Presence in Right Locations under Right Brands: SAMHI has strategic focus on key commercial districts, mainly Tier-1/metros, with presence across different price points. This results in a scalable business model with sustained demand. Multi-brand tie-up across the segments also provides optionality to choose a strong location within each micro-market. ~85% of SAMHI’s currently portfolio is spread across 6 cities, viz., Bangalore (21%), Pune (18%), Hyderabad (17%), Delhi NCR (11%), Chennai (9%) and Ahmedabad (9%). Further, 23% of total keys are into Upscale & above segment, while 43% are into Upper-Midscale and 35% keys are into Midscale segment. This provides enough geographical and segmental diversification while focus is maintained on core markets and premium segments. In-line with this strategy, SAMHI’s future pipeline is spread across its key markets – Bangalore (32%), Hyderabad (55%) and Chennai (10%).
Proven Track Record of Asset Turnaround: SAMHI Hotels’ turnaround strategy hinges on buying an asset at a discount to replacement cost. Discount to replacement cost ensures ability to withstand tough times with lower burden on B/S. In addition, company focuses on rebranding and renovation of acquired asset, which results in superior ADRs and occupancies. SAMHI follows principle of dislocation to evaluate commercial properties which are dislocated but can be a perfect fit for an upscale hotel property. For example, Upcoming W, Hitec City, Hyderabad with 170 keys is being developed by converting commercial asset into a hotel. Acquisition of Trinity, Bengaluru is another example of SAMHI’s efficient capital allocation, where company foresees potential of Rs1bn EBITDA per year for 360 keys, at an initial investment of ~Rs2bn and capex of ~Rs4bn, implying more than ~15% ROCE. SAMHI prefers faster time to market (<2yrs) for new assets, via brownfield expansion or conversion of existing real estate to hotel to ensure faster break-even, by taking benefit of upcycle. Robust FCF to Result in Net Debt Reduction; ROCE to Improve: Focus on effective capital allocation via asset recycling and improved operational performance over past 2 years has notably improved B/S health for SAMHI. Recent GIC investment of Rs 7.5bn and sale of Caspia, Delhi should take Net debt/EBITDA below 3x levels in FY26E. Mgmt expects to generate investible surplus of ~Rs17.3bn over FY26-30E, in addition to ~Rs2bn from asset recycling, which can accelerate future growth via new acquisitions and net debt reduction. ROCE is also expected to improve from 7.2% in FY25 to 11.3% by FY28E, supported by continuous improvement in ACIC portfolio, turnaround of non-metro assets and ramp-up of new properties along with increasing contribution of leasehold assets, which command higher ROCE. Material Re-rating Potential; Promising Growth Prospects: SAMHI currently trades at FY26/FY27/FY28E EV/EBITDA of ~12x/10x/8x. Company has traded at a sharp discount to peers over past few years, owing to myriad of factors such as higher debt, pending turnaround of key assets etc. However, company has taken right steps over past 2 years, with net debt reduction, turnaround of many of its key assets, keys addition in right locations and robust future pipeline. Hence, we believe company has promising growth prospects and pencil in Revenue/EBITDA/PAT CAGR of +14%/ +19%/+57% over FY25-28E, supported by robust ADR growth at ~10% CAGR and +160bps occupancy expansion. We value SAMHI hotels at Jun’27 EV/EBITDA multiple of 15x and arrive at TP of Rs305. Initiate coverage with BUY!
