Apeejay Surrendra Park Hotels targets expansion despite soft RevPAR and margin performance

Investment View and Target Price

Prabhudas Lilladher (PL) characterises Apeejay Surrendra Park Hotels' Q1FY27 performance as soft amid a challenging operating environment. The broker nevertheless retains its BUY rating, while reducing its target price to Rs 156 from Rs 165 after lowering its FY27E and FY28E assumptions for RevPAR growth and margins.

PL cut its EBITDA estimates by 4.4 per cent for FY27E and 4.6 per cent for FY28E. EPS estimates were reduced by 12.0 per cent and 12.3 per cent, respectively.

The target price is based on a sum-of-the-parts valuation comprising 11.5 times FY28E EBITDA for the hotels business and 1.5 times FY28E Flurys sales.

Sum-of-the-Parts Valuation

Q1FY27 Financial Performance

Consolidated revenue was Rs 1,668 million, up 8.1 per cent year on year and marginally above PL's estimate of Rs 1,658 million. Hotels revenue rose 6.2 per cent year on year to Rs 1,468 million, while Flurys revenue grew 25.0 per cent to Rs 200 million.

PL described the RevPAR increase as effectively flat in the difficult operating backdrop. Q1FY27 EBITDA grew 3.2 per cent year on year to Rs 469 million, 2.0 per cent below PL's estimate of Rs 477 million. EBITDA margin declined to 28.1 per cent from 29.4 per cent in Q1FY26 and was 70 basis points below PL's estimate of 28.8 per cent.

Reported PAT fell 14.4 per cent year on year to Rs 115 million, compared with PL's expectation of Rs 155 million. The bottom-line miss reflected higher-than-expected depreciation of Rs 211 million against PL's estimate of Rs 182 million, and finance costs of Rs 104 million against the estimate of Rs 88 million.

Expansion Pipeline and Management Commentary

Apeejay Surrendra Park Hotels aims to open 472 keys across owned, leased and managed formats during the rest of FY27E. PL sees no major near-term delays to the planned pipeline, supported by the acquisition of Zillion Hotels, Juhu, and the buyout of Malabar House, Fort Kochi, and Purity, Lake Vembanad.

The 17-key Malabar House acquisition was under way and was expected to be completed by October or November 2026. Management is targeting high-single-digit ARR growth for the remainder of FY27E, supported by the BRICS India Summit, Bharat Mobility Expo and around 40 wedding dates from November 2026 to March 2027.

Lotus Palace, Chettinad generated ARR of about Rs 13,000 in Q1FY27, while Ran Baas Palace, Patiala generated about Rs 33,000.

Flurys and Other Initiatives

Flurys had 111 stores at the end of Q1FY27, and management expects to open about 29 new outlets during the remainder of FY27E. The company is engaging mall developers, airport owners and multiplex operators for locations, while exploring tie-ups with Adani Group, Phoenix Mills and DLF. Its PVR tie-up was nearing completion, with potential for 10 outlets to open simultaneously.

Management reiterated capex guidance of about Rs 15,000 million over five years, funded through internal accruals and debt. Of the 69 apartments at EM Bypass, 32 had been booked. The company expects about Rs 800 million from the project in FY27E, including Rs 213 million received so far.

Following the transition to the new tax regime, management expects the blended tax rate to moderate to about 30–35 per cent.

PL Estimates

PL forecasts sales and EBITDA compound annual growth rates of 17 per cent and 20 per cent, respectively, over FY26–FY28E.

Key Thesis Sensitivities

• The pace of RevPAR and ARR recovery.
• Delivery of planned hotel-key and Flurys store additions.
• Margin execution.
• Capex funding requirements.
• Higher depreciation and finance costs.