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BACKGROUND

Incorporated in 2010, SAMHI Hotels Limited (SHL) 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 centres (includes recent acquisition with ACIC SPV’s). SHL operates under well-recognized hotel operators. It follows an acquisition-led strategy, where it invests in operational turnaround of an acquired hotel to allow the hotels to be appropriately positioned in the market. SHL mainly focuses on domestic market for its future business growth.

Objects and Details of the Issue:  

* Total issue of ~Rs. 1,370Cr (at upper price band) consists of fresh issue worth Rs.1,200 Cr and offer for sale worth Rs.170 Cr

* The company proposes to utilise the net proceeds from the fresh issue towards repayment / prepayment / redemption of borrowings including payment of the interest accrued thereon 

Investment Rationale:

* Favourable demand-supply conditions in the hospitality sector

* Brand penetration in India has been on an upward trajectory

* Hotel supply across key Indian cities lags office demand

* Leveraging power of strong hotel brands; Integration of ACIC Portfolio

* SAMHI Hotels have grown to become India’s third-largest hotel owner

* Strong management team with extensive experience in hospitality sector

Valuation and Recommendation:-

SAMHI Hotels Ltd (incl. ACIC Portfolio) has delivered topline performance with a growth of 15.5% CAGR (excl. ACIC portfolio at 6.8% CAGR) between FY20-23 compared to 7.9% average growth of listed peers. With this issue, the management is aiming to deleverage its balance sheet with repayment of ~Rs. 1,150 cr of its total debt of Rs. 2,900 cr. The same is expected to improve its SHL’s profitability and to generate high free cash flow for the subsequent years. As on Mar’23, ROCE (proforma incl ACIC portfolio) stood at 6.6% which is further expected to improve on the back of debt repayment and growth planned for the upcoming few quarters. The issue is valued at 15.8x to EV/EBITDA based on FY23 proforma financials which is discount to average valuation of 30.2x EV/EBITDA for its listed peers. Thus, we recommend SUBSCRIBE to the issue

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SEBI Registration number is INH000001766