Apeejay Surrendra Park Hotels IPO Review: The company is coming up with its IPO issue of Rs. 920 Cr which will open on 5^th February 2024. The issue will close on 7^th February and be listed on the exchange on 12^th February 2024. In this article, we will look at the Apeejay Surrendra Park Hotels IPO Review and analyze its strengths and weaknesses. Keep reading to find out!

Apeejay Surrendra Park Hotels IPO Review

About the Company

Apeejay Surrendra Park Hotels or ASPH Group is the 8^th largest hotel chain in India by asset ownership. The Company has expertise over 5 decades in the hospitality business owning and operating hotels. 

It currently operates 30 luxury upscale hotels across India in Kolkata, New Delhi, Chennai, Hyderabad, Bangalore, Mumbai, and other major cities.

The Group owns rights to brands like THE PARK, THE PARK Collection, Zone by The Park, Zone Connect by The Park, and Stop by Zone, each representing a specific variant of luxury.

1.  The PARK: An Upscale brand catered towards affluent high-income earners. The Company focuses on creating hotels with unique experiences, design & style for its consumers.
2. The PARK Collection: These are small luxury properties at select destinations.
3. Zone & Zone Connect By the Park: The brand category caters to the upper midscale level, offering a balance of price & luxury
4.  Stop by Zone: It’s an economic motel brand aimed at providing convenient accommodation at a low cost.

The Company has also established a presence in the retail food and beverage industry through its retail brand Flurys. It also operates 81 restaurants, nightclubs, and bars, offering a wide selection of

cross-selling opportunities. Brands such as Zen, Someplace Else, Tantra, Roxy, iBar, The Leather Bar, Pasha, and Aqua operate in the restaurant & nightclub space.

About the Industry

The Company operates in the chain-affiliated hotels segment, where the entire market owns around 1.78 Lakh hotel rooms. The segment has grown by nearly 7.5 times from FY01, as ownership patterns shifted from chain or chain-led ownership of hotels to greater ownership by private sector developers.

Consequently, international chains have established a strong presence, increasing supply share from 21% in FY01 to 47% as of 30 September 2023. 11 states have granted industry status to hotels, enabling benefits such as industrial rates for energy, water, and property tax incentives.

As per the Howard HTL report, the supply and demand for hotel rooms in the market has grown by 5.5% & 6.2% CAGR respectively from FY16-FY23. The growth rate is expected to be at 8% and 10.6% from FY24 to FY27. 

Foreign Tourist Arrivals (FTA) touched a high of 1.09 Cr in CY19, which then dwindled due to COVID-19. After the COVID-19 decline, FTA recovery was at 66% and is expected to reach full recovery in FY25. A sizeable portion of foreign travel demand is from the IT sector which remains slow in parts, and unlike other sectors, the workforce is still working remotely.

Growth in Business & Leisure Travel, Corporate, government conventions, weddings, and diplomatic travel demand will be the key tailwind in driving the hotel industry.

Apeejay Surrendra Park Hotels – Financials

ASPH reported a revenue of Rs. 506 Cr in FY23, which grew by 99% from Rs, 255 Cr in FY22. The growth has been maintained at 68% CAGR in the past three years.

The revenue growth came on the back of an increase in occupancy rate from 67% in FY21 to 93% in H1FY24 on the hotel owned by the Company. These 27 rooms have an average revenue of Rs. 6000 as of H1FY24.

The Company has well-diversified segments of revenue, with 50% of its revenue earned as room revenue, followed by sales of Food & Beverage and Wind & Liquor where both categories contribute about 28% and 17% respectively.  

In terms of profitability, the Company just turned a profit of Rs. 47 Cr in FY23, from a Net loss of Rs. 28 Cr in FY22. The loss has been consistently reduced from Rs. 75 Cr loss in FY21.

The profitability of the Company has been increasing due to an expansion of EBITDA Margins from 12% in FY21 to 33.77% in FY23. However, its Return on Equity currently remains low at just 8.65%, which increased from -5.55% in FY22.

Key Players 

ASPH is the smallest hotel group amongst its listed peers, in terms of revenue. Also, its revenue growth of 96% looks spectacular when judged on an individual basis. When compared with its listed peers, the Company is the 2^nd slowest Company.

In terms of EBITDA, the Company scores a bit higher than the median of 33% of the industry. However, in terms of Net Profit Margins ASPH falls behind with a Net Profit Margin of just 9.16%, as compared to a median of 15.74% of its listed peers.

The Company maintains a high occupancy rate of 92% on all its hotels, as compared to the industry median of just 72%. However, its Average room revenue is only the third highest, falling behind Chalet & Indian Hotel Company.

(Source: RHP of the company)

Strengths of the Company

1. Product Offering: The Management has understood the demographic of the market & created multiple brands for each segment. This gives the Company to cater to a wide variety of consumers.
2. Pan India Portfolio: The Company has a presence across India, specifically in the metro cities. This allows the Company to benefit from the booming economic activity of the country.
3. High Occupancy Rates: The Company maintains quite high occupancy rates as it recovered from the pandemic. This shows that the Company has the potential to significantly scale earnings as it expands its portfolio while maintaining similar occupancy rates.
4. Diversified Segment: The Management has diversified the business very well so that it earns not more than half of its revenue from its hotel rooms. This allows the Company to not lose out to the cyclicality of the hotel business & churn out consistent returns.

Weaknesses of Company

1. History of delay in Loan Repayments: The Company has a track record of delaying its repayments by as many as 88 days and breaching covenants as set by the lender. Although these breaches were limited to FY21, they are a risk to be aware of.
2. Dependence on Corporate & Leisure Bookings: The Company derives nearly 80% of its revenue from these bookings. An economic slowdown can significantly affect revenues earned by the segment.
3. Ratings Downgrade: In FY22, the Company’s Term Loans & Fund-based limits were downgraded by ICRA. Such downgrades can significantly increase its interest costs. 

Apeejay Surrendra Park Hotels – GMP

The shares of Apeejay Surrendra Park Hotels Ltd traded at a 14.84% premium in the grey market on January 31^st, 2024. The shares in Grey Market traded at Rs 178. This gives it a premium of Rs 23 per share over the cap price of Rs 155.

Key IPO Information

Promoters: Karan Paul, Priya Paul, Apeejay Surrendra Trust, and Great Eastern Stores Pvt Ltd.

Book Running Lead Manager: JM Financial Ltd, Axis Capital Ltd and ICICI Securities Ltd

Registrar to the Offer: Link Intime India Pvt Ltd.

The Objective of the Issue

1. Rs. 550 Cr of the Net Proceeds to be used to prepay lenders of the Company.
2. The remaining amount is to be utilized for General Corporate Purposes

Conclusion

The ASPH group from the initial Park Hotel based out of Kolkata has successfully managed to scale the into a well-diversified venture across Pan-India. The Company in the last three years has had a strong enough performance that gives it just enough boost to be called IPO-worthy.

However, looking at just a few years before FY23 the Company was a loss maker & down with heavy debt that suffocated its balance sheet. However, the Company stood strong against the pandemic & almost fully recovered since then, as we see from its growing asset bases & earnings.

So what do you make of this Company? Will it continue to sustain its current earnings, or will the capital-intensive nature of the business eat heavily into its margins? What is your view? Let us know in the comments below.

Written by Nasir Hussain

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