IPO: SAMHI Hotels

SAMHI Hotels, a branded hotel ownership and asset management platform in India, has launched its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality : SAMHI Hotels has reported losses in the last three years. Moreover, its net worth was negative over the same period. Growth : Its topline grew by 129 per cent and 90 per cent in FY23 and FY22, respectively, mainly due to an increase in RevPAR (revenue per available room) and occupancy rate. Valuation : The stock value is at a P/B of 7 times compared to its peers' average of 7.3 times. Overview : The increasing discretionary income and tourism in India will increase demand, which can help the company grow. However, significant debt on the balance sheet and high-interest costs remain a threat. About SAMHI Hotels SAMHI Hotels comprises a portfolio of 4,801 keys across 31 operating hotels in 14 of India's major urban cities (as of March 2023). The company operates with renowned hotel operators such as Courtyard by Marriott, Sheraton, Hyatt Regency, Hyatt Place, Fairfield by Marriott, Four Points by Sheraton, and Holiday Inn Express. As of FY23, it has India's third-largest number of keys (rooms) as of FY23. Strengths of SAMHI Hotels Third-party operators, including Marriott (11), IHG (10), and Hyatt (2), manage twenty-three of its hotels across India. The company has long-standing relationships with Marriott, Hyatt and IHG, with terms generally ranging from 20 to 30 years. Weaknesses of SAMHI Hotels The company has not been able to generate profits in recent years, and the net worth of the company stands negative. SAMHI Hotels has a substantial net debt (total debt - cash and cash equivalents) of Rs 2,613 crore. While it intends to use most of the IPO proceeds for debt repayment, a considerable debt burden will remain on its balance sheet. In the past, the company did not comply with certain debt covenants (contractual restrictions and requirements that borrowers must adhere to) under certain financing agreements. The company's growth strategy hinges on acquiring and successfully turning around hotels (mainly business hotels). A significant acquisition that turns sour can put the business in jeopardy. IPO Details Total IPO size (Rs cr) 1370 Offer for sale (Rs cr) 170 Fresh issue (Rs cr) 1200 Price band (Rs) 119-126 Subscription dates September 14, 15 and 18, 2023 Purpose of issue To repay debt Post-IPO M-cap (Rs cr) 2747 Net worth (Rs cr) 392 Promoter holding (%) 0 Price/earnings ratio (P/E) NA; loss-making Price/book ratio (P/B) 7 Financial history Key financials 2Y growth (% pa) FY23