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

Ladies and gentlemen, good day, and welcome to Apeejay Surrendra Park Hotels Limited Q1 FY 2027 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shreeyut Daga from SMIFS Limited. Thank you, and over to you, sir.

Thank you. Good evening everyone, and a very warm welcome to you all. My name is Shreeyut Daga from SMIFS Limited. On behalf of the company, I would like to thank you all for participating in the Apeejay Surrendra Park Hotels Earnings Call for the first quarter of FY '27. We have with us the management represented by Ms. Priya Paul, Chairperson and Executive Director; Mr. Vijay Dewan, Managing Director; and Mr. Atul Khosla, Senior Vice President, Finance and CFO. Without any further delay, I request Ms. Priya Paul to start with her opening remarks, followed by operational and financial highlights of the company. Thank you, and over to you, ma'am.

Thank you so much. Good afternoon, everyone. Thank you for joining us today to discuss our earnings for the first quarter of financial year 2027. On behalf of the Board and management team at Apeejay Surrendra Park Hotels, I would like to extend a very warm welcome to all participants on this call. Let me begin with the broader hospitality environment. The first quarter of FY '27 was marked by a dynamic operating environment for the hospitality industry. Geopolitical developments during the quarter created some temporary disruption to international travel and air connectivity. However, domestic travel remained largely resilient, supported by leisure travel, domestic corporate movement, weddings and social occasions. This resilience continues to provide a strong foundation for the industry's growth as well as ours. The demand supply environment also remained favorable with limited additions of quality hotel rooms across several key markets. At the same time, improving connectivity and rising travel aspirations are broadening the opportunity for branded hospitality beyond the traditional metropolitan markets with select Tier 2 and Tier 3 cities emerging as increasingly attractive destinations. We believe that structural opportunity for Indian hospitality remains strong. The combination of rising domestic travel, increasing preference for branded accommodation, improving connectivity and measured supply additions should continue to support the sector over the medium to long term. For Apeejay Surrendra Park Hotels, our focus remains on building a differentiated hospitality platform across hotels, food, beverage and lifestyle experiences. Our portfolio across luxury, upscale and upper mid-scale segments allows us to address diverse customer requirements while maintaining the distinctive positioning of all our brands. Our F&B and entertainment ecosystem remains an important differentiator for us. We have built a strong presence across restaurants, nightclubs and bars, allowing us to participate in the broader lifestyle opportunity alongside our core business. Flurys is an important part of this platform. This 100-year-old brand has continued to expand beyond its heritage Kolkata presence. I'm delighted that we have started our expansion in Delhi NCR with the opening of a new cafe in Gurugram. We see significant opportunity to build it into a larger national premium cafe and retail F&B network through an asset-light model. The brand now has 111 outlets across cafes, kiosks and tea rooms. Looking ahead, our growth strategy remains focused on expanding our presence selectively across attractive markets while maintaining capital discipline. We see increasing opportunities to scale through managed properties and other asset-light formats, particularly across emerging leisure, pilgrimage and urban destinations. Our longer-term ambition is to build a larger and more scalable hospitality platform with more than 6,000 keys by FY 2030. As we pursue this ambition, we will remain selective in our choices and continue to focus on strengthening our brands and enhancing the quality of our portfolio. Alongside expansion, we remain committed to unlocking the potential from our existing assets and maintaining the high standards of hospitality and guest experience for what we are known for. Activity at our new properties in Juhu, Kolkata and Visakhapatnam continues to be steady and openings are on schedule. Overall, we remain confident in the long-term prospects of Indian Hospitality and the opportunities available to Apeejay Surrendra Park Hotels. Our differentiated brands, diversified portfolio and scalable growth strategy provides a strong foundation for the next phase of our journey. With this, I would now like to hand over to Mr. Vijay Dewan, Managing Director of the company, who will take you through the detailed operational and financial highlights for the quarter and the year. Thank you.

