The Byke Hospitality Ltd (BYKE)

CMP: `171
November 22, 2016
Time Horizon 12 Months Target: ` 268

Key Data (In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E

RISK MEDIUM Net Sales 1,814.2 2,315.2 2,801.4 3,417.8 4,203.8

V Bloomberg Code
NSE Code
BYKE IN
BYKE
EBITDA
EBITDA Margin (%)
372.7
20.5%
526.9
22.8%
640.1
22.9%
796.3
23.3%
998.4
23.8%

A Sector
Industry
HOSPITALITY
HOTEL, RESORTS & RESTAURANTS
EPS (`)
Ev/Sales (x)
5.0
4.3
6.5
3.3
7.9
2.8
10.7
2.3
13.5
1.8
Ev/EBITDA (x) 20.8 14.7 12.1 9.7 7.7
L Face Value (`)
BV per share (` )
10
33.26
P/E (x)
Price Performance
34.0
CY12
26.3
CY13
21.5
CY14
15.8
CY15
12.6
YTD
Dividend yield (%) 0.59%
U 52 Week H/L (`)
Market Cap (` mn. )
200/148.10
Absolute
Relative
61.13%
33.43%
73.67%
66.91%
-1.78%
-33.16%
2.73%
6.79%
10.87%
11.09%
6796.58
E NIFTY 27.70% 6.76% 31.39% -4.06% -0.22%

Shareholding Pattern (as on Sept16) Relative stock performance (Nov15=100)

130

P Promoters
Sep-16
44%
Jun-16
44%
Mar-16
44%
Dec-15
44%
120

110

I Non-Institutional 41% 44% 41% 41%

100

90
Institutional 14% 12% 14% 15%
C Total 100% 100% 100% 100%
80

k NIFTY 50 BYKE

Source: Company Reports, Anand Rathi Research, Ace Equity

Analyst: Ridhi Mehta Anand Rathi Research

ridhimehta@rathi.com
The Byke Hospitality Ltd (BYKE)

BYKE Hospitality.A Domestic Brand

The Byke Hospitality Ltd was incorporated in 1990 in the name of Kotawala Financial Consultancy Pvt. Ltd. The name of the company was
further changed to Suave Hotels Ltd in 2007. With the change in the management in 2011, the name of the company also changed to its
present name The Byke Hospitality Ltd(BYKE).

It is a mid-market leisure hospitality services company with a unique business model, combining asset light approach along with targeting
Niche Vegetarian segment in budget hotels. The company has two business segments, 1) Owned & Leased and 2) Room chartering.

For the latest quarter, BYKE reported revenue growth of 18% at Rs. 536mn. EBITDA grew by 20% at Rs. 122mn with margins at 22.7%. PAT
witnessed growth of 19% at Rs. 58mn with margins at 11%.

The company recently added 2 new properties in the existing locations of Mumbai and Jaipur. This highlights strong demand potential in
these cities and increasing acceptability of the Byke brand. The Byke Grass field Riviera, Jaipur has been taken on long-term lease. It has
80 rooms, banquet halls, conference rooms and a party lawn, targeting religious & leisure tourists; Jaipur is a prominent location for
destination weddings & other such events. The Byke Hotel Delotel, Mumbai has been taken on long-term lease has 40 rooms, banquet halls
and conference rooms. It targets high density residential population of Borivali specifically for events including social events (birthdays,
weddings, parties) & corporate events.

The upcoming addition of leased room inventory and restaurants along with increasing room nights sold in chartering segment will aid the
company to grow its revenue with improving operating margins and blended return ratios in the years to come. We initiate coverage on
The Byke assigning P/E multiple of 25x to FY18E EPS and give a BUY rating with a target price of Rs.268 with an upside potential of 58%.

