Juniper Hotels

IPO is to reduce debt

Largest aggregator of upper tier branded serviced apartments in Mumbai and New Delhi

Juniper Hotels operates a luxury hotel chain under the Hyatt brand. The company‘s portfolio includes seven luxury hotels and serviced properties and operates a total of 1,836 keys as of September 30, 2023.

The company’s hotels and serviced apartments are classified under three distinct segments: the Grand Hyatt Mumbai Hotel and Residences and Andaz Delhi; upper upscale the Hyatt Delhi Residences, Hyatt Regency Ahmedabad, Hyatt Regency Lucknow and Hyatt Raipur; and upscale Hyatt Place Hampi. The company has the largest aggregate inventory of upper tier branded serviced apartments in Mumbai and New Delhi among hotels owned by major private investors.

As of September 30, 2023, the Grand Hyatt Mumbai Hotel and Residences had 665 keys, which represent approximately 12% of the total supply of 5,400 luxury room inventory in Mumbai, and Andaz Delhi had 401 keys, which represents approximately 12% of the total supply of 3,300 luxury room inventory in New Delhi. The Hyatt Regency Ahmedabad had 211 keys, which represents approximately 26% of the total supply of 800 upper upscale inventory in Ahmedabad. The Hyatt Regency Lucknow had 206 keys, which represents approximately 52% of the total supply of 400 upper upscale inventory in Lucknow. In Raipur, the Hyatt Raipur was established to benefit from the industrial growth in the capital city of Chhattisgarh, the resource-rich state. The Hyatt Place Hampi was established to cater to tourists visiting the HampiUnesco World Heritage Site as well as to business travelers visiting the nearby steel manufacturing facilities.

As of September 30, 2023, the company had 116 serviced apartments at the Grand Hyatt Mumbai Hotel and Residences and 129 serviced apartments at the Hyatt Delhi Residences. In addition to this, the company’s hotels feature an aggregate of 22 renowned restaurants and bars.

On September 20,2023, the company acquired 100% of the equity share capital of Chartered Hotels Private Limited (CHPL) along with its subsidiary Chartered Hampi Hotels Private Limited (CHHPL, and together with CHPL, the CHPL Group). Pursuant to CHPL’s acquisition on September 20, 2023, CHPL became the company’s whollyowned subsidiary and CHHPL became the company’s indirect subsidiary.CHPL and CHHPL together had three hotels: Hyatt Regency Lucknow, Hyatt Raipur and Hyatt Place Hampi. The acquisition added 430 keys to the company’s portfolio, taking the company’s total portfolio to 1,836 keys as on September 30,2023.

Due to increasing demand in the hospitality industry led by business travel, meetings, incentives, conferences and exhibitions (MICE) and weddings, the company is adding hospitality inventory of approximately 198,000 sq. ft. by constructing additional floors resulting in the addition of 293 rooms and 24 serviced apartments at Grand Hyatt Mumbai Hotel and Residences. Further, with the growth in demand in commercial space, the company plans to develop a commercial space of approximately 54,000 sq. ft (built-up) on an additional parcel of land which has a land area of 1,032 square meters and adjoins the Grand Hyatt Mumbai Hotel and Residences.In addition,the company completed the development of two additional floors at the Hyatt Regency Ahmedabad in September 2023. This resulted in the addition of 59 keys at a cost of approximately Rs 16.6 crore. These 59 rooms have been operational since October 2023.

Juniper Hotels is jointly owned by Saraf Hotels and Two Seas Holdings. Two Seas Holdings is an affiliate of Hyatt Hotels Corporation, a well-known international hospitality entity. Through Two Seas Holdings, Hyatt owns half of Juniper Hotels.

Object of the offer

The IPO consists of a fresh issue of Rs 1800 crore and there is no offer for sale in the IPO.