Thank you, Ms. Paul. Good afternoon, everyone. A very warm welcome to all of you for being with us today. We have started FY '27 with a positive momentum, demonstrating the resilience and strength of our business model. 33 of the 69 apartments available for sale have been sold in our EM Bypass hotel and residential project at Kolkata. This will lead to improved cash flow of INR 70 crores to INR 80 crores during the course of the year, of which INR 21 crores is already being received for quarter 1. Continuous stream of income from this project will help propel growth for the company. Despite headwinds on account of West Asia crisis, near flat air traffic growth during this quarter, high energy costs and supply chain disruptions, we have retained India's leading occupancy position of 92% and have maintained our leadership in RevPAR in the upper upscale segment. In Q1 FY '27, we have delivered operating revenue of INR 167 crores, reflecting a growth of 8% year-on-year. EBITDA stood at INR 47 crores, up 3% year-on-year, with EBITDA margin at 28.12%. At the consolidated level, revenue achieved was INR 172 crores, up 10% and EBITDA at INR 52 crores, up 8% over last year. This performance once again affirms the strength of our brands and the relevance of our differentiated hospitality proposition. PAT for the quarter stood close to INR 12 crores, a decline of 14% year-on-year with a PAT margin close to 7%. This decline is on impact of higher finance costs to propel expansion during this period as well as deferred tax provision of INR 2.2 crores as the company shifts to the new favorable income tax regime. The debt-to-equity ratio remains extremely favorable at 0.01 to 0.12 and debt-to-EBITDA -- net debt-to-EBITDA at 0.7 to 1. Food and beverage remains an important part of our overall hospitality ecosystem, contributing approximately 43% of total revenue during the quarter. Our restaurants, nightlife and experiential dining formats continue to complement our hotel business and provide additional avenues for customer engagement and revenue generation. Ran Baas The Palace, Patiala remains featured in the Prix Versailles global list of architecture and design hotels. And this July, Ran Baas hosted the prestigious Relais & Châteaux Annual Regional Conference of which Ran Baas is also a member. Several Zone by The Park and Zone Connect properties received TripAdvisor Travelers' Choice Awards and recognitions during this quarter. These recognitions reinforce the strength of our brands and our continued focus on delivering differentiated guest experiences. Coming to Flurys, the brand continued to strengthen its presence and now has 111 outlets across cafes, kiosks and tea rooms. During the quarter, we added a new outlet at Inorbit Mall, Visakhapatnam. Subsequent to the quarter, we have further expanded into North India with the opening of our first stand-alone Flurys cafe in Gurugram in August. Flurys enters New Delhi with the openings at Green Park in September '26 and at Greater Kailash 2 in October '26. We continue to see opportunities to expand the Flurys brand across Delhi and other markets through an asset-light model. By the end of this year, we are working to deliver 29 additional outlets to take the overall Flurys store count to 140 stores. Looking ahead, FY '27, we now have a pipeline of 12 hotels comprising of 472 keys for this year. These additions are expected to take our portfolio from the current 42 hotels with 2,677 keys to 3,149 keys by the end of FY '27. On the development front, we have made continued progress across several strategic projects. At EM Bypass, Kolkata, our integrated hospitality-led mixed-use development comprising of 218 hotel rooms and 69 service apartments. The project has witnessed record-breaking sale of service apartments and continues to demonstrate encouraging traction with 33 apartments being already sold. The project has also seen healthy realization with average realization at approximately INR 20,633 per square foot. The strong sales momentum from this project, as stated earlier as well, is significantly improving our cash flows and will provide additional support for the ongoing growth initiatives and opportunities. This project is slated to be completed by early 2030. We have also made significant progress on the Park Mumbai at Juhu. The 78-room project has completed its design phase and is targeted to be launched in October '27. It will further strengthen our presence in one of India's important hospitality markets. In Vizag, we have made good progress on the upcoming 100-room hotel with the project teams already on site. The project is expected to be launched during the course of this month and is expected to be completed by early 2030. We also continue to evaluate opportunities that can strengthen our portfolio in high potential leisure markets. The acquisition of the Malabar House in Fort Kochi is currently in progress. The property comprises of 17 keys of approximately -- on approximately 0.5 acre of land and is expected -- this acquisition is expected to be completed by October, November of 2026. At Pune, the FSI available to us on our land has changed from 2.5 lakh square feet to 6.7 lakh square feet. This will add immense value to our business. Our plan is now to utilize 2.5 lakh square feet of FSI towards hotel development and 4 lakh plus square feet of FSI towards residential development, enhancing value for our company. Overall, over the next 4 years, we plan to double the number of hotels from 42 hotels with 2,667 keys to 87 hotels totaling to 6,719 keys, 2x growth in our own assets and 3x plus growth in the asset-light model. Flurys' growth in outlets is planned to reach 400 outlets in the same period by 2030. Operational efficiency and technology also remains key priorities for us. During the quarter, we completed the implementation of SAP S/4HANA for Finance. This will strengthen our financial controls, improve the quality and timeliness of reporting and enhance operational efficiency across the organization. We believe these investments in our internal systems and processes will become increasingly important as we scale our portfolio. At Apeejay Surrendra Park Hotels Limited, our journey continues to be guided by the 3G principles of growth, governance and green. These provide the strategic foundation for the business, while our focus on purpose, people and performance defines how we translate our strategy into action. The 3Gs and 3Ps together shape our organization that is ambitious in its growth, responsible in the way it operates, committed to its people and focused on delivering sustained value for all our shareholders. We are well placed for the opportunities ahead, supported by a healthy balance sheet, a strong development pipeline, growing brand equity and an experienced leadership team. Our focus now is on disciplined execution, expanding in high potential markets, strengthening our brand and improving return on capital. With the Indian hospitality sector in a compelling growth cycle, we believe we are well positioned to capture a higher share of the opportunity and deliver sustained long-term growth. The subsequent quarters in the industry will be supported by the upcoming BRICS Summit in Delhi, above 40 wedding dates during the course from now to March, Aero India and exhibition at Bangalore and the Bharat Mobility Expo among others. On behalf of my team across the organization, I would like to thank you for your continued trust and confidence in our journey. Your support and belief in what we are building at Apeejay Surrendra Park Hotels inspires us to aim higher and create enduring value. With this, I would now like to hand over to the moderator to open the floor for the question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Archana Gude from IDBI Capital.

