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Finding the Suite Spot

Samhi Hotels (SAMHI IN), India’s largest multi-branded asset owner by inventory, has a track record of transforming underperforming hotels. With its primary markets of Bengaluru, Hyderabad, Pune and NCR (hubs of large Grade A office spaces and air travelers), the company is a play on: 1) asset addition-led growth, and 2) value additionled growth as it looks to add 857 keys (18% growth on 4,801 keys in FY24) during FY25- 29E and enriched portfolio mix from midscale to upper upscale & upscale segments. These triggers as well as organic ARR growth of ~6% and occupancy increase of ~100- 200bp pa would drive a revenue CAGR of 12%, and EBITDA CAGR of 26% during FY24- 27E. We expect PAT to turn positive from FY25 and touch INR 1,891 Mn by FY27E At a CMP of INR 189, SAMHI is trading at an EV per key of INR 11mn, comparable to its blended construction cost for a similar portfolio (including land). We initiate coverage with a Buy rating and a TP of INR 308 based on 16x FY27E EV/EBITDA.

Strategic portfolio expansion and value-driven growth:

SAMHI is monetizing demand in India’s high growth markets by 1) opening new hotels (111 keys), 2) expanding existing ones by 218 keys across four hotels), and 3) upgrading & rebranding a few hotel properties from white-label to branded or from midscale and upscale to upscale and upper upscale, respectively. Expansion is set to yield INR 800mn in top line by FY28E while renovation & rebranding is likely to yield another INR 700mn annually.

Portfolio mix pivot to the upper upscale segment:

SAMHI is adding 532 keys across three hotels in the upper upscale segment in IT hubs of Bengaluru and Hyderabad. Of this, 362 keys are in Twin Hotel Complex (one each in upper upscale and upscale segments) in the Whitefield micro-market of Bengaluru. The company bought a 142- key operating standalone Trinity hotel with an attached land parcel. Given room size (28sqm) and other facilities at Trinity, SAMHI plans to flag the hotel with Marriott’s Tribute brand to increase RevPAR from the current INR 3,250 to INR 6,500 post renovation and rebranding. At the adjacent land, the company plans ~220-key upper upscale Westin brand hotel. Management has taken a commercial building on lease to convert it into a 170-key W branded upper upscale hotel. Given robust demand in these two cities, we expect these hotels to achieve ~70% occupancy in 24 months and generate top line of INR 3.2-3.5bn pa post stabilization.

Initiate with Buy and TP of INR 308:

SAMHI has built a reputation of turning around inorganic growth opportunities. We initiate with a Buy rating and a TP of INR 308 based on 16x FY27E EV/EBITDA. We assign 16x EV/EBITDA to SAMHI vs 20x for Lemon Tree Hotels and 22x for Chalet Hotels, as SAMHI has higher debt than peers; hence, SAMHI’s financials are vulnerable to the downcycle in the hospitality industry. Despite robust fundamentals, the company is trading at compelling valuation due to the risk of impending supply of ~34mn shares (~16% of paid-up capital) from PE investors whose lock-in period expires on 21 March 2025. We expect these exits to happen in the block trade window to arrest price erosion. Selling these shares in the open market implies the stock price will see a sharp decline, and this is a key risk to our call.

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SEBI Registration number is INH000000933