Juniper Hotels working to bring down debt and turn profitable post IPO: Management

Juniper Hotels is launching an IPO of Rs 1,800 crore, with subscription opening from February 21-23.

Juniper Hotels, a luxury hotel developer operating Hyatt properties in India, has been reporting losses for the last financial year and first half of the ongoing FY 2024. That, however, is likely to change soon, after its initial public offering. The hotel developer has been impacted by leveraging burdening the profit and loss account and resulting in losses. Interest payments, totaling Rs 220 crore, have weighed down on the profit numbers in the past. Once the leveraging is corrected, significant interest savings are expected to flow into the company's bottom line, Juniper Hotels’ management said in an exclusive interview to Moneycontrol.

Juniper Hospitals closed FY23 with a revenue of Rs 717 crore, achieving an average rate of almost Rs 9,800 per room at 75 percent occupancy. With average rates already increasing to Rs 11,000 per room in the past six months and the industry projected to grow at 12-15 percent, further rate increases are anticipated. Additionally, supply constraints in major markets such as Delhi and Bombay, which contribute 80 percent of the total business, will support revenue and profit growth in the future, said CMD Arun Kumar Saraf and Varun Saraf, the CEO.

The company is launching an IPO of Rs 1,800 crore, with subscription opening from February 21-23. Juniper aims to have a leveraging level of less than 1 time. Going forward, Juniper may leverage slightly up to about 2 in FY25, but that would depend on the opportunities for new asset acquisitions.

Edited excerpts:

What's your USP versus peers like Chalet Hotels, Lemon Tree, Indian Hotels? Why did Hyatt Inc. invest in Juniper Hotels when there are so many other players?

Arun Kumar Saraf: Juniper Hotels is the owner and developer of large box hotels. We like to own assets in big metros and tier 1 cities. And our goal is to have hotels in the luxury segment. And these are hotels with multiple revenue streams. Our company is not into managing other people's properties or even our properties. We are very happy to have Hyatt come and operate our properties for a fee. And that gives us more leverage and more focus on development and ownership. Our hotel assets are number one or number two in every market that we operate in, and that's the segment that we will continue to focus on going forward. Some of our peers would have their own brands and they would have some properties to manage. We are a pure ownership and nurturing asset management company rather than having an operating arm.

Actually, our relationship with Hyatt started almost 45 years back when my father got hired into the country in 1982 with the opening of Hyatt Regency in Delhi. For the next 15 years, from 1982 to 1997 we were owning and developing our properties and Hyatt used to be our management company. In 1998, I acquired the Bombay site, the Grand Hyatt site. At that time, the Pritzker family, who are the owners of Hyatt globally and continue to own it now, were interested in investing in India and they were very keen to invest with me. And that's how our new partnership was started at the Juniper level where this platform was created in partnership with the Pritzker family and the Sarafs. And that platform has grown from one hotel to seven properties now. In 2009, the Pritzker family took their own Hyatt International onto the listing platform of the New York Stock Exchange. At that time, all the hospitality assets that were owned by the Pritzker family were put onto the Hyatt platform and that's how Juniper landed up with Hyatt’s ownership.

Traditionally, Hyatt or any of the global management companies do not invest in assets. They are more focused on managing assets and they are very fee-based. Even with the IPO, the shareholders, Hyatt and the Sarafs, are not selling any of their shares at this moment because we do see that there is a huge growth opportunity on this platform, and we would like to stay invested and not divest at this moment or in the near considerable future.

ALSO READ: Juniper Hotels sets price band at Rs 342-360 for Rs 1,800-cr IPO opening on Feb 21

The company is raising funds for repayment, prepayment and redemption of certain outstanding borrowings availed of by the company and its recent acquisition, namely CHPL and CHHPL. What's your leverage, your debt to EBITDA right now? With this issue, how much it will come down to and what is the level that you're comfortable with?

Arun Kumar Saraf: We are raising Rs 1,800 crore of fresh equity. Out of this, Rs 1,500 crore is earmarked for reducing our debt and Rs 300 crore is kept with the company for general purposes, which basically means for growth. We are not short of money to run our company in any way. So, this Rs 1,500 crore of leveraging, at present we have a leverage of about Rs 2,210 crores. Out of this, about Rs 300 crore is promoter loans from our ECB, from our overseas ownership companies. And about Rs 1,910 crore is the debt that is sitting out here with different tags. So, out of that Rs 1,900 crore, we will be reducing Rs 1,500 crore. So, going forward the company will have Rs 400 crore of debt. And our aim going into the future is to have a leveraging level which is going to be less than 1 time the EBITDA. Going forward, the company may leverage slightly up to about two times, but that would depend on when the opportunities for new asset acquisitions will come in. So, our big picture objective at this moment is to de-leverage the company and where we are now, having almost Rs 220 crore of our profits being deployed to debt servicing and interest payments. That will also become the company's free cash flow going into the future, post the IPO.

