Consumer Discretionary-Gaming, Lodging & Restaurants Bloomberg Code: BYKE IN India Research - Stock Broking Unique Asset Light Business Model Continues to Scale New Heights Room inventory addition to drive hotel revenues by 21.2% CAGR during FY16-18E: In order to scale its room inventory and increase its geographical presence, Byke is planning to add 8 new leased properties by FY19E. We expect the 4 properties to be operational by mid-fy18e leading to an addition of ~42 leased rooms, ~1 restaurants & ~12 conference halls and the total hotel revenues to grow at 21.2% during FY16-18E reaching to Rs. 1677 Mn in FY18E with Rs.914 Mn contributed from room rental revenue and Rs. 763 Mn from F&B and other segment. Chartering business revenues to grow @ CAGR of 26.4% during FY16-18E: The numbers of the chartering rooms sold are expected to grow at 22.8% CAGR and reach 7.4 lac room nights in FY18E. We expect the ARR (Average Room Rent) to grow at 3.% with occupancy levels in the range of 94-95% and revenues to grow at 26.4% to reach Rs. 1871 Mn by FY18E. Rich Cash Flows and asset-light structure turning out to be a self funding hybrid model: We expect the business model to continue to support Cash Flow from Operations (CFO) and to grow at 24.7% CAGR during FY16-18E. The increasing CFO is further enabling Byke to invest in the leased properties and chartering segment leaving aside healthy free cash flows to the equity owners. We expect the free cash flow yield to remain in the range of 1.3-2.7% during FY16-18E. Valuation and Outlook The upcoming addition of leased room inventory and restaurants along with increasing room nights sold in chartering segment will aid the company to grow its revenue with improving operating margins and blended return ratios in the years to come. We initiate coverage on The Byke assigning P/E multiple of 19.7x to FY18E EPS and give a BUY rating with a target price of Rs. 27 with an upside potential of 22% for a period 12-15 months. Key Risks ynatural calamities and lack of seasonal demand. ycompetetion from the Online Room Aggregators. Recommendation (Rs.) Jun 7, 216 BUY CMP (as on Jun 6, 216) 17 Target Price 27 Upside (%) 22 Stock Information Mkt Cap (Rs.mn/US$ mn) 6796 / 11 52-wk High/Low (Rs.) 181 / 148 3M Avg. daily volume (mn).1 Beta (x).8 Sensex/Nifty 26777 / 821 O/S Shares(mn) 4.1 Face Value (Rs.) 1. Shareholding Pattern (%) Promoters 44.5 FIIs 5.6 DIIs 8.7 Others 41.3 Stock Performance (%) 1M 3M 6M 12M Absolute 11 9 1 7 Relative to Sensex 4 (3) 7 Source: Bloomberg Relative Performance* 118 18 98 88 78 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 The Byke Source: Bloomberg; *Index 1 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 Sensex May-16 Exhibit 1: Valuation Summary YE Mar (Rs. Mn) Net Sales 1557 1814 2315 2763 3549 EBITDA 286 372 526 595 792 EBITDA Margin (%) 18.3 2.5 22.7 21.5 22.3 Adj. Net Profit 159 2 259 298 422 EPS (Rs.) 4. 5. 6.5 7.4 1.5 RoE (%) 2.2 21.7 23.4 22.5 26.4 PE (x) 4.4 32.2 24.2 22.8 16.1 ; *Represents multiples for FY14, FY15 & FY16 are based on historic market price For private circulation only. For important information about Karvy s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters Analyst Contact Sharanabasappa VS 4-3321 6274 sharanabasappa.vs@karvy.com 1
Jun 7, 216 Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs. Mn) FY16 FY17E FY18E Net sales 2315 2763 3549 Optg. Exp (Adj for OI) 1789 2168 2757 EBITDA 526 595 792 Depreciation 116 126 144 Interest 15 12 Other Income 1 1 1 PBT 397 459 649 Tax 137 161 227 Adj. PAT 259 298 422 Profit & Loss Ratios EBITDA margin (%) 22.7 21.5 22.3 Net margin (%) 11.2 1.8 11.9 P/E (x) 24.2 22.8 16.1 EV/EBITDA (x) 12. 11.5 8.5 Dividend yield (%).8.9 1.2 Balance sheet (Rs. Mn) FY16 FY17E FY18E Total Assets 1596 184 214 Net Fixed assets 874 164 1145 Current assets 62 692 899 Other assets 12 84 97 Total Liabilities 1596 184 214 Networth 1212 1438 1758 Debt 82 8 Current Liabilities 232 271 331 Other liabilities 7 51 51 Balance Sheet Ratios RoE (%) 23.4 22.5 26.4 RoCE (%) 34. 