Apeejay Surrendra Park Hotels
Summary
We initiate coverage on Apeejay Surrendra Park Hotels Ltd. (ASPHL) with a BUY rating and TP of Rs245, valuing it at 19x EV/EBITDA on FY27E. We like ASPHL in domestic mid-segment hotels space considering 1) Strong positioning in midsegment branded hotels in key cities, 2) Robust pipeline of hotels in next 4 years, 3) Focus on expansion of Flurys business, 4) Superior performance on operating metrics compared to industry peers, and 5) Management pedigree. Its track record of delivering the highest occupancy compared to peers, healthy high single digit growth in ADR and higher revenue contribution from Flurys paves the way for handsome shareholder returns in mid-term. We anticipate consistent performance on a high base of FY24 and have penciled in modest CAGR of 11%/11%/26% in net sales/EBITDA/PAT over FY24-27E.
Key Highlights and Investment Rationale
Diversified pan India presence across metros and emerging cities: ASPHL operates 34 hotels with 2,410 keys, including properties owned, leased, and managed, under five distinct brands and has aggressive expansion slate lined for upcoming years. Considering the current projects under development, we estimate ASPHL to be present over 45 cities with 61 hotels operating cumulatively 5,048 keys by FY29E.
Superior performance compared to peers on room occupancy: ASPHL has a strong operating track record of high occupancy, competitive average room rates and RevPAR compared to organized peers. Further, the company’s strong focus on sweating portfolio through emphasis on occupancy levels, ARR and RevPAR has enabled it to stay competitive, maintain a strong financial and operating track record and ensure a high return on capital employed.
Flurys- In a sweet spot: Flurys is an established retail food and beverages brand of ASPHL and it is an asset light, diversified, resilient, and scalable business model. The number of stores has increased multifold from 19 in FY17 to 95 in November, 24. Further, the management has guided to take total number of Flurys stores to 120 by end of FY25E and add 40 stores each year thereafter
Domestic Hotel Industry-In a sweet spot
After a knee-jerk impact on operations during Covid-19 and being the worst hit industry, hospitality sector revived and bounced to earlier trajectory in FY24. The industry witnessed robust growth on key operating metrics aided by sharp increase in domestic as well as corporate travel, higher spending on MICE, weddings and steady increase in foreign travellers.
The total contribution of the sector to the country’s GDP stood at US$191bn in CY19, which was roughly 7% of the pie. After declining in CY20, total contribution improved in subsequent years. As per IBEF report, the industry is expected to witness healthy CAGR of 14.3% over CY22-CY29E to touch total contribution to GDP to US$512bn.
The key growth levers behind growth of domestic hospitality industry are 1) expected increase in per capita income, 2) rising urbanization, leading to higher spend on consumption, 3) various government initiatives to promote domestic tourism, 4) thrust on improving infrastructure for better commuting and 5) increase in foreign tourists arrival in both business as leisure segment.
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