Company Overview
Founded in 1987, Apeejay Surrendra Park Hotels Ltd. (ASPH) has emerged as a prominent player in the hospitality sector, boasting a diverse array of brands, including “THE PARK,” “THE PARK Collection,” “Zone by The Park,” “Zone Connect by The Park,” and the renowned retail brand ‘Flurys.’ With a robust presence in the retail food and beverage industry, the company manages an extensive network comprising 80 restaurants, nightclubs, and bars, and offer patrons an array of culinary experiences. The company has also made significant inroads in the hotel segment and operates 27 establishments across different categories comprising luxury boutiques to upscale and upper midscale which are strategically located in key Indian cities. As of August 2023, ASPH’s hotel portfolio consists a total 2,111 rooms and spans cities including Kolkata, New Delhi, Chennai, Hyderabad, Bangalore, Mumbai, Coimbatore, Indore, Goa, Jaipur, Jodhpur, Jammu, Navi Mumbai, Visakhapatnam, Port Blair, and Pathankot. Complementing its hotel business, the company owns and manages a distinguished array of restaurants, including Zen, Lotus, Aish, Saffron, Fire, Italia, 601, The Bridge, The Street, Verandah, Vista, Bamboo Bay, Monsoon, Mist, Love, and Bazaar. With a dedicated workforce of 1,923 employees as of June 2023, ASPH continues to shape the hospitality and F&B landscape in India.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Rs. 600 crores for repayment / prepayment, in full or in part of certain outstanding borrowings availed by the company; and
- General corporate purposes.
Investment Rationale:
Enhanced brand recognition and diversified portfolio to fuel growth
ASPH has strategically built a diverse portfolio of hospitality brands, including “THE PARK,” “THE PARK Collection,” “Zone by The Park,” and “Zone Connect by The Park,” each catering to distinct price points and customer requirements. The company’s commitment to product innovation and service excellence has earned it recognition and accolades across various categories, reinforcing its position as a key player in the Indian hospitality industry. By partnering with leading Indian and international designers, ASPH has created iconic spaces that resonate with guests, fostering brand loyalty and driving expansion. The company’s focus on geographic expansion, wherein it has grown its hotel portfolio at a CAGR of 21.6% during FY21-H1FY24 period, reflects its ability to identify strategic locations and capitalize on growth opportunities. As India’s urban centers expand and discretionary spending increases, ASPH is well-positioned to benefit from rising demand for upscale and upper-mid-scale accommodations. With a proven track record of creating distinctive hospitality experiences, the company is poised for continued success and market leadership.
Synergies between hospitality and food & beverage businesses drive revenue stability
ASPH’s integrated approach to hospitality encompasses not only accommodation but also food, beverage, and entertainment offerings (40% of revenue). The company’s iconic brands such as Zen, Lotus, and Someplace Else have become synonymous with quality and innovation, attracting both local and international patrons. Additionally, “Flurys” is an established retail food and beverage brand which has a distinctive track record and is widely recognized in India. Flurys operates under the ASPH umbrella and has 73 outlets with multiple formats such as kiosk, café, and restaurant format h. By leveraging its strong brand equity and operational expertise, ASPH has achieved high occupancy rates and competitive average room rates, bolstering its financial performance. The average occupancy levels for ASPH’s owned hotels for H1FY24 and H1FY23 and FY23 were 92.76%, 91.50%, and 91.55%, respectively, which is ahead of the majority of the market. The food, beverage, and entertainment segment, comprising 81 outlets and banquet spaces, adds a non-cyclical dimension to the company’s earnings and helps mitigate the seasonal fluctuations inherent in the hospitality industry. With India’s evolving demographic profile consisting of growing working-age population and increased discretionary spending, ASPH is well-positioned to capitalize on changing consumer preferences and lifestyle trends. By offering a diversified and holistic experience to its guests, the company ensures resilience and stability in its revenue streams, reinforcing its position as a leader in the hospitality sector.
Valuation and Outlook:
Apeejay Surrendra Park Hotels stands at the intersection of a resurgent hospitality industry and a post-pandemic economic rebound. The resurgence is evident in the remarkable performance of the hotel sector over the past year which reflects buoyant market sentiment and optimism toward the sector’s recovery. The timing of Park Hotels’ IPO strategically positions the company to capitalize on this positive momentum. The company has built a strong brand presence and credibility within the hospitality industry which is likely to ensure that its valuations are respected over time. With a diversified pan-India portfolio, the company effectively spreads its risk across various geographic regions and market segments, enabling it to capture opportunities in a granular fashion. Moreover, the company’s historically high occupancy rates bode well for improving net margins, thereby contributing to its financial stability and growth trajectory. A closer examination of the financials reveals significant milestones achieved by the company in recent years. The company has demonstrated robust revenue growth, with sales nearly tripling over the past three years. This turnaround is notable, considering the company’s transition from losses to profitability, reflected in the sharp uptick in net profit in FY23. While the return on equity turned positive in FY23, the return on assets remains relatively modest, owing to the capital-intensive nature of the hotel industry. The valuation, although reasonable compared to peers, reflects market optimism in the relatively high P/E ratio, which stands at 56.4 times based on FY23 EPS Looking ahead, ASPH’s strategic initiatives, including debt reduction and its unique blend of hotel and F&B services, position it favourably for sustainable growth and market leadership. Based on the above-mentioned positives, we give the issue a “SUBSCRIBE” rating.
