Bharat Hotels IPO Review

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Bharat Hotels Limited Basic Details

Before we talk about the specifics of Bharat Hotels IPO, here are some quick data points for your reference:

 

Bharat Hotels Limited Background

The company is engaged in the business of operating and managing hotels, palaces and resorts and are one of the leading hotel brands in India. Their focus is mainly on the luxury segment.

The company operates 12 luxury city hotels, palaces and resorts under “The Lalit” brand and two mid-market segment hotels under “The Lalit Traveller” brand which have a total of around 2261 rooms (as of 2018).

Also, the company provides management consulting services related to operation as well as management of “The Lalit London“, a hotel in London, U.K. The company operates 45 restaurants, bars and bakery outlets in the F&B segment. It also operates the LaLit food trucks that provide outdoor catering services in 4 cities in India.

Since 2015, the company has also been providing education and training for students aspiring to be a part of the hospitality industry through a hospitality school in Faridabad called TLSHS. Bharat Hotels Limited has received several awards like best lounge bar (nightlife) award from Times Food & Nightlife Awards 2018 for Kitty Ko.

The business is going to launch an IPO worth ₹1200 Crore in the next few days across NSE and BSE. In this detailed Bharat Hotels IPO Review, we will be talking about different aspects related to this IPO.

Hopefully, by the end of this review, you will be able to make up your mind on whether to go ahead with this IPO investment or not.

Bharat Hotels Limited Management Information

Currently, there are 10 Directors on the Board of Bharat Hotels Limited. Dr Jyotsna Suri is the Chairperson and Managing Director of the company. She possesses a Bachelor’s degree in English from Miranda House College, Delhi University.

She has been granted an honorary degree of Doctor of Laws from the University of Warwick, U.K. She has been the President of FICCI, the Federation of Indian Chambers of Commerce and Industry in the year 2015.

Bharat Hotels IPO Data Points

Bharat Hotels IPO will open on (undisclosed) and close for subscription on (undisclosed).

The IPO size will be of (undisclosed) lakh Equity shares and the face value of each share will be ₹10. The price band has been set at ₹(undisclosed) per share. The offer price includes a premium of ₹(undisclosed) and is (undisclosed) times the face value of the equity shares. The IPO size is expected to be up to ₹1200 crores.

The market lot size is of (undisclosed) equity shares and the shares will be listed on the National Stock Exchange of the Bombay Stock Exchange.

Pursuant to a resolution passed on August 29, 2017, the issue has been authorised by the Board of Directors and pursuant to a special resolution of the shareholders at the Extraordinary General Meeting held on September 25, 2017, the offer has been approved by them.

Bharat Hotels Limited Financial Performance (Consolidated)

Going through the financial health of any company is very crucial before you even think of investing in that company.

Below are the data points on the overall revenue, assets owned by the group, net profit made and other related figures in the last 5 years or so.

 

After looking at the financial trend above, the financial health of the company does not look very good in terms of profits.

Although the company has been showing an increase in revenues for the last 5 years on a consistent basis the company has incurred losses in the fiscal years ended March 31, 2014, to the financial year ended March 31, 2017.

In fact, this is the first year in the last 5 financial cycles when Bharat Hotels has actually made a profit. The company reported profits of ₹83.88 crores in the financial year ended March 1, 2018. This certainly does not leave a positive impression on how the financial model of the business has been managed in the recent few years.

The return on net worth of the company as per restated consolidated financial statements for the years ended March 31, 2018, March 31, 2017, and March 31, 2016,  is 14.75%, (3.6)% and (7.12)% respectively.

Bharat Hotels IPO Objectives

The main objectives of the Bharat Hotels IPO are as follows:

• For repayment or prepayment of some loans taken by the company from banks and financial institutions
• For meeting expenses related to the general corporate operations.

Other than the above-mentioned objectives, the company will also benefit in terms of enhanced corporate image, brand name and increased visibility through Bharat Hotels IPO.

