Ventive Hospitality IPO review (May apply)

•    The company is one of the leading hospitality segment player with luxury and upper upscale and upscale offerings.
•    While the company has posted steady growth in its revenue, it has marked losses for the reported periods. 
•    Based on its recent financial performance, the issue appears aggressively priced. 
•    It is a pure long term story of growth post every plans are in place.
•    Well-informed investors may park funds for long term. 

PREFACE:
Despite humble urge from the regulator for non-clubbing/bunching of more than 2 IPOs a day for opening for subscription, we are set to mark bunching of five mainboard IPOs that are opening on December 19, 2024, and here again very short time was spared for analysts to understand the pros and cons for the IPOs. Well, this is the first IPO from the set of 5 IPOs that are scheduled to mark opening on December 19, 2024, others to follow are TransRail Lighting, DAM Capital, Sanathan Textiles, Concord Enviro. We have one more set of 3 mainboard IPOs lined up for opening on December 20, 2024, and they are Ventive Hospitality, Senores Pharma, and Carraro India. No doubt, this provided an ample choice of selection for investment, it also makes it difficult to manage funding. Let us hope that the regulator is definably turns strict on this matter and brings some amicable solution.

ABOUT COMPANY:
Ventive Hospitality Ltd. (VHL) is a hospitality asset owner with a primary focus on luxury offerings across business and leisure segments. All of its hospitality assets are operated by or franchised from global operators, including Marriott, Hilton, Minor and Atmosphere. Its pre-acquisition luxury hospitality asset comprises JW Marriott, Pune, and post-acquisition luxury hospitality assets comprise JW Marriott, Pune, The Ritz-Carlton, Pune, Conrad, Maldives, Anantara, Maldives and Raaya by Atmosphere, Maldives. Among listed hospitality companies in India, (i) its pro forma revenue was the third highest in each of FY24 and FY23 and second highest for FY22 and (ii) pro forma EBITDA was the third highest in FY24 and second highest for each of FY23 and FY22.

Its Portfolio comprises 11 operational hospitality assets in India and Maldives, totaling 2,036 keys across the luxury, upper upscale and upscale segments as at September 30, 2024. The Ritz-Carlton, Pune is one of only two “The Ritz-Carlton” hotels in India (Source: Horwath HTL Report), which is a luxury brand within the Marriott portfolio. JW Marriott, Pune is the largest luxury hotel based on the number of keys in Pune and is one of only eight luxury hotels in India with inventory of between 400 to 500 keys as at September 30, 2024 (Source: Horwath HTL Report). It has the largest ballroom among luxury hotels in Western India (Source: Horwath HTL Report), which is ideal for hosting large scale MICE events and weddings. 

It owns three luxury hospitality assets in the Maldives, which has been ranked consistently as one of the best tourist island destinations globally (including World’s Leading Destination (2023) and Indian Ocean’s Leading Destination (2024) at the World Travel Awards) with its unique “one island, one resort” concept (Source: Horwath HTL Report). The Maldives is a high rate destination with multiple luxury resorts and demand at luxury pricing (Source: Horwath HTL Report), consistent with its offerings. Conrad, Maldives houses the Muraka, a flagship experience that offers private accommodation comprised as an integrated undersea residence. It is reportedly the first such resort product globally along with an underwater restaurant known as Ithaa (Source: Horwath HTL Report). Muraka Suite was named one of the greatest luxury hotel suites in the world in Robb Report’s The 50 Greatest Luxury Hotel Suites in the World. Its hospitality assets command an ARR premium vis-à-vis their peers in India and Maldives. Its luxury and upper upscale hotels in Pune achieved an ARR index of 1.44 compared with other luxury and upper upscale hotels in Pune from January 2024 to September 2024 (Source: Horwath HTL Report). Similarly, the ARR index for Conrad, Maldives and Anantara, Maldives is 1.04 compared to the luxury and upper upscale segment in the Maldives from January 2024 to September 2024 (Source: Horwath HTL Report).

