Apeejay Surrendra Park Hotels coming with IPO to raise upto Rs 970.60 crore

Apeejay Surrendra Park Hotels 

• Apeejay Surrendra Park Hotels is coming out with a 100% book building; initial public offering (IPO) of 6,26,19,045 shares of Rs 1 each in a price band Rs 147-155 per equity share.
• Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on February 5, 2024 and will close on February 7, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 1 and is priced 147 times of its face value on the lower side and 155 times on the higher side.
• Book running lead managers to the issue are JM Financial, Axis Capital and ICICI Securities.
• Compliance Officer for the issue is Shalini Keshan.

Profile of the company

Among hotel chains with asset ownership, the company ranks as the eighth largest in India in terms of chain affiliated hotel rooms inventory as of September 30, 2023. Of the 45,800 rooms owned by chained affiliated hotels across the country as at September 30, 2023, the company comprises of about 1,300 rooms constituting 2.80% of the total inventory. It operates hospitality assets under its own brands, “THE PARK”, “THE PARK Collection”, “Zone by The Park”, “Zone Connect by The Park” and “Stop by Zone”. It has a long-standing expertise of over 55 years in the hospitality business of owning and operating hotels, with its first hotel being launched under its brand “THE PARK” at the iconic Park Street in Kolkata. It has established presence in the retail food and beverage industry through its retail brand ‘Flurys’. It has pioneered the concept of luxury boutique hotels in India under its brand, “THE PARK”, extending it further through and “THE PARK Collection”, and in upper-midscale categories with its brands “Zone by The Park” and “Zone Connect by The Park”.

The company’s hotel portfolio has a PAN-India presence, and it continue to attract its customers with its diversified portfolio. It categorizes its hotel portfolio into two distinct hotels categories based on brand classification – upscale, and upper mid-scale. It operates hotels under following four brands, namely “THE PARK, “THE PARK Collection”, “Zone by The Park”, “Zone Connect by The Park” and has recently launched its economy motel brand, “Stop by Zone”.  The company’s food and beverage outlets and entertainment offerings within its hotels provide a diversified experience for its customers. As of September 30, 2023, it operates 81 restaurants, night clubs and bars, offering a wide selection of culinary experiences. The night club and entertainment division contribute to its brand positioning and allows cross-selling opportunities. It has created award-winning brands such as Zen, Someplace Else, Tantra, Roxy, iBar, The Leather Bar, Pasha and Aqua. 

Proceed is being used for:

• Repayment/ prepayment, in full or in part of certain outstanding borrowings availed by the company.
• General corporate purposes.

Industry overview

The Indian food services business comprises of both unorganized and organized players. The unorganized players comprise of local restaurants and roadside eateries. The organized format includes quick service restaurants (QSR) offering fast food products, cafe chain offering coffee and beverages along with snack eateries, bars/ lounges offer alcohol-based beverages along with full-fledged meals and fine dining outlets. The Indian bakery market is expected to reach approximately Rs 1,800-1,850 billion over next five years, by Fiscal 2028, and the Indian cafe market is expected to grow at 19-21% CAGR during Fiscal 2023- 2028. The Indian food services industry, which has been dominated by unorganised entities such as local restaurants and roadside eateries, has witnessed growth in the organized food sectors in the recent years. A key reason to the growth of this segment has been its offering of quality and service consistency assurance across outlets as well as quality food produce with more control over the food supply chain. Unorganised entities such as local restaurants and roadside eateries, which include street stalls, hawkers, trolleys and standalone sweet shops have dominated the Indian food services industry and continue to hold a major share in the total food and beverage (F&B) service industry.

The Indian food services industry was valued at an estimated Rs 4.6 trillion in fiscal 2020, growing at a CAGR of around 10% from FY18 to 20. Growth was driven by India’s rising disposable income and an uptick in discretionary spending on eating out. Increasing availability of restaurants offering a variety of cuisines, along with the proliferation of food-ordering platforms, has also aided growth of the food services industry. But the industry saw a heavy dip in fiscal 2021 due to the Covid-19 pandemic which led to nationwide lockdowns, limited mobility of people, work-from-home and a general fear of traveling outside. In fiscal 2023, the industry is estimated to have grown 25-30% (YoY) to about Rs 4.1 to 4.3 trillion backed by increased mobility and higher discretionary spending. Going forward the trend of higher consumption is expected to continue, especially among millennials who like to try new restaurants and cafes to enhance their social presence. Also, the rise in disposable income, entry of new brands, an increase in presence of QSRs in tier 2+ cities, and lack of time to cook among working professionals is also expected to support the growth of the Indian food services market. Food aggregators also had a significant effect on the market, especially during the pandemic in fiscal 2021 and 2022.

