SAMHI Hotels: A Deep Dive

Why is everyone Bullish and Why am I not?

SAMHI Hotels Ltd is a consensus buy.

Brokerages, mainstream media, WhatsApp groups, or Telegram gossip.

Everyone seems to be bullish on the stock.

Philip Capital on 20th April ( 4 days ago) wrote a comprehensive report with a super bullish outlook on SAMHI Hotels. You can find a quick summary of the Philip Capital report here.

I, however, have my doubts about the bullish view surrounding SAMHI Hotels.

Before I get to them, I just want you to carefully read what Mr. Seth Klarman, a famous value investor who manages billions of dollars at the Baupost Group, wrote in his 1996 Fund Letters, almost 3 decades ago.

“We regard investing as an arrogant act; an investor who buys is effectively saying that he or she knows more than the seller and the same or more than other prospective buyers. We counter this necessary arrogance (for indeed, a good investor must pull confidently on the trigger) with an offsetting dose of humility, always as king, whether we have an apparent advantage over other market participants in any potential investment. If the answer is negative, we do not invest.”

While I am not even 0.001% of Mr. Klarman, I will try to analyze SAMHI Hotels through Klarman’s lens of arrogance and humility. And, unlike Seth Klarman, I am not deciding to buy. Rather, I am deciding to avoid.

That’s why the title:

SAMHI Hotels! Why is everyone Bullish, and why am I not?

Bear with my arrogance first.

I will try with the humility bit in the end. 🙂

Before that, for the uninitiated, I will introduce SAMHI Hotels.

SAMHI claims that it is India’s leading multi-brand hotel operator, managing 4,823 rooms across 31 properties in 13 major cities. Backed by strong institutional support, the company has honed a strategy centered on acquiring and turning around underperforming hotels in major office hubs like Bangalore and Hyderabad, where demand significantly outpaces supply. They believe that this focused growth strategy is expected to unlock greater efficiency from their existing assets and boost return on capital employed (ROCE). They have 65% of their inventory and 80% of the pipeline in these places.

The company’s presentation, annual reports, and quarterly conference call transcripts use a lot of jargon like RevPAR, ARR, upper upscale and upscale, upper Mid-scale, mid-scale, and turnaround. Let me try and explain to you in a very simple way about SAMHI hotels.

What does SAMHI do?

SAMHI is like a hotel makeover and management expert.

They don’t usually build new hotels from scratch. Instead, they:

• Buy hotels that aren’t doing very well (kind of like flipping houses).

• Fix them up, better management, better staff, sometimes a new brand name.

• Make them work better and earn more money.

• Keep running them or sell them when their value goes up.

So, how do they make money?

They make money in two main ways:

1. Hotel profits: Once they fix and run the hotel, it starts making more money through:

   1. Room bookings

   2. Food and drinks

   3. Events and conferences

2. Value increase: If the hotel becomes more successful and popular, its value goes up. SAMHI can sell it for more than they paid, like flipping a house.

What makes them unique?

• They mostly buy hotels in big cities where many people travel for work, like Bangalore or Hyderabad.

• These places often have more people needing rooms than rooms available. That means SAMHI’s hotels can stay mostly full.

• They also partner with big hotel brands like Marriott or Hyatt to attract more guests.

Think of SAMHI like this:

Imagine you find a run-down pizza shop in a busy neighborhood. You buy it, paint the walls, train the staff, get a deal with Domino’s, and suddenly, boom! Everyone starts coming back.

That’s what SAMHI does… but with hotels.

Who is the face of SAMHI?

Mr. Ashish Jakhanwala is the Chairman, MD, and CEO of SAMHI Hotels since inception in 2010. He comes across as a very charismatic person. In his media interactions and conference call conversations, he gives you a lot of confidence about himself and his company’s prospects. He has not only academic experience but also long professional experience in the field of hospitality, which makes him arguably one of the best CXOs in the industry.

Evolution of SAMHI Hotels over the years

The following Mind-Map gives a good idea about the history and evolution of SAMHI hotels.

Now that I have introduced SAMHI, let’s start with a point-by-point rebuttal of what the company, brokerages, media, and social media claim, which I do not believe in.

Here are the top 5 reasons for people to be bullish, and I will highlight my disagreements with each one of them.

