Apeejay Surrendra Park Hotels

about 21 days ago
Apeejay Surrendra Park Hotels

IPO Size: Rs. 920 cr

  • Rs. 600 cr fresh issue, to repay Rs. 550 cr of Rs. 581 cr net debt
  • Rs. 320 cr offer for sale (OFS) – 93% OFS by promoter (94% to shrink to 68%) and balance by PE investor (6% to reduce to 4%)

Price band: Rs. 147-155 per share

  • 75% reserved for institutional investors and only 10% for retail, as loss making in FY21 and FY22

M cap: Rs. 3,307 cr, implying 28% dilution

IPO Date: Mon 5th Feb to Wed 7th Feb 2024, Listing Mon 12th Feb 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.


8th Largest Hotel Chain Owner in India

Apeejay Surrendra Park Hotels operates 30 hotels aggregating 2,298 keys (1,101 keys on 7 owned hotels) across 20 Indian cities, operating under brands The Park, The Park Collection, Zone, Stop by Zone. It also runs 73 food and beverage (F&B) retail outlets under ‘Flurys’ brand in West Bengal, Mumbai and Delhi. Company boasts of high occupancy levels of 92% for FY23 and H1FY24 (73% peer average), due to high repeat customers, focus on food and beverage, high week end occupancy in business hotels.


High Occupancy, yet Margins Lower than Peers

On an average room rent of about Rs. 6,060 per key, consolidated revenue stood at Rs. 506 cr and Rs. 264 cr for FY23 and H1FY24 respectively. But despite high occupancy and 45% contribution from food and beverages (including 7% from Flurys, against peer average of 32-35%), EBITDA margin was 34% vis-à-vis ~45% for upscale hotel peers Lemon Tree and Chalet Hotels. Flurys’s 20+% EBITDA margin, although industry-leading, is lower than hotels business.


Debt Repayment to Boost Bottomline

Interest cost is very high, at Rs. 33 cr for H1FY24, leading to only 9% net margin. However, debt repayment from fresh issue proceeds will expand net margin to a healthy 20-21% FY25E onwards, as PAT may jump to Rs. 140 cr by FY25E. This will also boost RoE to 12+% from 9% in FY23.


Capacity Hike

Industry demand is expected to grow at 11% over the next 3 years, with only 8% growth in supply. To capture this opportunity, company plans to increase rooms to 4,153 keys across 56 hotels, over the next 4-4.5 years. As 70% of room addition will be through asset-light managed hotels, capex will be under check,  without excess leverage on the balance sheet.


Inexpensive Valuation

Post debt repayment, enterprise value (EV) stands at Rs. 3,335 cr, translating into EV/key of Rs. 1.45 cr. On FY25E EBITDA of Rs. 240 cr, one year forward EV/EBITDA multiple stands at 14x and FY25E PE is 24x, both of which are not expensive, as profitable peers Chalet and Lemon Tree are ruling at nearly double the EV/key and EV/EBITDA of over 30x.


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