33.4 39.6 Net Debt/Equity (x)... Equity/Total Assets.8.8.8 P/BV (x) 5.2 4.7 3.9 Exhibit 2: Shareholding Pattern (%) Company Background was incorporated in 199 in the name of Kotawala Financial Consultancy Pvt. Ltd. It made its maiden public issue of equity shares in 1995. The name of the company was further changed to Suave Hotels Ltd in 27. During FY11, the company s current promoters Mr. Anil Patodia, Mr. Kamal Poddar, Mrs. Vinita Patodia and Hotel Relax Private Ltd acquired the stake of the erstwhile promoters and further increased their holding through preferential allotment / open offer to the existing shareholders. With the change in the management, the name of the company was also changed to (TBHL). Its business consists of two broad categories, Owned & Leased hotels (O&L) and Room Chartering (RC) business. In the O&L hotels business, the company enters into an operating lease agreement with hotel property on an annual lease basis, renovates it and operates it under the brand The Byke. Currently, the company has 9 properties under its operation: of which, 2 are owned and the rest 7 are leased. It is also engaged in the room chartering business where the company buys bulk hotel room inventory in advance and then sells them through its network of agents. Cash Flow (Rs. Mn) Exhibit 3: Revenue Segmentation (%) FY16 FY17E FY18E PBT 397 459 649 Depreciation 116 126 144 Interest (net) 14 1 (1) Tax (137) (161) (227) Changes in WC (123) (36) (151) CF from Operations 266 399 414 Capex (183) (316) (225) Others 1 1 1 CF from Investing (182) (314) (224) Change in Debt/Interest (3) (14) (8) Dividends (48) (72) (12) CF from Financing (78) (86) (182) Change in Cash 6 (2) 8 FII 5.6% DII 8.7% Others 41.3% Chartering revenue 5.6% Promoters 44.5% Food & Beverages and Others 26.5% Leased room revenue 22.9% Source: BSE, Karvy Research 2
Room inventory addition to drive hotel revenues by 21.2% CAGR during FY16-18E: Jun 7, 216 In line with its past performance, Byke Hospitality is planning for the next phase of growth in hotel revenue by addition of another 8 leased properties by FY19E. These new properties will be at Lonavala, Mahabaleshwar, Jodhpur, Udaipur, Chandigarh, Dalhousie, Darjeeling and Gangtok increasing the presence of the brand Byke across the country. We expect the 4 properties to be operational by mid-fy18e leading to an addition of ~42 leased rooms, ~1 restaurants & ~12 conference halls and the total hotel revenues to grow at 21.2% during FY16-FY18E reaching to Rs. 1677 Mn in FY18E with Rs. 914 Mn contributed from room rental revenue and Rs. 763 Mn from F&B and other segments. Exhibit 4: Capacity addition during FY16-18E 12 8 16 13 4 519 12 623 FY15 FY16 FY17E FY18E Hotel Room Capacity (No. of Rooms) Restaurants (No's) (RHS) Conference & Lawns (No's) (RHS) 15 28 2 25 697 17 1118 3 2 1 Exhibit 5: Hotel Revenue Segmental break-up (Rs. Mn) 18 379 12 318 384 313 239 327 177 3 6 21 211 914 684 428 464 529 Room Revenues Restaurant Revenues Conf., Lawn & others Revenues Room rental revenue to grow @ 31.5% CAGR during FY16-18E; to be the fastest growing segment: The total room capacity in FY18E is expected to reach ~1118 rooms an increase of 599 rooms, over FY15 capacity. This ~2x increase in capacity is due to the addition of facilities at Thane in Sep 15, Puri facility in Apr 16 and upcoming addition of facility at Shimla and another 4 facilities added by FY18E. With the significant increase in the capacity addition, we expect the room revenues to grow at 31.5% CAGR in FY16-18E reaching Rs. 914 Mn in FY18E, with the new room capacity contributing nearly 33.6% of the FY18E room rental revenue. Exhibit 6: Room inventory addition at different locations during FY16-18E 33 22 11 32 32 15 15 4 4 FY16 54 54 122 122 2 54 78 FY18E 123 123 97 Exhibit 7: Room Revenues to grow at 31.5% during FY16-18E 1 8 6 4 2 8.6% 13.5% 34 29.4% 134 33.6% 315 466 495 551 599 FY15 FY16 FY17E FY18E Old room rental revenue (Rs. Mn) New room rental revenue (Rs. Mn) Rental revenue growth (%) 4% 3% 2% 1% % Exhibit 8: ARR & Occupancy trend during FY16-18E 44 4 36 32 69.6% 3617 67.7% 3786 65.