Source: Company Reports, Anand Rathi Research, Ace Equity

2 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Evolved from Standalone Hotel Property

Formerly known as Sauve Acquisition (2010)

Hotels
Started operations in the Mr. Anil Patodia (MD and Promoter) had
year 2002. Current promoters acquired 44.5% stake significant experience in the hospitality
Promoted by Mr. in the Company in December 2010. industry business of supplying recron
Satyanarayan Sharma and 2 properties Byke Heritage Matheran pillows to hotels.
family and Byke Suflower Goa (total 102 rooms). Strong vision to be a leader and preferred
In August 2011 the Company name was choice in the Hospitality Industry
History (Prior to changed to The Byke Hospitality
2010)

The Byke (Present)

No. of Hotels 2 No. of Hotels 11

No. of Rooms 102 No. of Rooms 797
Room Chartering - Nil Room Chartering ~5 lacs room nights

Source: Company Reports, Anand Rathi Research

To sizeable Hotel Portfolio & well known Brand in Industry

3 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Business Model

Hotel (Owned + Leased)

Hotels under Brand name The Byke

Focus on domestic middle class leisure tourism

Niche in Vegetarian segment

The BYKE
Diversified revenue mix Rooms, F&B, events, etc.

11 properties at tourist destinations in India:

2 ownership; 9 on long term lease

Hotel (49%) Owned Room Chartering
+ Leased (51%) 797 room

Room Chartering

Third party hotel rooms chartered at strategically identified

locations across India
Food & Beverages
Leased Rooms (46%)
and Others (54%) Capitalise on the diverse peak seasons across India - Maximise
occupancy (90%+)

Presence across 60 plus cities

Relationships with 500+ hotel owners & Network of 300+

Source: Company Reports, Anand Rathi Research agents

4 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Unique Asset light Business Model

The company as on Q2FY17 have 10 properties operational at popular tourist destinations and newly acquired property in Mumbai will be
operational from Q3 FY17. Out of the 11 properties, company owns 2 and the remaining 9 are on long term lease. The revenue from Byke
can be further divided into revenue from Room rent, F&B and event & others (mainly rentals of conference rooms and lawns). The company
currently has close to 797 rooms with average occupancy of 65%. The company has expanded the number of rooms at CAGR of 30% over
the last 5 years.

Low capital requirement as properties are taken on a long term lease

Byke operates under a unique asset light model in which it acquires properties on lease bases (usually 15 years) with a lock-in period of 3
years, which is a part of the risk-management policy of the company.

Incremental room addition requires minimal capital employment; only capex required for refurbishment and rebranding

Enables the company to leverage high profitability from a low capital base

Attractive cash flow generation and deleveraging profile

Leasing = Asset Light = Low Capex & Faster Rollout (Renovation & Rebranding of hotel properties.)

Source: Company Reports, Anand Rathi Research, Ace Equity

5 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Robust Growth 25% CAGR

Hotel Revenue (In Mn) 25% 3 year CAGR Low lease cost as % of Rev
1400
10% 8%
1200 1143
8% 6% 6% 80
1000 917 5%
6%
806 90
50
800 4% 58
580 39 42
600 2% 20
FY13 FY14 FY15 FY16
400
FY13 FY14 FY15 FY16 Lease Cost As % of Total Revenue

Improving ARR Number of Rooms

4000 3909 700 677
3783
3617 600
3600 519
3431 465 465
500

3200 400

300
2800 FY13 FY14 FY15 FY16
FY13 FY14 FY15 FY16
Source: Company Reports, Anand Rathi Research, Ace Equity

6 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Chartering Business Unique Value Proposition

What is Room Chartering:

It involves aggregation of hotel rooms through prior booking of inventory with partial / full advance payments. This is done 3-4
months before the tourist season for the entire duration of the tourist season in a particular location.

In chartering segment, the company buys room-nights in the mid-budget hotels by the advance payment at a discount price
in bulk across leisure tourist and religious destinations during o-peak season. During the peak season time, the room-nights
are sold to the customers by the travel agents who in return earn commission. Currently, the company has a presence in 60 cities with
300+ active agents and plans to expand it to newer regions and increase the agent count as well. The number of the
room-nights booked in FY11 was 1.1 lacs and currently stands at 4.9 lacs in FY16, which is expected to reach 7.8 lacs room
nights in FY18E. With the established network of agents in the Chartering business, the companys O&L business gets visibility of the
customers hence the possibility of improving the occupancy level at the owned and leased hotels and also the company gets to
understand about the next suitable location to expand.

