Breaking the Chains: How Juniper Hotels Plans to Crush Debt and Grow Growth After Going Public

Juniper Hotels is a luxury hotel developer that operates Hyatt properties in India. They have reported loss in the last financial year and first half of the ongoing FY 2024. This mainly happened because his profit and loss account was loaded with leverage, which resulted in loss. In the past, they had to face interest payments of Rs 220 crore, which had a huge impact on their profit numbers. According to Juniper Hotels management, when this leverage is true, it is expected to result in significant interest savings to the company’s bottom line.

Juniper Hospitals closed FY23 with revenue of Rs 717 crore, achieving an average rate of at least Rs 9,800 per room at 75 percent occupancy. As of now, the average rates in Chah Mahino have gone up to Rs 11,000 per room and the rates are expected to increase further with the projected growth of the industry at 12-15 percent. Additionally, due to supply constraints in major markets like Delhi and Bombay, which contribute 80 percent of the total business, will support revenue and profit growth in the future, Juniper’s CMD Arun Kumar Saraf and CEO Varun Saraf said. .

The company is launching an IPO of Rs 1,800 crore, subscription for which will open between February 21-23. Juniper aims to have its leverage level less than 1 time. Going forward, Juniper may reduce leverage slightly in FY25, by around 2%, but this will depend on the timing of their new asset acquisitions.

Answers to the questions asked through reflection:

What is your unique selling point (USP) compared to your competitors like Chalet Hotels, Lemon Tree, Indian Hotels? And when there are so many players, so Hyatt Inc. Why did you invest in Juniper Hotels?
juniper hotels ipo
Juniper Hotels

Arun Kumar Saraf: Juniper Hotels is the owner and developer of badi box hotels. There is interest in buying assets in big metros and tier 1 cities. And our aim is to have luxury segment hotels. These hotels are hoti jinmein multiple revenue streams hoti hain. Our company is not into managing others’ properties or our own properties. We happily allow Hyatt to come in and operate our properties for a fee. This provides an opportunity to focus more on development and ownership within the community. Our hotel assets are the number one or number two hotels in every market, and this is the segment we will focus on going forward. Some competitors have their own brands and have few properties to manage. We are a pure ownership and nurturing asset management company, not an operating arm.

Juniper Hotels’ relationship with Hyatt began almost 45 years ago when my father was hired to open the Hyatt Regency in Delhi in 1982. For the next 15 years, from 1982 to 1997, we owned our properties and Hyatt was our management company. I bought the Grand Hyatt land in Bombay in 1998. Then, the Pritzker family, who owned and still own Hyatt globally, were interested in investing in India and they were very interested in investing with me. And that’s how our new partnership started at the Juniper level, in which the Pritzker family and Sarafs jointly created this platform. And this platform has grown from a hotel to many properties till now. In 2009, the Pritzker family took its Hyatt International to the New York Stock Exchange listing platform. At that time, all the hospitality assets owned by the Pritzker family were shifted to the Hyatt platform, and that is how Juniper came under Hyatt ownership.

Traditionally, Hyatt or any global management companies do not invest in assets. Their focus is on managing large assets and they are very fee-based. Even with the IPO, the shareholders, Hyatt and Sarafs, are not selling their shares yet because we feel there is a huge growth opportunity on this platform, and we want to remain invested on it for the foreseeable future. Don’t want to divest.

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The company is raising funds for repayment, prepayment and redemption of certain outstanding borrowings that the company took and for its recent acquisitions, such as CHPL and CHHPL. What is your leverage and debt to EBITDA now? After this issue, how much will it be and what is your comfortable level?

Arun Kumar Saraf: We are raising Rs 1,800 crore fresh equity. Of this, Rs 1,500 crore is to reduce our debt and Rs 300 crore is kept for general purposes of the company, which is basically growth. We have no shortage of money to run our company. So, this is leveraging of Rs 1,500 crore, now we have a leverage of approximately Rs 2,210 crore. Of this, approximately Rs 300 crore are promoter loans from our ECB, from our overseas ownership companies. And approximately Rs 1,910 crore is the debt sitting here under different tags. So, it is Rs 1,900 crore from which we will reduce Rs 1,500 crore. Moving forward, the company will have a debt of Rs 400 crore. And our aim is that in future the leverage level of the company will be at least 1 time of EBITDA. Going forward, the company may be able to increase leverage slightly, up to approximately 2 times, but this will depend on the timing of new asset acquisitions. So, our big picture objective right now is to de-leverage the company, and we are here now, where almost Rs 220 crore profit is being deployed for our debt servicing and interest payments. This will also become the free cash flow of the company after IPO in future.

