SAMHI Hotels
- SAMHI Hotels is coming out with a 100% book building; initial public offering (IPO) of 11,43,40,336 shares of Rs 1 each in a price band Rs 119-126 per equity share.
- Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
- The issue will open for subscription on September 14, 2023 and will close on September 18, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 1 and is priced 119.00 times of its face value on the lower side and 126.00 times on the higher side.
- Book running lead managers to the issue are JM Financial and Kotak Mahindra Capital Company.
- Compliance Officer for the issue is Sanjay Jain.
Profile of the company
The company 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. Within 12 years of starting the company’s business operations, it has built a portfolio of 3,839 keys across 25 operating hotels in 12 of India’s key urban consumption centers, 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 (as defined below) 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 its track record of acquiring and successfully turning around hotels to grow its business. It acquires or builds primarily business hotels, and it 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 its in-house and proprietary asset management tools and capabilities to further enhance the ongoing financial and operational performance of the property. Its portfolio is diversified across key consumption centers in India, at different price-points and with established brands catering to a broad set of demand. The company currently categorizes its hotel portfolio into three distinct hotel segments based on brand classification – Upper Upscale and Upscale, Upper Mid-scale and Mid-scale.
Proceed is being used for:
- Repayment/ prepayment/ redemption, in full or in part, of certain borrowings availed of by the company and its Subsidiaries including payment of the interest accrued thereon.
- General corporate purposes.
Industry overview
The Indian hospitality industry is a direct beneficiary of economic growth in India. Rapid urbanization, expansion of office market, increasing domestic travel, low set-up costs as compared to other developed and developing economies, initiatives from the Government of India and the availability of an established talent pool provide strong demand for the sector in the foreseeable future. On the back of this surge in domestic consumption and underlying GDP growth, the Indian hotel industry is seeing strong capacity utilization in recent quarters (and in quarters preceding the COVID-19 pandemic impact in the Financial Year 2020) driven primarily by the buoyant domestic demand across all segments of hotels. With sharp increase in capacity utilization combined with negligible supply growth, hotels are seeing significant ability to yield the demand for branded hotels by re-pricing their hotels on a continuous basis to drive superior ARR growth from current levels. While material contribution from international travellers is yet to materialize, hotels in India are yet witnessing a sharp upward re-rating in performance levels driven by domestic demand and a more diversified set of customers from a diverse range of industries.
As of March 2023, India has over 360,000 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. The table below indicates the branded inventory supply from 2010 onwards. 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. Subsequent to a low base with a large supply pipeline in the market between the Financial Year 2008 to the Financial Year 2013, the hotel inventory supply in India has now transformed to a large base with a stable supply, resulting in better capacity utilisation, and facilitating higher occupancy levels. This also insulates core markets from any new supply shocks given the relative high base of existing supply. The table below indicates the growth in branded inventory from 2008. The hospitality industry is currently adapting to the new world order where the transformation of culture, people, technology, and organizational processes are amalgamating and progressing rapidly. The revamping of the workforce is real, and the leadership is changing forms. Well-defined new-age values and shared beliefs will ultimately augment profitability and shall replace archaic management structures.
Pros and strengths
The company’s portfolio’s scale and diversification further enhanced by sector tailwinds: The company’s 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 approximately 90% of office space in India, as of March 31, 2023. It has selected its target cities based on macro themes such as proximity to airports and premium office space growth to ensure long term and sustainable growth within its selected cities. Its hotels are strategically located in high-density micro-markets, which generally have high barriers-to-entry due to land acquisition complexities, long development time frames, and fragmented ownership structures. Its hotels are generally well connected to key transport infrastructure and located near social infrastructure and residential areas. It benefit from diversification across cities, price-points and hotel operators which reduces the impact of market volatility in any of its key markets. Its multi-brand and segments business model enables it to capitalize on expected growth in several hotel segments.