Its hospitality assets are enhanced by leading, award-winning F&B offerings. In Pune, eight of its restaurants feature in the top 10 fine dining restaurants according to TripAdvisor rankings as at November 8, 2024, including Alto Vino, an Italian restaurant, and Tao Fu, a Chinese restaurant at JW Marriott, Pune and Ukiyo, a Japanese restaurant at The Ritz-Carlton, Pune. Its F&B offerings are also a key strength of Maldives hospitality assets. Conrad, Maldives features Ithaa, a unique underwater restaurant. Anantara, Maldives has nine F&B outlets with differentiated cuisines spread across three integrated islands, with distinct offerings tailored for servicing customers across price points. It has a proven track record of developing and acquiring marquee hotel assets across various geographies and different hospitality segments. Through development and acquisition-led expansion, it has scaled up the Portfolio and forayed into new geographies such as Bengaluru, Varanasi and the Maldives within the past few years. In addition to its luxury hospitality assets, VHL developed and acquired assets in upper upscale and upscale segments, which serve as complementary offerings in the business hubs of Pune and Bengaluru in India. As at September 30, 2024, its operating portfolio consists of seven hospitality assets with 1,331 keys which were developed by it, and four hospitality assets with 705 keys which were acquired by it. While the Company (directly or through subsidiaries) acquired Conrad, Maldives; Anantara, Maldives; Aloft ORR, Bengaluru and Marriott Aloft Whitefield, Bengaluru recently in August 2024, such hospitality assets were acquired by Promoter, Promoter Group or their affiliates on February 20, 2019, November 27, 2019, March 9, 2021 and May 5, 2023, respectively. As part of its expansion, the company has added 1,070 keys since 2019, which comprise more than 50% of the number of keys in Portfolio as at September 30, 2024.

VHL’s platform includes four stabilized Grade A annuity assets which are part of hospitality-led integrated developments in Pune, having a total Leasable Area of 3.40 msf and Committed Occupancy of 95.55% as at September 30, 2024. Its annuity portfolio includes three Grade A office assets and a Grade A retail space, which form part of three hospitality-led integrated developments. Its office assets have a Committed Occupancy of 96.07% as at September 30, 2024 and over 80% of their Leasable Area was leased to multinational corporations as at September 30, 2024. Its office assets command a premium of over 33% above the average rental for Pune as of September 2024 due to these assets being generally of a superior quality compared to the average in the market. Its annuity assets are occupied by marquee tenants such as HSBC, Deutsche Bank, Nokia, Vodafone, PwC, Sephora, Starbucks and Vero Moda.

The Company was founded as the hospitality division of Panchshil Realty, a real estate conglomerate based in Pune which has a presence across the commercial, retail, luxury residential and data center segments. Its Portfolio has grown significantly over the years, starting from 83 keys in 2007 to 2,036 keys as at September 30, 2024. In 2017, pursuant to the acquisition of a 50% stake in the Company, BRE Asia (formerly known as Xander Investment Holding XVI Limited), an affiliate of Blackstone, became 50% shareholder in Company. Its Promoters combine their deep knowledge of local markets along with global best practices in development, investment and asset management. Its Promoters have had a longstanding partnership of over ten years, with an established track record of development and acquisition-led expansion.

VHL plans to continue focusing on core strength of developing luxury and upscale hospitality assets and to increase the number of keys across hospitality assets by an estimated 367 keys or 18.02%, from 2,036 keys as at September 30, 2024 to approximately 2,403 keys in FY2028 through its planned development and expansion initiatives in Varanasi, Uttar Pradesh and Bengaluru, Karnataka in India and Pottuvil, near Yala East National Park and Arugam Bay Beach in Sri Lanka. As of September 30, 2024, it had 2792 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO worth Rs. 1600 cr. (approx. 24883359 shares at the upper cap). The company has announced a price band of Rs. 610 – Rs. 643 per equity shares of Re. 1 each. The issue opens for subscription on December 20, 2024, and will close on December 24, 2024. The minimum application to be made is for 23 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 10.66% of the post-IPO paid-up equity capital. From the net proceeds of the IPO, the company will utilize Rs. 1400.00 cr. for repayment/prepayment of certain borrowings by the company and its step down subsidiaries, and the rest for general corporate purposes. 

