IPO Analysis: Apeejay Surrendra Park Hotels Ltd

IPO Rating: Apply for the long-term

About the Issue  

Apeejay Surrendra Park Hotels Ltd is launching its initial public offering (IPO) for equity shares valued at Re 1 each. The IPO price range is set between Rs 147 and Rs 155 per equity share, resulting in a total issue size of Rs 920 crore at the upper price band.  

The IPO is scheduled to commence on February 05, 2024, and will conclude on February 07, 2024. The market lot size for the IPO is 96 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 1,248 shares or a total investment of Rs 1,93,440 assuming the upper price band.   

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Repayment or prepayment, in full or in part of certain outstanding borrowings availed by the company
2. General corporate purposes

Promoter holding  

Karan Paul, Priya Paul, Apeejay Surrendra Trust and Great Eastern Stores Private Limited are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 94.18 per cent in the company.   

Company profile  

The company has carved out a distinctive niche in the hospitality industry, establishing itself as a leader in the segment with the highest occupancy rates. As of September 30, 2023, the company stands as the eighth-largest among hotel chains with asset ownership in India, based on its inventory of chain-affiliated hotel rooms. The company has been a pioneer in introducing the concept of luxury boutique hotels in India through its brand ‘The Park’. This initiative has been extended with ‘The Park Collection’ and the company has also ventured into the upper-midscale categories with the brands ‘Zone by The Park’ and ‘Zone Connected by The Park’.

The company enhances customer experience through diversified offerings in its food and beverage outlets and entertainment services within its hotels. The nightclub and entertainment division play a significant role in shaping its brand positioning and opening avenues for cross-selling opportunities. As of September 30, 2023, the company operates 81 restaurants, nightclubs, and bars, providing a broad spectrum of culinary experiences. It has successfully established award-winning brands like Zen, Someplace Else, Tantra, Roxy, iBar, The Leather Bar, Pasha, and Aqua.

In the food and beverage sector, the company manages a premium retail chain known as 'Flurys,' which boasts a successful and profitable track record with industry-leading EBITDA margins. In fiscal year 2023, Flurys achieved the second-highest EBITDA margin, standing at 17.18 per cent, among the identified players. 'Flurys' operates 73 outlets nationwide, employing various formats such as restaurants, cafés, and kiosks.

The company's hotel development pipeline includes the expansion of two currently owned hotels in Visakhapatnam and Navi Mumbai, along with the development of an embedded land bank in Pune, totalling 380 rooms. Additionally, as part of its future development strategy, it plans to utilise its land bank for constructing new hotels in Jaipur and Kolkata. The company has also entered into agreements to open three leased and licensed hotels in Punjab, Tamil Nadu and West Bengal, collectively offering 122 rooms.

Financials

The company has consistently demonstrated robust revenue growth over the past few years. In FY23, the revenue reached Rs 506 crore, reflecting an outstanding 98 per cent year-on-year growth compared to FY22. Conversely, the company encountered difficulties in generating profits during fiscal years 2021 and 2022. This was evidently attributed to the repercussions of the Covid-19 pandemic and the prevailing pessimism within the hotel industry stemming from a significant decrease in demand. 

However, the company successfully rebounded from its previous losses, showcasing significant profit figures in fiscal year 2023. Additionally, the performance metrics for the H1FY24 remained consistent with those of the preceding year.

Valuation and outlook  

The issue is priced with a P/BV ratio of 4.68 times, calculated using its Net Asset Value (NAV) of Rs 33.13 as of September 30, 2023. When we calculate the PE ratio for the company by considering the annualised FY24 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 59. In comparison to its listed peers, the company demonstrated notable performance.

With the improved conditions in the hospitality sector following the slowdown induced by the COVID-19 pandemic, coupled with the sector's robust outlook, the company's leading market share, and its future expansion plans, it is well-positioned for growth. Hence, we recommend investors to consider subscribing to the issue with a long-term perspective.