Samhi Hotels Limited – IPO Note

 

 

Samhi Hotels Ltd. is a prominent branded hotel ownership and asset management platform in India, with the third largest inventory of operational keys (owned and leased) in India as of March 31, 2023. Within 12 years of starting the company’s business operations, it 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 (NCR), Pune (Maharashtra), Chennai (Tamil Nadu) and Ahmedabad (Gujarat), as of March 31, 2023. Pursuant to the completion of the ACIC Acquisition (as defined below) on August 10, 2023, its portfolio has further increased to 4,801 keys across 31 operating hotels. The company has adopted an acquisition-led strategy, which is underpinned by its track record of acquiring and successfully turning around hotels to grow its business.

Investment rationale:

Government initiatives to boost growth in the travel and tourism industry:

• The Ministry of Tourism (MoT) rolled out various proposals to strengthen ancillary tourism facilities by enabling new tourism businesses through policies, building infrastructure aimed at facilitating and encouraging tourism, and year-round and all-India vehicular permits, all of which have collectively had a significant impact on boosting tourism demand. In June 2022, the MoT launched the National Strategy for Sustainable Tourism and Responsible Traveller Campaign with a view to establishing India as a preferred global destination for sustainable tourism.
• The policy will be applicable for the next 10 years and targets 25 million international tourist arrivals and 4 billion domestic tourist visits by 2030, increasing to 100 million and 15 billion respectively by 2047. The overall goal of the policy is to achieve US$1,000 billion in tourism GDP by 2047. The branded hotel industry is expected to be one of the key beneficiaries of this which will impact the prospects of companies like Samhi Hotels Ltd.

India’s fastest-growing hotel business in terms of the number of keys:

• Within 13 years of Samhi’s inception, it grew to become India’s third-largest hotel owner, by a number of keys, as of March 31, 2023. Further, Samhi is India’s fastest-growing hotel owner by number of keys added per year in the last decade as of March 31, 2023. As of March 31, 2023, Samhi have added approximately 369 keys to its portfolio per year since its’ inception in 2010 (including keys added pursuant to the ACIC acquisition).
• By FY26 the company is going to add 156 new keys to the portfolio along with renovating 402 keys which will further increase its revenue growth potential.

Strong average occupancy along with a strategic rise in rate per room will boost company prospects: 

• Samhi’s average occupancy rate as of FY23 stood at 71.67% with strong support from its high margin upper scale and upper mid-scale occupancy of 71.38% and 74.51% where the company is focusing its future key growth and renovation.
• In FY23 the company’s Average room rate stood at INR 5069 which grew 60.96% YoY and this is expected to keep on growing given the rising demand for its upper-scale and mid-scale product portfolio. and growth in the overall industry.

The company’s portfolio’s scale and diversification are further enhanced by sector tailwinds:

• The company’s hotels are located in 12 cities in India that constitute key urban consumption centres across India, which collectively accounted for approximately 70% of air passenger traffic and approximately 90% of office space in India, as of March 31, 2023.
• It has selected its target cities based on macro themes such as proximity to airports and premium office space growth to ensure long-term and sustainable growth within its selected cities. Its hotels are strategically located in high-density micro-markets, which generally have high barriers to entry due to land acquisition complexities, long development time frames, and fragmented ownership structures.

Valuation and Views:

Samhi Hotels Ltd. is looking to benefit from:

i. Opportunity to grow revenues from its growth in the number of keys and renovation projects in its upper-scale and upper mid-scale segment.

ii. Rising average occupancy along with rising room rate boosts prospects.

iii. Strong government support to boost growth in the industry which will benefit Samhi as a market leader. Total income increased significantly from INR 3,331.04 million for FY22 to INR 7,614.20 million for FY23 due to increases in revenue from operations and other income. The company’s restated loss for the year decreased by 23.61% from INR 4,432.53 million for FY22 to INR 3,385.86 million for FY23. Meanwhile, with occupancy levels reaching above 70% levels across its portfolio during FY23, it intends to focus on increasing ARR and improving operating margins, while driving occupancies further. At the upper end of the price band, the EV/EBITDA translates to ~17.41x which is lower than the peer average. Thus the IPO is attractively priced.

 

You can read the official Samhi Hotels Limited- IPO Note.