Plans Will Double Hotel Capacity And Grow Flurys Brand By 2027

Key Takeaways

• Strategic expansions, including new hotels and Flurys brand growth, indicate potential revenue increase and improved operational efficiency.
  
• Planned property sales and developments are set to enhance cash flow and support sustainable long-term earnings growth.
  
• High competition and expansion plans pose risks to Apeejay Surrendra Park Hotels' revenue and profit margins, with dependency on spiritual tourism affecting demand stability.

Catalysts

Owns and operates hotels in India.

• The company plans to double its key count from 2,495 to 5,048 over the next five years, significantly increasing potential revenue through expanded capacity.
  
• The opening of new high-ARR palace hotels and continued growth in ARR for existing properties suggest a potential increase in revenue and an improvement in net margins.
  
• The Flurys brand expansion is expected to reach 200 stores by its centenary year, 2027, with plans to set up a central factory to enhance operational efficiency, indicating higher future revenues and margins.
  
• The sale of 100 service apartments in the EM Bypass Kolkata project is projected to add ₹100 crores to the balance sheet annually for the next three years, thereby positively impacting cash flows and overall earnings.
  
• Strategic expansions, including the central kitchen for Flurys in North India and the upcoming developments on land parcels, are geared towards higher IRRs and operational efficiencies, supporting long-term earnings growth.

Apeejay Surrendra Park Hotels Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Apeejay Surrendra Park Hotels's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.4% today to 19.5% in 3 years time.
• Analysts expect earnings to reach ₹1.7 billion (and earnings per share of ₹8.0) by about February 2028, up from ₹754.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.5x on those 2028 earnings, down from 45.9x today. This future PE is greater than the current PE for the IN Hospitality industry at 31.6x.
• Analysts expect the number of shares outstanding to decline by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.19%, as per the Simply Wall St company report.

Apeejay Surrendra Park Hotels Future Earnings Per Share Growth

Risks

• The company is facing high competition for securing hotel management contracts, which could impact future growth and revenue streams if not managed effectively.
  
• Flurys' expansion plans hinge on the success of a large central factory, representing execution risk and potential impact on profit margins if expansion plans do not materialize as expected.
  
• Significant capital expenditure is planned over the next few years, and while currently internally funded, any unexpected challenges could necessitate borrowing, affecting net margins and profitability.
  
• The new service apartment project involves a significant joint venture component, which carries risks of revenue sharing disputes or construction delays, potentially impacting revenue realization.
  
• There is dependency on spiritual tourism and local events to drive occupancy rates, which could fluctuate based on socio-political factors affecting the consistency of such demand, impacting revenue and earnings stability.

Valuation

• The analysts have a consensus price target of ₹236.0 for Apeejay Surrendra Park Hotels based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹8.8 billion, earnings will come to ₹1.7 billion, and it would be trading on a PE ratio of 44.5x, assuming you use a discount rate of 15.2%.
  
• Given the current share price of ₹162.21, the analyst price target of ₹236.0 is 31.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.