Why Room Chartering

Scalable: Flexibility to quickly expand depending on tourist trends

Risk mitigation: Pan India chartering depending on peak season; Strict quality checks while purchasing inventory

Network effect: Sold onward to wide network of travel agents who sell to customers trends

Synergistic: Gives insight on where to expand in hotel segment; agent network helps maximizing occupancy for hotel segment.

High returns: Discount leads to low break-even point; low capital employed yielding high returns .

Source: Company Reports, Anand Rathi Research, Ace Equity

7 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Robust Growth 40% CAGR

Number of Cities = Expanding Presence Room Nights Sold (lacs)

80 6
66 4.9

60 4 3.45 3.73
48
41 2.01
40 32 2

20 0
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16

Room Chartering Revenue (In Mn) ARR (Rs.)

2404 2388
1172
897 2175
2131
750

429

FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16

Source: Company Reports, Anand Rathi Research, Ace Equity

8 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)
Niche business strategy To focus on Pure Vegetarian
Segment with Budgeted Hotel
Niche in vegetarian segment

Byke has made a niche in pure vegetarian food segment. In a place like Goa, the company is able to maintain its occupancy levels at ~70%
with a pure vegetarian base. Due to large number of vegetarian crowds there are huge untapped opportunities, it provides an edge to the
company as there is a significant proportion of tourist who prefer to stay in a pure vegetarian place. Going ahead with expanding its base in
many locations, we believe the company will be able to leverage its position in the pure vegetarian segment which will provide an added
advantage over its competitors.

The company has been awarded for contribution to promote vegetarian hotels in India at 11th Hospitality India & Explore the World Annual
International Travel Awards

All of Bykes properties focus on F&B segment (Banquet halls, Conference halls, Lawns etc.) especially marriages and conventions, recently
acquired Thane property has 3 Restaurants & 3 Conference halls. Going ahead, the management is confident of increasing F&Bs share in
Hotel business to 60-65% which will improve its profitability as the margins in this segment are quite high.

We strongly believe there is good number of population which prefers pure vegetarian outlets and hence gives an added advantage to the
company. Management is continuously focusing on increasing the share of Food & Beverages (F&B) segment to remove the seasonality
impact from its business and boost its margins along with return ratios.

Mid market focused hospitality brand with focus on domestic tourism

Domestic travelers have been the bedrock of demand for the Indian hotel industry. Domestic tourism continues to be over 80% of the total
tourist expenditure in India. A growing middle class has created demand for branded budget hotels for the domestic travelers. Byke has
created a distinct brand in the budget hotels category .

Source: Company Reports, Anand Rathi Research, Ace Equity

9 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Wide Distribution Network

Pan-India presence through strong agent network Number of Agents

In hospitality, selling is the major constraint, which is 350 326

mitigated through tie-up with over 300 agents to sell 300
owned + leased hotel rooms as well as chartered 250
208
rooms 200 182

Pan-India network of agents 150 134

100
Enables to optimize occupancy levels. FY13 FY14 FY15 FY16

Charter Room Segment Occupancy (%)

Hotel Segment Occupancy
100
70%
70% 95 94 94
68% 92
67%
90 89
65%
65%
85

60% 80
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16

Source: Company Reports, Anand Rathi Research, Ace Equity

10 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Tourism Industry

Indian tourism will grow rapidly over the next 10 years

The country is due to outpace its rival Asia-Pacific markets. However,

the sectors total contribution to GDP is expected to increase from
USD88 billion in 2007 and is expected to reach USD275.2 billion in
2025E (7.6% of GDP). According to WTTC, India will be the worlds fifth
fastest growing market between 2015e-2025F

By 2025, foreign tourist arrivals are expected to increase to 15.3

million, according to the World Tourism Organization.

