Brigade Hotel Ventures Ltd. (Subscribe)

Highlights

Brigade Hotel Ventures Limited (BHVL) backed by Brigade Enterprises Limited (BEL), incorporated in 2016, is an owner and developer of hotels in key cities in India primarily across South India. They are the 2^nd largest owner of chain-affiliated hotels and hotel rooms in South India (comprising the states of Kerala, Andhra Pradesh, Tamil Nadu, Karnataka, Telangana, and the Union territories Lakshadweep, Andaman and Nicobar Islands and Pondicherry) among major private hotel asset owners.

The company has a portfolio of nine operating hotels across Bengaluru (Karnataka), Chennai (Tamil Nadu), Kochi (Kerala), Mysuru (Karnataka) and the GIFT City (Gujarat) with 1,604 keys and operated by global marquee hospitality companies such as Marriott, Accor and InterContinental Hotels Group and are in the upper upscale, upscale, upper-midscale, and midscale segments.

Their hotels are typically located in positive demand locations, driven by factors such as population density, premium neighbourhoods, commercial centres and IT hubs. They focus on identifying specific locations for their hotels within cities that are conveniently located near airports, business districts, commercial centres and retail hubs with a high footfall.

The company follow a business model where they either own or lease hotel assets and engage global hospitality companies for operation of the hotels. Collaboration with global hospitality companies allows them access to their operating processes and expertise, global best practices, marketing strategies and operational know-how.

Out of the total proceeds of Rs. 7,596 mn, ~Rs. 4,681 mn would go towards repayment of certain borrowing availed by the company and subsidiary. Rs. 1,075 mn would be utilized for payment of consideration for buying of undivided share of Land from Promoter, BEL. ~Rs. 1,840 mn would be utilized for pursuing inorganic growth through unidentified acquisitions and other strategic initiatives and general corporate purposes.

Key Highlights

• The Indian hospitality sector is expected to deliver strong growth in the coming years as India’s GDP is projected to nearly double from USD 3.6 trillion in 2023 to USD 6.8 trillion in 2030 and the demand for luxury rooms is estimated to grow at a CAGR of 10.6 pct over FY24 to FY28.
• As of now company own 9 Hotels across India out of them which 2 Hotels managed by Marriot, 4 Hotels by Accor, 3 Hotels by InterContinental Hotels Group. As per companies pipeline 8 more expected to come by 2029 out of which 6 hotels will be managed by Marriot, 1 Hotel by InterContinental Hotels Group and 1 by HYATT.
• All of the BHVL hotels are Greenfield. Whenever BHVL onboard Hotel operator, the operator is locked in for 15 years and +5 years extendable. BHVL not participate in hotel management but it has right to terminate the contract if operator is fell to achieve particular target for 2-3 years.
• BHVL leverage BEL’s expertise and knowledge to develop hotels with cost-efficiency and high quality in shortened timelines. In addition, they benefit from the strong reputation of BEL, its network and relationships to secure corporate clientele for hospitality tie-ups and share services such as human resource, accounting and legal to drive operational efficiencies.   
• The company may consider acquiring new land parcels to expand their portfolio to newer geographies across India such as Goa and South India for developing new hotels. In addition, they intend to explore opportunities for development of resorts and hotels at pilgrimage locations that BHVL believe, offer growth potential.
• BHVL’s key growth strategies includes (i) Expand operations by developing new hotels at select locations (ii) Focus on improving operating efficiencies and increase revenues (iii) Expand portfolio by way of opportunistic and accretive acquisitions.
• The sales and EBITDA of the company has grown by 15.63 pct CAGR and 21 pct CAGR over FY23 – FY25. In FY25 the company reported sales of Rs. 4,683 mn, which grew 16.57 pct YoY while EBITDA of the company rose 15.39 pct YoY to Rs. 1,699 mn. In FY25 the company posted profit of Rs. 237 mn which fell 24.02 pct YoY due to deferred tax adjustment.

Key Risk

• The company might face city dependency risk, as more than 60 pct of their revenue comes from 4 Hotels located in Bangalore.
• Months from October through March of any Financial Year are materially busier than the summer and monsoon seasons. This seasonality can be expected to cause fluctuations in BHVL revenue, profit margins and net earnings.

Financial Performance

Peer Comparison Based on FY25 Financials

Valuation

Brigade Hotel Ventures Limited (BHVL) backed by Brigade Enterprises Limited (BEL), incorporated in 2016, is an owner and developer of hotels in key cities in India primarily across South India.  At the upper end of the price band of Rs. 90, the issue priced at EV/EBITDA of 24.86x of FY25 earnings post issue. The issue appears to be fully priced. One can subscribe this issue from a longer-term perspective.

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