Pros and strengths

The company has built successful hospitality brands through product innovation and service excellence: The company operates individual hotels with distinctive characters and provide curated experiences for its guests. It has the ability to service a wide customer base as each of its hospitality brands cater to distinct price points and customer requirements. “THE PARK” brand is associated with boutique hotels with a design-led character, combined with luxury features, guest comfort and personalized service. The design-focus theme extends to all public areas, and to the dining and entertaining experiences that are fundamental to the guests’ experience at each hotel. “THE PARK collection” brand encompasses small luxury properties located at selected travel destinations targeted at the luxury hotel category delivering personalized guest experiences. Its core brands are attributes of design driven by leading Indian and international designers, architecture, and food and beverage offerings. It has partnered with leading Indian and international designers to create the unique and differentiated spaces at its hotel properties. 

A diversified Pan India portfolio of owned, leased and managed hotels: The company’s strength lies in its ability to accurately identify property location with growth potential. Site identification is based on its knowledge and experience developed over the last many years of the Indian hospitality market, understanding of its customer base, an analytical approach to site-selection that encompasses accessibility, local economy, potential for growth, demographics and socio-economic environment and adequate infrastructure. Site identification has remained one of its key strengths as it has identified strategic locations for development for its owned, leased and managed hotels such as Pune, Darjeeling, Manali, Srinagar, Patiala. Most of its hotels are located at accessible, central locations within or close to key business and commercial areas as well as tourist attractions. For instance, THE PARK Kolkata is located at the iconic Park Street, foremost dining district in Kolkata; THE PARK New Delhi is located at the Parliament Street, New Delhi, centre of business, commercial, and diplomatic area; THE PARK Visakhapatnam is a beachfront resort located at Beach Road, attracting business, leisure, and group demand. India currently has 5 megacities i.e., Mumbai, Delhi National Capital Region (Delhi NCR), Bengaluru, Kolkata, and Chennai, which are urban agglomerations with population greater than 10 million. Further, Ahmedabad and Hyderabad, presently with 7 to 9.5 million inhabitants, are expected to become megacities by the year 2030. The company has owned hotels under its brand THE PARK in six of these seven mega cities.

High occupancy rate and REVPAR with a strong financial and operational track record: The company has a strong operating track record of high occupancy, competitive average room rates and RevPAR for its hotel properties, during six months ended September 30, 2023 and September 30, 2022 and in last three Fiscals. It has been able to achieve an average occupancy level of 92.76%, 91.50% and 91.55% for its owned hotels for the six months ended September 30, 2023 and September 30, 2022 and the year ended March 31, 2023, respectively. Its high occupancy level reflects its expertise and credentials in the hospitality sector. Its revenue and customer management system that manages its reservation and billing processes allows it to centrally manage all of its hotels so as to maximise hotel occupancy rates and reduce the manpower required for manual updates. The company’s strong focus on sweating its portfolio through its 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.

High F&B and Entertainment contributions: The food, beverage, and entertainment business has been a cornerstone of the company’s business since its establishment. It adds a non-cyclical element to the seasonal and cyclical hospitality industry, thereby providing added stability and resilience to its earnings and cash flows. India is experiencing a demographic window of opportunity – a “youth bulge” (growth in youth as a share of total population) in the working-age population, expected to last till 2055 (Horwath HTL Report). A large working population also carries enhanced discretionary spend capacity and propensity to spend on lifestyle aspects, which could benefit the hotel sector. It has developed a portfolio of creative food and beverage outlets within its hotels. Its food and beverage offerings provide a diversified and holistic offering to its customers and have since gained popularity with the local community and international customers. As of September 30, 2023 it operates a total of 81 restaurants, night clubs and bars. It also offers indoor and outdoor banquet and conference spaces spread across its hotel properties in India. 

Risks and concerns

Subject to extensive government regulation: The company is subject to extensive government regulation with respect to safety, health, environmental, real estate, excise, property tax and labour laws at a central and state level. These licenses differ on the basis of the location as well as the nature of operations carried out at such locations. It provides hospitality services, including sale of food and beverage including wine and liquor, cleaning and housekeeping, and security services, at its hotels. In rendering such services, it is subject to a broad range of safety, health, environmental, real estate, taxation, excise, star classifications, property tax and related laws and regulations and internal standard operating procedures under its management contracts which impose controls on its operations. It is also subject to regulations, which are amended periodically, including relating to the sale and service of food, alcoholic and non-alcoholic beverages and hosting of events and weddings at its hotels.

