165.00 170.00 The Byke Hospitality Ltd. 25000.00 30000.00...

The Byke Hospitality Ltd.

- 1 of 23 - Friday 8th

May, 2015

This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

Target Price `229 CMP `157 FY17E PE 20.1x

Index Details The Byke Hospitality (Byke), incorporated in 1990, operates 8 resorts

across Goa, Maharashtra, Rajasthan and Manali. Byke has a strong

balance sheet driven by its unique, asset light business model.

Unlike some of its larger sized peers, Byke’s robust 67% CAGR

revenue growth from FY11-FY14 has not come at the cost of a steep

debt burden.

We are positive on the company’s prospects given that:

Six of Byke’s 8 resorts are on an operating lease of 10-15

years with the lease cost generally varying between 8-10% of

resort sales. An asset light business model enables the

company to undertake modernization of the acquired resorts,

thereby enabling steady increase in ARRs and occupancy

rates. We expect resort revenues to increase at a 3 year

CAGR of 20% to `73 crore in FY17.

Byke’s philosophy of serving only vegetarian food at its

resorts helps to insulate from slowdown in foreign travel and

capitalize on the relatively faster growing domestic travel

spending in India.

Room chartering enables Byke to scale up revenues beyond

its own resort locations and geographic presence. With a

strong agent network, it has expanded its presence pan India,

especially in major religious tourist destinations. The online

room booking portal that Byke is developing, if successful,

will bolster the company’s room chartering revenues

significantly. We expect room chartering revenues to increase

at a 3 year CAGR of 28% to `157 crore.

Revenues are expected to grow at a CAGR of 24% to `296 crore by

FY17 driven by addition of three new resorts in FY16 and continued

growth in the room chartering segment. We expect PAT to grow at a

3 year CAGR of 27% to `32.7 crore by FY17.

Sensex 26,599

Nifty 8,057

BSE 100 8,167

Industry Hotels

Scrip Details

Mkt Cap (` cr) 658

BVPS (`) 28.3

O/s Shares (Cr) 4.0

Av Vol (Lacs) 1.2

52 Week H/L 174/147

Div Yield (%) 0.4

FVPS (`) 10.0

Shareholding Pattern

Shareholders %

Promoters 44.1

DIIs 7.3

FIIs 0.2

Public 48.4

Total 100.0

Byke vs. Sensex

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

135.00

140.00

145.00

150.00

155.00

160.00

165.00

170.00

175.00

-May-1

-Jul-1

-Oct-1

-Jan-1

-Mar-1

Byke Sensex

Key Financials (` in Cr)

Y/E Mar Net

Sales EBITDA PAT

EPS (`)

EPS Growth (%)

RONW (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

2014 155.7 28.6 15.9 4.0 105% 18.7 24.4 41.4 23.6

2015E 173.2 32.2 16.3 5.4 36% 16.7 20.6 30.3 21.0

2016E 235.2 53.5 27.6 6.9 27% 23.4 32.1 23.8 12.6

2017E 296.2 64.5 32.7 8.2 19% 22.8 31.2 20.1 10.5

- 2 of 23- Friday 8th May, 2015

We initiate coverage on Byke as a BUY with a Price Objective of `229,

representing a potential upside of 39% over a period of 18 months. At

the CMP of `164, the stock is trading at 20x its forward earnings for

FY17EPS. We have valued Byke by assigning a PE of 28x to FY17E EPS

of `8.2 to arrive at the target price of `229 per share.

Company Background

The Byke Hospitality Ltd. (Byke) incorporated in 1990, operates 8 resorts across

Maharashtra, Rajasthan, Goa and Manali with a total bouquet of 519 rooms. It

operates primarily on a lease based model. While two of the 8 resorts are owned,

the remaining 6 are on an operating lease of 10-15 years. The change of

management at the helm in 2011 kick-started the growth engine of the company.

During FY11-FY14, Byke’s revenue and net profit grew at a robust CAGR of 67%

and 92% respectively. In FY14, Byke earned 48% of revenues through room

chartering (room trading – explained later), 28% through resort room bookings and

the remaining largely through F&B sales. It is also under the process of developing a

travel portal, tripdeal.com, which will facilitate travel and room booking online and

help bolster Byke’s room chartering business.