1. SAMHI is predominantly into corporate bookings rather than leisure, which gives them more stability in demand.

I may be old-school, or the world has evolved too fast for me to make any sense of it. Ever since researching and investing in the market, I know something very simple.

Business bookings are more cyclical than leisure bookings for the hotel industry. Period.

It’s so elementary and clear.

Business bookings are tied to economic cycles, budget-driven, and discretionary during tough times.

On the contrary, leisure bookings are driven by emotions, savings, and a large number of individual families or couples. They are more resilient.

So, I don’t buy this idea that because their bookings are predominantly business-related, they have more stability in demand. On the contrary, I believe leisure demand is comparatively less cyclical than business demand in the hotel industry.

2. Turnaround expert

SAMHI has made many acquisitions in the past and scaled up the inventory. If I had to put numbers, SAMHI has grown from 252 keys in FY14 to 4800+ keys in FY25. That’s ~20x. It is predominantly through acquisitions. As I shared above, SAMHI claims that they buy distressed assets and turn them around quickly to make them generate higher returns.

The strategy they claim to follow:

• Purchasing at a discount to the replacement value

• Location to be a high-demand generating one

• Find assets where the capex to revenue cycle will be short. Typically, they prefer it to be less than 2 years, but an ideal scenario would be 4 to 6 quarters.

In the Philip Capital April 2025 Report, the Sheraton acquisition was referred to as one of their best acquisitions.

Source: Philip Capital Report on SAMHI Hotels, April 2025

The focus, in the table above, is to highlight the change (or rate of increase) in the number of keys, occupancy rate, ARR, and RevPAR.

ARR: Average Room Rent, RevPAR: Revenue Per Available Room

Let us do some back-of-the-envelope calculations.

SAMHI bought this at INR 170 Cr. Now, even if we take the current numbers of 272 keys, 77.5% occupancy rate, 12600 ARR, and 365 days, the annual revenue for FY24 from this comes to only INR 97 Cr.

Let me repeat: I am taking 365 days occupancy of 75%, and INR 12600 as ARR. How long is it sustainable? I do not know. I also do not know the amount of capital invested in renovation and rebranding the properties over the years.

And from the concall snippet below, it becomes clear that this particular property still holds a big chunk of debt that was refinanced recently.

Source: Q2FY25 Results Concall

TL;DR

The company and the brokerage report focus predominantly on the 2-3 operating matrix. When you see the whole picture, the turnaround doesn’t impress you much from the financial angle.

3. Improving Product Mix

The PC report and the company claim that the key operating metrics are improving.

Source: Philip Capital Report on SAMHI Hotels, April 2025

And there is a merit to the argument. The product mix is improving. However, I do not buy the argument of improving ROE so soon. Their calculation takes the current ARR and the occupancy rate as a given for the future as well. The whole industry is seeing a great demand scenario like never before. How confident are you that we are at the start or middle of the cycle? The valuation of several stocks in the sector makes me feel that we are probably close to the top, if not the top. Check this out.

Source: https://www.screener.in/

That’s not a Price-to-Earnings chart. It is a Price-to-Sales chart of Indian Hotels.

There is no mistake on the screener or any typo in my writing. Indian Hotels is trading at 15 times Sales.

Can you believe it?

Not a SaaS or platform, or an exchange business. An old economy business is experiencing a tailwind. Temporary or Secular tailwind? I do not know. I do know that the median Price to Sales of Indian Hotels over the last 20 years has been 3.5 times.

4. Industry Tailwind:

Ashish Jakhanwala, Chairman and Managing Director of SAMHI Hotels, emphasizes that the sector's growth is underpinned by a consistent demand-supply gap. He notes that while hotel demand has been increasing at an annual rate of 8% to 12%, supply has only grown by 2% to 6%. This imbalance is attributed to factors such as the expansion of the aviation sector, growth in office spaces, and a rise in domestic tourism. Jakhanwala states, "This time what you are seeing for the hotel sector is not cyclical, it is structural. It is basically demand-supply 101."

I dare say that the demand-supply gap is highly pronounced only in the super luxury/premium segment. In all the middle and smaller tier segments, there is heightened competition and a ready supply available. Plus, post post-COVID era of high demand in travel and hospitality cannot be taken as a long-term benchmark, IMHO.

