I had looked at Byke Hospitality couple of years back and passed due to moderate financial and pledge of promoter shareholding. While I have not done indepth analysis of annual report and business model, I do know that promoter has been associated with Bhageria Dye-Chem Limited another Mumbai based listed Company promoted by Suresh Bhagaria.
Anil Patodia, Archana Anil Patodia, Vinita Patodia are promoter in Byke Hopitality and are shareholder in Bhageria Dye-stuff. Also, there are common shareholder by name of Kamal Patodia and Sunita Modi holding more than 1% equity capital in Byke Hospitality and Bhagria. My working was done in Bhageria holding in September 30 2014.
Some very initial pointers:
- FY13-14 annual report is named as http://www.thebyke.com/pdf/Annual%20Report_14-15.pdf on company website. Not at all serious but indicate negligence which is not very good particularly in Hotel industry.
- Anil Patodia appears to have roots in Rajasthan. As per Page 10 of annual report, Mr. Anil Patodia got associated with Byke from 2010. It would be good to understand what he was working 2 decade before in Hospitality industry?
- Award from Russian authority appears to be most happening thing for the company. I doubt it has any significance and give some ideas about parameter of success for the company.
- Page 14, indicate land being purchased at Navi Mumbai Airport, Kovalam (Kerala) and Sindhudurg (Maharashtra). However, the company claims to have asset light business model. (Addition to freeholder land is only Rs 1.12 Cr during the year in Gross block, appear low considering the area indicated and assuming land being freehold.)
Another perspective of Room chartering business appears good, but then I would assume same would require upfront payment for bulk booking. 14% EBITDA margin in Room Chartering business can not be without upfront payment which mean high working capital. Almost 75 Cr (exact Rs 750 mn on page 18 is also curious figure) of total sales of Rs 155.7 Cr is coming from Room Chartering business. Please understand what is business model as I would assume it would be high margin only if upfront money being paid to the hotel owner. Otherwise while shall one give away room to a third party for peak season? Does not make sense at least to me. - Page 19 says future growth being time sharing. I can not see consistency in thought process. First asset light business model, then purchase of land, then room chartering now time sharing. Too many growth driver to be focus on
- No mention of Staff strength. Although not compulsory in 2014 AR, it is now mandatory for 2015 AR. Check staff number with employee cost to understand what kind of skill manpower company employs?
- Page 22 of annual report, none of independent director is on board of any other company while all claims about there experience are made in introduction to board. Possible that they are capable, but would definitely need more information about their profile and understanding.
- Dr Utpal Kumar Mukhopadhyay, one of independent director resigned from the company has better profile if taken at face value. Enclosing linkedin profile, with BIG assmuption that he is same person as on board of the company.
https://www.linkedin.com/pub/dr-utpal-kumar-mukhopadhaya/50/674/a28 - CA A.P. Sanzgiri & Co have mid size firm with being associated with DBS Bank audit in FY09
https://www.dbs.com/in/iwov-resources/pdf/reports/dbsindia-ar-2008-2009.pdf - Page 60, Rent including lease rentals - Hotels FY 14 RS 45,876,321; FY13 Rs 41,671,981. Page 61 notes to accounts Lease payments recognised in the Statement of Profit and Loss in FY14 Rs 5,18,76,321 and FY13 Rs 4,16,71,981. I am not CA, but need to understand how lease is accounted in the book as there is material difference between disclosed in notes and amount charged to P&L. May be part of it is going in Accommodation expenditure but critical to understand lease accounting in this case.
- While the company indicated banking relationship with ICICI, HDFC, Axis, Kotak, Union Bank of India and SBBJ, only SBBJ has charge registered in MCA. I would presume that other banks have not extended credit to the company. Even notes to secured loan support my assumption.
- Check related party lease rental paid. nearly 62 Lakhs is to group companies. Hotel Relax was registered in 1983 with paid up capital of Rs 1.02 Cr. Byke has placed advance deposit of Rs 1.25 Cr to the company. Why these group companies are not merged into Byke?
- Despite moderate gearing, rating of the company was downgraded from BBB- to BB+ by ICRA (which is non investment grade as per MArch 27 2014. The company has not disclosed credit rating in FY14 annual report which in my understanding is mandatory
http://in.reuters.com/article/2014/03/28/icra-ratings-idINL4N0MP1I4201403281
On a positive side, the company has paid dividend and tax and has moderate debt equity ratio. Please note that I have extra careful to highlight all missing points just to make sure that investor are not missing any red flag/unusal point.
I have no investment in the company and attempt was to highlight more of negative then positive so that investors can take right decision. I am neither CA nor hotel industry expert and hence my understanding as well as comments would be constrained by my limitation.