Business is subject to seasonal variations: The hotel and hospitality industry in India is subject to seasonal variations. The periods during which its hotel properties experience higher revenues vary from property to property, depending principally upon location and the guests served. Seasonality, particularly in terms of summer and winter variations, can be expected to cause quarterly fluctuations in its revenue, profit margins and net earnings, and such variations are more apparent in the leisure locations inter-alia, Goa, Jaipur, Visakhapatnam, Kolkata, Srinagar, Jodhpur etc. Foreign tourist travels, amongst other factors, also have an impact on demand for hotels, performance of the hotel sector and future development of the industry. The winter months are clearly preferred for travel into India, particularly for discretionary travel. Its revenue is usually higher in second half of financial year as compared to first half of the financial year. Higher rate paying leisure travel predominates in winter. Further, the timing of opening of newly constructed hotels and the timing of any hotel acquisitions or dispositions may also cause a variation of revenue and earnings.

Face competition: Home stays, individual smaller hotels, cottages, guest houses offer a personalised, unique, and cost-effective experience to customers creating competition in hospitality industry. Smaller hotels or local aggregators may offer lower prices due to lower overheads, and local establishments may better showcase the authentic culture and experiences of a region. Smaller hotels often operate with limited regulatory constraints and approvals, due to small scale operations, as compared to hotel chains which are subject to stringent regulatory and statutory compliance requirements. Travellers may prefer the authenticity and local flavour that home stays provide. In the event, it fails to adapt in accordance with changing consumer preferences, it may not be able to effectively compete with home stays, individual smaller hotels, cottages, resulting in loss of revenues and a consequent adverse impact on its business and operations. 

Consumer preferences on bakery products is fast changing: Over a period, there have been significant changes in consumers’ preferences on bakery products. There has also been a shift towards healthier dietary options in recent times and there has been a rapid change in the demand for bakery products, with consumer preference shifting to organic, natural, and sugar-free products. Its inability to anticipate, respond to and meet the tastes, preferences, or quality requirements of its consumers for bakery products or its inability to accurately predict and successfully adapt to changes in market demand or consumer preference could reduce demand for its products, affect its brand loyalty and have negative impact on its sales.

Outlook

Incorporated in 1987, Apeejay Surrendra Park Hotels is engaged in the hospitality business operating under the brand names of 'THE PARK', 'THE PARK Collection', 'Zone by The Park', 'Zone Connect by The Park' and 'Stop by Zone'. The company is also engaged in the business of retail food and beverage industry through its retail brand 'Flurys. As of March 31, 2023, the company operates 80 restaurants, night clubs and bars, offering a wide selection of culinary experiences. The company currently operates 27 hotels, which are spread across different categories such as luxury boutique, upscale, and upper midscale. These hotels are present in various cities in India including Kolkata, New Delhi, Chennai, Hyderabad, Bangalore, Mumbai, Coimbatore, Indore, Goa, Jaipur, Jodhpur, Jammu, Navi Mumbai, Visakhapatnam, Port Blair, and Pathankot, offering a total of 2,111 rooms as of August 2023. The company owns restaurants under the brand name of Zen, Lotus, Aish, Saffron, Fire, Italia, 601, The Bridge, The Street, Verandah, Vista, Bamboo Bay, Monsoon, Mist, Love and Bazaar. As of June 2023, the company has a total of 1,923 employees. On the concern side, the company is subject to data privacy laws, rules and regulations that regulate the use of customer data. Compliance with these laws, rules and regulations may restrict its business activities, require it to incur increased expense and devote considerable time to compliance efforts. Besides, it is highly dependent on a consistent and sufficient supply of ingredients that meet its quality standards and shortages of key food products may lead to price increases for those ingredients.

The company is coming out with an IPO of 6,26,19,045 equity shares of face value of Rs 1 each. The issue has been offered in a price band of Rs 147-155 per equity share. The aggregate size of the offer is around Rs 920.49 crore to Rs 970.60 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 95.81% to Rs 5,244.30 million for the year ended March 31, 2023 from Rs 2,678.30 million for the year ended March 31, 2022. The company’s restated profit for the year ended March 31, 2023 was Rs 480.62 million, as compared to its restated loss for the year ended March 31, 2022 which was Rs 282.02 million. Meanwhile, as a part of the company’s strategy to grow through an optimum mix of owned, leased/ licensed hotels and asset light contracts, it continues to focus on development and expansion of existing owned, leased and licensed hotels, and on strategic expansion of its managed hotels. As part of its strategic initiatives to distinguish ourselves from its competitors, it intends to develop and strengthen its brands to increase its customer loyalty and expand its food and beverage offerings at its portfolio of hotels, restaurants, night clubs and bars.