Byke: Revenue Break-Down

The Byke Hospitality

FY14 R: Rs 155.5 crore

Resort Room Bookings

FY14 R: Rs 42.6 crore; RS:

No. of Resorts: 7

No. of Rooms: 465

No. of Owned Rooms: 102

No. of Leased Rooms: 363

Avg Occupancy: 69%

Avg Room Rent: Rs 3604

Room Chartering

FY14 R: Rs 75 crore; RS:

No. of Room Nights

Purchased: 375000

No. of Room Nights Sold:

345000

Rent-out %: 92%

Avg Lease Cost: Rs 1715

Avg Room Rent: Rs 2175

Gross Margin: 14.3%

Food & Beverage

FY14 R: Rs 20.1

crore; RS: 13%

Majority of the

Restaurants are pure

Vegetarian

No. of Restaurants: 9

Restaurant Capacity:

Others FY14 R: Rs

17.7 crore; RS: 11%

Comprises revenues

from events, and

conferences, etc.

No. of

Lawns/Banquets/Halls:

Source: Byke, Ventura Research

R: Revenues, RS: Revenue Share

Key Investment Highlights

Healthy balance sheet with an asset light business model

Byke earns revenues primarily through two sources:

Resort revenues and

Room chartering

Both these revenue channels are asset light and have helped Byke maintain a

healthy balance sheet. As of FY14, the company’s debt to equity is far lower than its

larger sized peers who have undertaken debt funded expansions in the recent past.

Despite revenues growing at a robust 67% CAGR during FY11-FY14, the company’s

D/E has increased only marginally – from a near debt free status to a D/E of 0.14x

as of FY14.

New resorts at strategic locations to fuel growth

Revenues from resort bookings comprised 26% of the total revenues in FY14. Of the

8 resorts that the company currently operates, 6 are on an operating lease of 10-15

years. The lease cost for any resort, on an average, forms 8-10% of the resort sales.

As the resorts are taken on a lease, the company utilizes the resources for

modernization and renovation of the acquired properties, which has helped it to

increase occupancies and ARRs post acquisition.

From single resort presence in only 2 locations i.e. in Goa and Matheran, Byke has

not only strengthened its presence in these two places but also expanded its

footprint in popular tourist destinations such as Manali and Rajasthan. With

upcoming resorts in Mumbai, Shimla and Odisha, we believe that the company is

well diversified in terms of geographic presence.

Byke’s D/E and Interest Coverage healthy… …and relatively better than larger sized peers

FY12 FY13 FY14

(x)(x)

Interest Coverage D/E (RHS)

Company Room

Bouquet

Interest

Coverage

The Indian Hotel Company 15489 1.7 -1.1

EIH 3721 0.2 4.5

Sterling Holiday Resorts 1634 1.2 -1.8

Hotel Leela Venture 2213 198.0 0.0

EIH Associated Hotels NA 0.4 4.4

Taj GVK Hotels 1082 0.7 1.4

The Byke 465 0.2 11.1

Further, within the resorts portfolio, the company has a mix of high-end and mid-

budget resorts which help cater to a larger class of travelers.

Byke’s Resorts Location

The Byke Old Anchor,

The Byke Hidden

Paradise, Goa

The Byke Sunflower,

The Byke Redwood

and Heritage,

Matheran

The Byke,

ThaneThe Byke,

Jaganath Puri

The Byke,

Shimla

The Byke Grassfield

Jaipur

The Byke Pawaana,

Mandawa

The Byke

Neelkanth,

Manali

Existing Resorts

Upcoming Resorts

Source: Byke, Ventura Research, Google Maps

Resorts across Categories

Byke Puri -- Orrisa, Byke SunFlower, The Byke Hidden Paradise, The Byke Redwood

The Byke Old Anchor --South Goa, The Byke

Heritage, Matheran, TheByke Grassfield

Value Resort

Mid-Budget Resort

Luxury Resort

The Byke Suraj Plaza -- Thane, Byke Neelkanth, The Byke Shimla

The total room bouquet grew 4.5 times from 102 rooms in FY10 to 465 rooms in

FY14. The rapid pace of room additions helped the company clock a robust revenue

growth of nearly 67% CAGR from FY11-FY14. The phase of expansion was initiated

by the new management which has been at the helm since FY11. With three new

resorts turning operational in FY16, the total room bouquet of the company is

expected to increase to 697 rooms in FY17, a 3 year CAGR of 14%.