Out of the proceeds from the fresh issue, the company proposes to use the net proceeds of Rs 1,500 crore towards repayment, prepayment, or redemption, in full or in part, of certain outstanding borrowings (including payment of the interest accrued) availed by the company and its subsidiaries, and the balance towards general corporate purposes.

Strengths

The company has demonstrated a strong track record in establishing its presence across key cities. Its hotels and serviced apartments are in established markets such as Delhi and Mumbai; emerging business destinations such as Ahmedabad, Lucknow and Raipur; and growing tourist destinations such as Hampi. In Raipur and Hampi, its hotels were the first international chain affiliated hotels. Further, the company identifies micro-markets and locations within the cities based on their proximity to airports, central business districts, areas with concentrated industrial catchment and areas with high tourism activities. Also, the company has developed its hotels at locations with high barriers to entry.

The company benefits from a unique and longstanding partnership of over 40 years between Saraf Hotels, a hotel developer with a strong track record in India, and affiliates of a globally recognized premier hospitality brand, Hyatt Hotels Corporation. The company is the only hotel development company in India with which Hyatt has a strategic investment. The company owns 19.6% of Hyatt group affiliated hotel rooms and apartments in India as on September 30, 2023, and has extensive experience in identifying opportunities in hospitality destinations, developing high-end hotels in these locations and nurturing them through active asset management. The company is also focused on providing quality guest experience, while operating its assets efficiently.

The company is well positioned to benefit from the industry trends. With increased demand environment for the hospitality industry, the company’s financial and operational performanceimprovedoverthe last two years. The company’s average room rent (ARR) increased to Rs 9,875.12 in Fiscal 2023 from Rs 5,656.77 in Fiscal 2021 and its average occupancy increased to 75.74% in Fiscal 2023 from 34.23% in Fiscal 2021. In the six months ended September 30, 2023, and September 30, 2022, the company’s ARR was Rs 10,139.85 and Rs 8,817.95, respectively, and its average occupancy was 74.84% and 72.59%, respectively.

The company has robust asset management capabilities with a focus on enhancing operational efficiency and profitability.The companyhas established specialized asset management teams with asset managers at each of its hotels. The company has formed functional clusters – operations, finance, human resources, procurement, and a dedicated above-property sales team. This cluster-based approach provides the company with the ability to apply best practices and maximize results.

The company has introduced complementary revenue generating streams at its hotels, and benefit from revenue contribution from areas such as serviced apartments, restaurants, meetings, incentives, conferences and exhibitions(MICE) services and other services, to ensure optimal utilization of available resources. Its complementary offerings also result in a mix of customers and guests staying at its properties, which improves its average room rentals. Further, the company consistently monitors the usage of available space at its hotels and aims to enhance its customer offering by adapting the available real estate space in its hotels to meet the ever-changing demands of the market.

The company has an experienced and qualified management team and board of directors who have in-depth knowledge of hotel operations and hotel property development. Along with Arun Kumar Saraf, the company’s board includes Pallavi Shardul Shroff and David Peters, each of whom has wide experience in various industries including hospitality and law.

Weaknesses

The company operates in a capital-intensive industry and the company’s current and future levels of leverage could have significant consequences for the future financial results and business prospects. As of September 30, 2023, the company had outstanding borrowings of Rs 2252.7 crore and lease liabilities to the tune of Rs 410 crore on a consolidated basis.

The company’s indebtedness and the conditions and restrictions imposed by the company’s financing arrangements may limit its ability to grow its business.

The company’s recently acquired entity, CHPL, has witnessed delays in repayment of loans in the past and has accordingly undertaken strategic debt restructuring. Any inability of CHPL to meet the terms of restructuring could adversely affect the company’s financial condition.

A substantial portion of the net proceeds (Rs 1500 crore of Rs 1800 crore) will be utilized for the repayment, prepayment and/or redemption of indebtedness availed of by the company and its subsidiaries.