We are going to be less than 1 in terms of our EBITDA multiple for 2025. First half, it will come down to less than 0.7. And depending on the opportunities that are coming up to us for new asset acquisition, it will depend on when the new assets are being acquired. That's the time when the company would re-leverage; otherwise, we are sitting quite pretty with this leveraging at a low level.

So, help us understand which acquisition you're talking about. So, is that within the listed space that you're looking at Which geography are you targeting? How do you diversify? Tell us more about it.

Arun Kumar Saraf: Sure. Our real acquisition at this moment are hotels which are already in the Saraf portfolio, sitting outside this platform. They will be merged into this company and become bigger subject to all the regulatory approvals and shareholder approvals as they may be required. So, that would be the first stage of acquisition and conglomeration onto the Juniper platform of the other two assets that are sitting outside this platform. Besides that, the next opportunity for growth is coming from Grand Hyatt Mumbai itself. In Grand Hyatt Mumbai, at present, we have empty spaces and lands right next to our property and we have 300 rooms of additional capacity already approved by BMC and ready to take off. So those 300 rooms will also be added. So, we are planning to have 1,000 additional rooms coming into this platform over the next three years.

So, outside the portfolio also you're going to be consolidating. Could you dwell more on that, help us understand what properties are we looking at? How many rooms and when can they be completely consolidated and merged into the final entity?

Arun Kumar Saraf: Yes. We have in our DRHP (draft red herring prospectus) a ROFO (right of first offer) that has been built in. And that ROFO basically is meant for Saraf Hotel, Arun Saraf-controlled properties which are sitting outside the Juniper platform where Hyatt and us did not have ownership. And these hotels are basically companies which are already listed on the stock exchange. So, I'm not going to dwell more, I cannot say more than that. But Arun Saraf-controlled properties which are sitting outside this platform will be merged into it and these are two Hyatt Hotels sitting outside this platform at this moment. And through regulatory process, NCLT process and shareholder approval and SEBI approvals as they are required, these assets will be merged. This is basically our commitment to our new shareholders that these will become our flagship, and this is where we will continue to be focusing on our future growth.

The company has been loss-making for the last three financial years. Even for the last six months, it has posted losses. When can we expect a turnaround to take place and what will be the drivers essentially?

Arun Kumar Saraf: This company has been a profit-making company since inception. It is not something that at the property level, at the management, as a profitable hospitality business. It's still leveraging that has taxed up profit and loss accounts, overly burdened the profit and loss account and that's why we have seen the losses that are there. It has been a healthy cash-flow generating company and the interest payments that have been, as I said earlier, of Rs 220 crore and earlier also have dragged down the balance sheet in terms of profit numbers in the past. Once the leveraging is corrected, you will immediately see a huge amount of savings of interest that will happen and flow into the bottom line of the company.

But to add to that, we closed FY23 at Rs 717 crore at a rate of almost Rs 9,800 average rate at 75 percent occupancy. These rates have already increased in the past six months and we're seeing Rs 11,000. We believe that the industry is growing at almost 12-15 percent and will result in higher average rates, with no supply coming into these larger markets. Delhi and Bombay contribute about 80 percent of our total business and in both the cities supply will be restrained. So, apart from the impact of the debt repayment, we believe the top line and the bottom line will correspondingly also grow going forward.

Your margins for FY21 stood at 12 percent; FY22, becomes 30 percent, FY23, it goes on to 45 percent. The company also has clocked highest EBITDA per room amongst listed peers. With this (A), Help us understand a sustainable trend on the margin profile. And also, (B), What explains your highest EBITDA per room as compared to your peers?

Varun Saraf: So, I think let's leave the 11 percent and 30 percent out for the time being, I think those were COVID phenomena. I think what has happened in 2023, we've been able to go up almost to 45 percent. And going forward, I think the range of 45-48 percent is something we're comfortable with. This is the highest across the industry. Again, it comes because we have a diversified revenue stream, that's one. There are rooms, there are apartments, there's F&B – all contributing and the combination of that is giving us these higher margins. But also, we have an active asset management vertical within our company.

We define asset management as working with the operations team to increase our efficiencies. And this is what actually allows us to drive better numbers. So, what is asset management? Within the Hyatt ecosystem, we have created a cluster. These clusters are across various departments, whether it's engineering, whether it be human resource, procurement. What happens is because of the scale, we're able to drive certain costs and make it more efficient. For example, let's take manning. By looking at manning across all our various properties, making sure that retention can be increased by making it more efficient by reducing manning and multi-utilising individuals across different properties. So, these allow us to bring in certain efficiencies, and we believe that this is sustainable going forward as well.