While the company is adding three new resorts in FY16, it is not planning to renew

the lease of Byke Paawana in Rajasthan, which is expiring in 2015. The Byke

Paawana is a relatively small sized resort with 18 rooms, 60% occupancy and ARR

of `3000 as of FY14. In FY14, the Pawaana resort contributed to 2.8% of the total

revenues. In our opinion, we do not believe the non-renewal of the Pawaana resort

will have any material financial implication on the company.

The commencement of the Thane resort is expected to reduce the

dependence on the Old Anchor resort, which comprised 61% of total

revenues in FY14. Going forward, we expect the revenue share of Old

Anchor to gradually reduce to 43% in FY17, with the Thane resort and Byke

Heritage contributing 19% and 12% of the revenues respectively.

Nevertheless, Byke’s Goan properties will continue to form the major chunk

of revenues (50% of the revenues).

Robust pace of Room expansion in the past… …to continue

102 102 102 102

283363 363

FY11 FY12 FY13 FY14

Total Number of Owned Rooms Total number of Leased Rooms

No. of Resorts

102 102 102

595 595

FY15E FY16E FY17E

Total Number of Owned Rooms Total number of Leased Rooms

No. of Resorts

We expect the total revenues from resort room sales to grow at a three year

CAGR of 20% to `73 crore in FY17. Existing resorts are expected to clock

revenue CAGR of 5%, with the incremental fillip to growth being provided by

the new resorts. Average occupancy is expected to marginally reduce from

69% in FY14 to 67% in FY17 due to the addition of new resorts in FY16. We

expect the average room rent to increase from `3604 in FY14 to `4205 in

FY17, a CAGR of 5%.

Byke’s Resorts Profile

Existing Resorts Location Start Date No. of

Expires

Annual

Lease Cost (

in Rs crs)

FY14 Avg

Occupancy

Average

Room Rent

Revenues (in

crores)

Contribution

to total FY14

revenues

Byke Grassfield* Jaipur FY15 54 2025 1.1 50% 3800 0.9 2%

Byke Heritage Matheran Since 2007 80 Owned NA 71% 3500 7.3 17%

Byke Hidden Paradise Goa FY13 40 2020 0.2 69% 2650 2.7 6%

Byke Neelkanth Manali FY13 40 2024 0.2 69% 2750 2.8 7%

Byke Old Anchor Goa FY12 240 2025 3.5 70% 4250 26.1 61%

Byke Paawana Mandawa FY12 18 2015 0.2 61% 3000 1.2 3%

Byke Redwood Matheran FY12 25 2028 0.1 69% 2250 1.4 3%

Byke Sunflower Goa Since 2007 22 Owned NA 71% 2150 1.2 3%

Upcoming Resorts Location Start Date No. of

Expires

Annual

Lease Cost

(in Rs crs)

Exp first year

Occupancy

Exp first

year Avg

Room Rent

Exp first year

Revenues (in

crores)

Contribution

to total

revenues in

first year of

operationsByke Thane Mumbai FY16 122 2030 3.6 50.0% 4500 9.2 15%

Byke Shimla Shimla FY16 20 2025 0.2 50.0% 3000 0.8 1%

Byke Puri Orrisa FY16 54 2025 1.0 50.0% 2500 1.8 3%

* FY15 data

ARRs and Occupancy to increase steadily Resort revenues to grow at 3 year CAGR of 20%

FY13 FY14 FY15E FY16E FY17E

Average room Rent (RHS) Average Occupancy

in Rs crs

Revenues Revenue Growth ( RHS)

Pure vegetarian F&B insulates from slowdown in foreign travel…

Byke resorts serve pure vegetarian food and hence cater to primarily domestic

travelers. Since the past year, Goa has witnessed a slowdown in Russian travel

inflow, which comprises 33% of total foreign tourist in Goa

Drop in oil prices which has impacted the Russian economy and

Russia’s annexation of the Ukrainian territory, Crimea and the resultant

sanctions which have weakened the Russian currency, Rouble

Against this backdrop, Russian travelers to Goa fell 30-35% in 2014. Consequently,

many premium hotels and resorts have been forced to slash rates, even during the

peak season i.e. during October to December. However, given Byke’s niche

positioning, even in a foreign tourist dominated destination such as Goa, it has been

relatively unaffected by the drop in Russian travelers. Revenues from Goan

properties grew 13% YoY in FY14 and are expected to clock a revenue growth rate

of 7% in FY15. Further, 25-30% of the Byke’s Goan resort’s capacity has been pre-

booked by few Russian agents for 2-3 years, thereby cushioning itself from macro-

economic challenges to a certain extent.

