Samhi Hotels IPO (Avoid)

Highlights

Samhi Hotels Limited is a prominent branded hotel ownership and asset management platform in India. As of 31^st March 2023, the Company has the third largest inventory of operational keys (owned and leased) in India.

The Company has embraced an acquisition-led approach, which is supported by their track record of effectively acquiring and turning around hotels to develop revenue. It acquires or builds predominantly business hotels, and takes steps to upgrade properties and partner with established branded hotel operators to allow the hotels to be effectively positioned within the market.

Over the years, the Company has proved its ability to identify, acquire, and turnaround properties that offer considerable prospects for value accretion, and as a result, their total operating keys have increased to 3,839 keys as of March 31, 2023.

As of March 31, 2023, the Company has built a portfolio of 3,839 keys across 25 operating hotels in 12 of India’s key urban consumption centres, including Bengaluru (Karnataka), Hyderabad (Telangana), National Capital Region, Pune (Maharashtra), Chennai (Tamil Nadu), and Ahmedabad (Gujarat). 23. Pursuant to the completion of the ACIC Acquisition on August 10, 2023, portfolio of the company has risen to 4,801 keys across 31 operating hotels.

All of the company’s hotels are classified as Upper Upscale and Upscale, Upper Mid-scale and Mid-scale. The company’s hotels often operate under long-term management contracts with well-known worldwide hotel operators such as Marriott, Hyatt, and IHG. 

On August 10, 2023, Company finalized the ACIC Acquisition by issuing 37,462,680 Equity Shares to Asiya Capital. The ACIC Portfolio consists of 6 operating hotels in the Upper Mid-Scale class, totalling 962 keys. It also comprises a plot of land in Navi Mumbai, Maharashtra, for the development of an Upper Mid-scale hotel.

From total IPO proceeds Rs. 12,000 mn would be utilize towards repayment of certain borrowing availed by company or subsidiaries including payment of interest and Rs. 1,701 mn would go towards existing selling shareholders.

Key Highlights

• The Indian travel and tourism business is predicted to grow between 2019 and 2028, with a CAGR of 10.35 pct. The Indian hospitality business immediately benefits from India’s economic prosperity. Rapid urbanization, the expansion of the office market, increased domestic travel, initiatives from the Government of India, all contribute to strong demand for the hospitality industry in the near future. Looking for at the rapid speed of the industry, company is well positioned to cater the demand of the market.
• Samhi has over 43 pct share of all Fairfield by Marriott and 71 pct of Holiday Inn Express which is strong global brands in Midscale segment. While company outsource day to day operations of their hotels to hotels operators but control all material aspects.
• Approx Rs. 11,500 mn company will utilize towards debt repayment after this repayment debt will decrease to Rs.17,300 mn from Rs. 28,800 mn. Company is going to pay high cost debt first to reduce the finance cost which will help company to improve bottom-line.
• The company believes that after debt repayment, it will be able to use internal accruals for additional investment in business growth and expansion. Furthermore, the company believes that this will strengthen our ability to raise further money in the future to fund prospective business development possibilities. The company believes that after debt repayment, it will be able to use internal accruals for additional investment in business growth and expansion. Furthermore, the company believes that this will strengthen our ability to raise further money in the future to fund prospective business development possibilities.
• As of 31^st March 2023, the Company has 5 Upper Upscale & Upscale hotels which contributes 47.35 pct of total income, 9 Upper Midscale hotels which contributes 32.18 pct of total income, 11 Midscale hotels which contributes 18.96 pct of total income.
• Despite in the growth in revenue but company is making losses YoY due to high depreciation and finance cost. As of FY21-23 revenue of the company increasing at a CAGR of 107.29 pct. While EBITDA margin stood at 37.41 pct in FY23 and Profit margin stood at (44.47 pct) in FY23.
• Average occupancy rate of the company is increasing YoY and currently is stood at 71.67 pct and the company has the lowest cost per key as compared to industry average.

Key Risk

• Because of high debt level of the company, auditor concern about the going concern of the company in the past. Also company has got qualified opinion on the internal financial controls.
• Company indebtedness and the conditions and restrictions imposed by our financing arrangements may limit our ability to grow their business.

• Company had pledged equity shares of certain of our Subsidiaries in favour of certain lenders and if events of default arise under the relevant share pledge agreements, such lenders could exercise their rights under the agreements.

Valuation

Samhi Hotels is in the hospitality business with 4801 keys across 31 operating hotels.  The Company has been posting losses for all these years so far. The issue is being offered at a negative P/E. At the higher price band of Rs 126, the offer is made at around 20.14x post-IPO EV/FY2023 EBITDA and 3.72x Post IPO Price/FY2023 sales. We have an Avoid recommendation for  this issue.

Also Read: 5 Financial Planning Strategies To Save Money

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.