Samhi Hotels IPO review (May apply)

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Review By Dilip Davda on September 12, 2023

•    SHL is in the hospitality business with 4801 keys across 31 operating hotels. 
•    Though its top line marked growth, it continued to post losses. 
•    Its NAV stands at Rs. - (113.07) per share of Re. 1 as of March 32, 2023.
•    The issue is being offered at a negative P/E.
•    Well-informed/cash surplus/risk seeker investors may park moderate funds for the medium to long term.

PREFACE:
SHL, a loss-making hospitality company is going public with its financial data only till March 31, 2023, though its IPO is coming in the month of September 2023. Of course, we are witnessing fancy for hospitality sector counters in the secondary market, and as indicated, the competition is on the rise in this segment with many new players entering and old established brands expanding their reach. As of March 31, 2023, SHL had a negative NAV of Rs. - 113.07, which is a major concern. Post this IPO, its paid-up capital will rise further and may pose difficulty in servicing aspects. As of March 31, 2023, the company has shown a finance cost of Rs. 522.06 cr. which may get reduced post IPO as the company is likely to repay Rs. 900 cr. of borrowings which stood at Rs. 2597.69 cr. Thus it will still have over 1600 cr. of carried forward debt. 

ABOUT COMPANY:
Samhi Hotels Ltd. (SHL) 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 (Source: JLL Report). Within 12 years of starting 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 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 a track record of acquiring and successfully turning around hotels to grow its business. SHL acquires or builds primarily business hotels, and takes steps to further upgrade properties and engage with established branded hotel operators to allow the hotels to be appropriately positioned within the market. Subsequent to this one-time upgrade of the property, it deploys in-house and proprietary asset management tools and capabilities to further enhance the ongoing financial and operational performance of the property.

SHL currently categorizes its hotel portfolio into three distinct hotel segments based on brand classification - Upper Upscale and Upscale, Upper Mid-scale and Mid-scale. Over 51.14% of its Total Income for the Financial Year 2023 was from Upper Mid-scale and Midscale hotels. The Upper Mid-scale and Mid-scale segments offer significant growth opportunities in India due to their relevant price positioning and limited dependence on international travellers (Source: JLL Report). SHL's Upper Upscale and Upscale hotels, which contributed to 47.35% of our Total Income for the Financial Year 2023, are supported by markets with high-density demand in cities such as Bangalore (Karnataka), Hyderabad (Telangana), Ahmedabad (Gujarat) and Pune (Maharashtra) (Source: JLL Report). These cities are expected to demonstrate strong growth in airline passenger traffic and premium office space absorption, which is expected to benefit the overall demand base for its hotels (Source: JLL Report).

SHL's dominant position among the Upper Mid-scale and Mid-scale brands in India (Source: JLL Report) enabled it to grow Fairfield by Marriott and Holiday Inn Express portfolio to 936 and 1,427 keys, respectively, as of March 31, 2023, making it the largest owner of these brands in India. Pursuant to the completion of the ACIC Acquisition on August 10, 2023, its Fairfield by Marriott portfolio has further increased to 1,429 keys. The company completed the ACIC Acquisition on August 10, 2023, through the issuance of 37,462,680 Equity Shares to Asiya Capital. Pursuant to the ACIC Acquisition, it increased the number of keys in the total portfolio from 3,839 keys to 4,801 keys and acquired the aforementioned parcel of land in Navi Mumbai, Maharashtra for the development of an Upper Mid-scale hotel. 

The hospitality industry in India is intensely competitive. SHL's hotels are in the Upper Upscale and Upscale, Upper Mid-scale and Mid-scale hotel segments, and are spread across 12 key urban consumption centers across India. As a result, it competes with large multinational and Indian companies, as well as regional and local companies in each of the geographies in which it operates. The company experiences competition from chain-affiliated and independent hotels in the segments in which they operate, as well as certain hotels in the Upper Upscale and Upscale and Midscale segments. More recently, the competition in the hospitality industry has increased with the emergence of other institutional players who are acquiring hotels. As of March 31, 2023, it had 1981 employees on its payroll and an additional 421 contract labourers were engaged with the hotel.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of fresh equity shares issue worth Rs. 1200 cr. (approx. 95238080 shares at the upper cap) and an Offer for Sale (OFS) of 13500000 shares (worth Rs. 170.10 cr. at the upper cap). Thus the overall size of the issue will be 108738080 shares for mobilizing Rs. 1370.10 cr. The company has announced a price band of Rs. 119 - Rs. 126 per share having a face value of Re. 1 per share. The issue opens for subscription on September 14, 2023, and will close on September 18, 2023. The minimum application to be made is for 119 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 49.87% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity shares issue, the company will utilize Rs. 900.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.  

The company has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

JM Financial Ltd. and Kotak Mahindra Capital Co. Ltd. are the joint Book Running Lead Managers (BRLMs) and KFin Technologies Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 97 - Rs. 742.60 (based on FV of Re.1) between October 2011 and August 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 127.01, Rs. 127.94, and Rs. 208.81 per share.  

Post-IPO, SHL's current paid-up equity capital of Rs. 12.28 cr. will stand enhanced to Rs. 21.80 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2747.25 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SHL has (on a consolidated basis) posted a total income/net profit - (loss) of Rs. 179.25 cr. / Rs. - (477.73) cr. (FY21), Rs. 333.10 cr. / Rs. - (443.25) cr. (FY22), and Rs. 761.42 cr. / Rs. - (338.59) cr. (FY23).  Thus, though it posed growth in its total income, it kept posting losses for all these years. 

For the last three fiscals, SHL has reported an average EPS of Rs. - (51.78) and an average RoNW of NA%. The issue is priced at a P/BV of NA based on its NAV of Rs. - (113.07) per share as of March 31, 2023, and at a P/BV of 8.36 based on its post-IPO NAV of Rs. 15.07 per share (at the upper cap). 

As the company has posted losses for the reported periods, the IPO is having a negative P/E. SHL is appearing cheap amidst its peers on EV/EBITDA parameters. Its EV/EBITDA is at 14.07 (at the cap price for SAMHI + ACIC SPVs - Pro Forma) and at 15.97 (on a standalone basis) against 22.84 to 30.65 of the listed peers i.e. Chalet Hotels, Lemon Tree, Indian Hotels and EIH Ltd. Thus on this parameter, the issue appears priced at the lower end, which can be attributed to its loss-making history so far.

If we consider SAMHI Hotels and ACIC SPVs combined Pro Forma data, then it has posted a net loss of Rs. - (365.90) cr. on a total income of Rs.964.37 cr. and it had 31 hotels enjoying 73% average occupancy with PAT margin of - (37.94) %. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in the month of March 2023 based on its financial performance and future prospects (depending on many internal and external factors).

COMPARISON WITH LISTED PEERS:
As per the offer document, SHL has shown Chalet Hotels, Lemon Tree, Indian Hotels and EIH as their listed peers. They are trading at a P/E of 47.98, 113.79, 69.07, and 43.01 (as of September 12, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the issue have handled 55 public issues in the past three fiscals, out of which 14 issues closed below the offer price on the listing date. 

SAMHI Hotels IPO FAQs