Ability to acquire dislocated hotels and demonstrated track record to re-rate hotel performance through renovation and/or rebranding: The company’s business model is based on the ownership of hotels. This is a similar model to most listed Indian hotel companies, which typically derive their revenue primarily from leased and owned hotels as compared to management contracts and franchises. Using an acquisition and turnaround-led strategy, it has established an asset ownership business model that has enabled it to achieve scale and earnings growth by incurring lower capital expenditures. Within 13 years of the company’s inception, it has grown to become India’s third largest hotel owner, by number of keys, as of March 31, 2023. Further, it is India’s fastest growing hotel owner by number of keys added per year in the last decade, as of March 31, 2023. As of March 31, 2023, it has added approximately 369 keys to its portfolio per year since its inception in 2010 (including keys added pursuant to the ACIC Acquisition). It has demonstrated its ability to identify, acquire and turnaround hotels which offer significant opportunities for value accretion over the years and, consequently, have grown its total operating keys to 3,839 keys as of March 31, 2023.
The company’s track record to operate hotels efficiently: The company augments its scale and quality of portfolio with its track record to operate hotels efficiently. Its operating efficiency enables it to maximize the impact of favorable revenue growth on its profitability and limit the impact of low revenue cycles. The parameters for measuring the operating efficiency of its hotels include gross floor area per room, staff per room and EBITDA margin. Across its portfolio of hotels, it has an average gross floor area of 61 sq. mt. per room. This is fundamental for long term operating efficiency, as space utilization has a material impact on the utility expenses, repair and maintenance costs and manpower-related expenses required to operate and maintain a hotel. As these costs contribute to a significant portion of the operating expenses for a hotel, efficient space utilization enables it to maintain strong EBITDA margins across portfolio.
Ability to create operating arbitrage using Analytical Tools: As a large owner and asset manager of hotels across segments, brands and operators, the company benefits from a cross-section of operating data that it receives on a real-time basis from its hotels. The analysis of such data helps it to continuously improve performance, identify opportunities for future growth and monitor risks that it foresees. It also helps it improve its analysis for new investments that it evaluates on an ongoing basis. To help it leverage this data and achieve the aforementioned objectives, it has developed SAMHIIntel, a proprietary analytics tool, and SAMConnect, a building management tool. It has developed and implemented an active analytics system, SAMHIIntel, to manage, analyze and use operating data received from its hotels. This data analytics platform monitors and analyzes several financial and non-financial parameters of each of its hotels.
Risks and concerns
Significant portion of revenues derived from few hotels: The company’s three largest hotels are Hyatt Regency Pune, Sheraton Hyderabad and Courtyard by Marriott Bengaluru ORR, and any decrease in its revenues from these hotels, including due to increased competition and supply or reduction in demand in the markets in which these hotels operate, may have an adverse effect on its business, results of operation and financial condition. In addition, a large portion of its revenues are derived from hotels concentrated in a few geographical regions, namely Bengaluru (Karnataka), Pune (Maharashtra), Hyderabad (Telangana), Gurugram (Haryana), Ahmedabad (Gujarat) and Chennai (Tamil Nadu). In the past three Financial Years, it has not experienced any significant disruptions, including due to social, political or economic factors or natural calamities or civil disruptions, impacting these regions, including in Bengaluru (Karnataka), Pune (Maharashtra) and Hyderabad (Telangana). However, such occurrences in the future may adversely affect its business. Changes in the policies of the state or local governments of these regions, including any increase in property tax or imposition of COVID-19 related restrictions may require it to incur significant capital expenditure and change its business strategy.
Dependent on ability to attract and retain qualified personnel: The company’s performance depends largely on the efforts and abilities of its Key Managerial Personnel and Senior Management. The inputs and experience of its Key Managerial Personnel and Senior Management are valuable for the development of its business and operations and the strategic directions taken by the company. Its managerial and other employees are critical to maintaining the quality and consistency of its services and reputation and the loss of the services of its personnel may adversely affect its business and operations. While it currently has adequate qualified personnel for its operations, it may not be able to continuously attract or retain such personnel, or retain them on acceptable terms, given the demand for such personnel.