The company has reserved equity shares worth Rs. 1.00 cr. (approx. 15552 shares at the upper cap) for its eligible employees and offering them a discount of Rs. 30 per share, from the rest it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for retail investors. 

The seven Book Running Lead Managers (BRLMs) to this issue are JM Financial Ltd., Axis Capital Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., ICICI Securities Ltd., IIFL Capital Services Ltd., Kotak Mahindra Capital Co. Ltd., and SBI Capital Markets Ltd., while KFin Technologies Ltd., is the registrar to the issue. JM Financial Services Ltd., Kotak Securities Ltd., Investec Capital Services (India) Pvt. Ltd., and SBICAP Securities Ltd. are the syndicate members.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 10.00 – Rs. 23518.20 (based on Re. 1 FV) between March 2003, and August 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10.00, Rs. 54.18, Rs. 69.95, Rs. 71.78, and Rs. 617.90 per share. 

Post-IPO, its current paid-up equity capital of Rs. 20.87 cr. will stand enhanced to Rs. 23.35 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 15016.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a restated basis) posted a total income/net profit of Rs. 237.51 cr. / Rs. 29.43 cr. (FY22), Rs. 441.75 cr. / Rs. 131.27 cr. (FY23), and Rs. 494.71 cr. / Rs. 166.32 cr. (FY24). For H1 of FY25 ended on September 30 2024, it posted a loss of Rs. – (20.76) cr. on a total income of Rs. 388.93 cr.

But on a Pro-forma basis (i.e. on a consolidated basis) it posted a total income/net profit/ - (loss) of Rs.1197.61 cr. / Rs. – (146.20) cr. (FY22), Rs. 1762.19 cr. / Rs. 15.68 cr. (FY23), Rs. 1907.38 cr. / Rs. – (66.75) cr. (FY24). For H1 of FY25 ended on September 30, 2024, it posted a loss of Rs. – (137.83) cr. on a total income of Rs. 875.90 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 12.54 (on restated basis) and – (4.09) (on a proforma basis) and an average RoNW of 54.18 % (on restated basis) and – (1.48) % (on proforma basis). The issue is priced at a P/BV of 2.22 based on its NAV of Rs. 289.56 as of September 30, 2024, and at a P/BV of 1.86 based on its post-IPO NAV of Rs. 345.98 per share (at the upper cap).

If we attribute FY25 annualized restated as well as pro-forma basis earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a negative P/E. The issue appears aggressively priced on the basis of its recent earnings. 

For the reported periods, the company has posted PAT margins of 12.21% (FY22), 0.89% (FY23), - (3.50) % (FY24), - (15.74) % (H1-FY25) – on Proforma basis and 12.39%, 29.72%, 33.62%, - (5.34) % - on restated basis, while its RoCE margin data is missing. The offer document refers Average occupancy rate for its hotel business, and committed occupancy rate for shops and offices.

DIVIDEND POLICY:
The company paid a dividend of 925.90% for FY23. It has adopted a dividend policy in September 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Chalet Hotels, Samhi Hotels, Juniper Hotels, The Indian Hotels, EIH Ltd., Lemon Tree Hotels, and Apeejay Surrendra Park Hotels, as their listed peers. They are trading at a P/E of 290.0, 166.0, 230.0, 87.60, 39.80, 82.4, and 56.4 (as of December 18, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The seven BRLMs associated with the offer have handled 113 pubic issues in the past three fiscals, out of which 29 issues closed below the offer price on the listing date.