Apeejay Surrendra Park Hotels Limited (PARKHOTELS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call of Apeejay Surrendra Park Hotels Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devrishi Singh of CDR India. Thank you, and over to you, sir.

Thank you, Sagar. Good afternoon, everyone, and thank you for joining us on Apeejay Surrendra Park Hotels Q1 FY '26 Earnings Conference Call. We have with us Mr. Priya Paul, Chairperson Mr. Vijay Dewan, Managing Director; Mr. Atul Khosla, SVP Finance and CFO of the company; and Mr. Rabindra Basu, Director, Investor Relations. We will begin the call with opening remarks from the management followed by an interactive Q&A session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Ms. Priya Paul to make our opening remarks. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. On behalf of the Board and management team of Apeejay Surrendra Park Hotels, I extend a very warm welcome to all of you to our Q1 FY '26 earnings conference call. This quarter marks another step forward in our journey of shaping distinctive hospitality experiences and reinforcing our leadership in the boutique, luxury and upper upscale segments. We have built a portfolio based on our vision of leadership through differentiation, creating brands that resonate strongly with loyal guests across India and beyond. In Q1, we strengthened our presence in the high-potential leisure destinations by signing an MOU to acquire and manage 4 properties in Goa, Manali, Shimla and Dharamsala. These additions will broaden our geographic reach and enhance our positioning in some of India's most sought-after tourism markets. Our investment in Mumbai, which was announced earlier, will result in a quick entry into this very important market. Our new projects in EM Bypass, Kolkata, Visakhapatnam and Pune are progressing well, with key permissions in hand and design work almost complete. We continue to scale our asset-light side of the business across brands from the Zone By The Park, Zone Connect as well as The Park. The macro backdrop remains supportive despite a few hiccups in Q1, but India witnessed sustained growth in both leisure and travel -- and business travel, the supply and demand mismatch continues in the next few years. And in the meantime, infrastructure upgrades, tourism friendly policies, the government and rising consumer aspirations are driving demand across the country. These factors, coupled with our strong brand equity and market reach places us in a position of strength to capitalize on the opportunities ahead. Looking ahead, our focus will be on executing our pipeline of strategic projects, deepening guest engagement through curated experiences and continuing to innovate across our portfolio. Our team is committed to creating enduring value for all stakeholders by staying true to our vision and mission. I'm delighted by our excellent Q1 performance delivered by our outstanding team across the country. Innovative food and beverages, industry-leading occupancy at 92% continue to be the cornerstones of our success. None of this would be possible without the continued support from our team, our customers, partners and shareholders. Thank you all. I now hand this over to Vijay Dewan, Managing Director of our company, who will take you through the performance of Q1. Thank you very much.

