Saj Hotels NSE SME IPO review (Apply)

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Review By Dilip Davda on September 24, 2024

•    The company is engaged in the business of hospitality industry and providing its services to B2B and B2B2C models.
•    It posted slow and steady progress in its financial performance.
•    Minor setback for FY24 bottom line attributed to heavy rains that damaged some of its properties at Malshej and its spending on expansion plans that warranted amortization adjustments. 
•    Based on FY24 earnings, the issue appears aggressively priced.
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Saj Hotels Ltd. (SHL) is engaged in Hospitality industry. It provides a diverse portfolio of Business-to-Business (B2B), Business-to-Business-to-Customer (B2B2C) and Business-to-Customer (B2C) hospitality offerings, spanning from traditional resort accommodation to villa rentals and restaurant and bar properties. It focuses on providing comprehensive services to guests, including food and beverage options, recreational facilities and event hosting capabilities, reflecting a commitment to ensuring a memorable experience for visitors.

It offers a range of accommodation options across various destinations, each tailored to provide comfort and convenience. Its resorts have well-appointed rooms and suites, complemented by a variety of dining venues including restaurants, bars and in-room dining services. SHL's dedicated team provides personalized concierge assistance, access to rejuvenating spa facilities, and a host of recreational activities to ensure a memorable stay for every visitor. Its resorts serve as versatile event venues, equipped to host a wide array of gatherings including conferences, weddings, and social events. With comprehensive event planning and management services, it ensures seamless execution and unforgettable experiences for clients and their guests.

Additionally, it is also developing villas named, 'Saj Villas' in Goa. These villas have carefully curated range of 2BHK and 4BHK options for guests; whether for family vacations, group gatherings or romantic escapes. The property will also have a swimming pool for enhanced guest experience. Saj Villas provides an ideal lodging solutions tailored to diverse preferences. In addition to resort and villa offerings, it has also taken on lease a restaurant and bar property through lease and license agreement in 2023. It had taken a property on sub-lease in 2021 and operated a restaurant by the name 'Mahe' through a subsidiary LLP i.e. Coast to Coast Hospitality and Lifestyle LLP, on the said property for a 2-year period until 2023; however, it has discontinued the said operations and disinvested from the said subsidiary during 2023. Further, during 2023, it has sub-leased the said property to other third party to carry out restaurant operations.

In addition to SHL's core hospitality offerings, it has strategically invested (50%) in a company called My Own Rooms Dot In Private Limited as associate. This investment broadens its reach and diversifies portfolio within the hospitality sector. My Own Rooms Dot in Private Limited operates a resort named 'Morjim Retreat' in the vibrant destination of Goa. This resort offers a range of accommodations, including hotel rooms, shops, and spa facilities, catering to the diverse needs of travellers seeking a relaxing and rejuvenating experience. As of the date of filing this offer document, it had 144 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 4250000 equity shares of Rs. 10 each at a fixed price of Rs. 65 per share to mobilize Rs. 27.63 cr. The issue opens for subscription on September 27, 2024, and will close on October 01, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.36% of the post-IPO paid-up capital of the company. The company is spending Rs. 3.30 cr. for this IPO process, and from the net proceeds, the company will utilize Rs. 17.00 cr. for capex on expansion of existing resort properties, Rs. 4.00 cr. working capital, and Rs. 3.33 cr. for general corporate purposes.

The issue is solely lead managed by Corpwis Advisors Pvt. Ltd., Satellite Corporate Services Pvt. Ltd. Is the registrar to the issue, while NNM Securities Pvt. Ltd. Is the market maker. The issue is underwritten to the tune of 15% by Corpwis Advisors and up to 85% by NNM Securities. 

The company has issued initial equity shares at par so far, and has also issued bonus shares in the ratio of 4 for 1 in October 2023.  The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 2.00, and Rs. 56.09 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.88 cr. will stand enhanced to Rs. 16.13 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 104.81 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. 8.12 cr. / Rs. - (1.20) cr. (FY21), Rs. 12.88 cr. / Rs. 1.44 cr. (FY22), Rs.  12.82 cr. / Rs. 3.56 cr.  (FY23), Rs. 14.56 cr. / Rs. 3.45 cr. (FY24). While it suffered for FY21 due to the Pandemic in line with the general trends for the hospitality industry, minor setback for FY24 in bottom line is attributed to some rooms turning non-operational due to heavy rains and its investment in a new property and adjustment of expenses for the same. 

For the last three fiscals, it has reported an average EPS of Rs. 2.65 and an average RoNW of 21.24%. The issue is priced at a P/BV of 4.45 based on its NAV of Rs. 14.61 as of March 31, 2024, and at a P/BV of 6.04 based on its post-IPO NAV of Rs. 10.76 per share. (Lower NAV post IPO raised doubt and after referring matter to Merchant Banker on this, they explained for some wrong calculations and confirmed the post-IPO NAV of Rs. 27.89 per share and assured about their necessary action in this regard for notifying the correct data in media.) So based on revised post-IPO NAV of Rs. 27.89, the P/BV will be 2.33.

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 30.37. Based on FY23 earnings, the P/E stands at 29.41. Thus the issue relatively appears aggressively priced. 

The company reported PAT margins of - (14.92) % (FY21), 10.29% (FY22), 27.37% (FY23), 24.23% (FY24), and RoCE margins of 4.16%, 28.64%, 34.64%, 26.36% for the referred periods, respectively.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Royale Manor and Jindal Hotels, as their listed peers. They are trading at a P/E of 19.4, and 30.9 (as of September 24, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from Corpwis Advisors in the current fiscal. Out of the last 2 listings, both opened at par on the listing date.

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