% 399 64.2% 4237 62.8% 4222 72% 68% 64% 6% 56% ARR (Rs. per room) Occupancy rate (%) We expect the average occupancy level to witness a drop and remain in the levels of 63%-64% during FY16-18E due to the new room inventory addition and the time to pick-up the occupancy levels at those locations. In the past, average occupancy has been consistently increasing from 61.% in FY11 to 7.% in 214, with a decline to 67.% in FY15, primarily due to the launch of the new Byke Grassfield at Jaipur. We expect the ARR to remain in the range of Rs. 399-4237 during FY16-18E witnessing a growth of 4.% CAGR during FY16-18E; however, it grew at 11.% CAGR during the period FY11-15 from Rs. 2438 in FY11 to Rs. 3769 in FY15. 3
#allvegetarian restaurants and others segment to grow @ CAGR of 11.6% during FY16-18E Jun 7, 216 Exhibit 9: F&B and Others to grow at 11.6% during FY16-18E 8 6 4 2 8.6% 466 13.5% 34 495 29.4% 134 33.6% 315 551 599 FY15 FY16 FY17E FY18E Old room rental revenue (Rs. Mn) New room rental revenue (Rs. Mn) Rental revenue growth (%) 4% 3% 2% 1% % The F&B and others segments, which contribute nearly 5% of hotel revenues, are expected to maintain the same in the years to come. With the addition of the Thane, Puri and Shimla facilities and with the addition of another 4 facilities by FY18E, we expect the total F&B and others revenue to grow at 11.6% CAGR during FY16-18E with new restaurant capacity contributing Rs. 172 Mn in FY18E to total of Rs. 763 Mn. The increasing MICE (Meetings, Incentives, Conferencing and Exhibitions) activity and destination weddings, the company expects to clock a good growth in the other segments going forward. Chartering business revenues to grow @ CAGR of 26.4% during FY16-18E: In chartering segment, the company buys room-nights in the mid-budget hotels by the advance payment at a discount price in bulk across leisure tourist and religious destinations during off-peak season. During the peak season time, the room-nights are sold to the customers by the travel agents who in return earn commission. Currently, the company has a presence in 47 cities with 28 active agents and plans to expand it to newer regions and increase the agent count as well. The number of the room-nights booked in FY11 was 1.1 lacs and currently stands at 4.9 lacs in FY16, which is expected to reach 7.8 lacs room nights in FY18E. The revenue witnessed a 43.5% CAGR growth with ARR growing at 3.% CAGR with consistent increase in the occupancy levels during FY11-16. We expect the ARR to grow at 3.% with occupancy levels in the range 94-95% and chartering revenues to grow at 26.4% and reach Rs. 1871 Mn in FY18E. With the established network of agents in the Chartering business, the company s O&L business gets visibility of the customers hence the possibility of improving the occupancy level at the owned and leased hotels and also the company gets to understand about the next suitable location to expand. Exhibit 1: Room-nights sold to reach 7.4 Lakhs in FY18E Exhibit 11: ARR & Occupancy trend during FY16-FY18E 2 15 1 5 3.5 75 3.7 91 4.9 1172 5.8 1434 7.4 1871 8 6 4 2 26 24 22 2 92.% 2175 93.8% 2414 94.% 94.% 2388 246 94.5% 2533 95% 94% 93% 92% 91% 18 9% Chartering Revenue (Rs. Mn) Room nights sold (Lakhs) ARR (Rs. per room) Occupancy level (%) Rich Cash Flows and asset-light structure turning out to be a self funding hybrid model Exhibit 12: FCF yields to improve during FY16-18E 1..8.6.4.2. 1.7%.4.5 1.2%.7.8 1.3% 1.2% 2.8%.5 CapEx/CFO FCF yield (%) (RHS) 3.% 2.5% 2.% 1.5% 1.%.5%.% Byke hospitality s CFO witnessed a growth of 76.1% CAGR growth during FY12-16 owing to business model and improving EBITDA margin profile. With the succession in the year 211, the new management introduced the chartering and leased business model which over the years benefited the company to scale rapidly in terms of the room-nights sold and room capacity increased in the leased room segment with improving CFO. We expect the business model to continue to support CFO and to grow at 24.7% CAGR during FY16-18E. The increasing CFO is creating a base for further deployment to lease properties and chartering segment leaving aside healthy free cash flows to the equity owners. We expect the free cash flow yield to remain in the range of 1.3-2.7% during FY16-18E. 4