Again, it seems that the business is looking to get rid of its debts and loans through this IPO funding and not taking another bank loan to pay their existing commitments. Unfortunately, this shows limited benefits for new investors putting their money at stake through this IPO.

Bharat Hotels IPO Events

In case you are looking to invest in this IPO, here are a few dates that you must be aware of:

Bharat Hotels IPO Recommendation

Now, let us analyse different aspects of the business of the company. Let us begin with the strengths of the business.

One of the greatest strengths of the company is that it is operating at 12 different key locations in India under “The Lalit” and “The Lalit Traveller” brands.

The company has used its experience with global hospitality chains in order to build their independent brand, “The LaLit”. The company has been able to create diversified sources of income for itself like F&B Services (including 24/7, Baluchi, OKO, The Lalit Boulangerie, Kitty Su etc.), banqueting services and other services.

The company has developed dynamic demand management and pricing which helps them to manage their inventory of rooms and respond to seasonal changes and changing preferences of customers effectively.

The occupancy rate for the rooms of the company increased from 38% in the year 2014 to 62% in the year 2018. The strategies of the company for further growth and expansion in new geographical areas, increasing their performance, operating efficiencies and competitiveness etc. look promising.

Now, let us discuss some of the risks related to the business of the company.

The company, its subsidiaries, Directors, etc. are involved in certain criminal proceedings and any adverse ruling in them may pose a risk to the overall profitability of the company.

The company is exposed to the risks of travel and hospitality industry in India and abroad like in changes in supply and pricing, seasonality and other related operating risks.

The company has total borrowings of ₹1412.08 crores including both secured and unsecured loans and finance lease obligations. This high indebtedness of the company exposes it to the risk of liquidity, refinancing and risks related to interest rates.

The company has 12 properties, out of which 5 are on lease arrangements and 3 are subject to license arrangements. These leases and licenses, if cancelled or not renewed, may pose severe adverse effects on the financial health of the company.

Another major risk for the business is intense competition from domestic and international players of this industry.

The company’s significant revenues come from The Lalit New Delhi and The Lalit Mumbai. If any of the business of these two hotels is adversely affected due to any reasons, the overall profitability of the company will also be impacted.

The properties of the company at some places are facing some kinds of issues like The LaLiT New Delhi – payments for its land is under dispute with the New Delhi Municipal Council and The LaLiT Grand Palace Srinagar’s business is adversely affected because of threats by terrorists.

The company, its subsidiaries, group companies, promoters, Directors, etc. are involved in certain legal proceedings pending at different levels and any adverse ruling in them may pose a risk to the overall profitability of the company. There are some fixed and recurring costs related to the hotels which are extremely difficult to reduce on time because of which the business is exposed to decreased profitability in times of reduction in demand and revenues.

The business of the company is exposed to the risk of not being able to change with evolving customer preferences and manage the impact of social media. The auditors of the company made some qualifications or observations in audited standalone and consolidated financial statements.

If this continues ahead, it will affect the share price of the trading equity shares. If the credit ratings of the debt of the company are downgraded, it could adversely affect the financial health of the company.

From the financial point of view, the company has made losses till the fiscal 2017 and started making profits in fiscal 2018. It is yet to be seen whether they are able to sustain their growth.

After analysing various key strengths and risks related to the business of the company, it can be said that investors must remain cautious and go through the draft red herring prospectus carefully for further details about the company.

Although, we suggest you may avoid investing in this IPO, but investors may choose to subscribe to the Bharat Hotels Limited from a long-term perspective if they have a reasonable risk appetite.

In case you are looking to invest in this IPO or stock market investments in general, let us assist in taking the next steps forward.

All you need to do is, provide some basic details in the form below and a callback will be arranged for you:

 

Bharat Hotels IPO Advisors Information

HDFC Bank Limited, Edelweiss Financial Services Limited and YES Securities (India) Limited are acting as Book Running Lead Manager to the issue. Karvy Computershare Private Limited is acting as the Registrar for the Bharat Hotels IPO.