India's travel market will double b/w 2015e-25F

The new BJP led government has made a declaration and

recognized tourism as one of the five Ts (Tradition, Talent,
Tourism, Trade and Technology) for revival of Brand India.
Government initiatives will play a pivotal role in driving
Indian tourism. Tourism can, in turn, play a critical role in
driving the Indian economy as employment growth in
other sectors plateaus.
Source: Company Reports, Anand Rathi Research, Ace Equity

11 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Changing Industry Tail Wind

India is a highly underpenetrated tourism market. The country ranks 300 263 Travel market direct contribution to GDP 70 60.8 Visitor exports 2014 (US$ bn)
18th in terms of visitor exports, below smaller countries such as 2014 (US$ bn). 60
250
Thailand and Malaysia 50
200 40.3
Direct, indirect and induced impacts of tourism generated US$7.6 40
150
trillion, or 9.8% of global GDP in 2014, yet India managed to derive 30 22.6 20.1
100
only 6.7% of its own GDP from the sector. Even a small country like 20 11.2
40.6 31.9 27.5 7.8
Cambodia derives a comparable 29.9% of its GDP and 26.4% of its 50 18.6 8.6 10 3.5 3.2
3.5 2.3
employment from tourism. Also, Inbound tourist numbers are 0 0
relatively low at ~7.0 million in 2014 (Singapore receives 10.6
million), according to WTTC.

Domestic travelers have been the bedrock of demand for the Indian
hotel industry; Domestic tourism continues to be over 80% of the Growth in Discretionary Spend
total tourist expenditure in India. A growing middle class has created
demand for branded budget hotels for the domestic travelers. Byke
has created a distinct brand in the budget hotels category. 16%
12%
10%
Key Growth Drivers: 14%
12% 12%
6% 10%
Growth in Discretionary Spend 4%
Total Consumer Spend Essential Consumer Spend Discretionary Consumer Spend
Huge Potential of Domestic Tourist market FY 00-05 FY 05-10 FY 11-16CL

Expanding Middle Class Source: Company Reports, Anand Rathi Research, Ace Equity

12 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Industry Growth Drivers

Huge Potential of Domestic Tourism Market

Foreign 2013
Foreign 2024
Tourism Tourism
19% 15%

Share of Tourists by Expenditure

Domestic
Tourism
81% Domestic
Tourism
Expanding Middle Class 85%

1% 7%
13% 12% 20%
18%
32% 43% Middle
51% 59%
Class
54% 36%
24% 9% 4% 17%
1995 2005 2015 2025

< $1.8k $1.8-4k $4-20k >$20k (Annual Income)

Source: Company Reports, Anand Rathi Research, Ace Equity

13 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

BYKE Portfolio

Present Portfolio Identified Locations for the Next Phase of Growth

Hotel Location No. ofrooms Type

Byke Old Anchor Goa 240 Leased

Byke Suraj Plaza Mumbai 122 Leased

Byke Heritage Matheran 80 Owned

Byke Grassfield Jaipur 54 Leased

Byke Vijoya Puri 54 Leased

Byke Hidden Paradise Goa 40 Leased

Byke Neelkanth Manali 40 Leased

Byke Redwood Matheran 25 Leased

Byke Sunflower Goa 22 Owned

Byke Grassfield Riviera Jaipur 80 Leased

Byke Delotel Mumbai 40 Leased Yet to be operational

Total 797 Source: Company Reports, Anand Rathi Research, Ace Equity

14 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Key Growth Drivers

Pan India Presence with 25 properties by 2020

Expand current portfolio from 11 properties to 25 by FY20; 8

properties to be added over FY17-18

Opportunistic room chartering

Grow this segment in equal proportion by capitalizing on diverse

seasons across India

Continue focus on being asset light

New properties to be taken on long term lease thus

minimizing capital requirement and yielding better returns

To drive growth and profitability going forward

Grow revenue at over 20% CAGR to reach Rs 5,000 million by

FY20

Source: Company Reports, Anand Rathi Research, Ace Equity

15 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)

Consistent Financials

ROCE (%)
Revenue Growing at 32% 3 year CAGR

2500 2315 20.1

18.2
1814 16.3
2000
1556
1500
1009 8.5
1000

500

0 FY13 FY14 FY15 FY16

FY13 FY14 FY15 FY16
Earnings Per Share
6.47
Consistent Margins (%)
5.00
25 22.7
20.5 3.97
20 18.4
17.4

15
11 11.2 1.94
10.2
10 7.7

5
FY13 FY14 FY15 FY16
FY13 FY14 FY15 FY16
EBITDAM PATM

Source: Company Reports, Anand Rathi Research, Ace Equity

16 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)
Valuation and Recommendation:

The Byke Hospitality Ltd. is a fast emerging name in Relative stock performance (Dec15=100)
the hospitality sector with luxury resorts and
130
boutique hotels under its banner. Equipped with
120
years of experience, the group is committed towards
110
quality and excellence, providing its patrons with the
100
finest of holiday experiences.
90

Byke has effectively created a name for itself by 80

targeting the mid-market leisure segment. Further,
with likely spurge in consumer spending, 7th pay
NIFTY 50 BYKE
commission.

