INVESTMENT RESEARCH FUNDAMENTAL COVERAGE - THE BYKE HOSPITALITY LIMITED

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1 INVESTMENT RESEARCH FUNDAMENTAL COVERAGE - THE BYKE HOSPITALITY LIMITED Dated : 14 th Oct BUY Price ` 185 Fair Value 248 Upside 34% Div Yield 0.5% Tenure 1 Year Sensex Nifty Group/Index B / S&P BSE SmallCap Stock Details M.cap (` in cr) 742 Equity (` In cr) wk H/L ` 200/ Face Value ` 10 NSE code BYKE BSE code Key Valuation Ratios RONW 22% P/E P/BV 5.8 EV/EBIDTA IN ` Key Financial Data EV (`in cr) BV (`in cr) NW(`in cr) EPS (TTM) 6.90 Share Holding Pattern Promoter FPI Others Investment Rationale One of India s fastest growing hospitality brands An asset-light business model, adequately capitalized balance sheet, robust cash flows, exciting growth prospects & capable management inspire confidence in its prospects over the next two years. As on September 2016, company has 797 rooms with 11 properties out of which 2 owned & 9 leased. This includes the property in Puri, Byke Vijoya, which became operational in April Company has presence in 6 cities with fully operational properties at 9 locations. Company is focusing to grow its lease portfolio by adding 8 more properties which would lead to an addition of rooms in the next couple of years at strategically identified locations which include Lonavala, Mahabaleshwar, Chandigarh, Dalhousie, Jodhpur, Udaipur, Darjeeling, Gangtok to build a pan India presence. The company plans to increase the number of properties from 9 to 25 by To drive growth and profitability going forward, company expects to cross ` 500 crore in revenues by 2020, creating a pan- India chain with 25 properties at over 20% CAGR. Recently company acquired 2 more properties, one in Jaipur & another in Borivali Company anticipate these properties to be fully operational by and start contributing to revenues. Company has acquired The Byke- Grassfield Riviera in Jaipur on long term lease. The hotel is located on Ajmer Road. It has 80 well appointed rooms, swimming pool, spa, gym, cricket ground and banquet hall, party lawn with an excellent view and other high tech amenities and services. It Targets religious & leisure tourists. Besides, the company also acquired Hotel Delotel in Borivali, Mumbai on long term lease. It has 40 well appointed rooms, restaurant and conference/ banquet room with an excellent view and other high tech amenities and services. Targets high density residential population of Borivali specifically for events including social events (birthdays, weddings, parties) & corporate events. These properties thus minimizing capital requirement and yielding better returns, would benefit company in years ahead. There has been a steady increase in the occupancy level and Average Room Rent. The average occupancy in O&L business has been steadily increasing from 61% in to 65% in Though the occupancy declined to 65% in (from 67% in ), this has been largely due to addition of the new Hotel Byke Suraj Plaza, which saw lower occupancy owing to its new launch. The ARR has increased to ` 3,909 in from ` 2,768 in , a CAGR of 9%. 52% 44% 4% The room chartering business grew from 140,000 room-nights purchased in to 519,967 in , nearly 4 times in size. The occupancy level was 94% in The chartering business will continue to be strategic for the Company as it gives insights into tourist trends and also helps identify locations to expand. VALUATION (` In Cr except per share) FY 18Est. Earnings Equity Share Capital FV No. of Equity Shares EPS(FY18 Est.) 8.73 Estimated P/E Ratio 28 Estimated Price/share 248 Corporate Governance Transparency Ratio's Year End Tax Rate % Receivable day Source: Google Div. Payout % Page 1

