IPO alert: Should you subscribe to Apeejay Surrendra Park Hotels's Rs 920-cr issue?

Apeejay Surrendra Park Hotels IPO: The price band for the issue has been fixed at Rs 147-155 per share

Apeejay Surrendra Park Hotels IPO was fully subscribed on the first day of bidding, February 5. The Rs 920 crore public offer, which is a mix of fresh issue and offer-for-sale, has received favourable ratings from several analysts owing to the company’s primary objective of reducing debt which may improve the bottom lines in coming years. Park Hotels may further benefit from the resurgence of the hospitality industry and a post-pandemic economic rebound.

The business

Apeejay Surrendra Park Hotels 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.

Offer details

The Rs 920-crore IPO will close on February 7. The public offer consists 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 has been fixed at Rs 147-155 per share. The selling shareholders include 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: 10 things to know before buying into Rs 920-cr issue

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

Anchor investors

Ahead of the IPO, institutional investors picked Rs 409.5 crore worth of shares on February 2. Marquee investors like Troo Capital, Carnelian Capital, Julius Baer India, Citigroup Global, Integrated Core Strategies, and Societe Generale invested in the company through an anchor book.

Domestic investors, including Nippon Life India, ICICI Prudential Mutual Fund, 360 One Special Opportunities Fund, HDFC Life Insurance Company, Quant Mutual Fund, Whiteoak Capital, Mirae Asset, Bandhan Mutual Fund, Edelweiss Trusteeship, Kotak Mahindra Life Insurance Company, Bajaj Allianz Life Insurance and SBI General Insurance also participated in the Kolkata-based hotels chain.

Financials

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.

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During FY23 and H1FY24, the company maintained occupancy levels of 91.9 percent and 93.3 percent across its hotel assets. This led to strong revenue per available room, which increased by around 85 percent in FY23 and 13.5 percent on-year in H1 FY24.

Return ratios

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.

So, should you subscribe to Apeejay Surrendra Park Hotels IPO?

What brokerages say

Anand Rathi: Subscribe (long term)

At the upper price band company is valuing at a P/E of 68.8x, of its FY23 earnings with a market cap of Rs 3,307.2 crore post-issue of equity shares. “We believe that valuations of the company are fairly priced and recommend a “Subscribe-Long Term” rating to the IPO,” said analysts at Anand Rathi.

Mehta Equities: Subscribe (long term)

Given the company's historic losses and recovering back to profitability, relying solely on P/E valuation may not be a practical approach. “Instead, if we analyse it based on Price to Book Value, which stands at ~3x of FY24 annualized, compared to the industry average of ~5-8x it seems this IPO is reasonably priced to its peers. We recommend investors ‘Subscribe’ to the Apeejay Surrendra Park Hotels IPO from a long-term perspective,” said Rajan Shinde, Research Analyst at Mehta Equities.

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Choice Broking: Subscribe (caution)

At a higher price band, ASPHL is demanding a P/E multiple of 63.1x (to its TTM EPS of Rs. 2.5), which is in line with the peer average of 64.4x. Thus the issue is fully priced. “However, considering the positive macros for the hospitality sector, we are assigning a ‘Subscribe with Caution’ rating for the issue,” said Rajnath Yadav, Research Analyst at Choice Broking Research.

BP Wealth: Subscribe

“ASPH's strategic initiatives, including debt reduction and its unique blend of hotel and F&B services, position it favourably for sustainable growth and market leadership. Based on the above-mentioned positives, we give the issue a ‘Subscribe” rating,” said analysts at BP Wealth.

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