
Investment Arguments
are on a long term lease of over 10-15 years. In the last 5 to 6 years, the company
has increased its number of rooms from 102 to 697 (as in 1QFY2016). Going
forward, the company has strong expansion plans through the lease model, which will
enable it to grow at a faster pace with minimal capex requirement.
Expansion on the cards: Currently, the company operates 697 rooms, including both
owned and leased, across 11 properties. The company is now planning to add 8 more
properties, which would lead to an addition of ~450-500 rooms over the next two
years. Such expansion would be based on the lease model (for 10-20 years), thus not
requiring any significant capex. The company plans to increase the number of
properties from 11 to 50 within 5 years, following the asset light expansion plan.
Presence in vegetarian budget hotels (mid-size) segment: Byke has presence in the
vegetarian budget hotel segment at popular leisure destinations such as Goa,
Matheran, Jaipur, Manali, Shimla, Puri and Mumbai while it has plans to expand
across other destinations like Kerala, Lonavala, Chandigarh, Mahabaleshwar etc. In our
view, the vegetarian budget hotels at leisure destinations in domestic market is a huge
opportunity. Also in absence of track records, non-branded (single hotel players) hotels face
issues in running their businesses. Byke, a branded vegetarian budget hotel follows a
differentiated market penetration strategy. It leases hotels and address the challenges on back
of their management experience; strong track record, marketing and distribution network,
which further leads to higher occupancy, thereby maximizing the company’s profitability.
Strong growth in chartering business to drive overall revenue: Under the room
chartering business Byke books third-party hotel rooms, mainly during peak seasons,
at strategically identified cultural and religious destinations on bulk basis and lets them
out to tourists. In the chartering segment, the company has a strong track record, with its
revenue having grown by 3.5x (Rs90cr in FY2015) in the last three years. Going forward
we expect strong growth momentum in this segment due to the huge industry size.
Outlook and Valuation: Given the company’s proven track records and taking into
consideration its strong expansion plans, we expect the company to report strong topline
and bottom-line CAGR of ~28% and ~29% respectively, over FY2015-18E.
Moreover, the company is asset light, has negligible debt, and has been posting
healthy return ratios, which make its balance sheet all the more attractive. At the
current market price, the stock trades at a P/E of 14.3x its FY2018E EPS. We initiate
coverage on the stock with a Buy recommendation and target price of Rs181 (17x
FY2018E EPS), indicating an upside of ~19% in the stock price from the present levels.

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