I have 3 questions. So firstly, on occupancy. We have one of the highest occupancy among the organized players and at 92% more or less, it looks we are at peak level of occupancy. So I think since we had to play on ADR, how we should look at that part of operating metrics evolving for us? I do understand West Asia prices, ADR could have been slightly under pressure in Q1. How on the long term, what kind of growth should we expect? Your guidance on that would be helpful, sir.

First and foremost, we are -- we have definitely done exceedingly well in achieving 92% occupancy and also outperformed the market in terms of the RevPAR. The quarter, as I mentioned, has seen a lot of pressure building in because of the West Asia crisis as well as the oil crisis, one could say in India. And also for the reason that the domestic air travel growth has actually been quite subdued. In fact, domestic passenger traffic has been flat and international air traffic into India during this course of this quarter has declined by almost 10%. And also, there have been supply side disruptions. Now as we are moving into the quarter 2 and quarter 3 and quarter 4, things have sort of stabilized and normalized. And as I mentioned, there are going to be a lot of conferences and conventions which India is going to be full of, starting with the BRICS Summit in Delhi. In fact, the tourism section of the BRICS Summit has already started. And this is going to really drive occupancies and demand in the city of Delhi. Apart from that, there are many other conferences and conventions which are planned, as I mentioned, the Aero India in Bangalore as well as the Bharat Mobility Expo, which is actually going to take place in Delhi in both the venues, which is the Bharat Mandapam, which is at Pragati Maidan and Yashobhoomi near Dwarka. So both the convention facilities and exhibition facilities are going to be used for the Bharat Mobility Expo. So there is -- and then along with that, there are going to be almost 40 wedding dates, which are there between November and March. So we are expecting that the ADRs from now because starting with a big summit and then wedding season and all these conferences and exhibitions to definitely keep growing. So we expect the ADRs to improve. And based on that, the performances to also improve as we move forward. So expect good ARR growth as we move forward. And obviously, we are market leaders in occupancy and RevPAR. So we expect that the quarters ahead are going to be distinctly better than the quarter which has gone by. And we are very positive on the quarter which has gone by as well because overall, if you will see the growth is 10% and with other income, our EBITDA growth has also been 8%. So we expect this trend to continue.