2 Byke Vijoya, Puri commenced operations in Q1FY17 Company has taken property on long term lease of 15 years & commenced its operations in Q1 FY17, has 54 Rooms, 4 Conference Rooms, 1 MultiCuisine Restaurant. With this the aim is to create a difference and offer high quality hospitality in places of religious and cultural importance, which are a significant driver of tourism in India. Targets leisure and religious tourists; Puri is an upcoming location for destination weddings and other such events in East India Lease Business Added Wedding garden in Byke Suraj Plaza, Thane Company acquired 20,000 sq.ft of wedding garden next to The Byke Suraj Plaza, Thane Targets high density residential population of Thane, Navi Mumbai, nearby locations - specifically for events including weddings, birthdays, and corporate events. To contribute significantly to increase in all revenue streams (room rent, food & beverage/ other revenues) Highly scalable, faster turnaround & low capital cost Expanded no. of rooms by a CAGR of over 30% over FY11-16 Focus to grow the Lease portfolio aggressively by leasing distressed properties and turning around quickly Identified 8 locations to expand lease business over next 2 years Chartering Business through pan- India presence helps in gaining insight on tourist trends - key for selection of hotel properties Q1 FY Results: Room portfolio under owned & leased segment has expanded from from 519 in 1QFY16 to 677 in 1QFY17. In room chartering segment, the Company has sold 1.42 lac room nights in 1QFY17 against 1.01 lac in 1QFY16. Revenue from room chartering business has grown at 36% to ` 33.4 cr YoY. Chartering Business Revenue for Q1FY17 rose by 29% to ` 62 crores from ` 48 crores Y-O-Y. EBITDA came in at ` 13 crores, growth of 31% Y-O-Y with EBITDA margin of 21% up from 20% in Q1 FY 16. PAT grew 37% Y-O-Y to ` 6.4 crores with PAT margin of 10% Revenue EBITDA EBITDA % PBT PBT% PAT PAT % EPS Standalone Results ` in crores Quarter Ended % change % change Q1 FY 17 Q4 FY 16 Q1 FY 16 Q-0-Q Y-0-Y % 28.56% % 31.26% 20.83% 23.79% 20.40% % 36.64% 15.79% 16.48% 14.85% % 36.62% 10.31% 10.81% 9.70% % 35.90% FY Results Revenues have grown at over 36% CAGR over the last five years, hitting ` 230 crore for Profits rose nearly eleven fold to hit ` 26 crore mark in the same period The chartering business revenue increased from ` 89.7 crores in to ` crores, registering a growth of 31%. The occupancy remained at an attractive 94% in , better than the underlying industry. The improvement in the ARR and occupancy in the RC business indicates the success of our strategic planning and strong marketing. Additionally, they also indicate higher customer satisfaction, and improved demand With Revenue at ` 231 crore in against ` 182 crore in the corresponding period of previous year, Company registered a y-o-y growth of 28% O&L division clocked Revenue of ` 114 crore (~49% of total income). EBITDA at ` 53 crore (y-o-y growth of 41%) with EBITDA Margin of 24% up from 20% in PAT stood at ` 26 crore Registered PAT Margin of 11% Page 2

