Byke Hospitality Limited Buy - 1 - Thursday, 7 th June, 2018 2018 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. STOCK POINTER Target Price ₹351 CMP ₹168 FY20E P/E 20X Index Details During FY13-18 while the entire hospitality industry was reeling under the twin impact of a glut in room inventories, falling occupancies and lackluster ARRs, Byke Hospitality Ltd (Byke) had managed to buck the trend and exhibit a strong performance. Since then the industry has witnessed significant consolidation and with room inventories expected to lag demand and ARRs also having bottomed out, we expect the industry to report a much better performance than that of the entire past decade. Byke is well positioned to benefit from the uptrend given its asset light model, strategic locations of its properties and adequate new capacity in the midscale segment. We expect occupancies to rise by 300 bps to 71% and ARRs to improve by 4.3% to INR 4390.9 despite a robust growth of 16.7% CAGR to 1359 units of room inventory by FY21. This is expected to buoy revenue growth of 22% CAGR to Rs 322.3 crore by FY21. Over the same period, we expect a strong growth in profitability to be maintained. EBIDTA and net earnings are expected to grow by 22.5% CAGR and 25% CAGR to INR 126.5 crore (+ 44bps in EBIDTA margin to 39.2%) and INR 70.4 crore (+151bps in PAT margin to 22%) respectively. Given its asset light model, return ratios - RoE of 22.1% and ROCE of 33% are expected to remain elevated We re-initiate coverage on Byke Hospitality (Byke) with a BUY recommendation and a Price Objective of ₹351 (target Adj P/E multiple of 20x) implying upside potential of ~109%. At the CMP of ₹168, the stock is trading at PE of 9.6x FY21E EPS and compares favorably with peers of similar size. Sensex 35,178 Nifty 10,684 Industry Hotel Scrip Details MktCap (Rs cr) 673 BVPS (Rs cr) 45.8 O/s Shares (Cr) 4.01 52 Week H/L 215/150 Div Yield (%) 0.6 FVPS (`) 10 Shareholding Pattern Shareholders % Promoters 46.5 Public 53.5 Total 100.0 Byke vs. Sensex
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Byke Hospitality Limited Buy...its strategy over all the fronts (Business locations - Mumbai, weekend getaways - Matheran and famous vacation spots - Goa). The Management guides to
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Byke Hospitality Limited Buy
- 1 - Thursday, 7th June, 2018
2018
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
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Target Price ₹351 CMP ₹168 FY20E P/E 20X
Index Details During FY13-18 while the entire hospitality industry was reeling
under the twin impact of a glut in room inventories, falling
occupancies and lackluster ARRs, Byke Hospitality Ltd (Byke) had
managed to buck the trend and exhibit a strong performance. Since
then the industry has witnessed significant consolidation and with
room inventories expected to lag demand and ARRs also having
bottomed out, we expect the industry to report a much better
performance than that of the entire past decade. Byke is well
positioned to benefit from the uptrend given its asset light model,
strategic locations of its properties and adequate new capacity in
the midscale segment.
We expect occupancies to rise by 300 bps to 71% and ARRs to
improve by 4.3% to INR 4390.9 despite a robust growth of 16.7%
CAGR to 1359 units of room inventory by FY21. This is expected to
buoy revenue growth of 22% CAGR to Rs 322.3 crore by FY21. Over
the same period, we expect a strong growth in profitability to be
maintained. EBIDTA and net earnings are expected to grow by 22.5%
CAGR and 25% CAGR to INR 126.5 crore (+ 44bps in EBIDTA
margin to 39.2%) and INR 70.4 crore (+151bps in PAT margin to 22%)
respectively. Given its asset light model, return ratios - RoE of 22.1%
and ROCE of 33% are expected to remain elevated
We re-initiate coverage on Byke Hospitality (Byke) with a BUY
recommendation and a Price Objective of ₹351 (target Adj P/E
multiple of 20x) implying upside potential of ~109%. At the CMP of
₹168, the stock is trading at PE of 9.6x FY21E EPS and compares
favorably with peers of similar size.
Sensex 35,178
Nifty 10,684
Industry Hotel
Scrip Details
MktCap (Rs cr) 673
BVPS (Rs cr) 45.8
O/s Shares (Cr) 4.01
52 Week H/L 215/150
Div Yield (%) 0.6
FVPS (`) 10
Shareholding Pattern
Shareholders %
Promoters 46.5
Public 53.5
Total 100.0
Byke vs. Sensex
- 2 - Thursday, 7th June, 2018
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Our optimism stems from the following
❖ Healthy balance sheet with an asset light model
Instead of buying the properties outright, Byke prefers to lease properties. This
enables Byke to expand its reach by adding more resorts to its portfolio without any
major capital expenditure. Refurbishment costs per room ranges from Rs 5-10 lakhs
depending upon the location & the segment which it is adhering to. Of the 12 resorts
that the company operates as on FY18, 10 are on an operating lease of 10-15 years.
❖ Resorts at strategic locations to fuel growth
Out of the 874 rooms as on FY18, Byke has concentrated its portfolio in few regions
like Mumbai (162 rooms), Matheran (168 rooms), Goa (240 rooms). These 3
locations comprise approx. 65% of the Byke’s FY18 room capacity. Byke has played
its strategy over all the fronts (Business locations - Mumbai, weekend getaways -
Matheran and famous vacation spots - Goa). The Management guides to add new
resorts in the locations which will aid further penetration in the above segments. We
expect the revenues from resort room sales to grow at a CAGR of 28.4% to Rs 130.9
crores in FY21 from 62 crores in FY18.
