expects 10-15% revenue growth YoY.

FY25 estimates:

P2P comparison:

Technically in a downtrend.

[apoosh]

The company consistently undertakes renovations to enhance customer experiences, with 10% of its inventory typically under renovation at any given time.

With 10% inventory under renovation at any given time, how does their occupancy rate is above 90% consistently?

[nWo]

Occupancy rate is occupied rooms/total number of available rooms*100

So if 10% is under renovation, then the available room also reduce by 10%.

I think this is the case, correct me If i am wrong.

[sarthak_saraf]

volumes have been increasing with good delivery %

Looks like a value buy now

[satishwe]

https://www.business-standard.com/industry/news/greenfield-boom-hotel-investments-in-india-return-to-pre-pandemic-high-124092200443_1.html

Greenfield hotel investments returned to pre-pandemic levels in the first half of 2024, with hotel chains “expanding aggressively” in Tier-2, 3 and 4 cities, according to recent data by HVS Anarock.