After failed attempt of 2020, Park Hotels gears up for IPO; pins hope on domestic travel demand

The Park Hotels is launching its IPO.

Park Hotels Ltd is all set to launch its initial public offering (IPO) soon. This follows the hospitality chain’s failed attempt to make its D-Street debut in 2020 due to COVID-19.

The hotel chain had filed its draft papers for the IPO in December 2019 and received the regulator's approval too. However, it did not go ahead with the IPO listing.

"We took private equity (PE) (funds) in 2007. So, there was always this plan to take PE funds, grow the business, and then go public. While we are late, we had to face the COVID-19 impact, and the market was also depressed for the hospitality (industry) even in the pre-COVID years. We filed a DRHP (Draft Red Herring Prospectus) in 2020. We were doing the roadshows, and we had to abort it because COVID happened. So, now we are excited and impatient to complete this (process)," Priya Paul, Chairperson at Apeejay Surrendra Group, which owns and operates Park Hotels Ltd, told Moneycontrol.

The company plans to raise Rs 1,050 crore through the IPO. "A large part of the proceeds will be used to retire the debt. Currently, the net debt of the company is about Rs 550 crore. Post-IPO, we want to be cash flow positive by the end of the financial year," said Vijay Dewan, Managing Director at Apeejay Surrendra Park Hotels.

Also read: Hotels in India to see 75% occupancy by 2030, investments over $2.3 billion in 5 years

The management added that the debt piled up over a period of time as every year they invested about Rs 30-40 crore on renovation. Also, during COVID-19, the company suffered losses, which added to the losses.

The chain has a pipeline of 22 hotels, of which 16 are management contracts. "We will be doubling our number of rooms by 2028," Paul said. The company has a portfolio of 27 hotels currently.

Demand-supply mismatch

Dewan pointed out that India is in need of more hotel rooms.

The country currently has 1.7 lakh rooms in the branded category. Over the next four to five years, only 50,000 to 60,000 rooms will be added, he said. Around 70 percent of this supply is expected to come up outside the 10 key growth Indian cities.

"The supply side is going to grow at a rate of 7.1 percent while the demand side in India is going to grow at 10.5 percent, which will create a huge mismatch in terms of demand and supply. This will push the hospitality business over the next four to five years," Dewan added.

In terms of the supply addition expected in major markets, he said that Delhi currently has about 15,000 rooms, of which 1,600 will be added in the next four to five years.

In terms of the supply addition expected in major markets, he said that Delhi currently has about 15,000 rooms and over the next four to five years 1,600 rooms are going to be added to the city.

Also read: Hotels are at peak occupancy, growth will come via higher room rates: Royal Orchid's chairman

Chennai, which has about 9,700 rooms at present, will see the addition of less than 700 rooms during this time period. Hyderabad, with 7,400 rooms currently, will get about another 700 rooms. In Pune, there are 6,700 rooms, and over the next five years, only 600 rooms are expected to come up in the city. Kolkata has about 5,038 rooms as per the latest numbers, to which only about 500 will be added over the next four to five years.

"A lot of supply will come into Goa. It has over 8,000 rooms, and about 2,500-3,000 more are going to be added. Bengaluru, with over 50,000 rooms, has the highest number of rooms in the country and has overtaken Delhi, which has over 40,900 rooms. Another 3,000-3,500 rooms will be added in Bengaluru during this period. Mumbai has about 13,600 rooms at the moment and is expected to see an additional 3,000-3,500 rooms," Dewan said.

Also read: Bengaluru hotels see full occupancy, room rates triple as Aero show, G20 drive up demand

He noted that this supply addition is minuscule. "As a result, you will see high occupancies and ARRs (average room rate)."

Domestic travel growth

The hotel chain said that growth at the moment is largely coming from domestic travel. "Domestic arrivals at Indian airports in the first six months of this year are up 20 percent over the previous year. And international travel is about 80 percent back. It is expected to be fully back sometime in the first half of next year. Next year is looking bright because the investments being made in the infrastructure segment, particularly in terms of aircraft, will significantly drive international travellers to India," Dewan said.

He added that the hotel business received a boost because of the G20 Summit, followed by the Cricket World Cup. The latter is making a huge difference to the business of Park Hotels in places where matches are being held, helping in the growth of ARRs. "This will be followed by the wedding season. And this financial year, there are additional (wedding) dates in March," he pointed out.

Park Hotels' business

Park Hotels recorded its highest revenue of Rs 524 crore in FY23, up 18 percent over FY19-20.

Also read: Hotel occupancy drops in Q1 but to get G20, World Cup boost in near term, says Motilal Oswal

The company is also betting big on the food and beverage (F&B) segment.

"The F&B retail side of the business is growing at a fast pace. Currently, this business in India is worth about Rs 4.3 lakh crore. It is growing at a rate of 10 to 12 percent, and is expected to reach Rs 7.5 lakh crore over the next five years.

"The F&B section provides a lot of stability to our (Park Hotels) business, and it also adds a non-cyclical element to our business. It contributed 39 percent to our business in FY23, with the contribution going up to 44 percent in FY24," Dewan said.