Apeejay Surendra Park Hotels Limited: IPO Analysis

Imagine a hotel experience that perfectly blends modern luxury with timeless heritage! Apeejay Surrendra Park Hotels (ASPHL), an Indian hospitality player, is ready to debut on the Indian Stock Exchanges with its upcoming IPO. But is it an investment opportunity worth exploring?

Buckle up! In today’s blog, we will examine the company’s financials, business model, and key IPO details along with the risks and opportunities that await investors.

Key Details

1. Apeejay Surrendra Park Hotels IPO is a main-board IPO, which means that the post-issue paid-up capital will be a minimum of 10 crores.
2. The IPO is a book-built issue of INR 920 crore. It is a combination of a fresh issue of INR 600 crore and an Offer For Sale (OFS) of INR 320 crore.
3. The IPO will open for subscription on February 5, 2024, and close on February 7, 2024.
4. The company has set the price band for shares at INR 147 to INR 155, and the minimum lot size is 96 shares.
5. JM Financial, ICICI Securities and Axis Capital Limited are the book-running lead managers of the IPO and Link Intime India Private Limited is the registrar for the issue.
6. The minimum amount of investment required by retail investors is INR 14,880.
7. The initiation process for the IPO is scheduled for February 9, 2024.
8. The IPO will be listed on Stock Exchanges, NSE and BSE on February 12, 2024.
9. The promoters of the company are Karan Paul, Priya Paul, Apeejay Surrendra Trust, and Great Eastern Stores Private Limited.
10. The company has allocated the IPO proceeds to repay the loan amount and address general corporate purposes.

Opportunities linked with the IPO

1. Apeejay Surrendra boasts a strong record of consistently growing brand portfolios that fulfil the needs of various segments.
2. The company enjoys healthy financials with an almost 96% growth in Total income and also turned profitable in FY23 with a strong net profit of 48 Crores while exceeding 90% occupancy rates in owned hotels.
3. Established brands of the hotel, which include ‘The Park’ and the ‘Zone by The Park’, have gained recognition and loyalty and significant competitive advantage over the years.
4. An uptrend in Debt Service Coverage Ratio (DSCR) and Interest Service Coverage Ratio (ISCR) is visible with the DSCR reaching 1.63 in FY23 from 0.4 in FY22 and ISCR reaching 2.05 in FY23 from 0.3 in FY22.     

Risks Linked with the IPO

1. The Indian hospitality sector is fiercely competitive, with strong and established players like ITC Hotels and Marriott Hotels competing for the market share. This could lead to big changes in topline figures if Apeejay Surrendra Park loses its market share.
2. Economic uncertainties and fluctuations in tourism can expose the hotel industry to seasonality, impacting both occupancy rates and profitability.
3. Almost 75% of the total income is realised from top 5 owned hotels, with the PARK Kolkata contributing a staggering 21.75% to the total income alone. This exposes Apeejay Surrendra Park hotels to the risk of Revenue concentration.
4. Almost 49% of total bookings come from Online Travel Agents. While this is a growing industry, in an effort to increase their profits, these online travel agents could increase their convenience fees and other charges. This could substantially affect Park Hotels’ topline figures.
5. A significant portion of the IPO involves selling existing shares (OFS), which means the company is not raising fresh capital. This might not directly fuel growth.

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Apeejay Surendra Company Overview

Apeejay Surrendra Park Hotels Limited is an India-based hospitality company. It holds the position of the eighth-largest hotel chain in India in terms of chain-affiliated hotel rooms with asset ownership. It is also renowned for its distinctive and personalized approach to hospitality, providing modern and stylish hotels tailored to both business and leisure travellers. ASPHL operates under 5 brands, namely:

1. The Park is positioned as an upscale brand with luxury offerings with a philosophy that focuses on design, style and service.
2. The Park Collection encompasses small luxury properties located at the selected travel destinations.
3. Zone by the Park brand is positioned at the upper midscale level and is designed for price-conscious and design-conscious customers.
4. Zone Connect by the Park is an upper midscale brand that networks its essence and design philosophy from Zone by The Park.
5. Stop by the Zone is an economy motel brand that aims to provide convenient accommodation with easy access to parking, free Wi-Fi, and food services.

All the brands are located in the prime locations of Bangalore, Chennai, Goa, Hyderabad, Indore, Kolkata, Mumbai, Navi Mumbai, New Delhi, and Vizag. The group will soon open hotels in other areas such as Chettinad, Patiala, Pune, and Kolkata.

The hotels built by the group carry contemporary designs with luxurious interiors, furniture, paintings and accessories. Apart from this, the company focuses on relevant social issues and promotes art and culture in each region.

Apeejay operates 27 hotels across luxury boutiques, upscale, and upper-midscale categories, with a pan-India presence in metro cities and aims to build upon existing brands, create an expanded group of upscale and upper-mid-scale hotels in strategic locations in India and abroad, leverage the cooperation between hospitality, food and beverage business while achieving strong profitability.

Apeejay Surendra Business Model

Apeejay operates hotels by directly owning hotel properties, securing long-term leases for land and buildings, and entering into operation and management agreements on a contractual basis. The brand names are used on hotels constructed by third parties.

Hotels operated under the ownership model are located on freehold and leasehold land that belongs to the company.

Government authorities or private institutions lease some of the hotels, with lease terms ranging from five to fifty years, and renewals are possible upon expiration.

Apeejay brand operates some hotels through operating and management contracts. Typically, the term of such contracts ranges from 8 to 25 years, with termination options available to either party.

The fundamental hotel operations departments are front office, housekeeping, food and beverage service, food production and spa services while focusing on customer experience and comfort through quality service offerings.

The Apeejay Park Hotel’s business model includes three different store formats:

• A kiosk format comprising a store size of about 80 to 100 square feet.
• A cafe format comprising a store size of about 350 to 400 square feet.
• A restaurant format comprising a store size of about 800 to 1000 square feet.

Awards & Recognitions

Below mentioned are some of the accolades for ASPHL:

• TripAdvisor Travelers Choice Awards in the year 2022-23
• World Luxury Hotel Awards in the year 2023.
• EEF Excellence Awards in the year 2022 for excellence in sustainable tourism.
• CNBC TV18 Hotelier Awards in the year 2021

Financial Statements – A Snapshot

Particulars	FY 2021 (in millions)	FY 2022 (in millions)	FY 2023 (in millions)
Revenue/Total Income	1,902.90	2,678.30	5,244.30
EBITDA	228.46	582.93	1,770.95
Profit	(758.84)*	(282.02) *	480.62
Profit Margin	(39.88%)*	(10.53%)*	9.16%
Debt	5,834.00	5,500.10	6,137.59
Total assets	12,803.39	13,617.90	12,751.76
Debt-to-Equity Ratio	1.09	1.21	0.99

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Conclusion

ASPHL’s IPO and planned expansion projects show its ambitious growth plans. Apeejay’s diverse brand portfolio and emphasis on innovation have helped them well to capture the opportunities in the Indian hospitality market.

However, navigating industry competition and economic uncertainties will be important for Apeejay’s success. Do not forget to conduct proper research and analyse your risk tolerance before investing in the ASPHL IPO.

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Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.