ARR growth of 2% if you can just guide us some more on this, what would have been our ARR growth in absence of the disruptions we had. Some talking about mid-teens kind of growth on top line. So if I want to achieve that, its true quotient I think will be behind the schedule. So can we read that -- yes.

So ARR growth in key markets has -- particularly first, let's look at the market on the whole, the all India market growth in ADRs during the quarter has only been 6%. And again, as I'm mentioning, the reason for this is because the passenger air traffic passenger growth has been quite depressed. In fact, if we are to remove the city of Delhi, there has been a deep contraction in terms of the air passenger traffic. Mumbai has actually declined by 3.5% and Hyderabad has declined by over 12%. Similarly, Chennai dropped by 13% in terms of domestic passenger arrivals. So there has been pressure on in terms of ARR largely because of the, as I mentioned, West Asia prices and this passenger traffic demand going down, but things are stabilizing. So we can expect definitely high single-digit ARR growth as we go forward. Plus, we are going to be also helped by the stabilization of our Palace properties, which is the Ran Baas The Palace, Patiala where we are experiencing very high ARR growth. Already, it is at INR 33,000. And Lotus Palace, Chettinad, we have -- we are at INR 13,000. So we expect that as the season comes in, the ARR growth should be in the range of high single digit for sure.

That was helpful. Sir, my second question is on Flurys. As you mentioned in the opening remarks, we are now at 111 outlets. A few quarters before, we had aggressive plans on expansion of Flurys, but number-wise, we are yet to get there. So what is really missing here, sir, if you can elaborate? I know you spoke about adding 40 Flurys in FY '27, but at 11, we are still 29 service away. So how should we plan that addition going forward?

So Flurys, as you know, has been growing at a very steady pace since 2019 when it had 17 outlets. It has now moved to 111 outlets with a CAGR growth of 21.5%. And it continues to grow. We have opened -- by now, we have opened 5 outlets, but all the other part of the growth has been completely mapped. We are going to open 29 outlets as we go forward. During the course of the year, we are going to open 3 more outlets in Pune. We are going to be expanding into Pune with 5 outlets, Mumbai, 3 outlets. We are going to further expand in Hyderabad by adding 5 outlets. NCR, we have already signed these outlets. We are expected to be opening 7 more outlets during the course of the year. As I mentioned, we are opening at Green Park by September, by end of this month or early September. And then we open the Greater Kailash outlet in the month -- end of September or early October. So -- and then other outlets are also being signed to open during the course of the year. So we will have about 7 outlets further opening in Delhi. In Bangalore, we plan to open -- we want to enter the market of Bangalore. We plan to open 4 outlets there. There are a lot of other tie-ups which we are exploring. One is tie-up with the Adani Group for airports across India. And second most important is that we are very close to signing all India deals with the Phoenix Mills as well as with DLF. Alongside this, Flurys has a plan to -- it is very close to finalizing deals with PVR and where we could open 10 outlets simultaneously. So Flurys has very strong growth plans, and we plan to add 29 outlets from here on to end the year at about 140 outlets by the end of the year. And then, of course, the overall plan is that by the time we reach 2030, we have 400 outlets of Flurys. So it is committed to its strategy. Also Flurys celebrates 100 years. And as we celebrate 100 years of Flurys next year, we are also looking at having 100 outlets of Flurys in West Bengal alone by the time we complete 100 years of Flurys.

Sustainable over the next few quarters. That's my last question, sir.

Sorry.

My question was on other income. Is the run rate sustainable over next 3 quarters?

We have other income of INR 479 crores, which includes about INR 2.7 crores from mutual funds, which will be sustainable in the other. So around INR 4 crores is sustainable quarter-by-quarter. So that is how the mutual fund income this quarter was INR 2.73 crores. And there were some small other income from scrap sales and other miscellaneous income. So I think around INR 3.5 crores is sustainable on a quarter-on-quarter basis.

