Detailed narrative
Strong Q3 FY25 Financial Performance
Samhi Hotels delivered a robust Q3 FY25, with asset income growing 10% year-on-year to INR 296 crores. Asset EBITDA increased by 13% YoY to INR 122 crores, achieving a margin of 41.2%, a 90 bps improvement. Consolidated EBITDA saw a 25% YoY growth, reaching INR 113 crores, with overall consolidated margins at 37.9%. The reported PAT for the quarter was INR 43 crores, which adjusts to circa INR 30 crores after accounting for a non-cash finance cost of Rs. 6.5 crores related to loan refinancing.
Robust RevPAR Growth and Market Dynamics
The company's same-store assets demonstrated strong performance with a 15% year-on-year RevPAR growth. This was fueled by continued demand from expanding office markets and record passenger movement, with occupancy levels in the mid-70s and weekdays reaching 80-90% in key cities. Hyderabad led with 24% RevPAR growth, followed by Bangalore at 20%, and Pune at 17% for Q3 FY25, indicating strong market tailwinds.
ACIC Portfolio Transition and Margin Expansion
The ACIC portfolio, fully consolidated since August 2023, experienced flat revenue in Q3 FY25 due to a strategic transition from 'Marriott Franchise' to 'Marriott Managed' and cost structure optimization. Despite this, ACIC EBITDA grew 10% with a 300 basis points margin expansion, reaching 39.4%. Management expects ACIC revenue growth of 9-11% in FY26 and margins to cross 40% on an annualized basis as the portfolio is repriced and low-rated business is phased out.
Strategic Portfolio Transformation and Inventory Expansion
Samhi Hotels is undergoing a significant portfolio transformation, aiming to double its upper upscale and upscale inventory from 1,000 to over 2,000 rooms. Key additions include 54 rooms at Sheraton Hyderabad and 22 rooms at Hyatt Regency Pune, both expected to be completed in FY26. Other projects involve adding 80 rooms to Fairfield by Marriott Chennai and developing a new 170-room W Hotel in HITEC City, Hyderabad, slated for opening in FY27.
Deleveraging Path and Capex Plan
Net debt stood at INR 2,060 crores as of December 31, 2024, with a weighted average cost of debt at 9.4%. Management is confident in achieving a net debt to EBITDA ratio of 4.5x by FY25 end and 3.5x by FY26 end, projecting absolute net debt to be Rs. 1,700-1,800 crores over the next 2-3 years. This will be supported by internal accruals, free cash flow, and asset recycling, which is expected to generate approximately Rs. 200 crores from 200-250 rooms in the mid-scale segment. Capex for Q4 FY25 is Rs. 20 crores, with FY26 Capex at Rs. 200 crores, and Rs. 150 crores annually for FY27 and FY28, allocated to new room additions and strategic projects like the Westin Bangalore (delivery FY29).
ROCE Profile and Sector Diversification
The company's average Return on Capital Employed (ROCE) is around 14-15%, with the upscale segment at 16% and upper upscale at 15.5-16%. The upper mid-scale (ACIC) is targeted to reach 14-15% post-optimization. Key markets like Bangalore are already achieving an ROCE of almost 20%. Management also noted a reduced contribution from the IT/ITeS sector to revenues, with increasing diversification from healthcare, biotech, defense, infrastructure, BFSI consulting, manufacturing, and smaller companies, enhancing revenue stability.
Impact of Rebranding and Renovations
The rebranding of Caspia Pro in Greater Noida to Holiday Inn Express in December 2024 has shown promising results, with the Average Room Rate (ARR) increasing 2x from Rs. 2,300 to Rs. 5,600 month-to-date, though management cautioned about Q4 seasonality. A renovation of Caspia Delhi, which previously contributed only Rs. 1 crore EBITDA annually, is expected to be completed in about a year, with post-renovation EBITDA per key projected at 9-10 lakhs, significantly improving its contribution.