… and helps capitalize on domestic tourist spending which is

expected to grow at a faster rate

Domestic travel spending generated 80.7% of direct Travel & Tourism GDP in 2013

compared with 19.3% for foreign visitor. According to WTTC Travel & Tourism

Economic Impact 2014, domestic travel spending is expected to grow by 6.7% per

annum to `9,657.3 bn in 2024, while foreign visitor spending is expected to rise by

4.3% per annum during the same period.

Factors expected to boost domestic tourist spending are:

A gradual improvement in economy and increase in discretionary spending

Government’s thrust on the sector: The government, in the recent Union

Budget, has emphasized measures to boost the tourism sector in India,

which in turn will benefit the hospitality sector. These measures include:

i) Revamp major heritage sites, including landscape restoration; signage and

interpretation centres; parking; access and other necessary amenities.

ii) Allocation of resources to start working on 9 heritage sites to bring it to the

level of World Cultural Sites

iii) After the success of VISAs on arrival issued to travelers of 43 countries, a

proposal has been to increase the countries covered to 150, in stages.

The government is encouraging other states to replicate the successful Gujarat

tourism model, the key elements of which were:

Roping in a brand ambassador who has a pan India mass appeal – Amitabh

Bacchan

High visibility across various mediums of channels, especially in prime time

A visually attractive campaign and,

Campaign which effectively showcases the diversity of Gujarat

A concentrated effort on tourism growth will present immense opportunities for the

hotel sector in India.

Increase in discretionary spending… …to fuel domestic tourist spending

1012 12

Total Consumer Spend Essential Consumer Spend

Discretionary Consumer Spend

% CAGR

FY00-05 FY05-10 FY11-16

2008 2009 2010 2011 2012 2013 2014 2024

in Rs bn

Domestic Tourists spending Foreign tourist spending

2014-2024: Domestic Tourist spending : 6.7% CAGRForeign Tourist spending: 4.3%

Domestic tourists growth at 10 yr CAGR of 14%...

…much higher than 8% CAGR for foreign tourist arrivals

1000.0

1200.0

1400.0

Domestic Tourists ( in mn) Growth % (RHS)

Foreign Arrivals ( in mn) Growth % (RHS)

Room Chartering – High on margins and scalability, yet low on

capital

The company started room chartering business in FY11. Under room chartering,

Byke purchases room nights of mid-budget hotels in bulk across religious and

leisure tourist destinations during the off-peak season and sells them during the

peak-season. Since the past two years, it has managed to sell ~90% of the room

nights purchased at a gross margin of 14%. In FY13, the company clocked revenues

of `43 crore, which increased to `74 crore in FY14. The number of properties

covered through room chartering increased from 96 to 132 during the same period.

India's popularity as a tourist destination, combined with its new perception as a luxury

tourist destination as well as improvements in transport networks (both air and rail),

means that the country is an attractive investment area for hotel groups. As a result, BMI

expects that the number of hotels and establishments will rise over the period to 2019.

With growth of around 11-12% a year, the number of hotels will increase from

approximately 4,320 in 2015 to 6,670 in 2019. Many of the major global hotel groups are

targeting India as an area for expansion, with a range of new properties catering to all

budgets expected to open over the next few years.

Hotel Industry could grow at a CAGR of 10.8% to `2823 bn by 2019

2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

In Rs bn

Hotel Industry in India

Source: Ventura Research, BMI Research

In our opinion, room chartering offers a three-fold advantage to Byke:

Since its leased resorts are operating at a near peak average occupancy of

70% per annum, it can capitalize on the unsold inventory of lesser known mid-

sized budget hotels. The counter-party is assured of bulk bookings in the non-

peak season, while Byke enjoys the upside of higher pricing in the peak

season. With minimal costs involved, Byke can scale its operations much

beyond its resorts’ capacity and geographic locations.

Byke to maintain a rent-out ratio of 90% Gross Margins to remain in the range of 14-15%

Number of room nights purchased Number of room nights sold

Per room rate

Lease Cost Average Room Rent Gross Margin (RHS)

Easy scalability of rooms and room nights in the chartering business

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

FY11 FY12 FY13 FY14

No. of Room Nights Sold No. of Properties (RHS)

As there is no capital cost involved, the profits earned directly boost the

bottom-line.