3 Impeccable return ratios with minimal level of debt Company Overview Incorporated in 1990, The Byke Hospitality Limited is an emerging hospitality company with pan-india presence. We operate in two broad segments - owning and managing hotel properties and room chartering. Byke offers the unique value-proposition of being India s first and only vegetarian hospitality brand. Company also book rooms for third parties through our unique room chartering business model at strategically identified cultural and religious tourist destination on bulk basis and let-out them to tourists during peak seasons Industry Overview Indian travel and tourism industry has emerged as the largest service sector in the country. The tourism industry beholds significant amount of employment opportunities. The industry s total contribution to employment stood at 8.7% in 2015 and is expected to go up to 9% by industry plays a vital role in driving economic growth and bringing about inclusive social economic progress. As per the WTTC s Economic Impact Report (India), 2016, the total contribution of Travel & Tourism to GDP was ` 8,309 billion (6.3% of GDP) in 2015; this is predicted to rise to ` 18,300 billion (7.2% of GDP) by Domestic travel spending generated 82.5% of direct Travel & Tourism GDP in 2015 compared with 17.5% for visitor exports. Rising disposable incomes and affordable air travel options provided by low cost flights augurs well for the domestic travel industry, and is expected to increase traction. Budget showcased the government s focus on building a stronger eco-system for the travel and tourism industry, as several measures have been taken which in turn would benefit the hospitality industry. The tourism ministry got a 70% hike in the Union budget, as an amount of ` 15.9 billion was allocated to the industry to be used towards infrastructure development and promotion and publicity initiatives. As per ICRA, the hospitality industry is forecasted to grow at 8-10% during with domestic demand-led occupancy growth. Pan-India occupancies are estimated to have grown by 5% during to around 63% (from 60% in ). Additionally, programmes such as Make in India and the Smart Cities initiative have highlighted the Government s support to skill development and investments in Hospitality and Tourism. Valuation Conclusion Company is focusing to grow its lease portfolio by adding 8 more properties which would lead to an addition of rooms over the next 2-3 years and plans to increase the number of properties from 9 to 25 by To drive growth and profitability going forward, company cross ` 500 crore in revenues by 2020, creating a pan-india chain with 25 properties at over 20% CAGR. Going forward all the quarters will be even for the company as it is spreading itself across India. However, Q2 is generally lean quarter for the company and the industry. The company is almost debt free. It has short term debt of ` 6 crore and long term debt of` 2 crore respectively in FY 16. The company will become debt free by It does not need debt keeping in mind its expansion and cash generation. Acquisition of The Byke- Grassfield Riviera in Jaipur & Hotel Delotel in Borivali on long term lease thus minimizing capital requirement and yielding better returns, going forward. Company's focus would be on locations where they foresee a good opportunity to generate revenues across all sources, be it F&B, corporate or social events. Keeping this in mind, company added second largest property of 122 rooms at Thane and expect significant revenue contribution from all streams in this property. As per ICRA, the hospitality industry is forecasted to grow at 8-10% during with domestic demand-led occupancy growth. Pan-India occupancies are estimated to have grown by 5% during to around 63% (from 60% in ). Additionally, programmes such as Make in India and the Smart Cities initiative have highlighted the Government s support to skill development and investments in Hospitality and Tourism. Estimating the share price of the company as per P/E valuation, putting the estimated P/E of FY18E at 28x & the estimated EPS at ` 8.73, the estimated share price for next 1 year tenure turns around to be ` 248. Therefore, we recommend to BUY this script. Page 3

4 Quarterly Results (` in cr except per share) unaudited LTM Net Sales EBITDA Depreciation Op Income Misc.Inc (Exp.) Interest Exp EBT Taxes Net Inc(Reg) Extraord. Items Rep Net Inc EPS Income Statement and Estimates ( ` in Cr except per share) E 2018E 2019E Sales Oth. operating Income Total Inc. from operations Operating EBITA Profit & Loss Total Inc. from operations TOTAL EXPENDITURE EBITDA Depreciation (4.19) (5.38) (10.17) (11.60) (13.99) (16.73) (19.99) Rep.profit before othrinc., fin.cost,tax & excp. Item Goodwill amortization Rep.profit before othrinc., fin.cost,tax & excp. Item OTHER INCOME Profit from ordinary act. Before Fin.Cost,TAX & Exp.Items Net financials Interest income Interest expenses (2.30) (2.08) (1.80) (1.50) (1.47) (1.41) (1.33) Net Financial Items (2.30) (2.08) (1.80) (1.50) (1.47) (1.41) (1.33) Reported Pre-tax profit Reported Tax charge (3.80) (5.36) (5.33) (13.73) (16.28) (18.85) (22.64) Reported Net profit Minorities P/L OF ASSOCIATE CO Reported NP after min. Intt Extra Ordinary income Reported Net Income after extra ordinary items EPS and Dividend Dividend Paid (2.01) (3.01) (4.01) (4.01) (4.02) (4.03) (3.99) Retained earnings Reported EPS adjusted Basic EPS DPS Payout ratio 25.84% 18.93% 20.00% 15.47% 13.30% 11.50% 9.50% Number Of Shares Opening Balance Issued during the Period Closing Balance FV Wtd. Avg. no. of shares Note:- The figures shown in the brackets means NEGATIVE. Page 4