Thank you, Ms. Paul. Good evening, everyone, and a very warm welcome to all of you. We truly appreciate you joining us on today's earnings call. On behalf of my entire leadership team, I would like to express our heartfelt gratitude for your continued support in our vision. Your confidence continues to energize our journey. And today, we are pleased to share our quarterly performance and meaningful progress on multiple fronts. We have commenced FY '26 on a very strong and encouraging note and thanks to the dedication and commitment and hard work of teams. We have delivered an extraordinary and best-ever Q1 setting a strong momentum for the year ahead. At the operating level, the company recorded a top line growth of 14% and an EBITDA growth of 16%. We recorded India's highest occupancy of 92% and maintain our leadership in RevPAR in the upper upscale segment. During the course of the quarter, ARR improved by 13% and RevPAR increased by 12%. Powered by accelerated increase of close to 600 rooms which includes 41% increase in the asset-light side of the model, a nationwide Flurys rollout, we are now set to scale faster, protect and improve our margins and deliver exceptional shareholder value. Our flagship properties, starting with Calcutta achieved full occupancy of 100%, while Chennai posted 95% and both Navi-Mumbai and Bangalore recorded occupancies of 93%. This performance is a testament to our consistent focus on service excellence, operational efficiencies, differentiated hospitality offerings and customer loyalty. FY '26 will see addition of close to 600 rooms, 411 rooms in the asset category of management contract, 147 rooms in leased category and 31 rooms in the ownership category. Total number of rooms will increase from 35 hotels with 2,394 keys to 50 hotels with 2,983 keys in line with our vision of 50 hotels by 2025. These additions aided by organic growth will lead to sustained high double-digit growth in both revenues and EBITDA. Our balance sheet is extremely strong with network standing at INR 1,297 crores, ICRA rating remains stable at A+ and with deposits close to INR 70 crores, the liquidity situation in the company is extremely comfortable. FY '26 will see conclusion of 2 strategic acquisitions, 80 rooms, Zillion Hotels & Resorts at Juhu for 90% stake at INR 206 crores to be concluded within this month and 31 rooms at Cochin at a cost of INR 62 crores to be concluded by the end of September. These 2 strategic acquisitions will strengthen our position, both in business and luxury segments. Our development plans remain on course. FY '26 will see the launch of our EM Bypass Calcutta project in collaboration the with Ambuja Neotia Group. This development structured under a joint development agreement which will see ASPHL received 55% of the project revenues. The sale of the residential apartments is expected to commence around the Diwali season this year making the formal kickoff of the development. The total project is expected to generate over INR 600 crores in revenues with our share expected to contribute INR 100 crores per year over the next 3 years. These cash flows will be reinvested into the project enabling us to efficiently progress towards our goal of completing both the residential and hotel components by April of 2028, with no capital investment beyond our historic land bank, the project is poised to deliver strong ROCE and emerge as a landmark asset in our portfolio. As you are aware, in the previous financial year, we launched 2 heritage palace properties, The Lotus Palace Chettinad and Ran Baas The Palace at Patiala. To share an update, The Lotus Palace recorded in ARR of close to INR 12,000 in Q1 of FY '26, while Ran Baas achieved an ARR of close to INR 25,000. We expect ARRs at Ran Baas to improve further as the property stabilizes. Our iconic bakery and confectionery brand, Flurys, continues to expand its footprint steadily. As of June 30, 2025, we operate 102 outlets across formats, including flagship, cafes, kiosk and tea rooms with recent openings in Darjeeling and Gangtok. We plan to accelerate store additions over the remainder of this year and into next, targeting 200 stores by 2027 to coincide with the centenary year of Flurys. The expansion remains a strategic priority for us, aimed at broadening market presence and catering to a diverse customer base while blending contemporary amenities with rich cultural heritage. In the coming quarters, we will continue to focus on opening high-margin cafe formats and driving store level profitability. We continue to target annual revenues of INR 1 crore for mature outlets and we are encouraged by the traction achieved across recently launched locations. Looking ahead, our long-term strategy remains anchored in the 3G framework of growth, governance and green. Sustainability continues to be a core focus area for us with initiatives in water efficiency, carbon reduction and responsible waste management. As of June 30, 2025, 4 of our hotels are IGBC Green Certified reflecting steady progress towards industry-leading green standards. The company during the course of this year will be spending around INR 15 crores in technology and AI to improve efficiencies and performance. Web check-ins, customer identity, chat bots, AI concierge are all under implementation. Flurys will have a new billing system and a loyalty program as well as self-ordering kiosks. AI based SAP S/4HANA ERP is also under implementation in our company for financial accounting, cost management and better compliances. We continue to invest further in our revenue management system which now have generative AI to lead the market, and this has been our biggest strength to achieve high ARRs and high occupancies. As we progress through FY '26, our business fundamentals remain strong. The development pipeline is advancing well, and our strategic road map is anchored in a prudent capital structure and disciplined execution. Having delivered sustained double-digit growth in FY '25, we are confident of achieving high teen growth in both revenues and EBITDA in the years ahead backed by resilient demand, improved pricing power, steady portfolio expansion in the premium luxury segment and continued leadership in the upper upscale segment, we are well placed to capture the opportunities ahead. Once again, I extend my heartfelt gratitude to our shareholders, customers, team members and business partners for their continued trust and support. Thank you. I will now request the moderator to open the line for questions and answers.

[Operator Instructions] Our first question comes from the line of Archana Gude from IDBI Capital.

I have few questions. Firstly, on Flurys. Sir, I think like we had given a number of Flurys addition was at 50 on an annual basis earlier and this has come down to 40 outlets as per Q1 presentation. Can you help us understand what has led to lowering this guidance?

No, not that we are lowering the guidance. It's -- the reason behind this, of course, for this year is to actually move away from kiosk to cafes. And obviously, the investment level has been kept at the same level because for us the cafes costs more than the kiosk. So in terms of the spend, in terms of the development, that remains the same, which adds up to 40 as per our planning for this year. So we opened 40 stores as per the plan this year. And then we plan to open 60 stores in the coming year to reach the 200 trade mark by 2027, which is the centenary year of Flurys.

So you're saying, instead of having 50-50, we'll be having 40 this year and maybe 60 next year, right, sir?

No. So what will happen is that the mix of cafes and kiosk is going to change more in favor of the cafes and this will lead to actually higher revenues for us than by opening just the kiosk. So this fundamental change has been done to actually improve performance and improve results. Because the cafes are more profitable to us and still keeping the costs within what was budgeted.

Right. And on the sales part, if I look at the Flurys sales this quarter, of course, there has been pretty healthy growth on Y-o-Y, led by your higher stores. But when I look at on the sequential basis, it has gone down by 6-odd-percent. So what has really changed in last quarter to this quarter?

