IPO: Juniper Hotels

Juniper Hotels, a luxury hotel development and ownership company, has come out with its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality: The three-year average return on equity (ROE) and return on capital employed (ROCE) of Juniper Hotels are -24.4 and 1.8 per cent, respectively. Moreover, the company has not been profitable in the last three financial years. Besides, it has also consistently had a high debt to equity.
  
• Growth: Its revenue grew four times in the last three years, primarily due to a recovery in the average occupancy and room rates post-COVID-19 pandemic. Moreover, its loss has also narrowed to Rs 1 crore in FY23 compared to Rs 199 crore in FY21.
  
• Valuation: The company has incurred a loss on a TTM basis, and therefore, price-to-earnings (P/E) can't be evaluated. However, it is valued at a price-to-book ratio of 3.0 times compared to its peer's average level of 9.3 times.
  
• Overview: Juniper is among the hotel companies that have greatly benefited from the boom in post-COVID demand in the travel and tourism industry. It also benefits from the global brand of 'Hyatt'. However, its balance sheet is debt-heavy, which needs to be taken into consideration.

About Juniper Hotels

Juniper Hotels is a strategic partnership between the Saraf Group and Hyatt Hotels Corporation. It is currently the largest owner (by number of keys) of Hyatt-affiliated hotels in India. It has seven hotels and serviced apartments in its portfolio. It recently acquired Chartered Hotels, which owns Hyatt Regency Lucknow, Hyatt Raipur and Hyatt Place Hampi.

Strengths of Juniper Hotels

• Hyatt: Juniper benefits from the established brand name of Hyatt Hotels, which is known for providing a luxury experience to customers.

Weaknesses of Juniper Hotels

• Revenue concentration: It derives more than 50 per cent of its revenues (as of September 30, 2023) from the Grand Hyatt Mumbai Hotel. Also, around 90 per cent of revenue comes from only three hotels based in Mumbai & Delhi region. Any slowdown in the specific region can significantly impact the operations.
  
• Making losses: It has been a loss-making company in the last three financial years with a debt to equity of 3.1 times as of September 30, 2023. To expand further, it has to raise additional capital.
  
• Operates in a highly competitive industry .

Risk report

Company and business

• Are Juniper Hotels' earnings before tax more than Rs 50 crore in the last 12 months?
  No. Its trailing 12-month loss before tax was Rs 34 crore.
• Will Juniper Hotels be able to scale up its business?
  Yes. Given the boom in the travel and tourism industry after the pandemic, it will be able to scale up.
• Does Juniper Hotels have recognisable brands with client stickiness?
  No. Although it benefits from the brand name of Hyatt Group, it faces considerable competition from other branded luxury players.
• Does the company have a credible moat?
  No. It operates in a highly competitive market.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Post-IPO, the promoters' stake will be 77.5 per cent.
• Do the top three managers have more than 15 years of combined leadership at Juniper Hotels?
  Yes. Arun Kumar Saraf, the chairman and managing director, has been associated with the company since 1998.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
• Is Juniper Hotels free of promoter pledging of its shares?
  Yes. It is free of promoters pledging their shares.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  No. Its three-year average return on equity (ROE) and return on capital employed (ROCE) are -24.4 and 1.8 per cent, respectively. Its TTM ROE and ROCE are -1.8 and 7.1 per cent respectively.
• Was the company's operating cash flow positive during the last three years?
  No. It has a negative cash flow from operations in FY22.
• Is the company's net debt-to-equity ratio less than one?
  No. Its net debt-to-equity ratio stood at 3.1 times as of September 30, 2023.
• Is Juniper Hotels free from reliance on huge working capital for day-to-day affairs?
  No. It has witnessed losses in all the last three financial years and has high working capital requirements.
• Can the company run its business without relying on external funding in the next three years?
  No. The company already suffers from a high debt burden. Given that expansions are capital intensive, it may not be possible to pursue since around 83 per cent of the fresh issue amount will be utilised towards repayment of debt.
• Is Juniper Hotels free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of equity stood at 3.3 per cent as of September 30, 2023.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock will offer a 1.9 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  NA. The company has incurred a loss on a TTM basis.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The stock is valued at a price-to-book ratio of 3.0 times compared to its peer's average level of 9.3 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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