Samhi Hotels
IPO Size: Rs.1,370 cr
- Rs. 1,200 cr fresh issue, for Rs. 900 cr debt repayment, of about Rs. 3,000 cr gross borrowings
- Rs. 170 cr offer for sale (OFS) by 3 investors at cost/ loss (51% combined holding to drop to 23% post listing)
Price band: Rs. 119-126 per share
- 75% reserved for the institutional investors and 10% for retail, as company is loss making
M cap: Rs. 2,747 cr, implying a massive 50% dilution
IPO Date: Thu 14th Sep to Mon 18th Sep 2023, Listing Wed 27th Sep 2023
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Hotel Owning Company
12 year old Samhi Hotels owns 3,839 hotel keys, across 25 properties in India, of which, 11 hotels are managed by Marriot, 10 by IHG, 2 by Hyatt and 2 self-managed under Caspia brand. FY23 occupancy stood at 72%, with an average room rate of Rs. 5,100 per day. On 10.8.23, company completed acquisition of 962 keys, across 6 properties from Asiya Capital (ACIC), increasing operating keys to 4,801, across 31 properties, mostly business hotels.
Shareholder Exodus?
Company is professionally managed, without any identifiable promoter, with ownership resting with a bunch of PE investors. These shareholders seem desperate to exit, as the largest shareholder as on RHP date (5th Sep 2023), Blue Chandra, owning 30.65%, is exiting its 12 year old investment at cost (ouch!). On 9th Sep 2023, subsequent to RHP filing, Blue Chandra sold 8.4% stake in the company at Rs. 126 per share, outside of the RHP, shrinking its holding to 22.3%. Secondary sale subsequent to and outside of the RHP is rare than the blue moon (pun intended!). Another large PE investor Goldman Sachs is halving its 8 year old holding of 18% at a 40% loss! If existing shareholders have lack confidence on business prospects, incoming investors must not get carried away with the number of the room keys or names of property managers. The current shareholder behavior is sufficient to conclude this IPO analysis, but let’s just also peek into company financials.
Post IPO Debt to Equity Ratio of 1.5:1
As of 31.3.23, proforma gross debt (including ACIC acquisition) stood at Rs. 2,993 cr. Since only Rs. 900 cr is to be repaid from fresh issue proceeds, post issue gross debt will remain high, at about Rs. 2,100 cr. 44% equity dilution towards fresh issue is being undertaken to reduce debt only by a third, which is too little. In short, even after the massive dilution, on an expanded net worth of Rs. 1,255 cr, net debt to equity ratio will be as steep as 1.5:1.
EBITDA Margin Below Peers
Samhi clocked 34% EBITDA margin on FY23 proforma topline of Rs. 933 cr. But Rs. 569 cr interest burden led to Rs. 340 cr net loss. On the other hand, peers Chalet and Lemon Tree clocked EBITDA margin of 42% and 51% respectively, with net margin as much as 16% in FY23. Given its post-listing leverage, Samhi may not report a green bottomline even in the next 12 months. Hence, it is imprudent to value company merely on EV/EBITDA basis, which is 15x, as against 24x for peers.
Current times are probably one of the best periods for the hospitality industry in the post-pandemic era, and it will not be incorrect to term FY23 performance as one of the most optimistic. However, hotel stocks are highly cyclical and have not rewarded shareholders, over the long term. Thus, one must not be lured by the sector’s recent financial rebound.
IPO vis-à-vis Last Transacted Price
Purchase consideration of Rs. 239 per share paid to ACIC on 10th Aug 2023 is formula driven and Rs. 415 cr is recognized in the books as goodwill on acquisition, which is essentially excess amount paid over assets acquired. Hence, one must refrain from assuming IPO price to be at ‘a steep discount’ to last transacted price.
