The Byke Hospitality Limited: Buy for an upside of 34% with a holding period of 1 year

Rudra Shares And Stock Brokers | Jan. 24, 2017, midnight


Investment Rationale:

  • One of India’s fastest growing hospitality brands
  • An asset-light business model, adequately capitalized balance sheet, robust cash flows, exciting growth prospects & capable management inspire confidence in its prospects over the next two years.
  • As on September 2016, company has 797 rooms with 11 properties out of which 2 owned & 9 leased. This includes the property in Puri, Byke Vijoya, which became operational in April 2016.
  • Company has presence in 6 cities with fully operational properties at 9 locations. Company is focusing to grow its lease portfolio by adding 8 more properties which would lead to an addition of 450-500 rooms in the next couple of years at strategically identified locations which include Lonavala, Mahabaleshwar, Chandigarh, Dalhousie, Jodhpur, Udaipur , Darjeeling, Gangtok to build a pan India presence.
  • The company plans to increase the number of properties from 9 to 25 by 2020. To drive growth and profitability going forward, company expects to cross 500 crore in revenues by 2020, creating a panIndia chain with 25 properties at over 20% CAGR.
  • Recently company acquired 2 more properties, one in Jaipur & another in Borivali -> Company anticipate these properties to be fully operational by 2017-18 and start contributing to revenues.
  • Company has acquired The Byke- Grassfield Riviera in Jaipur on long term lease. The hotel is located on Ajmer Road. It has 80 well appointed rooms, swimming pool, spa, gym, cricket ground and banquet hall, party lawn with an excellent view and other high tech amenities and services. It Targets religious & leisure tourists.
  • Besides, the company also acquired Hotel Delotel in Borivali, Mumbai on long term lease. It has 40 well appointed rooms, restaurant and conference/ banquet room with an excellent view and other high tech amenities and services. Targets high density residential population of Borivali specifically for events including social events (birthdays, weddings, parties) & corporate events. These properties thus minimizing capital requirement and yielding better returns, would benefit company in years ahead.
  • There has been a steady increase in the occupancy level and Average Room Rent. The average occupancy in O&L business has been steadily increasing from 61% in 2011-12 to 65% in 2015-16. Though the occupancy declined to 65% in 2015-16 (from 67% in 2014-15), this has been largely due to addition of the new Hotel Byke Suraj Plaza, which saw lower occupancy owing to its new launch. The ARR has increased to 3,909 in 2015-16 from `2,768 in 2011-12, a CAGR of 9%.
  • The room chartering business grew from 140,000 room-nights purchased in 2011-12 to 519,967 in 2015-16, nearly 4 times in size. The occupancy level was 94% in 2015-16. The chartering business will continue to be strategic for the Company as it gives insights into tourist trends and also helps identify locations to expand.


Valuation & Conclusion:


Company is focusing to grow its lease portfolio by adding 8 more properties which would lead to an addition of 450-500 rooms over the next 2-3 years and plans to increase the number of properties from 9 to 25 by 2020. To drive growth and profitability going forward, company cross Rs 500 crore in revenues by 2020, creating a pan-India chain with 25 properties at over 20% CAGR.


Going forward all the quarters will be even for the company as it is spreading itself across India. However, Q2 is generally lean quarter for the company and the industry. The company is almost debt free. It has short term debt of 6 crore and long term debt of Rs 2 crore respectively in FY 16. The company will become debt free by 2017. It does not need debt keeping in mind its expansion and cash generation.


Acquisition of The Byke- Grassfield Riviera in Jaipur & Hotel Delotel in Borivali on long term lease thus minimizing capital requirement and yielding better returns, going forward.


Company's focus would be on locations where they foresee a good opportunity to generate revenues across all sources, be it F&B, corporate or social events. Keeping this in mind, company added second largest property of 122 rooms at Thane and expect significant revenue contribution from all streams in this property.


As per ICRA, the hospitality industry is forecasted to grow at 8-10% during 2016-17 with domestic demand-led occupancy growth. Pan-India occupancies are estimated to have grown by 5% during 2015-16 to around 63% (from 60% in 2014-15). Additionally, programmes such as ‘Make in India’ and the ‘Smart Cities’ initiative have highlighted the Government’s support to skill development and investments in Hospitality and Tourism.


Estimating the share price of the company as per P/E valuation, putting the estimated P/E of FY18E at 28x & the estimated EPS at Rs 8.73, the estimated share price for next 1 year tenure turns around to be 248. Therefore, we recommend to 'BUY' this script.

 

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