The company is able to capitalize on the visitor flow across major religious

and leisure destinations across India. With a pan-India presence and constant

visitor flow in religious places, the company is assured of chartering revenues

throughout the year. According to industry sources, Cox and Kings witnessed

a growth of 30% in religious tourism, while MakeMyTrip and Expedia

witnessed a growth of 25% + in this segment (data as on December 2013).

The share of religious tourism is expected to more than double to 5% of

domestic leisure revenues on better infrastructure and discretionary spending.

Top 5 states visited by domestic tourists Top 5 states visited by foreign tourists

21.3%19.8%

8.6%7.2%

Tamil Nadu Uttar Pradesh Andhra Paradesh

Karnataka Maharashtra

% of travellers

20.8%20.0%

11.5%10.3%

Maharashtra Tamil Nadu Delhi Uttar Pradesh Rajasthan

% of travellers

Byke, has over the years, build a strong network of agents which has enabled pan

India presence. The company has expanded its agent network, the back-bone of the

chartering business, from 18 cities in FY11 to 41 cities as of FY14.

Byke has presence in these states through chartering

Tamil Nadu: Ooty , Kodaikanal ,

RameshwaramKerala: Munnar , Kannur

AP: Tirupati

Odisha: Bubhaneshwar ,

Cuttack , JaganathpuriMaharashtra: Lonavala,

Mahableshwar , Aurangabad ,

Bhimashankar, Pune , Shirdhi

Gujarat: Somnath , Dwarka West Bengal: Darjeeling

Sikkim: Gangtok

UP & Uttarakhand: Agra, Varanasi,

Vrindavan , Mathura, Mussorrie,

Nanital

HP, Jammu, Punjab: Katra, Manali,

Shimla, Chandigarh, Delhi

Rajasthan: Jaipur , Jodhpur,

Jaisalmer, Udaipur, Mt Abu, Devgarh,

Nathdwara

MP: Ujjain

Source: Ventura Research, Byke, Google Maps

Strong Agent Network

FY11 FY12 FY13 FY14

No. of Agents No. of Cities (RHS)

In order to provide a fillip to room chartering, the company is developing an online

travel portal viz. tripdeal.com, which will enable travelers to book rooms online. This

will help Byke save on the agent’s commission which varies at 10-25% of the room

lease rent. The portal is under development and is expected to go-online in FY17.

With travel bookings increasingly done online, this portal will bolster Byke’s room

chartering revenues, once it gains popularity.

With the travel portal going on-stream in FY17, we expect revenues from the room

chartering business to increase at a 3 year CAGR of healthy 28% to `157.3 crore by

% of travel bookings made online worldwide increasing rapidly

35%38% 38% 39%

15%18%

21%23%

31%33%

2008 2009 2010 2011

US Asia & Pacf ic Europe Latin America

Source: Statista

Room chartering revenues and growth trend

in Rs crs

Room Chartering % growth (RHS)

Key Monitorables Slowdown in economy:

The past few years have hurt the hotel industry due to slowdown in the economy

and persistently high inflation which curbed discretionary spending. If the recovery in

the economy takes longer than expected, the occupancy of the resorts will take a hit.

Domestic tourists comprise majority of Byke’s clientele, hence the company is highly

dependent on the macro economic situation in the country.

Success of the online portal:

Byke is in the process of developing an online portal to fuel its room

chartering business. This space, however, is new to the company and

wrought with intense competition from:

i) Travel portals such as MakeMyTrip.com, ClearTrip.com and

Yatra.com among others.

ii) Couch surfing – Volunteer-based worldwide network

connecting travelers with members of local communities.

iii) Guest-to-guest: Exchange your home during a vacation

iv) Specific room inventory based websites such as AirBnb and

Oyo Rooms which provides budget rooms across India

Slowdown in economy impacted revenues

020406080

100120140160180200

in Rs crs

Revenue Revenue Growth (YoY) RHS

Revenue De-growth owing to economic down-turn

Revenue Growthmoderation amidst tough economic

conditions

Growthprimarily led by acquisition of

new resorts

If the company’s online portal fails to attain the requisite viewership,

our room chartering revenue estimates for FY17 may have to be

revised downwards.

Intense Competition:

According to industry sources, the number of hotels is expected to increase at

a rate of 11-12% annually. Increased competition, especially from players with

a strong financial muscle, is a key risk for Byke.