Improving return ratios in both the segments: Jun 7, 216 Chartering segment of the company witnessed healthy return ratios over the years, mainly on account of the improving gross margins due to increase in the occupancy levels. We expect the chartering RoCE to continue to perform better. The Leased room segment is also expected to improve RoCE in the years to come. The overall return ratios are expected to perform well due to improving assets turnover ratio and net margins of the company. Exhibit 13: Improving RoCE of Hotel & Chartering Segment 4% 35.% 33.3% 3.% 3.1% 3.9% 3% 27.6% 2% 15.3% 23.5% 14.2% 21.7% Exhibit 14: Improving asset turnover ratio leading to higher RoE 2. 1.9 28% 1.8 1.7 1.7 26% 26.4% 1.6 1.5 24% 1.4 1.4 23.4% 21.7% 22.5% 22% 1.2 2.2% 2% 1% Chartering RoCE (%) Leased and F&B RoCE (%) 1. Asset turnover ratio (x) RoE (%) 18% 5
Jun 7, 216 Exhibit 15: Business Assumptions Y/E Mar (Rs. Mn) FY14 FY15 FY16E FY17E Comments Revenue 1814 2315 2763 3549 Revenue Growth (%) 16.5 27.6 19.4 28.4 EBITDA 372 526 595 792 EBITDA Margins (%) 2.5 22.7 21.5 22.3 PAT (normalized) 2 259 298 422 Fully Diluted EPS (Rs.) 5. 6.5 7.4 1.5 Fully Diluted EPS Growth (%) 26.1 29.5 15.1 41.3 Net CFO 164 266 399 414 Capex (88) (183) (316) (225) Net Debt 11 57 56 (33) Free Cash Flow 76 83 83 189 We expect the revenue to grow at 23.8% CAGR during FY16-18E mainly on account of the new leased room inventory addition and increased room-nights sold under chartering segment. EBITDA margins are expected to improve mainly on account of the increased occupancy level under chartering. The company is planning to expand to 8 new locations by FY19E for which its planning to invest in next two years. We expect the company to repay its debt by FY18E. Exhibit 16: Karvy vs Consensus Karvy Consensus Divergence (%) Comments Revenues (Rs. Mn) FY17E 2763 2829 (2.3) EBITDA (Rs. Mn) FY17E 595 669 (11.) EPS (Rs.) The increased leased payments for the new inventory additions along with the time taken to improve the occupancy levels at those locations, we expect the EBITDA margin in FY17E to remain at these levels. FY17E 7.4 8.2 (9.2) Source: Bloomberg, Karvy Research 6
Jun 7, 216 Revenue to grow at 23.8% during FY16-18E Exhibit 17: 4 3 2 1 54.2% 1557 16.7% 1814 27.4% 2315 19.4% 2763 3549 28.4% 6% 5% 4% 3% 2% 1% % Revenue (Rs. Mn) Growth (%) Revenue of the company is expected to grow at 23.8% during FY16-18E mainly on account of recent properties added at Thane, Puri and upcoming property at Shimla along with addition of 4 leased properties. The growth is also supported due to the increased room-nights sold under chartering segment. We expect the room rental revenues to grow at 31.5%, with chartering segment growing at 26.4% followed by F&B segment at 11.6% during FY16-18E. EBITDA margins to be sustainable going ahead Exhibit 18: 8 6 4 2 18.3% 2.5% 22.7% 21.5% 286 372 526 595 22.3% 792 3% 2% 1% % EBITDA (Rs. Mn) EBITDA Margin (%) Byke has been able to improve its margins over the years witnessing EBITDA margins improvement from 18.3% in FY14 to 22.7% in FY16. We expect the company to improve EBITDA margins on account of increased occupancy levels in the chartering during FY16-18E and to remain in the range of 21.5-22.3% during FY16-18E. Improving return ratios Exhibit 19: 4% 35% 3% 25% 2% 15% 24.3% 2.2% 25.6% 21.7% 34.% 33.4% 23.4% 22.5% 39.6% 26.4% RoE (%) RoCE (%) RoCE of the company is expected to improve during FY16-18E due to ability of the company to fund it s expansion through the internal accurals without any additional borrowing. We expect the company to retire its debt by FY18E. RoE is set to improve during FY16-18E from the current levels mainly on account of the increased asset turnover ratio. Exhibit 2: Company Snapshot (Ratings) Low High 1 2 3 4 5 Quality of Earnings 33 Domestic Sales 33 Exports 33 Net Debt/Equity 33 Working Capital Requirement 33 Quality of Management 33 Depth of Management 33 Promoter 33 Corporate Governance 33 7
