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Grand Continent Hotels

• Grand Continent Hotels is coming out with an initial public offering (IPO) of 65,89,200 equity shares in a price band Rs 107-113 per equity share.
• The issue will open on March 20, 2025 and will close on March 24, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 10.7 times of its face value on the lower side and 11.3 times on the higher side.
• Book running lead manager to the issue is Indorient Financial Services.
• Compliance Officer for the issue is Aastha Kochar. 

Profile of the company

The company operates in the mid-scale hotel sector, consisting of the upper-mid priced, mid-priced and economy hotel segments. It seeks to cater to Indian middle-class guests and business travellers and to deliver differentiated yet comfortable service offerings, with a value-for-money proposition. For majority of its hotel properties, it has trademark license agreement/franchisee agreements with Sarovar Hotels and/or Royal Orchid Associated Hotels where through such franchisee partners the Company is able to supplement its sales and marketing efforts and generate leads for those hotel properties. The licensor/franchisee partners are paid a fixed percentage on the gross revenues from such hotel properties. All such properties will be under ‘own brand’ or ‘Co-branded’ with franchisee partners under trademark license agreement /franchisee agreements.

Its Promoter, Ramesh Siva, who is also its Chairman and Managing Director, has decades of experience in the hotel and hospitality industry. The leadership team of the Company has extensive experience in identifying hospitality destinations and securing of hotels under lease considering factors such as Location, economic potential, target customers and branding.

Proceed is being used for:

• Repayment/ prepayment, in full or in part, of certain outstanding borrowings availed by the company.
• Expansion of Hotel properties in India.
• General corporate purpose.

Industry Overview 

India’s hotel industry has witnessed a robust turnaround in demand after the pandemic, led by the rising discretionary spending on tours and travels, revenge tourism, improving economic environment fuelling corporate travels and revival of mega wedding season and other cultural events. The Indian mid-scale hotels segment has emerged as a critical growth driver within the broader hospitality industry, fueled by a combination of rising domestic travel, changing consumer preferences, and increasing disposable incomes. This segment caters to the rapidly growing middle-class and value-conscious travelers, positioning itself between the budget and luxury hotel categories, offering a balance of affordability and comfort.

India’s mid-scale hotels market generated a revenue of Rs 316.3 billion in 2023 and is projected to expand at a CAGR of 9.0% from 2023 to 2029, reaching an estimated revenue of Rs 530.1 billion by the end of the forecast period. As of 2023, the mid-scale hotels market in India offered an estimated 230,000 rooms across both branded and independent properties. This supply is projected to grow at a CAGR of 5.0% from 2023 to 2029, driven by an increasing number of hotel developments and expansions within this category.

The mid-scale hotel segment is experiencing a significant shift as budget-conscious consumers increasingly prioritize trust and reliability in their accommodations. This has led to a growing demand for branded hotels, with many standalone properties converting to established hotel chains. The appeal of branding offers a win-win for both standalone hotels and chains, driving higher occupancy rates and improved Average Daily Rates. Conversions often take place through various models, such as management contracts, where the hotel owner retains ownership while the chain handles operations; franchise agreements, where the chain provides branding and marketing support; or lease agreements, where the owner rents the property to the chain.

Pros and strengths

Premium hospitality offerings in mid-priced segment: Its strength lies in providing premium hospitality experiences within the mid-priced segment. It delivers quality service and elegant accommodations at competitive rates, ensuring that guests receive exceptional value without compromising on luxury. It offers spacious accommodations in prime locations. Its culinary services feature diverse options tailored to customer preferences, maintaining good hygiene standards. Additionally, it provides quick and efficient room service to enhance its guests' experience.

Proven track record of adding value through active asset management: Its hospitality assets are destinations of choice due to their quality, positioning and unique offerings. Its asset management practices are designed to provide an exceptional experience for guests and are driven by comprehensive procedures aimed at improving the operational performance of its assets through increased occupancy rates and revenue generation, as well as enhanced cost efficiencies. It has a dedicated in-house asset management team that collaborates closely with its hotel properties to oversee key operational aspects, such as key procurement, marketing and capital expenditure decisions.