Financial Performance

Byke’s Q3FY15 revenues increased by 16% YoY to `57 crore led by a steady

increase in occupancy rates and room chartering revenues. EBITDA margin

expanded 100 bps YoY to 20% in Q3FY15 on account of cost rationalization

measures as operating expenses as a proportion of revenues declined from 78.9% in

Q3FY14 to 77.6% in Q3FY15. In Q3FY15, The Byke reported net profit of `6.7 crore,

a growth 38% YoY. Lower interest and tax costs helped boost the PAT growth. The

company reported a PAT margin of 11.8% in Q3, up 100 bps YoY.

Quarterly Financial Performance (` in crore)

Particulars Q3FY15 Q3FY14 9MFY15 9MFY14

Net Sales 57.0 49.2 124.5 110.6

Growth 16% 13%

Total Expenditure 45.6 39.9 99.7 89.7

EBITDA 11.4 9.3 24.7 20.9

Margin % 20.0% 18.9% 19.9% 18.9%

Depreciation 2.5 1.4 7.1 4.0

EBIT (Excl. OI) 9.0 7.9 17.6 16.9

Other Income 0.0 0.0 0.0 0.1

EBIT 9.0 7.9 17.6 16.8

Margin % 15.7% 16.0% 14.1% 15.2%

Finance Costs 0.4 0.5 1.4 1.6

Exceptional Income 0.0 0.0 0.0 0.0

PBT 8.5 7.4 16.2 15.2

Margin % 14.9% 15.0% 13.0% 13.8%

Tax Expense 1.8 2.5 3.4 4.1

PAT 6.7 4.9 12.8 11.1

Margin % 11.8% 9.9% 10.3% 10.0%

Financial Outlook

Byke’s total revenues are expected to grow at a CAGR of 24% to `296 crore by FY17

driven by:

28% CAGR in the room chartering segment

20% revenue CAGR in resort room bookings

F&B revenues are expected to grow at a CAGR of 22% to `36.8 crore by

Revenues from conferencing and events are expected to grow at a CAGR of

18% to `29.1 crore by FY17

Revenues from F&B and events will grow in line with the increase in number of

resorts. EBITDA margin is expected to expand to 22.7% in FY16 with higher

contribution from resort bookings and moderate to 21.8% in FY17. PAT is expected to

grow at a CAGR of 27% to `32.7 crore by FY17; PAT margin is expected to remain in

the range of 10-11%. We expect the adjusted EPS (adjusted for 1:1 bonus issue in

October 2014) to increase from ` 3.96 in FY14 to `8.2 in FY17.

No. of Restaurants and Capacity No. of Lawns/Banquets

Restaurant Capacity No. of Restuarants (RHS)

No. of Lawns/Banquets and Conference Halls

Revenues to increase at a 3 year CAGR of 24% EBITDA and PAT Margin to remain range bound

FY12 FY13 FY14 FY15E FY16E FY17E

Rs crs

Revenues % growth (RHS)

EBITDA margin PAT margin

D/E low, RoE stable Asset Turnover expanding on asset light

business

D/E (RHS) RoE

1.2 1.21.3

Asset Turnover

Peer Comparison

Byke scores high on Asset Turnover and RoE (FY14)…

EIH Associated Hotels

Sterling Holidays

Taj GVK Hotels & Resorts

The Indian Hotels Company

0 0.2 0.4 0.6 0.8 1 1.2 1.4

RoE (%)

Asset Turnover (x)

…and also on EPS growth (FY14)

EIH Associated Hotels

Sterling Holidays

Taj GVK Hotels & Resorts

The Indian Hotels Company

-30 -20 -10 0 10 20 30

EPS growth (%)

RoE (%)

