Apeejay Hotels: Apeejay Hotels offers room for growth on pricing, expansion

ET Intelligence Group: Investors can consider investing in the initial public offering (IPO) of Kolkata-based Apeejay Surrendra Park Hotels. Presence in prime locations, highest occupancy in the industry, following a conscious strategy of pricing its rooms more attractively than its peers, well-calibrated expansion and reasonable valuation are among the key factors investors can consider while deciding whether to invest in the IPO.

Business

Apeejay Surrendra Park Hotels is a mid-sized company which has been in business for about 55 years. It operates hotels in upper midscale and upscale categories under brands such as The Park, The Park Collection, Zone by The Park, Zone Connect by the Park and Stop by Zone. The company operates 30 hotels across 20 cities in India. Among these, it owns seven hotels, manages 20 hotels and has leased three hotels. Apart from the hotels business, the company operates 81 restaurants, bars and nightclubs within its owned, leased and managed hotels. In addition, it operates a bar, called Someplace Else, and a retail food and beverages outlet called Flurys.

For the six-month period ended September 2023, the company earned 48.5% of its total revenue from rooms and 26.5% from the food and beverages segment. The sale of wine and liquor along with food and beverages together accounted for 42.11% of the total income during the period.

There are three main strengths of the company’s business model. First, most of its properties have the highest occupancy rate in the industry of more than 90%. Second, these properties are located in prime locations, and third, it prices its hotel rooms more attractively than its peers in the industry.

Issue objectives
The company plans to raise ₹920 crore at the higher end of the price band, ₹600 crore through fresh issue and ₹320 crore through offer for sale. It plans to use ₹550 crore to repay its loans.Financials
The company’s revenue from operations grew to ₹506 crore in FY23 from ₹178.8 crore in FY21 and the company turned profitable. It recorded net profit of ₹48.1 crore in FY23, compared to a loss of ₹75.9 crore in FY21. As of the six-month period ended September 2023, its debt-to-equity ratio was 1.03.
Valuation
Considering the FY23 financials, the issue commands a price to earnings multiple of 68.9 times, compared to the sector’s average of 73.5 times. Therefore, the issue is valued reasonably.

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