Strategically located properties at prime areas: Its extensive network of properties allows the company to meet the diverse needs of both business and leisure travellers. By acquiring properties in key business districts and popular entertainment hubs, it ensures that guests have easy access to important destinations and activities, minimizing the time they spend commuting. The location of its properties not only enhances the appeal of its hotels to both business and leisure travellers but also boosts its visibility and attractiveness in a competitive market.

Risks and concerns

Franchise/ trademark license agreements with Sarovar/Royal Orchid are non-exclusive: Since its franchise/ trademark license agreements with the Sarovar/Royal Orchid are non-exclusive, it may face the risk of competing hotels operating under the same brand as its hotels in the cities - Tirupati (Andhra Pradesh), Bengaluru (Karnataka), Anjuna (Goa), Hosur (Tamil Nadu), and Secunderabad (Telangana). If such hotels were to start operating in cities where it has hotels under the same franchise/trademark license arrangement, it would undermine its brand differentiation which would have a material adverse effect on its business and financial results. 

Unable to successfully grow business in new geographies in India: It intends to expand its hotel portfolio to new geographies across India, with a focus on geographies which have potential to attract significant traffic from business and leisure travellers including tourist destinations which will cater to the domestic leisure traveller. However, there is no assurance that it will be able to grow its business in these geographies, which may adversely affect its business prospects, results of operations, financial condition and cash flows. Inability to access infrastructure, certain logistical challenges in these regions and its relative inexperience with certain new markets, may prevent the company from expanding its presence in these regions.

Highly competitive: India's mid-scale hotel market is highly competitive, with 40-45 hotel chains operating across the country. Within this broad landscape, 20-25 domestic chains stand out by maintaining a strong presence in both metros and expanding into Tier II & III cities. It competes with large multinational and Indian hotel companies, in each of the regions/locations in which it operates. Competitive factors at each hotel destination include room rates, quality of accommodation, name recognition, service levels and convenience of location, and to a lesser extent, the quality and scope of other amenities and services. Some of its competitors who are hotel owners may operate on a larger scale than it in such destinations or otherwise, or develop alliances to compete against it, or have greater financial and other resources. As a result, it cannot assure that it will be able to compete successfully in the future against its existing or potential competitors, or that its business, cash flows and results of operations will not be adversely affected by increased competition.

Outlook

Grand Continent Hotels operates in the mid-scale hotel sector, consisting of the upper-mid priced, mid-priced and economy hotel segments. It seeks to cater to Indian middle-class guests and business travellers and to deliver differentiated yet superior service offerings, with a value-for-money proposition. On the concern side, it is subject to extensive government regulation with respect to safety, health, environment, real estate, food, excise, property tax and labor laws. Any non-compliance with or changes in regulations applicable to it or failure to obtain, maintain or renew its statutory and regulatory licenses, permits and approvals required to operate its business may adversely affect its business, results of operations, cash flows and financial condition.

The company is coming out with a maiden IPO of 65,89,200 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 107-113 per equity share. The aggregate size of the offer is around Rs 70.50 crore to Rs 74.46 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 85.92% from Rs 1,680.15 lakh in the year 2022-23 to Rs 3,123.69 lakh in the year 2023-24. Moreover, after accounting for taxes and share of profit transferred (to) / from minority Interest, the Net Profit is Rs 411.50 lakh in the year 2023-24 compared to Rs 104.87 lakh in the year 2022-23.

Going forward, the company plans to consolidate its hotel properties across Southern India to strengthen its presence in this region. At the same time, it is actively pursuing expansion opportunities in Northern and Western India, focusing on major business hubs and popular leisure destinations. Its goal is to identify and secure key properties in prime locations, which will enhance its market presence and cater to a broader customer base. It is also open to exploring opportunities in Central and Eastern India to ensure a well-rounded geographical footprint.