Peer comparison : Financial and Valuation parameters

Y/E Mar

In Rs CrSales EBITDA PAT

EBITDA

Mgn PAT Mgn EPS

EV/EBITD

BYKE2014 155.7 28.6 15.9 18% 10% 4.0 18.7 41.4 7.8 23.6

2015E 173.2 32.2 16.3 19% 9% 5.4 16.7 30.3 6.7 21.0

2016E 235.2 53.5 27.6 23% 12% 6.9 23.4 23.8 5.6 12.6

2017E 296.2 64.5 32.7 22% 11% 8.2 22.8 20.1 4.6 10.5

Indian Hotels2014 4066.2 561.9 -553.9 13.8% -13.6% -6.9 -19.7 - 3.3 23.7

2015E 4262.7 604.0 45.7 14.2% 1.1% 0.5 1.5 199.3 2.8 22.0

2016E 4673.7 745.0 161.0 15.9% 3.4% 1.7 4.9 63.0 2.8 17.8

2017E 5161.9 745.0 284.6 14.4% 5.5% 3.0 7.8 35.8 2.7 14.5

EIH Ltd2014 1539.1 328.6 107.1 21.3% 7.0% 1.9 4.1 54.3 2.4 19.9

2015E 1665.8 363.5 122.9 21.8% 7.4% 2.2 4.7 49.8 2.1 18.0

2016E 1868.8 428.6 188.2 22.9% 10.1% 3.3 6.1 32.8 2.0 15.3

2017E 2126.3 428.6 242.5 20.2% 11.4% 4.2 7.8 25.4 1.9 13.0

Hotel Leela Venture2014 731.2 145.2 -441.5 19.9% -60.4% -9.8 NA NM 1.1 42.6

2015E 821.9 176.2 -519.0 0.2 -0.6 -11.5 NA NM 3.9 37.0

2016E 932.8 217.1 -512.0 23.3% -54.9% -11.3 NA NM NM 32.2

2017E NA NA NA NA NA NA NA NA NA NA

Taj GVK Hotels & Resorts Ltd.2014 245.1 51.6 5.0 21.1% 2.0% 0.8 1.4 90.1 1.3 13.2

2015E 250.4 57.4 5.4 22.9% 2.2% 1.1 2.0 65.0 1.3 12.3

2016E 264.2 63.1 7.7 23.9% 2.9% 1.2 2.2 59.6 1.3 11.0

2017E 281.1 66.1 7.5 23.5% 2.7% 1.2 2.1 59.6 1.3 10.7

Valuation

We initiate coverage on Byke as a BUY with a price objective of `229 representing a

potential upside of 39% over a period of 18 months. We have used the price multiple

approach to value Byke. We have assigned a PE of 28x on FY17 EPS of `8.2 to

arrive at the target price. The assigned PE of 28x is at a 10% discount to Byke’s 6

year median multiple of 31x. We are positive on the company given the:

i) Robust, asset light and debt free business model

ii) Encouraging prospects of the hotel and tourism sector in India

Byke has traded at a median PE of 31x historically

CMP 20X 25X 30X 35X 40X

Byke’s P/B trend Byke’s EV/EBITDA trend

CMP 2.5X 3.5X 4.5X 5.5X 6.5X

CMP 3X 4X 5X 6X 7X

Financials and Projections

Y/E Mar, Fig in ` Cr FY 2014 FY 2015E FY 2016E FY 2017E Y/E Mar, Fig in Rs. Cr FY 2014 FY 2015E FY 2016E FY 2017E

Profit & Loss Statement Per Share Data (Rs)

Net Sales 155.7 173.2 235.2 296.2 EPS 4.0 5.4 6.9 8.2

% Chg. 54.3 11.2 35.8 25.9 Cash EPS 5.3 6.4 9.5 11.9

Total Expenditure 127.1 141.0 181.7 231.7 DPS 1.5 1.5 1.5 1.5

% Chg. 52.6 10.9 28.9 27.5 Book Value 21.2 24.3 29.5 35.9

EBITDA 28.6 32.2 53.5 64.5 Capital, Liquidity, Returns Ratio

EBITDA Margin % 18.4 18.6 22.7 21.8 Debt / Equity (x) 0.2 0.2 0.2 0.1

Other Income 0.2 0.3 0.5 0.6 Current Ratio (x) 1.3 1.4 1.4 1.9

Exceptional items 0.0 0.0 0.0 0.0 ROE (%) 18.7 16.7 23.4 22.8

PBDIT 28.8 32.5 54.0 65.1 ROCE (%) 24.4 20.6 32.1 31.2

Depreciation 5.4 9.6 10.5 15.1 Dividend Yield (%) 0.9 0.9 0.9 0.9

Interest 2.1 2.1 2.2 1.1 Valuation Ratio (x)

PBT 21.3 20.8 41.2 48.9 P/E (x) 41.4 30.3 23.8 20.1

Tax Provisions 5.4 4.6 13.6 16.1 P/BV (x) 7.8 6.7 5.6 4.6

Reported PAT 15.9 16.3 27.6 32.7 EV/Sales (x) 4.3 3.9 2.9 2.3

Minority Interest 0.0 0.0 0.0 0.0 EV/EBIDTA (x) 23.6 21.0 12.6 10.5

Share of profit from associates 0 0.0 0.0 0.0 Efficiency Ratio (x)