According to our EBITDA multiple, we will be less than 1 in 2025. In the first half, it will come to less than 0.7. And the opportunities that are coming to us in new asset acquisitions will depend on what time they are being acquired. Now the company will re-leverage, because we are sitting quite well with the low level of leveraging.

So, please help us understand which acquisition you are talking about. Is that the listed space you are seeing? Which geography are you targeting? How will you diversify? Tell me more about it.

Arun Kumar Saraf: Absolutely. Our actual acquisition is at the time of hotels which are the beginning of Saraf portfolio. They will be merged into this company and will become a final entity with the help of regulatory approvals and shareholder approvals. So, this is the first stage acquisition and conglomeration of the other two assets on the Juniper platform. Apart from this, the next opportunity for growth is coming from Grand Hyatt Mumbai. At Grand Hyatt Mumbai, we have vacant spaces and land adjacent to our property, and we have got an additional capacity of 300 rooms, which is already approved by BMC. So, these 300 rooms will also be added. So, we are planning that in the next teen salon this platform will have 1,000 more rooms.

So, even in the spring of the portfolio, you are doing consolidation. Can you expand on this and help us understand what properties you are seeing? How many rooms are there and when can they be fully consolidated and merged into the final entity?
juniper hotels ipo
Juniper Hotels

Arun Kumar Saraf: Yes. There is a ROFO in our DRHP that has been created. And this ROFO is basically for Saraf Hotel, Arun Saraf-controlled properties which are outside the Juniper platform where Hyatt and we do not have close ownership. And these hotels are basically those companies which are already listed on the stock exchange. So, I cannot say much, I can only say this much. But Arun Saraf-controlled properties which are the spring of the platform, they will merge into it and these are Hyatt Hotels which are the spring of the platform. And regulatory process, NCLT process, shareholder approval, and SEBI approvals.

when required, then these assets will merge. This is basically a commitment to our new shareholders that they will become our flagship, and this is where we will focus our future growth.

The company has made losses since the last ten financial seasons. It has posted losses in the last six months also. When can we expect a turnaround and what will be the main drivers?

Arun Kumar Saraf: This company has been a profit-making company from inception. This is any property level, management level, profitable hospitality business. It is still generating profit, but the leverage has taxed the profit and loss accounts too much, burdened the profit and loss account too much and that is why we have seen the losses that are there. This is a healthy cash-flow generating company and as I said earlier, the interest payments of Rs 220 crore that were made in the past and are still there, have dragged down the profit numbers on the balance sheet. When this leveraging is done correctly, you will immediately see a large amount of interest savings flowing into the company’s bottom line.

But it is even lower, we have banded FY23 at Rs 717 crore, of which the average rate of almost Rs 9,800 was at 75 percent occupancy. These rates have increased by half in the last four months and we are seeing Rs 11,000. We believe that the industry is growing at approximately 12-15 percent and will get higher average rates because there is no new supply coming in these big markets. Delhi and Bombay contribute almost 80 percent of our total business and supply in both these cities will be restricted. So, apart from the expectation of debt repayment, we think the top line and bottom line will also improve.

Your margin was 12 percent in FY21; Made 30 percent in FY22, increased to 45 percent in FY23. The company has achieved the highest EBITDA per room among listed peers. (A) This will help in maintaining a sustainable trend on Margin profile. And (B), what about the highest EBITDA per room compared to your peers?

Varun Saraf: So I say that let’s take 11 percent and 30 percent for now, but I believe that there are phenomena of COVID. In 2023, we can reach almost 45 percent. And drive further, I am comfortable in the range of 45-48 percent. This is the highest across the industry. Again, this is because we have a diversified revenue stream, this is one. Rooms are there, apartments are there, F&B is also there – everyone is contributing and it is through this combination that we are getting higher margins. But also, the direction of our company is an active asset management vertical.

We define asset management that works with the operations team to increase our efficiencies. And these things help us in achieving better numbers. So what is asset management? Within the Hyatt ecosystem, we have created a cluster. These clusters are located across various departments, be it engineering, human resources, procurement. What happens is that due to scale, we can control some costs and make use efficiently. For example, Manning is lying. We look at manning across various properties, to make manning efficient to increase retention, to multi-utilize individuals across different properties. So this has helped us bring some efficiencies, and we hope that this is sustainable in the future.

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