Apeejay Surrendra Park Hotels
Industry-leading occupancy, attractive valuations; Initiating, with a Buy
Park Hotels operates 30 hotels (seven owned, three leased, 20 under Management contract) with 2,298 rooms (~1,280/~1018 owned & leased/MC) in luxury categories: boutique upscale (The Park, The Park Collection), upper midscale (Zone by the Park, Zone Connect by the Park), at prime business destinations. It has the highest occupancy in the industry. Following a strategy of pricing its rooms more attractively than peers, a well-calibrated expansion strategy and reasonable valuation augur well for it (trading at 50%/10%/33% discounts to Indian Hotels/Lemon Tree/Chalet Hotels). Hence, we initiate coverage on the stock with a Buy and a 12-mth TP of Rs285 (valuing it at 18x FY26 EV/EBITDA, giving 35%/20%/10% discounts from Indian Hotels/Chalet Hotels/Lemon Tree).
Multi brands, prime locations, industry-leading occupancy, competitive ARR augur well. The company’s hotel portfolio is diversified across categories luxury and upscale through The Park brand, and upper mid-market through Zone by the Park. The bulk of revenue, which arises from domestic business and leisure travellers, is because the hotels are located at prime destinations. Most of the properties have the highest occupancy rates in the industry (over ~90%; industry average ~66%) with room rates more attractive than peers (a ~12% discount to industry ARR) largely due to corporate clientele.
From the Rs6bn fresh issue, all debt to be repaid. In H1 FY24 net debt was ~Rs5.8bn. The company plans to utilise Rs5.5bn from the net proceeds to repay outstanding borrowings (Rs3bn in FY24, Rs2.5bn in FY25). Given the outlook for the hospitality sector, we expect the healthy occupancy (>90%) and ARR (a 13.6% CAGR over FY24-FY26) to continue, leading to significantly better margins (from 31.4% in FY23 to 38.2% in FY26) and free cashflows.
Risks: High contingent liabilities (Rs902m/Rs793m in H1 FY24/FY23, ~15.7%/14.5% of FY24e/FY23 revenue), economic slowdown.
Click here to download Park Hotels research report by Anand Rathi
Leave a Reply