See the a lot of -- to add to what Mr. Khosla has just said, as I mentioned, so far, INR 21 crores of additional cash flow has come in into the company because of the sale of EM Bypass. We expect that by the end of the year, additional -- we should have another INR 50 crores coming in, and this will get added to the mutual funds which we have at the moment, which is close to INR 97 crores. So this should be -- plus with EBITDA income, this should substantially increase and keep on increasing our other income. So this other income is likely to remain stable, not stable, I would say, but likely to further increase during the course of the year because of the sale of the apartment and of course, because of good performance on account of EBITDA.

[Operator Instructions] Next question is from the line of [ Divansh Patel ], individual investor.

Firstly, I just wanted to ask what proportion of your existing hotel portfolio is currently mature? And how much of your performance improvement over the next 2 years would simply come from the newer properties turning mature?

So currently, as you know, we are operating hotels under different brands. One is, of course, we are operating under the Park brand, Park Collection brand, then Zone by The Park and Zone Connect by The Park. Now the -- most -- all the properties at the moment, which we have are in mature stage or they are entering maturity stage. The 2 properties which we opened last year, that is Ran Baas the Palace, Patiala and the Lotus Palace Chettinad they are already in the -- entering the maturity phase. As I mentioned that the Ran Baas has already clocked INR 33,000 ARR during the course of this year, and it's likely to further go up. And then, of course, the Lotus Palace has recorded INR 13,000 ARR and is also likely to go up. The occupancies at these hotels, these 2 important hotels is expected to stabilize fully during the course of the year. So we are expecting good results on account of stabilization at Ran Baas as well as stabilization at the Lotus Palace in Chettinad. Also, as you would know that we also acquired a 15-room property at the Vembanad Lake. This property we acquired this year, and this property is also likely to stabilize during the course of the year. The season time for Vembanad Lake starts in Q3 and it reaches peak form in Q4. So these 3 properties which are there, which were acquired are also supposed to stabilize and add immense value to our ARRs and also to our overall performance. The other properties which are under development, which is Kolkata and Visakhapatnam, these properties are expected to open in 2030. And normally, hotel properties take about 2 to 3 years to stabilize. But at Kolkata, since the demand-supply imbalance is huge, Kolkata has the lowest inventory in terms of metro cities, only 5,111 keys and not much of inventory is coming in. We expect very high performance at our hotel in Kolkata, the second hotel in EM Bypass as it opens. Similarly, in Visakhapatnam, there is very limited inventory. In fact, inventory is really short in Visakhapatnam. And that hotel also when it opens in 2030 should open with a very high performance and high ARR. And also because of its locations, these properties are also going to open with -- should open with very high performance and high ARRs.

Sure, sir. Got it. Just a follow-up on that side only. How long does it typically take for a newly opened property to reach its targeted operating metrics? And what is the trend for that stabilization period? So is this decreasing in the coming years? So I just wanted to know on that.

So good question, Mr. Patel. So normally, hotels normally take 2 to 3 years, but it depends on the selection of the market more than anything else. So Park's strategy firstly is that we operate hotels in great locations, and it will continue to be the strategy. So location makes a very big difference. The second is that we are looking at opportunities in high potential markets. Now as we have entered, we already had, say, a hotel in Navi Mumbai, and we have entered -- we are going to enter the city of Mumbai. So Mumbai is a very high potential market. High potential markets, you can stabilize within 1 to 1.5 years only of your operation, you will stand to stabilize. You may actually, in a market like Mumbai, actually outperform the market itself with a new product. So similarly, we are entering the market of Pune, again, a very high potential market. So we expect to stabilize in the very first year itself. Same goes for our second hotel in Kolkata. So our strategy is based on location, strategy is based on high potential markets. So with limited stabilization time. So yes, if you are entering a resort market or a new market, it takes about 2 to 3 years as we are also experiencing in the Lotus Palace at Chettinad and in the Ran Baas The Palace, Patiala.

[Operator Instructions] Next question is from the line of Jayant Singh, an individual investor.