Apeejay Surrendra Park Hotels stock may list at 20-25% premium to IPO price

Apeejay Surrendra Park Hotels IPO: The shares were commanding a 25 percent premium in the grey market

Apeejay Surrendra Park Hotels stock is expected to make a decent debut on bourses on February 12. Analysts expect the shares to list at a 20-25 percent premium over the IPO price, somewhere between Rs 185 and Rs 195.

Ahead of the listing, the shares were commanding a 25 percent premium in the grey market, an unofficial ecosystem where shares start trading before the allotment in the IPO and continue till the listing day. Most investors track the grey market premium (GMP) to get an idea of the listing price.

After suffering setbacks during the pandemic period of FY21 and FY22, the hospitality industry is back on track. “Based on annualised FY24 earnings, the issue appears fully priced, but post IPO, clearance of its debts, finance costs will reduce drastically and lift the earnings. We expect the listing of Park Hotels IPO could be around Rs 190-200 with a listing gain of around 25 percent,” said Amit Goel, Co-Founder and Chief Global Strategist at Pace 360.

Also Read: All you need to know about Apeejay Surrendra Park Hotels's Rs 920-cr issue

The Rs 920-crore IPO closed on February 7. The public offer consisted of a fresh issue of shares worth Rs 600 crore and an OFS of shares worth Rs 320 crore. The price band for the issue was fixed at Rs 147-155 per share. The selling shareholders included Apeejay Pvt Ltd (Rs 296 crore), RECP IV Park Hotel Investors (Rs 23 crore) and RECP IV Park Hotel Co-Investors (Rs 1 crore).

Apeejay Surrendra Park Hotels IPO received a strong oversubscription owing to the timing, which strategically positions the company to capitalise on the remarkable resurgence of the hotel sector and a post-pandemic economic rebound. “We expect the stock to list at a premium of around 25 percent to the issue price of Rs 155 per share,” said Dhruv Mudaraadi, Research Analyst, StoxBox.

The public offer was subscribed 59.66 times. The quota for Qualified Institutional Buyers (QIBs) garnered 75.14 times subscription while the portion for non-institutional investors subscribed 52.41 times. The category for retail individual investors (RIIs) received 30.35 times the subscription.

The company plans to use Rs 550 crore from the net proceeds to repay certain outstanding borrowings and remaining funds for general corporate purposes.

Also Read: Apeejay Surrendra Park Hotels IPO: 10 things to know about the Rs 920-cr issue

Considering the optimistic momentum in the market and welcoming announcements made in the Interim Budget to promote the hospitality and tourism industry, the hotel sector is expected to outperform in coming years. “Park Hotels’ IPO received strong subscription demand from all sets of investors, based on these rationales and demand, we expect the stock to list around 20 percent higher than its issue price of Rs 155 apiece,” said Prashanth Tapse, Sr VP Research & Research Analyst at Mehta Equities.

The company reported a net profit of Rs 22.95 crore with a revenue of Rs 272.31 crore for the period ended on September 30, 2023. The company had clocked a bottom line of Rs 48.06 crore with a revenue of Rs 524.43 crore for the financial year ended on March 31, 2023, against a loss of Rs 28.2 crore in the year-ago period. As of January 2, 2024, total outstanding borrowings amounted to Rs 582.28 crore.

Apeejay Surrendra Park Hotels' price-to-earnings (P/E) ratio at 68.88x is cheaper than Chalet Hotels (79.78x) and Lemon Tree Hotels (92.34x) but more than Indian Hotels Company (65.67x) and EIH (56.59x). The return on equity (RoE) stood at 8.9 percent in FY23 while the return on capital employed (RoCE) was at 11 percent in the same period.

Also Read: IPO rush: 66 issues targeting Rs 72,000-crore lined up for FY25

The company operates in the hospitality business under the brand names - The Park, The Park Collection, Zone by The Park, Zone Connect by The Park and Stop by Zone. It is eighth-largest group in terms of chain-affiliated hotel room inventory. The company is also engaged in the business of the retail food and beverage industry through its retail brand Flurys. ASPHL operates 30 hotels in 20 cities across India with 2,298 hotel rooms. Moreover, it has 81 restaurants, nightclubs and bars within the hotels.

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