A value play at cusp of growth revival
We initiate coverage on Apeejay Surrendra Park Hotels (PARKHOTE IN) with a BUY rating and TP of Rs238. We believe PARKHOTE IN is at a cusp of growth revival led by 1) addition of 258 owned & leased keys over FY25-FY28E, 2) rapid store expansion in Flurys with a target to reach 200 outlets by FY27E and 3) aggressive plans to expand via the management contract route with 2,198 keys under various stages of development. Despite capex outlay of Rs9,000mn over the next 3 years, we do not expect debt levels to rise materially given healthy OCF generation indicating BS strength is likely to remain intact. Apart from BS comfort, PARKHOTE IN offers valuation cushion as well given the stock trades at 14.0x/11.7x our FY26E/FY27E EBITDA estimates with revenue/EBITDA/PAT CAGR of 17%/22%/24% over the next 3 years. Amid strong growth prospects, healthy BS and attractive valuation we initiate with a BUY on PARKHOTE IN with a TP of Rs238 valuing the hotels business at 15x Sep-27E EBITDA and Flurys at 3x Sep-27E sales.
Best in class occupancy with high F&B revenue composition: PARKHOTE IN has one of highest occupancy rates amongst peers (~92% over the last 3 years). High occupancy is a function of i) strategically located owned hotels across key metro cities, ii) a strong brand legacy, iii) robust loyalty program, iv) well-curated F&B and multiple entertainment avenues (night clubs and bars), and v) competitive pricing. PARKHOTE IN has over 88 restaurants, nightclubs and bars across hotels. The night club and entertainment business not only enables cross-selling opportunities for rooms and F&B but also boosts the liquor and wine revenue.
Organic/inorganic cushion of 654/111 keys on the cards: PARKHOTE IN plans to add 654 owned keys (excluding leased & managed) in Kolkata (250), Pune (200), Vizag (34) and Navi Mumbai (170) over the next 4-5 years. Further, inorganic addition of 17 keys at Malabar House, Kochi, 14 keys at Purity, Lake Vembanad and 80 keys at Juhu, Mumbai is expected in near term. Expansion of inventory is likely to boost growth, aid margins and improve capital efficiency as greenfield expansion is planned over legacy land parcels.
Flurys is an asset light scalable model: The business model of Flurys is scalable given the asset light nature of operations and strong brand legacy. Further, the menu proposition is unique as it blends café & confectionery. Varying formats (restaurants, cafes & kiosks) of different sizes (100-1,000 sq ft per store) enable rapid expansion at different real estate locations (e.g., kiosks at airports and cafes at business centers). Retail F&B is a business of flavor, location and brand. With all the 3 elements in place for Flurys, we expect a healthy revenue/EBITDA CAGR of 41%/48% over FY25-28E.
Outlook & valuation: We expect revenue/EBITDA/PAT CAGR of 17%/22%/24% over FY25-28E aided by 1) room inventory expansion, 2) 6% CAGR in RevPAR, 3) 41% CAGR in Flurys business with increase in store count, 4) 2.3x rise (on a low base) in management fee income led by addition of 1,211 keys and 5) rising share of premium inventory. Given healthy growth prospects, strong BS strength (net debt/EBITDA to be at 0.5x in FY28E) and attractive valuations, we initiate with a BUY.
