Apeejay Surrendra Park Hotels Limited: Ratings upgraded to [ICRA]A+ (Stable)/ [ICRA]A1

The rating agency ICRA has upgraded Apeejay Surrendra Park Hotels Limited to [ICRA]A+ (Stable)/ [ICRA]A1.

The ratings upgrade for Apeejay Surrendra Park Hotels Limited (ASPHL) considers the significant improvement in its financial profile following the successful initial public offer (IPO) in February 2024, and expectations that the company will continue to maintain a healthy financial profile going forward. The IPO resulted in a fresh equity infusion of Rs. 600 crore, which was used to prepay all existing term loans from banks (~Rs. 550 crore). While the IPO has led to deleveraging, industry tailwinds and strong operational capability of the entity led to double-digit growth in its consolidated revenues and operating profits in FY2024. This growth was supported by a ~10% increase in the company's average room rates (ARR) and an industry-leading overall occupancy of ~92%. The company's overall performance is likely to improve further over the medium term given the healthy outlook for the hospitality industry.

The ratings continue to derive comfort from the established position of ASPHL in the Indian hospitality industry, with a presence across attractive locations in key cities and sustained growth in its food and beverages (F&B) revenues, which are less cyclical than room revenues. The share of F&B income in ASPHL's revenues has historically been high (43% in FY2024) compared to its peers. The addition of the Flury's brand since October 2019 has provided further fillip to the company's overall F&B revenues, and the trend is likely to continue in the medium term, given the company's significant expansion plan for the Flury's segment.

The company is in the process of expanding its presence across geographies through leased hotels and the asset-light management contract model, with limited capital outlay. ASPHL has also planned a few greenfield projects, however, all such properties will be built on its existing owned land, limiting the cash outflow. The new project in Kolkata will be entirely funded through inflows from the monetisation of the real estate project. Thus, the overall cash outflow for the greenfield projects finalised so far (Kolkata and Pune) is estimated at ~Rs. 500 crore, to be incurred over FY2025 to FY2029. Besides this, the company would also incur a capex of ~Rs. 500 crore for expansion of the Flury's business, room renovations and room additions in other locations. The capex will be mainly funded by ~Rs. 300 crore income expected from the real estate project in Kolkata and the balance from internal accruals. Nevertheless, the company would remain exposed to the associated project risks.

ASPHL settled a property tax demand of ~Rs. 90 crore from the Kolkata Municipal Corporation (KMC) at ~Rs. 42 crore in FY2023 and paid off the same to commence project development on the land. However, it has another property tax demand of ~Rs. 68 crore, as of September 2023, from the New Delhi Municipal Council (NDMC), which is currently subjudice. ICRA will continue to monitor the developments in this regard.

The ratings also remain constrained by the company's vulnerability to the cyclicality inherent in the hospitality industry due to its close linkages with the economic cycles and exogenous shocks, notwithstanding the demand tailwind being witnessed at present, which is likely to sustain in the medium term. ICRA notes the history of liquidity crunch and resulting defaults in debt servicing by a few entities of the Apeejay Surrendra Group in the past. Nevertheless, there has been a substantial improvement in the overall leverage and liquidity profile of the Group through the sale of loss-making tea estates and the Typhoo (UK) brand. Moreover, ASPHL's recent IPO and an improvement in the overall operational performance of the Group have strengthened its overall financial profile to an extent.

The Stable outlook on the long-term rating reflects ICRA's opinion that the company's revenues and profits are likely to remain healthy, supported by industry tailwind, and its financial profile is likely to remain comfortable due to limited reliance on fresh borrowings for planned projects.

Shares of Apeejay Surrendra Park Hotels Limited was last trading in BSE at Rs. 190.15 as compared to the previous close of Rs. 189.70. The total number of shares traded during the day was 20204 in over 736 trades.

The stock hit an intraday high of Rs. 193.00 and intraday low of 188.05. The net turnover during the day was Rs. 3846896.00.

Source : Equity Bulls

Keywords

ApeejaySurrendraParkHotels INE988S01028 RatingUpgrade ICRA