Face competition: The hospitality industry in India is intensely competitive and the company’s hotels compete with large multinational and Indian hotel companies, in each of the regions in which it operates. Some of its competitors who are hotel owners may be larger than it, or develop alliances to compete against it, or have greater financial and other resources. It cannot assure that hotels owned or managed by new or existing competitors will not lower rates or offer better services or amenities or significantly expand or improve facilities in a market in which it operate, or that it will be able to compete effectively in such conditions. The opening of a new hotel in the vicinity of any one of its hotels may also increase competition which would impact its occupancy and consequently its revenues. It may also faces increased competition from budget hotels, internet-based homestays and hostel aggregators and alternative accommodation options such as luxury homestays and bed and breakfasts.
Rely on third parties for the quality of services: The performance and quality of services at its hotels are critical to the success of its business. Any incident where its hotels lack, or are perceived to lack, high standards of service quality may adversely affect its reputation. Quality standards depend significantly on the effectiveness of quality control systems and standard operating procedures, which in turn, depend on the skills and experience of its hotels operators. Apart from two hotels operated under its owned brands Caspia and Caspia Pro, all its hotels operate under a third-party brand, i.e. Marriott, Hyatt or IHG. At certain of its hotels, it is also dependent on third party service providers for providing certain ancillary guest services such as laundry, health club, maintenance, security and chauffeur services. In the past three Financial Years, it has not experienced any material instances of negative branding of the brands under which its hotels are operated, nor has it experienced any material instances of deficient service quality or failures of quality control systems leading to terminations of material third party service provider agreements or adverse effects on its reputation.
Outlook
Incorporated in 2010, SAMHI Hotels is a branded hotel ownership and asset management platform in India. It has a portfolio of 4,801 keys across 31 operating hotels in 14 of India's key urban consumption centers, including Bengaluru, Karnataka; Hyderabad, Telangana; National Capital Region (NCR); Pune, Maharashtra; Chennai, Tamil Nadu; and Ahmedabad, Gujarat as of March 31, 2023. The company also has 2 hotels under development with a total of 461 keys in Kolkata and Navi Mumbai. SAMHI's hotels operate under well-recognized hotel operators such as Courtyard by Marriott, Sheraton, Hyatt Regency, Hyatt Place, Fairfield by Marriott, Four Points by Sheraton, and Holiday Inn Express, which provide its hotels' access to the operator's loyalty programs, management and operational expertise, industry best practices, online reservation systems, and marketing strategies. On the concern side, the company is subject to a broad range of safety, health, environmental and related laws and regulations, which impose controls on its operations. While the day-to-day operations at its hotels are managed by the respective hotel operators, in terms of the hotel operator services agreements it has entered into with them, it is responsible for obtaining and maintaining all government and regulatory approvals required in relation to the operations and services provided at each of its hotels.
The issue has been offered in a price band of Rs 119-126 per equity share. The aggregate size of the offer is Rs 1360.64 crore to Rs 1440.68 crore based on lower and upper price band respectively. On the financial front, total Income increased significantly from Rs 3,331.04 million for the Financial Year 2022 to Rs 7,614.20 million for the Financial Year 2023 due to increases in revenue from operations and other income. The company’s restated loss for the year decreased by 23.61% from Rs 4,432.53 million for the Financial Year 2022 to Rs 3,385.86 million for the Financial Year 2023. Meanwhile, with occupancy levels reaching above 70.00% levels across its portfolio during the Financial Year 2023, it intends to focus on increasing Average Room Rates and improving operating margins, while driving occupancies further. The company intends to renovate and rebrand its existing 301 keys Hyatt Regency Pune into a Luxury brand hotel under Hyatt’s management, which is expected to be completed by September 30, 2025. The estimated cost of this renovation and rebranding is between Rs 298.00 million and Rs 403.00 million, which it aims to fund utilizing its cash flows from operations.