No. The growth in Flurys topline has been 42%. Currently, we have 102 outlets. Most of the outlets, if you will recall, opened towards the end -- towards the third -- quarter 3 and quarter 4 and because of these additions, right now you're seeing 42% growth in top line. But our store-to-store growth that is existing store growth is well above the 11% mark. In most of the stores and some of the tea rooms, the growth is as high as 15%. So the same-store growth is also very strong, and tea rooms same-store growth is even stronger.

Right, sir. My question was more on a sequential basis, sir, on Q-o-Q, the absolute number.

So we have done last -- on Y-on-Y basis, we did INR 16 crores last year. And this year, we have done INR 19 crores because the quarter 1, again, as you know, in terms of the hospitality business, the hospitality business is very cyclic in nature. The best results come only in quarter 3 and quarter 4 during the festive season. But on a quarter-to-quarter basis, the growth has been 42% from INR 16 crores to INR 19 crores. And last year, we had done total revenues of INR 64 crores, and this year, with the opening of 40 outlets and organic growth, we expect the revenues at Flurys to be in the range of INR 85 crores to INR 90 crores.

And you can -- Q4 and Q1 cannot be sequentially compared. So that's why I know you are saying that INR 16 crores is almost same as the Flurys. That's what you are query is. So that growth will keep on coming in with INR 16 crores of this quarter is to be compared with the last -- same time quarter, quarter 1 '25. Q4 is a -- Q3 and Q4 constitute about 70% of Flurys revenue. So that cannot be compared.

You also spoke about the matured Flurys store giving INR 1 crore as net sales. So how many we had in this Q1 FY '26, the mature stores? And how that should pan out, let's say, by end of FY '26?

So FY '26, as I said, we will be reaching about INR 85 crores to INR 90 crores and we should be heading for about INR 70 lakhs to INR 80 lakhs by the end of this year per store. And by next year, we are absolutely confident that all these stores will be in the range of INR 1 crore or INR 1 crore plus. Currently, we are at INR 60 lakhs, last year, we were at INR 64 lakhs.

So maybe one more on Flurys and then I'll join the queue. When I look at the presentation, we have kind of the reduced number of stores from Delhi, Bombay and Hyderabad, while of course, we have added a couple of more locations. So is that -- like we will be changing the strategy for these markets that Delhi, Bombay, Hyderabad or how we should see -- I understand you spoke about changing from kiosk to cafes and that why the number has lowered. But still, I mean, Bombay has been doing pretty well for us. And what was the thought process behind maybe see the number of Flurys store for Bombay?

No. So first thing is that Flurys has a national rollout plan which begins now with Delhi. Until, as you know, what is happening is that we are setting up a large commissary. This commissary is likely to be ready by the end of this year or early next year. Once this commissary is ready, we enter the city of Delhi. And in next year, the plan would be to cover the whole of North India. In the meantime, we are planning to open Flurys outlets wherever we have our existing hotels or from where we can supply from the commissaries, which are in existence at the moment. So the plan is very robust, and it stays on course to expand very rapidly in North India. And then, of course, it has as an overall basis, a national plan.

Our next question comes from the line of Vaibhav Muley from YES Securities.

First of all, congratulations on a strong set of numbers. My first question was on our immediate expansion pipeline, which includes 147 leased keys and 31 owned leased keys. Can you give the breakup of asset-wise expected ARR for these properties?

So for the 600 keys, which we plan to open this year, we plan to open roughly about 141 keys in Q2, 194 keys in Q3 and 254 keys in Q4, Vaibhav, and this adds up to total keys of 589. So we plan to open 14 hotels. Typically, in our Zone hotels, the majority of these properties are in Zone by The Park and our second brand in Zone, which is Zone Connect by The Park which typically enjoys an ARR of INR 4,000 to INR 4,500 at the moment, and we expect properties to be in this range.

So all the leased properties will be opened under Zone or Zone Connect, you are saying?

Yes, this is under our asset-light model of Zone and Zone Connect by The park.

All right. And what do you think will be the margins for these properties given the lease rentals will be a part of your expenses? So what kind of margins do you expect for these properties and the impact on the blended operating margins?

Post these rental, we expect around 20% to 25% is the margin. But for the purpose of blended EBITDA purpose, it will be pre-indexed. So it should contribute about 30% to the EBITDA on a basis. 30% EBITDA, 10% is roughly the -- 10% to 15% will be the lease rentals.

So 30% post index, you are sort of talking about operating margins for this property?

Yes, 30% to 35%.

All right. And secondly, on -- we have given a breakup of the expected ARRs for our owned expansion pipeline along with the projected revenue. So the ARR projections are materially higher compared to the blended IRR that we do at the company level. So what kind of -- so what is the reason that we are expecting significantly higher ARR compared to our current ARR run rate across the metros?

