Samhi's Gic agreement can accelerate growth. Can a valuation -her presentation follow?

Copyright © HT Digital Streams Limit all rights reserved. Markets Madhvendra 6 min read 28 Apr 2025, 09:25 AM IST Samhi will benefit from this Gic agreement. (Beeld: Company website) Summary The partnership with GIC intends to accelerate the growth of Samhi by reducing debt, increasing profitability and supporting the expansion. Can this strategic move cause a much needed appreciation of the necessary revival? Gic, a leading global institutional investor, and Samhi hotels have entered into a strategic partnership to develop an investment platform focused on luxury and luxury hotels in India. As part of the agreement, GIC will acquire a 35% stake for £ 752 crores in Samhi’s three subsidiaries, which owns assets such as Courtyard and Fairfield by Marriott and Trinity Hotel in Bengaluru and Hyatt Regency Pune. This partnership is a game changer for Samhi, the cheapest hotel business because it provides an opportunity to reduce debt, lower interest costs and improve overall profitability. Optimism fueled a period of more than 10% in the Samhi share price on April 24. So, how is Samhi expected to take advantage of this agreement? Let’s break it down. Samhi’s unique learning-led growth model Samhi is not just another hotel business; The acquired strategy has distinguished itself in a competitive market. The company focuses on the acquisition of Brownfield projects and operational hotels, which are priced below average room rates and have lower replacement costs. This approach shortens the time needed to develop comparable hotels from the ground, while reducing the development risk and shortening the repayment period. After acquisition, Samhi will renovate and reuse it, leading to higher average room rates and improved financial performance. Of the total of 4,939 rooms of Samhi, about 4.136 was added by acquisitions. The remaining stock comes from the expansion of Greenfield. This strategy enabled Samhi to scale quickly and increase the room stock over the past decade 19 times, from 252 rooms in 2014 to 4,939 in Q3FY25. The fastest growing hotel brand, but with rising debt, this sharp scale has helped Samhi to become India’s fastest growing and third largest hotel business by the number of rooms. The company boasts a robust portfolio of 32 excellent hotels, management in partnership with strong brands such as Hyatt, Marriott, Holiday Inn and Renaissance, which are spread across major Indian cities. However, this aggressive expansion was mainly funded by debt. Samhi’s net debt stood at £ 2,834 crore from March 2023. With an annual interest cost of £ 375 crore, Samhi’s finances were under pressure, with a large part of its income to supply debt. IPO helped to reduce the debt, and the expansion pushed it up again to address it, and Samhi launched its initial public offer (IPO) in September 2023, which collected £ 1,370 crore, which was mainly aimed at sharing. Subsequently, Samhi reduced the debt and dropped the net debt to 1.824 by March 2024. The cost of funds also reduced from 12.5% ​​to 9.8% during the period, while the annual interest costs were almost halved from £ 375 to £ 199 at the end of FY24. However, after the list, the debt levels began to rise again. As the company continued to invest in expansion, the net debt rose against Q3FY25 to 2.064 crore. Interest costs also rose and reached £ 202 in the same quarter. Also read: India’s steel safety service offers a short-term solution-but will it be enough? GIC Agreement to facilitate debt burden and fuel growth. This rising debt has underlined the need for further amount to finance future growth sustainably. Thus, the agreement with Gic Samhi will provide much -needed capital to reduce its debt and support its next phase of expansion. The platform holds the first right to undertake any procurement or expansion project. The three subsidiaries, with a total room stock of about 1,000 rooms, in which Gic will invest, have a business value of £ 2,200 crores. Through a £ 752 crore investment, GIC will acquire a 35% stake. Of this, £ 603 will be used by Samhi in advance to repay the debt over his portfolio. After the repayment, the company expects its total debt to fall by around £ 580 (from £ 2,064 crore in Q3FY25), with the net debt-to-ebitda ratio expected to fall below 3.5x. Furthermore, Samhi intends to reduce it to below 3x over the next 12 months as he continues to grow. The resulting interest saving is expected to increase the bottom line by 15-20%. However, this boost will be partly counteracted by a 35% share of the profits (minority interest) in favor of Gic. Kotak expects Samhi to retain 4% of the EBITDA of the JV platform as part of asset management costs. As a result, Samhi is expected to save £ 55 crore in interest costs of £ 603 debt reduction, with a pat contribution estimated at £ 72 crore. This implies £ 25 crore (35% share) of minority interest, which produces a net positive impact of 17% on the projected consolidated net profit of £ 170 for FY26. Strong earnings growth and the improvement of profitability Samhi turned its finances after reducing the lever NA IPO. Although asset income has improved throughout, the interest costs and the option option plan for employees (ESOP) have won its profitability. Samhi’s asset shortage in 9mfy25 rose 19% from the previous year to £ 814 crores, powered by an 8% increase in the average room tariff to £ 6.047. The company’s consolidated Ebitda rose 56%, with the margin improving 8.1 percentage points to 36.2%. As financing costs fell by 40% to £ 174, it became profitable with £ 40 crore, from the loss of £ 246 in 9mfy24. As a result, the company is expected to deliver profitability for the first time in FY25. With further debt reduction powered by interest saving, profitability is likely to improve. Also read: How does the ECom Express position buy delhivery for the future? What is the following, in addition to reducing debt, the company has several growth rovers in place. The £ 149 crore balance will be used to partially finance the capital expenditure for the 220 key Western/tribute portfolio. Furthermore, in November 2024, Samhi signed a long -term variable lease agreement for an office building. It plans to turn it into a 170-room hotel under Marriott’s W brand, with its debut in Hyderabad. This is in line with Samhi’s asset light strategy, which utilizes the rental models to improve cost-effectiveness. Management expects constant expansion to keep Capeex levels high, with £ 150-200 crore in Capeex planned over the next three years, mainly by internal growth. With a £ 752 crore of Gic equity, Samhi is likely to address the concerns of investors about its leverage. In addition, with a credible sponsor such as Gic, Samhi will be better positioned to support its growth ambitions, especially as luxury assets are capital intensive. The agreement will also help double its luxury hotel supply, a strategy that is expected to significantly increase revenue and profitability. Valuation that is ahead? From a valuation perspective, Samhi remains the cheapest in the sector, mainly due to the high debt. It trades at an EV/ebitda multiple of 15x, about 30% discount on the median multiple of 21x. The valuation gap is striking, with chalet hotels trading at 28x and Indian hotels at 41x. As the debt decreases, this gap is likely to be narrow. Read profits for more such analyzes. Madhvendra has more than seven years of experience in stock markets and has cleared the NISM-Series-XV: Research Analyst Certification Examination. He specializes in writing detailed research articles on listed Indian businesses, sectoral trends and macro -economic developments. Follow him on LinkedIn. Disclosure: The author has no shares of the businesses discussed. The opinions expressed are only for information purposes and should not be considered investment advice. Readers are encouraged to do their own research and consult a financial professional before making investment decisions. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Markets Premium #Profit Pulse Mint Specials