PAT 15.9 16.3 27.6 32.7 Inventory (days) 14 18 18 20

PAT Margin (%) 10.2 9.4 11.7 11.1 Debtors (days) 25 28.0 28.0 28.0

Servicing Cost % of Sales 51.6 52.7 50.4 53.1 Creditors (days) 15 18 18 18

Balance Sheet Cash Flow statement

Share Capital 20.0 40.1 40.1 40.1 Profit Before Tax 21.3 20.8 41.2 48.9

Reserves & Surplus 64.8 57.5 78.1 103.8 Depreciation & Amortisation 5.4 9.6 10.5 15.1

Minority Interest 0.0 0.0 0.0 0.0 Working Capital Changes -3.6 -7.5 -10.4 -14.3

Long-Term Provisions 0.1 0.1 0.1 0.1 Direct Taxes Paid and Others -3.0 -3.0 -5.0 -12.3

Long-Term Borrowings 6.0 9.0 9.0 4.0 Operating Cash Flow 20.0 19.9 36.3 37.4

Other Long-Term Liabilities 5.0 5.0 8.3 12.2 Capital Expenditure -9.0 -19.6 -31.0 -20.4

Total Liabilities 96 112 136 160 Dividend Received 0.0 0.3 0.5 0.6

Gross Block 92.4 105.0 140.8 161.2 Others -0.2 0.0 0.0 0.0

Less: Acc. Depreciation 13.9 23.5 34.0 49.1 Cash Flow from Investing -9.2 -19.3 -30.6 -19.8

Net Block 78.4 81.5 106.8 112.1 Inc/(Dec) in Loan Fund -5.3 4.0 0.0 -9.0

Capital Work in Progress 3.6 10.5 5.7 5.7 Others -2.5 -3.5 -3.5 -7.0

Goodwill on Consolidation 0 0 0 0 Interest Paid -2.1 -2.1 -2.2 -1.1

Non-Current Investments 0.0 0.0 0.0 0.0 Cash Flow from Financing -9.9 -1.7 -5.7 -17.1

Net Current Assets 8.3 13.9 17.3 36.6 Net Change in Cash 0.9 -1.0 0.1 0.5

Other Non-Current Assets 5.6 5.6 5.6 5.6 Opening Cash Balance 1.0 2.0 1.4 1.5

Total Assets 96 112 136 160 Closing Cash Balance 2.0 1.4 1.5 2.0

Disclosures and Disclaimer Ventura Securities Limited (VSL) is a SEBI registered intermediary offering broking, depository and portfolio management services to clients. VSL is member of BSE, NSE and MCX-SX. VSL is a depository participant of NSDL. VSL states that no disciplinary action whatsoever has been taken by SEBI against it in last five years except administrative warning issued in connection with technical and venial lapses observed while inspection of books of accounts and records. Ventura Commodities Limited, Ventura Guaranty Limited, Ventura Insurance Brokers Limited and Ventura Allied Services Private Limited are associates of VSL. Research Analyst (RA) involved in the preparation of this research report and VSL disclose that neither RA nor VSL nor its associates (i) have any financial interest in the company which is the subject matter of this research report (ii) holds ownership of one percent or more in the securities of subject company (iii) have any material conflict of interest at the time of publication of this research report (iv) have received any compensation from the subject company in the past twelve months (v) have managed or co-managed public offering of securities for the subject company in past twelve months (vi) have received any compensation for investment banking merchant banking or brokerage services from the subject company in the past twelve months (vii) have received any compensation for product or services from the subject company in the past twelve months (viii) have received any compensation or other benefits from the subject company or third party in connection with the research report. RA involved in the preparation of this research report discloses that he / she has not served as an officer, director or employee of the subject company. RA involved in the preparation of this research report and VSL discloses that they have not been engaged in the market making activity for the subject company. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. We may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within us, or other areas, units, groups or affiliates of VSL. This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This document does not solicit any action based on the material contained herein. It is for the general information of the clients / prospective clients of VSL. VSL will not treat recipients as clients by virtue of their receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of clients / prospective clients. Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. And such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document. The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by VSL, its associates, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 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