Properties, as you know, which are 1,011 -- 1,101 keys are operating in the upper upscale segment in the boutique category. Of course, these properties are also getting upgrade as we are going along. But the new properties, which are roughly similar to -- which is about 1,035 keys are coming in the premium luxury category. So that is why these ARRs are going to be much higher. And they will have a significant impact in improving our margins.

And just lastly, I can ask about the Flurys operating margin for the quarter?

Flurys has done about 8%, 9% in the margin.

Flurys margins are typically in the range...

Post is 2%.

Sorry, I missed the last part.

9% is the interest status, post-indexed is 2% to 2.5%.

Our next question comes from the line of Sumant Kumar from Motilal Oswal.

Good numbers in the bad quarter where 10 days disruptions -- business disruptions we have. My question is regarding the renovation plan we have across hotels. What are the renovation cost for the marquee property we have and for next 2 to 3 years?

So Sumant, thank you for your question. Firstly, on an annualized basis, we -- to improve our properties, we have a fixed budget of about INR 50 crores, and we will continue to be on cost to invest INR 50 crores on an annual basis to upgrade our existing properties. We have a cushion to considering our very high performance, which is 92% occupancy on -- 92% to actually 94% occupancy. This gives us only a leeway to renovate about 70 to 80 rooms. And we will continue to do that. That kind of focus will be there to renovate 70 to 80 rooms. This year, we have a similar plan. About 60-odd rooms are getting upgraded in our property in Kolkata. About 19 rooms are getting upgraded in Chennai and about 14 rooms are getting upgraded in the Visakhapatnam.

Our next question comes from the line of Saket Mehrotra from Dusk Investments.

Congratulations on a great side of numbers, sir. My first question was can we get some sense on what is the mix of revenue from management contracts for the quarter? And how do we see this scaling up for the next 2 years?

So just a min, we are just getting you to the numbers. Of course, last year, we had done INR 19 crores on a YTD basis.

And this quarter, we have done INR 4 crores from management contracts. Since we are signing more contracts, we expect this year to close more than INR 20 crores from the management contract division.

And the growth plans that we've talked about, I mean, we are on track to achieve it as per the schedule, right? I hope I mean that's...

Absolutely, the company is absolutely focused in delivering the guidance, which it has provided for. We had given a very strong guidance and we remain committed to achieving that guidance.

So we are doing -- going to do INR 20 crores and with the addition of this, which we are signing, that should contribute another INR 4 crores to INR 5 crores. So we will end up at INR 25 crores, expected on management contract division, including H2 INR 5 crores.

And just another question. Mr. Dewan, in your opening comment, you mentioned about the EM Bypass project to generate about INR 600 crores of cash flows where you would be getting close to INR 100 crores a year for 3 years. So when are you expecting the flow of this to start? Is it this financial year or from the next year?

This year, we are -- the way the residences sell, as you know, generally, in the first year, you take about 10% as the deposit fees. So expecting that we -- our share will be around INR 30-odd crores this year, and then it rapidly moves up to INR 100 crores per year.

Our next question comes from the line of [ Vivek Lodharya ] from Nirbhay Asset Management.

Sir, my first question was beyond outlet count growth, could you share the latest average revenue per store for Flurys? Earlier, you timeline to reach 10 million per store annually. So what was the comment for that?

No. So this -- we will -- we did INR 64 crores. So it is a 2-year process at the moment. We are expecting to cross around 80-odd crore -- 80 lakhs per store and then hit about INR 1 crores per store sometime during the course of next year.

Sir, by quarter 1 FY '26 despite a full year plan for 40 new outlets, there was no new opening reported this quarter. Could you share the main reason for this pause?

No. It is -- we have opened actually 4 stores at the moment during the course of this quarter. We opened stores in Darjeeling, Gangtok, a store in Bhubaneswar and another store up north in Bengal. Also, at the same time, we have actually closed down 4 stores because this is also part of our strategy that if we fail in a store, we fill that store first to ensure that our margins remain the best. So 3 to 4 stores have been actually closed in West Bengal. So it looks that the number has remained the same, but it is not the case. Flurys expansion plan continues to be of opening and being present across all India. So you will see larger openings very soon and particularly in quarter 3 and quarter 4 as we come to launch our new commissary in Delhi.

Okay, sir. So what was the key reason for those closures?

There have been low footfalls and it appeared that we could lose -- start losing money in those stores. So based on that, it will always be the plan that inefficient store will have to close down. So as we go along, there would always be in the range of 3% to 4% store closures will always be there. And then, of course, the expansion plan will continue as planned.

So those stores were EBITDA -- making EBITDA loss?

You can't say that -- we are very careful about it. We do not want a store to go into an EBITDA loss situation. But if our analysis shows that the store is losing ground and then we tend to close it before it starts losing money.

So we are committed for FY '27 -- till FY '27, we are committed for 200 stores?