Samhi Hotels – Reasonably priced hospitality asset with strong profitability growth trajectory

Business Overview

• Diversified asset base: 34 Hotels across various price points

  • Upper Upscale and Upscale hotels (5 hotels, 1086 rooms, 5 cities) e.g. Sheraton & Hyatt Regency

  • Upper midscale hotels (15 hotels, 2189 rooms, 10 cities) e.g. Tribute by Marriott, Courtyard by Marriott, Fairfield by Marriott

  • Mid scale assets (12 hotels, 1673 rooms, 8 cities) e.g. Holiday Inn Express

•  72% Revenue comes from room and 25% revenue comes from F&B

Why we invested in Samhi

• Hospitality industry can be classified broadly as two types of players

  • Brand Owners e.g. Indian hotels, ITC Hotels, EIH, Lemon tree

  • Asset owners managing properties with brand tie-up - like Samhi, Ventive and Chalet

• Diversified scaled up player, with limited dependence on 1 asset or 1 brand

  • Operates multiple global brands, across 10+ cities in different categories

  • Average residual tenure for contracts                                                 : 16.6 yrs

  • Average management fee as percentage of income from asset        : 5.1%

    
    

• Demonstrated strong growth in FY25

  • Revenue: 1150 Cr (+17.5%)

  • EBITDA (pre ESOP): 425 (+48%)

  • RoCE : 9.5%, RoE : 7.5%. As per analyst estimates, RoCE of stable assets is ~ 17 to 18 pc, whereas RoCE of ACIC & other portfolio is ~ 5% to 6%. As ACIC is stabilized, RoCE of firm is expected to improve

  • Increase in ReVPAR in FY25 : 20.6% (Strong demand in micro markets)

  
  

• Addition in number of rooms (addition of 596 keys)

  • As of now, Samhi has 4948 room. The company is undergoing expansion plan to take this inventory to 5544 rooms

    
    

•  Stabilization of ACIC portfolio (expected to increase profitability from 846 rooms)

  • In Aug 2023, Samhi acquired portfolio of assets from ACIC.

  • Out of total inventory 846 (21%) rooms are acquired

  • This inventory is undergoing rebranding (331 room) and operational improvement process

    
    

• Asset owners require consistent capital inflow to achieve asset addition (potential to add more rooms)

  • Samhi has recently raised Rs 753 Cr from GIC. 603 Cr will be used to reduce debt and 149 Cr will be used to expand

  • This has resulted in reduction in leverage and partner to support growth of Upscale and higher category hotels

  
  

• Valuation

  • Expected to improve profitability & return ratio in near term

  • Samhi is trading at below 13x FY26 EV / EBITDA. This is at a significant discount to other hospitality assets which are trading at 18x to 20x FY26 EV / EBITDA

  
  

• Upside expected to come from

  • Increase in absolute EBITDA

  • Rerating of stock once RoE improves

    
    

• Technical View

Samhi went through a large drop. Almost 50 per from Feb 24 to April 25. If one sees the chart, it's a clear 3 legged Fall. Usually bears are in 3 legs and one can see that clearly here.

Now stock is in rising trend in 50 DMA and now close to 200 DMA

Moreover at the lows of 121, the price hit 200, 3 Bolling Band as well creating a deeply oversold position.

After that a sharp rally ensued and now price is close to all time highs. It's clear Samhi is in a new Uptrend. It will be confirmed when 40 WK MA decisively turns up. We are betting on that.

Disclaimer

This is not advice to buy stock. The information provided is for discussion and informational purposes only. Please consult a certified financial advisor before making any investment decisions.