5 BALANCE SHEET E 2018E 2019E Equity & Liabilities Shareholders' Fund Share Capital Reserves and Surplus Minority Interests Total Shareholders' Fund Non-Current Liabilities Long-term Borrowings Other Long term Liab Deferred Tax Liability Long term Provisions Total Non-Current Liab Current Liabilities Short term Borrowings Trade Payables other current liability Short term Provisions Total current Liabilities Total Equity & Liabilities Assets Non-Current Assets Fixed Assets Tangible fixed Assets G/W on consolidation Non-current Investments Long term Loans & Advance Other Non current Assets Deferred tax receivables Total Non-Current Assets Current Assets Current Investments Inventories Trade Receivables Cash & cash Equivalents Short Term Loans & Advanc Other current Assets Total current Assets Total Assets Cash & cash equivalents Other int. bearing assets Interest-bearing debt Net interest-bearing debt Net gearing (%) 28.95% 23.40% 14.61% 11.12% 9.07% 7.07% 5.87% Investments Tangible assets Gross capex (15.83) (8.98) (8.82) (18.33) (32.21) (37.38) (44.60) Sale of fixed assets Net capex (13.52) (8.98) (8.82) (18.33) (32.21) (37.38) (44.60) Depreciation tangibles (4.19) (5.38) (10.17) (11.60) (13.99) (16.73) (19.99) Note:- The figures shown in the brackets means NEGATIVE. Page 5

6 CASH FLOW ANALYSIS E 2018E 2019E EBIT Depreciation Dep.(ex goodwill) Mov. in Inventories 0.03 (0.04) 0.02 (0.21) (0.61) (1.10) (1.54) Mov. in Debtors (9.00) 1.23 (3.33) (3.65) (2.71) (2.96) (3.40) Mov.in Creditors 6.10 (2.70) 0.24 (0.27) (0.49) (1.08) (0.37) Other W.C Increase/decreas 4.30 (1.85) (12.51) (8.05) Change in W.C 1.43 (3.36) (15.58) (12.18) (3.81) (5.14) (5.30) Tax paid (3.80) (5.36) (5.33) (13.73) (16.28) (18.85) (22.64) Operating Cash Flow Net interest (2.30) (2.08) (1.80) (1.50) (1.47) (1.41) (1.33) Cash Earnings Gross CapEx (15.83) (8.98) (8.82) (18.33) (32.21) (37.38) (44.60) Sale of fixed assets Net CapEx (13.52) (8.98) (8.82) (18.33) (32.21) (37.38) (44.60) Free CF pre div. (0.14) Dividend (2.01) (3.01) (4.01) (4.01) (4.02) (4.03) (3.99) Free CF post Dividend (2.15) Net acqui./disposals Net cash flow (2.15) RATIO ANALYSIS E 2018E 2019E Return on assets % 15.34% 17.53% 17.40% 17.11% 17.37% Return on equity % 21.69% 23.43% 22.51% 21.49% 21.30% ROCE % 24.09% 31.88% 31.08% 29.95% 29.82% EBIT Margin % 14.98% 17.77% 17.87% 17.74% 17.76% Pre tax margin % 13.99% 17.13% 17.33% 17.29% 17.40% Net Profit Margin % 11.05% 11.20% 11.26% 11.24% 11.31% Total asset turnover Fixed asset turnover Equity turnover Current Ratio Quick Ratio Cash Ratio Receivable Days Inventory Days Payable Days Conversion Cycle (Days) Financial Leverage Effect Debt to Capital Debt to Equity Note:- The figures shown in the brackets means NEGATIVE. Page 6

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