- 13 Sep 2023
- ICICIdirect
SAMHI HOTELS IPO OPENS FOR SUBSCRIPTION ON THE 14TH OF SEPTEMBER
In the previous article, we saw the first IPO that opened for subscription this week - R R Kabel. The second IPO that opens for subscription this week is SAMHI Hotels. Today, we will discuss the SAMHI Hotel in detail, which opens for subscription on 14th September and closes on 18th September. The various aspects related to the company will help you decide whether to subscribe or invest in the IPO for the long term.
SAMHI Hotels IPO: Key Details
Below are the key details related to the SAMHI Hotels IPO:
- Issue Size: Rs 1,370.10 crore
- Price Band: Rs 119 - Rs 126
- Issue Details: Rs 1,200 crore Fresh Issue + Rs 170.10 crore Offer For Sale (OFS)
- Market Cap: At the upper price band, Rs 2,747.25 crore
- Minimum Investment: Rs 14,994
SAMHI Hotels IPO: About the Business
They are a prominent branded hotel ownership and asset management platform in India, with the third largest inventory of operational keys (owned and leased) in India at the end of FY23. Within 12 years of starting our business operations, we have built a portfolio of 3,839 keys across 25 operating hotels in 12 of India’s key urban consumption centers, including Bengaluru, Hyderabad, NCR, Pune, Chennai and Ahmedabad, as of March 31, 2023.
SAMHI Hotels has adopted an acquisition-led strategy which is underpinned by its track record of acquiring and successfully turning around hotels to grow its business. They acquire or build primarily business hotels, take steps to further upgrade properties, and engage with established branded hotel operators to allow the hotels to be appropriately positioned within the market.
The hotel chain business categorizes its hotel portfolio into three distinct hotel segments based on brand classification:
- Upper Upscale and Upscale
- Upper Mid-scale
- Mid-scale
For the FY23, their Domestic Customer Volume (i.e., percentage of nights occupied by customers who are Indian citizens as compared to total nights occupied) for Upper Upscale and Upscale, Upper Mid-scale, and Mid-scale segments was 69.71%, 75.08%, and 95.79%, respectively, demonstrating a high domestic demand base.
The company will utilize the Net Proceeds to repay a portion of the debt. Also, they plan to continue to grow their business by investing their future internal accruals into continuous improvement of the performance of existing hotels, and accretive organic growth opportunities while also exploring additional inorganic growth opportunities.
SAMHI Hotels IPO: Industry Overview
The Indian travel and tourism sector’s contribution to the GDP in 2021 was valued at $178 billion, which accounted for 5.8% of the GDP. The total contribution was up by over 43% in comparison to the previous year and is almost 85% of the sector’s contribution to the GDP during 2019. Of this, almost 95% of the total travel and tourism spend can be attributed to domestic demand which was up by over 50% in comparison to the previous year, and the remaining 5% can be attributed to the international market.
Travel and tourism are the third largest foreign exchange earners for India, and the Indian tourism industry is anticipated to grow at an annual rate of 10.35% between 2019 and 2028, reaching a total value of $512 billion by 2028.
As of March 2023, India has over 3,60,000 keys, including branded hotels, independently run hotels and aggregators. Of this, the current branded inventory market size as of March 2023 stands at approximately 180,000. The overall market size is still small, especially relative to the size & growth of the office market. Over the last decade, the branded segment in India has recorded maximum growth in comparison to the other segments and accounts for 40% of the total inventory.
SAMHI Hotels IPO: Listed Peers
Once it is listed, the company will have four listed peers to compete with - Chalet Hotels, Lemon Tree, Indian Hotels, and EIH. Let us compare all the four companies on basic financial parameters:
- For FY23, in terms of revenue, Indian Hotels is the largest player, followed by EIH and Chalet. SAMHI Hotels is at the bottom of the table.
- All listed peers have reported a profit for FY23 except for SAMHI Hotels.
- The average Earning Per Share (EPS) of all listed peers is Rs 5.5, while that of SAMHI Hotels is negative.
- Return on Net Worth (RoNW) is in the same range for Chalet, Lemon, and Indian Hotels. Since SAMHI Hotels is not profitable, its RoNW cannot be compared with peers.
SAMHI Hotels IPO: Financials
Let us now look at the most crucial part that one needs to consider while evaluating a new company - the company's financials. Below are the financial numbers of SAMHI Hotels over the last three financial years:
- The company has reported a revenue of Rs 179.25 crore, Rs 333.10 crore, and Rs 761.42 crore for FY21, FY22, and FY23, respectively. Revenue has grown at an exceptional 106.2% CAGR in this period.
- The total revenue from the top three largest hotels contributed 28.38%, 32.63%, and 37.76% for FY21, FY22, and FY23, respectively.
- SAMHI Hotels has reported an EBITDA of Rs (59.72) crore, Rs 21.79 crore, and Rs 260.59 crore for FY21, FY22, and FY23, respectively. In the same period, the EBITDA margins were (33.31)%, 6.54%, and 34.22%, respectively. The margins have increased significantly in this period.
- The occupancy rate for FY21, FY22, and FY23 was 27.96%, 45.90%, and 71.67%, respectively. There has been a significant jump in the occupancy rate.
- SAMHI has not reported profits in the last three financial years. The net loss reported was Rs (477.73) crore, Rs (443.25), and Rs (338.59) crore for FY21, FY22, and FY23.
- For the last three financial years, the company has reported an average EPS of Rs. - (51.78), and RoNW calculation is not possible.
- As the company has posted losses for the reported periods, the IPO is having a negative P/E.
- The debt-to-equity ratio is significantly higher for the company. For FY21, FY22 and FY23, the ratio was (12.40), (4.07) and (3.45), respectively.
What are the competitive strengths of SAMHI Limited?
As per the company, their competitive strength is as below:
- The company can acquire dislocated hotels and demonstrate a track record to re-rate hotel performance through renovation and/or rebranding.
- Their hotels are located in 12 cities in India that constitute key urban consumption centers across India which collectively accounted for approximately 70% of air passenger traffic and 90% of office space in India, as of March 31, 2023.
- They have a track record of operating hotels efficiently.
- SAMHI Hotels has the ability to create operating arbitrage using analytical tools. To help them leverage the available data and achieve the aforementioned objectives, the company has developed SAMHIIntel, a proprietary analytics tool, and SAMConnect, a building management tool.
Risks associated with the SAMHl Hotels Limited
Below are the risks associated with SAMHl Hotels Limited:
- They were not in compliance with certain covenants under certain of their financing agreements in the past, and in case of any breach of covenants in the future, such non-compliance, if not waived, could adversely affect the business.
- The company has experienced restated losses and negative net worth in recent years. Also, they cannot assure you that they will not incur losses or experience negative net worth in the future.
- SAMHI Hotels operate in a capital-intensive industry and, as of June 30, 2023, they had outstanding borrowings of Rs 2,812.49 crore on a consolidated basis.
- The business is subject to seasonal and cyclical variations that could result in fluctuations in their results of operations.