A significant portion of the company’s revenue from operations (90.0%) is derived from three hotels and serviced apartments in Mumbai (Maharashtra) and New Delhi out of the portfolio of four hotels and serviced apartments of the company, and any adverse developments affecting these hotels and serviced apartments or the regions in which they operate, could have an adverse effect on the company’s business.

The company has witnessed negative operating cash flows in the past, and it is possible that the company may experience negative cash flows in the future, which may impact the financial position of the company.

The company entered into long-term agreements with certain Hyatt entities for the operations and management of its hotels and usage of brands owned by Hyatt International Corporation. If these agreements are terminated or not renewed, the company’s business may be impacted.

Two of the company’s hotels and serviced apartments (Andaz Delhi and Hyatt Delhi Residences) and one of its recently acquired hotels (Hyatt Place Hampi) are located on licensed and leased land. If the company is unable to comply with the terms of the lease or license agreements, renew its agreements or enter into new agreements on favorable terms, or at all, its business will be adversely affected.

The company’s business is subject to seasonal and cyclical variations that could result in fluctuations in the company’s results of operations.

The covid-19 pandemic, or any future pandemic or widespread public health emergency, could affect the company’s business and financial condition.

The hospitality industry is intensely competitive and the company’s inability to compete effectively may adversely affect its business.

Contingent liabilities as on September 30, 2023, stood at Rs 28.1 crore.

Valuation

For the six months ended September 2023, consolidated sales were up by 14.2% to Rs 336.11 crore. The OPM declined 194 bps to 36.68%, which led to an8.5% increase in operating profit to Rs 123.28 crore.Other income declined 95.1% to Rs 1.32 crore. Interest cost declined 3.7% to Rs 132.15 crore and depreciation declined 6.1% to Rs 38.99 crore. Loss before tax stood at Rs 46.54 crore as against Rs 38.40 crore in the corresponding period of the previous year. Tax credit was Rs 20.04 crore as against tax credit of Rs 20.89 crore in the corresponding period of the previous year. Net loss stood at Rs 26.50 crore as against net loss of Rs 17.51 crore in the corresponding period of the previous year.

For the six months ended September 2023, CHPL group(CHPL and CHHPL) incurred net loss of Rs 21.65 crore on total revenues of Rs 53.48 crore. (Acquired on September 20,2023, and not consolidated with company’s financials as on September 30,2023)

For FY 2023, consolidated sales were up by 116.0% to Rs 666.85 crore primarily due to an increase in the occupancy rate and the average room rent. The OPM rose 1927 bps to 40.78%, which led to 309.5% increase in operating profit to Rs 271.93 crore. Other income increased 43.8% to 50.43 crore. Interest cost increased by 23.5% to Rs 266.36 crore and depreciation declined 18.4% to Rs 81.52 crore. Loss before tax stood at Rs 25.52 crore as against loss of Rs 214.10 crore in FY2022. Tax credit stood at Rs 24.02 crore in FY2023. Net loss stood at Rs 1.50 crore as against net loss of Rs 188.03 crore in FY2022.

As the company is making losses, the P/E ratio cannot be calculated.

In September 20,2023, the company issued 28802384 equity shares through private placement to share holders of CHPL at an issue price of Rs 184.51 crore for acquisition of CHPL and its subsidiary CHHPL.

At the higher price band of Rs 360, the offer is made at around 33.43 times post-IPO EV/TTM EBITDA(September 2023) and 14.46 times post IPO Price/TTM sales (September 2023). Listed industry peers of the company are Chalet Hotels, Lemon Tree Hotels, and EIH. In comparison Chalet Hotels trades at 27.12 times its EV/ TTM EBITDA(Sep 2023) and P/TTM Sales (Sep 2023) of 16.27 times, Lemon Tree Hotels trades at 22.81 times its EV/ TTM EBITDA(September 2023) and 14.15 times P/ TTM Sales (September2023)and EIH trades at 27.54 times its EV/ TTM EBITDA(September 2023) and 11.05 times P/ TTM Sales (September 2023).All these peers are making profit at the net levels in FY2023.