❖ Pure vegetarian food helps Byke create its own niche
Byke resorts serve only vegetarian cuisine and hence caters primarily to domestic
travellers. Byke’s niche positioning, even in a foreign tourist dominated destinations
such as Goa, helps to capitalize on domestic tourist spending which is expected to
grow at a faster rate. Food and beverages revenue is expected to grow from ₹78.7
crore in FY18 to ₹136.3 crore in FY21 registering a CAGR of 20.1%.
❖ Company’s focus to create its own brand rather than concentrating
on chartering business
Due to increased competition from Make My Trip, Oyo Rooms, Trivago, etc in the
room chartering segment, the Company aims to concentrate on building its own
brand “Byke” in the resort segment. Thus, chartering segment’s contribution to the
total revenue is expected to decline from 21% (restated) in FY17 to 17% in FY21. We
expect the room chartering revenues to increase at a CAGR of 14.4% to 55.1 crores
in FY21 from 36.8 crores reported in FY18 on the back of a 12.3% CAGR in room
sales.
❖ Valuation
We re-initiate the coverage on Byke Hospitality with a BUY recommendation and a
Price Objective of ₹351 (target Adj P/E multiple of 20x FY21E) implying a potential
upside of ~109%. At the CMP of ₹168, the stock is trading at an Adj P/E of 9.6x
FY21E respectively.
- 3 - Thursday, 7th June, 2018
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❖ Company Background
The Byke Hospitality Ltd. (Byke) incorporated in 1990 is engaged in the ‘midscale’
lease operated hotel business. In FY18, it operated 12 resorts across Maharashtra,
Rajasthan, Goa and Manali with a total bouquet of 874 rooms. While 2 (Byke
Heritage & Byke Brightland, Matheran) of the 12 resorts are owned, the remaining 10
are on an operating lease of 10-15 years.
Byke: Revenue Break Down
Source: Byke, Ventura Research
- 4 - Thursday, 7th June, 2018
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❖ Key investment highlights
➢ Cyclical nature of the Hotel Industry
Indian Hotel industry after facing headwinds for over a decade is at an inflection
point.
• Following the upcycle of FY2003-08, the hotel industry has been facing a decade of
turmoil.
• The period of FY09-13 was marred by muted occupancy rates & falling ARRs & a
sharp growth in the room supply.
• Hit by the avalanche of excess room supply, the hotel industry underwent a
consolidation phase in FY13-17. This period witnessed moderate room additions and
flattish trend in the ARRs. However, occupancy levels continued to remain muted.
Despite muted demand growth, there has been a structural shift from more luxury
and upper scale rooms to a more balanced supply scenario. Midscale‐Economy
which formed 7.3% of the total supply at the start of the century now contributes
22.6% of the total supply. Top 10 markets, i.e. Mumbai, Delhi NCR, Bengaluru,
Different phases of the hotel industry
Source: Industry, Ventura Research
- 5 - Thursday, 7th June, 2018
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Kolkata, Chennai, Hyderabad, Pune, Ahmedabad, Jaipur & Goa, form 67.7% of the
total room supply in India.
➢ FY18 onset for greenshoots
FY18 has seen a healthy trend with both the ARRs and occupancies inching up while
the room additions growth has slowed considerably. We believe this to be an
encouraging sign and mark the upturn in the cycle. We are optimistic on a sustained
bull cycle given the following tailwinds:
1) Consolidation on the supply side
2) Increasing demand on the back of following:
• Government initiatives & policies to promote tourism
• Rising per capita income providing impetus to increase in domestic
expenditure towards travel & tourism
• Increase in the foreign tourist arrivals due to improved infrastructure and easy
availability of E-Tourist Visa
➢ Consolidation of supply in the hotel industry
Expected increase in availability of rooms
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Supply
Source: Industry, Ventura Research
Room Composition in India
Source: IBEF, Ventura Research
- 6 - Thursday, 7th June, 2018
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It is evident from the above data that proposed supply as a percentage of existing
supply is expected to increase only at 6.9% CAGR till FY22E resulting in consolidation
in the hotel industry.
Bulk of this room additions is expected to come in the budget and mid-market
segment. With overall demand expected to outstrip supply, the hotel industry finds
itself is in an extremely sweet spot where both occupancies and ARRs are expected
to improve significantly.
➢ Rising Per capita Income & Domestic Expenditure on Tourism
Domestic expenditure on tourism after bottoming out in CY15 (CY10-15 CAGR
6.5%) has started to build on the aggressive two years CY15-17 (CAGR 40%) and is
expected to grow at a 7% CAGR over the next 10 years to $ 383.1 bn by CY27. Per
capita income too is expected to increase at a CAGR of 9 per cent over 2016-2027
from $1747.5 in CY2016 to $4515 in CY27.
Expected increase in availability of rooms
Source: Industry, Ventura Research
- 7 - Thursday, 7th June, 2018
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From the below chart, we can interpret that the per capita spend towards
discretionary expenditure has increased from 32% in FY1990-2005 to 43% in FY06-
16 which is further expected to increase up to 49.5% in FY17-25.
Further significant changes in consumer behavior due to rising disposable income,
popularizing weekend culture, the eagerness to spend amongst the youth and other
factors like government campaigns, introduction of low-cost airline services,
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❖ Financials & Projections
- 25 - Thursday, 7th June, 2018
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Disclosures and Disclaimer
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