The upcoming addition of leased room inventory and Source: Bloomberg, Anand Rathi Research
restaurants along with increasing room nights sold in
chartering segment will aid the company to grow its (In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E
revenue with improving operating margins and EPS (`) 5.00 6.47 7.90 10.73 13.46
blended return ratios in the years to come. We P/E (x) 34.03 26.28 21.52 15.84 12.63
initiate coverage on The Byke assigning P/E multiple P/B (x) 6.81 5.63 5.40 4.28 3.35
of 25x to FY18E EPS and give a BUY rating with a ROE 20.0% 21.4% 25.1% 27.0% 26.5%
target price of Rs. 268 with an upside potential of ROCE 18.2% 20.1% 23.9% 26.6% 26.2%
~58%. Ev/EBITDA (x) 20.85 14.70 12.08 9.66 7.71

Source: Company Reports, Anand Rathi Research, Ace Equity

17 Anand Rathi Research

 The Byke Hospitality Ltd (BYKE)
Consolidated Financials:

(In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E (In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E
Net Sales 1,814 2,315 2,801 3,418 4,204 LIABILITIES
Total Expenditure 1,441 1,788 2,161 2,621 3,205 Shareholders Funds 1,001 1,212 1,261 1,594 2,035
EBITDA (Excl OI) 373 527 640 796 998 Equity Share Capital 401 401 401 401 401
Other Income 1 1 1 1 1 Reserves and Surplus 600 811 860 1,193 1,634
EBITDA 374 528 641 797 1,000 Non Current Liabilities 89 91 98 94 88
Depreciation 102 116 140 171 219 Long-term borrowings 38 22 28 23 17
EBIT 272 412 501 627 781 Deferred Tax Liabilities 50 66 66 66 66
Interest 18 16 14 12 10 Other Long Term Liabilities 2 3 4 4 5
PBT 254 397 487 615 771 Current Liabilities 271 293 346 358 303
Tax 53 137 171 184 231 Total Liabilities 1,361 1,596 1,705 2,045 2,427
PAT 200 259 317 430 540 ASSETS
Non Current Assets 877 976 1,017 1,208 1,499
(In ` mn) FY2015 FY2016 FY2017E FY2018E FY2019E Fixed Assets 791 843 904 1,041 1,299
Long Term Loans and Advances 55 86 84 137 168
Sales Growth % 16.5% 27.6% 21.0% 22.0% 23.0%
Other Non-Current Assets 32 46 29 30 31
EBITDA Margin % 20.5% 22.8% 22.9% 23.3% 23.8% Current Assets 484 620 688 837 928
Net Margin % 11.0% 11.2% 11.3% 12.6% 12.8% TOTAL-ASSETS 1,361 1,596 1,705 2,045 2,427

Source: Company Reports, Anand Rathi Research, Ace Equity

18 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)
Key Risks:

Competition:
Industry slowdown
Natural calamities

Source: Company Reports, Anand Rathi Research

19 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)
Rating and Target Price history:

BYKE rating history & price chart BYKE rating details

130 Date Rating Target Price Share Price
120 22-Nov-2016 BUY 268 171

110

100

90

80

NIFTY 50 BYKE

Source: Ace Equity, Anand Rathi Research Source: Ace Equity, Anand Rathi Research

NOTE: Prices are as on 22st Nov. 2016 close.

20 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)
Disclaimer:

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Continued

21 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)
Disclaimer:

Contd.

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Contd.

22 Anand Rathi Research

The Byke Hospitality Ltd (BYKE)
Disclaimer:

Contd.

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Statement
No. Associates/ Research Analyst who is
preparing this report

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1 against the companys name?. NO
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2 end of the month immediately preceding the date of publication of the research report or date of the public appearance?. NO

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5
twelve months.
NO
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23 Anand Rathi Research