Jun 7, 216 Valuation & Outlook The impressive performance of the Byke over the years can be credited to the unique business model of the company. The leased model requires less capital with the ability to quickly scale the leased room inventory and chartering segment giving an opportunity to redeploy the capital at higher returns. The upcoming addition of leased room inventory and restaurants along with increasing room-nights sold in chartering segment will aid the company to grow its revenue with improving operating margins and blended return ratios in the years to come. We initiate coverage on The Byke assigning P/E multiple of 19.7x to FY18E EPS and give a BUY rating with a target price of Rs. 27 with an upside potential of 22% for a period 12-15 months. Exhibit 21: PE Band 34 34 3 3 26 26 22 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Average P/E SD+1 SD-1 P/E (RHS) 22 Source: Prowess, Karvy Research Key Risks ygeographic threat because of natural calamities and lack of seasonal demand. ycompetetion from the Online Room Aggregators. yslowdown in the Indian economy might impact spending in this segment. 8
Jun 7, 216 Financials Exhibit 22: Income Statement YE Mar (Rs. Mn) Revenues 1557 1814 2315 2763 3549 Growth (%) 54.3 16.5 27.6 19.4 28.4 Operating Expenses 1271 1442 1789 2168 2757 EBITDA 286 372 526 595 792 Growth (%) 62.8 3.3 41.3 13.1 33.1 Depreciation & Amortization 54 12 116 126 144 EBIT 233 272 412 471 649 Other income 1 1 1 1 1 Interest Expenses 21 18 15 12 PBT 213 254 397 459 649 Tax 54 53 137 161 227 Adjusted PAT 159 2 259 298 422 Growth (%) 14.9 26.1 29.5 15.1 41.3 Exhibit 23: Balance Sheet YE Mar (Rs. Mn) Cash & Cash Equivalents 2 23 29 27 35 Trade receivables 17 14 177 166 213 Inventory 6 6 62 97 124 Loans & Advances 228 314 438 47 65 Net Block 82 86 874 164 1145 Other current assets 18 17 17 17 18 Total Assets 1254 1361 1596 184 214 Current Liabilities 234 211 232 271 331 Debt 121 98 82 8 Other Liabilities 5 51 7 51 51 Total Liabilities 45 36 384 42 382 Shareholders Equity 2 41 41 41 41 Reserves & Surplus 648 6 811 137 1357 Total Networth 848 11 1212 1438 1758 Total Networth & Liabilities 1254 1361 1596 184 214 9
Jun 7, 216 Exhibit 24: Cash Flow Statement YE Mar (Rs. Mn) PBT 213 254 397 459 649 Depreciation 54 12 116 126 144 Net Interest flow 19 17 14 1 (1) Tax Paid (5) (45) (137) (161) (227) Inc/dec in Net WC (36) (163) (123) (36) (151) Cash flow from operating activities 2 164 266 399 414 Inc/dec in capital expenditure (9) (88) (183) (316) (225) Others (2) 1 1 1 1 Cash flow from investing activities (92) (87) (182) (314) (224) Inc/dec in borrowings (53) (24) (15) (2) (8) Dividend paid (25) (35) (48) (72) (12) Interest paid (21) (16) (15) (12) () Cash flow from financing activities (99) (74) (78) (86) (182) Net change in cash 9 3 6 (2) 8 Exhibit 25: Key Ratios YE Mar EBITDA Margin (%) 18.3 2.5 22.7 21.5 22.3 EBIT Margin (%) 15. 15. 17.8 17. 18.3 Net Profit Margin (%) 1.2 11. 11.2 1.8 11.9 Dividend Payout Ratio (x) 18.9 2. 2. 2. 2. Net Debt/Equity.1.1.. (.) RoE (%) 2.2 21.7 23.4 22.5 26.4 RoCE (%) 24.3 25.6 34. 33.4 39.6 Exhibit 26: Valuation Parameters YE Mar EPS (Rs.) 4. 5. 6.5 7.4 1.5 DPS (Rs.).8 1. 1.3 1.5 2.1 BV (Rs.) 21.2 25. 3.2 35.9 43.8 PE (x) 4.4 32.2 24.2 22.8 16.1 P/BV (x) 7.6 6.5 5.2 4.7 3.9 EV/EBITDA (x) 22.9 17.6 12. 11.5 8.5 EV/Sales (x) 4.2 3.6 2.7 2.5 1.9 ; *Represents multiples for FY14, FY15 & FY16 are based on historic market price 1
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