The Byke Hospitality Limited (BHL) operates in the hospitality segment via the following two routes:
Source: Q4, 2016 Investor Presentation
As you can see the company operates 10 hotel properties and they own the fixed assets only in two of them. 8 of the 10 properties are operating on a long term lease basis. Further, they are also into chartering of third party hotel rooms across India. Both these revenue generators are such that they make their business model unique in the sense that it is very asset light. This essentially means that there is no need of regular and/ or high capital expenditure for fuelling future growth. In addition, their business model being such is very easy to scale and this is clearly visible in their growth in earnings and number of rooms.
Also, this gives them option to shut operations at a particular property should it not do well. I believe that is a big advantage to conventional “brick and mortar” hospitality model wherein you are locked in with fixed assets which are difficult to dispose.
Lastly, hospitality sector is also expected to revive going forward. Given that their business model allows for addition of properties at a healthy pace, BHL is expected to do well over the long term.
Following is the snapshot of financial results of BHL (click image to open in a separate tab):
The number speaks for themselves. It may be noted that the number of rooms have grown at a CAGR of approximately 30% over the last five years.
At current market price of Rs. 159, it is available at a PE ratio of around 24.50, which may seem to be higher than the industry average. However, given the growth over the last five years, the PEG ratio is well below 1 even if we take the average growth rate for the last 5 years. Accordingly, I am of the view that the stock provides good value at current levels.