Growth Pick-up expected in H2, Significant Re-rating Potential; Maintain BUY
We believe SAMHI has significant potential for outperformance from the current levels based on following factors: 1) Growth is expected to see strong pick-up in H2 2) Consistent capacity addition provides growth visibility 3) Renovation and Re branding to drive ARR growth 4) Portfolio Mix shifting towards premium segments 5) B/S improving with consistent reduction in Net Debt/EBITDA 6) Attractive Valuations backed by strong growth prospects with revenue/EBITDA/PAT CAGR expected at +13%/17%/54%. We value SAMHI at Sep-27 EV/EBITDA of 15x. Reiterate BUY with TP of INR 300.
Growth should see pick-up from H2 onwards: SAMHI posted +11% revenue growth in H1FY26, which was impacted by multiple factors such as geopolitical tensions, heavy monsoons etc. However, we believe growth can pick up meaningfully in H2 due to factors such as: 1) New inventory absorption (HIEX Kolkata: 113, HIEX Bangalore: 56, Trinity Bangalore: 142 keys) 2) Planned Keys addition (Sheraton Hyd: 42, Hyatt Pune: 22 keys) 3) Seasonally strong MICE demand in core markets of SAMHI, viz. Bangalore and Hyderabad in Q3/Q4. Planned renovation and re-branding of keys assets such as Trinity Bangalore, FPS Pune and FPS Jaipur should result in robust ARR growth in FY27/FY28.
Mix shifting towards premium segment: SAMHI’s portfolio is witnessing a shift towards Up-upscale & upscale segment with contribution expected to reach ~43% from ~22% currently. This will be driven by majority of keys addition into premium segment along with re-branding of mid-scale properties to upscale segment via renovation. This is expected to drive robust ARR growth for SAMHI along with higher F&B revenue, as upscale and above segment for SAMHI as higher non-room revenue contribution (~56% of room revenue) compared to other segments. We expect ARR to register ~10% CAGR and F&B revenues to deliver 8% CAGR over FY25-28E.
Consistent keys addition at right cost: SAMHI has pipeline of ~1500 keys to be added across Navi Mumbai (700 keys), Hyderabad (472 keys), Bangalore (220 keys) and Chennai (86 keys). This indicates 30% increase in operational inventory over next 4-5 years, which provides clear growth visibility. Further, despite planned additions, capex to be incurred is limited in the range of INR 2-2.2bn over FY25-28E, as cost per key for SAMHI is significantly lower than industry average across most projects. This is expected to result in strong FCF generation of ~INR 10.4bn over FY25-28E. Thus, SAMHI expects to generate investible surplus of ~INR 8bn by FY30, which can be utilized towards incremental growth opportunities.
Healthy B/S with consistent net debt reduction: SAMHI has seen consistent net debt reduction over past year, supported by GIC investment, asset recycling initiatives and robust FCF. Further, interest rate has also declined 10%+ to 8.5% now. This has led to reduction in Net Debt/EBITDA below 3x now and is expected to decline to 1.2x by FY28E. Gross debt is also expected to see gradual reduction from INR 21.3bn gross debt in FY25 to ~INR 15.3bn by FY28E. ROCE is also expected to improve from 7.3% in FY25 to 10% by FY28 while ROE is expected to reach 12.6% by FY28E from 9.2% in FY25. This will be driven by turnaround of ACIC portfolio, addition of leasehold assets and recycling capital for underperforming assets.
Material Re-rating Potential; Promising Growth Prospects: SAMHI currently trades at attributable FY26/FY27/FY28E EV/EBITDA multiple of 12x/10.1x/8.2x, at a significant discount to peers, despite strong growth prospects. We believe growth pick up in H2 along with consistent profitability and net debt reduction can aid material re rating for the stock. We pencil in Revenue/EBITDA/PAT CAGR of +13%/+17%/+54% over FY25-28E. We value SAMHI at ~15x Sep-27 EV/EBITDA and arrive at TP of INR 300, implying significant upside of ~76%. Recommend BUY.