5. Improving Financials

The Company, in each call, talks about improving financials. Yes, the income statement numbers show some improvement, and especially in the last four quarters, one can see some green shoots of profitability.

Source: https://www.screener.

But the above data hides more than it reveals. Look at the Balance Sheet, and you will get more questions in your head.

Source: https://www.screener.in/

Before the IPO, the net worth of SAMHI was negative. The positive net worth we see in FY23 and FY24 is because of the share premium and not realized profits.

Moreover, out of 1200 Cr of IPO proceeds, 900 Cr was earmarked to reduce debt. More than a year has passed. There has been no deduction in total debt.

It is not that it has used the money somewhere else. A good part of the old debt has been paid off. But the treadmill nature of the business requires a constant inflow of outside capital in the form of debt or equity to carry out the regular needs of CapEx and acquisitions. The Cash Flow Statement reveals this.

Source: https://www.screener.in/

Check out the highlighted segment to note how old debt is getting repaid, but simultaneously, new debt is also being availed. So, net net, the debt levels remain at an elevated level.

Another important bit on the debt, interest cost, and their ability to serve debt through internal accruals.

Source: Q3FY25 presentation

First of all, I do not understand the importance of this ratio, Net Debt to EBITDA, when you make so many adjustments to EBITDA. Check out the footnote below.

Source: Q3FY25 presentation

I will simply use an old-school conservative ratio to check out their liquidity situation. That is the interest coverage ratio.

Source: https://www.screener.in/

The thumb rule says that the interest coverage ratio should be between 3 to 5 to ensure a comfortable liquidity position. Until the business reaches that level, it will depend on the “Kindness of Strangers”. Strangers who would give them equity or debt capital to sustain their business. That’s not a happy situation to be in. I recently wrote about another similar situation here.

SAMHI, in my view, also has that risk. It is on a treadmill of buying new assets where old assets are not yet generating decent returns. In the quest for higher growth, they will have to constantly either dilute equity or raise debt or both. All this is happening when the hotel industry cycle is probably near the top (high probability due to high valuation and a large number of M&A deals happening), FIIs & DIIs have reduced their stakes, and public shareholders have increased their holdings substantially. Check out the highlighted portion of the image below.

And as I was putting the finishing touch to this piece, one stranger (or maybe now a friend) did show some kindness here for SAMHI:

Source: Company presentation, 24th April 2025

More details can be found here.

You may have forgotten about the arrogance and the humility quote of Mr. Seth Klarman I shared at the start of the post. Until now, the arrogant me has been sharing with you his perspective.

Let me try to bring in some humility now by asking myself where I can go wrong. I have come up with these 4 strong points.

1. Capability of the CMD & CEO: Mr. Jakhanwala is a seasoned player in the hotel industry. He is not only strong in acquiring good assets at a decent valuation, but also instrumental in getting the right fundraise (debt or equity) at the right time for the company. His operating, financial, and deal-breaking skills can easily put my arrogant thesis upside down in the upcoming quarters.

2. Institutional Edge of Philip Capital: Philip Capital is a reputed institutional brokerage cum research house. They have close access to management and their current plan and/or future plans. I, being an armchair analyst/investor, have just used publicly available data to form my opinion. I can have my own biases driving my point of view. PC on the other end may have a close eye on the ground, as per how things are panning out for the company.

3. Intelligent investors are positive on the business: I am a big fan of SOIC and Persistence Capital. They are very positive on the business and have been consistently raising their stake in the company. Maybe, they have a differential insight about the business and the capability of the promoter that I am missing at the moment.

Source: https://www.screener.in/

4. Never go against a strong secular tailwind: What if this hotel industry is going through a secular uptrend? Something that has not happened in the past? Again, if that is the case, I will be proven wrong.

So, that’s it, folks. An honest attempt to infuse a healthy combination of arrogance and humility here. You get something right and you get something wrong. That is part of the game of investing. And I call investing a game, not casually or superficially, but in all seriousness. A game is where you play with a lot of interest without knowing the outcome. That’s the game we all play in investing, business, and life in general. Isn’t it?

Thank you for reading!