IPO Analysis: SAMHI Hotels

IPO Rating: Apply for listing gains

About the Issue: 

In India's hospitality industry, SAMHI Hotels stands out as a distinguished platform specialising in hotel ownership and asset management with renowned brand affiliations. The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Re 1. The IPO price range is set between Rs 119 and Rs 126 per equity share, resulting in a total issue size of Rs 1,370.10 crore at the upper price band. 

The IPO is scheduled to commence on September 14, 2023, and will conclude on September 18, 2023. The anticipated listing on the exchange is set for September 27, 2023. The market lot size for the IPO is 119 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 1,547 shares or a total investment of Rs 1,94,922 assuming the upper price band. 

Objects of the Issue 

The company plans to allocate the net proceeds raised from the issue for the following purposes: 

1. Repayment or pre-payment, either in full or in part, of loans obtained from banks by the company and its subsidiaries (Rs 900 crore). 

2. Meeting general corporate requirements and expenses. 

Promoter holding 

The company has officially stated that it lacks identifiable promoters, while Blue Chandra PTE Ltd, Goldman Sachs Investments Holdings (Asia) Limited, and GTI Capital Alpha Pvt Ltd have been identified as the selling shareholders of the company. 

About the company 

The company stands as a prominent figure in India's hospitality sector, recognized for its institutional ownership model and guided by an experienced leadership team. At the heart of the company’s business approach lies an acquisition-driven strategy, supported by its proven track record of acquiring and revitalizing hotels to fuel its expansion. 

The company boasts enduring affiliations with three renowned and top-tier hotel brands and operators, namely Marriott, IHG, and Hyatt. With a portfolio comprising 31 operational hotels, offering a total of 4,800 rooms, the company maintains a diversified geographical footprint spanning 14 major Indian cities. These cities include Delhi, Bengaluru, Hyderabad, Chennai, and Pune, to name a few. Furthermore, the company has two hotels currently under development, collectively adding more than 460 keys to its portfolio, located in Kolkata and Navi Mumbai. 

Financials 

Outlook and Valuation  

Indeed, there has been a noticeable resurgence in interest within the hospitality sector following the Covid-19 pandemic. Many businesses that endured significant setbacks during the pandemic have managed to bounce back and recoup their losses. Hospitality players have already capitalized on the substantial opportunities presented by India's G20 Presidency, which has generated heightened accommodation requirements. The forthcoming cricket world cup, coupled with the festival season, is expected to further boost demand within the sector. 

Examining the company's financial performance, it's evident that it has experienced substantial revenue growth over the past two years. This growth can be largely attributed to increased revenue per available room and higher occupancy rates. The company disclosed that 84 per cent of the hotels in its portfolio were acquired assets, contributing over 70 per cent of the total income in the financial year 2023. However, it's worth noting that the company has not been able to report profits for the past three years, primarily due to the burden of very high-interest expenses.  

Consequently, the significant debt on the balance sheet and the persistent high-interest costs pose a potential threat to the company. Following its IPO, the company's debt reduction may lead to an increase in cash generation and substantial savings in finance costs in the long run. Given the company's consistent losses in the reported periods, it currently maintains a negative PE ratio. The company has posted negative return ratios due to its inability to generate profits. 

The Grey Market Premium (GMP) is the difference between the IPO's issue price (the price at which the company is offering its shares to the public) and the price at which those shares are trading in the Grey Market. In the case of SAMHI Hotels Ltd, there is anticipation of a 27 per cent potential gain upon listing, bolstered by a Grey Market premium of Rs 35 on top of the IPO price of Rs 126. Hence, we advise risk-seeking investors to consider a cautious, moderate subscription to the offering, with a focus on a listing gain.