SAMHI Hotels Limited (SAMHI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the SAMHI Hotels Limited Q3 and 9 Months FY '25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Jakhanwala, MD and CEO of SAMHI Hotels Limited. Thank you, and over to you, sir.

Thank you so much. Good afternoon, ladies and gentlemen. Welcome to SAMHI Hotels earnings call for the quarter ending December 31, 2024. I have with me today, Rajat Mehra, who is the CFO; Gyana who is EVP and Head of Investments; Nakul Manaktala who is VP of Investments. We also have on call our Investor Relations Advisors, Strategic Growth Advisors. We have uploaded our Q3 FY '25 financials and presentation on the exchanges, and I hope everybody had an opportunity to go through the same. To begin with, I will request my colleague, Rajat to give us the summary of our financial performance, after which I will give you a small brief on business, and then we will open the floor for Q&A. Rajat, over to you.

Thank you, Ashish, and good afternoon, everyone. It gives me immense pleasure to announce SAMHI's financial performance for the quarter ending December 31, 2024. Starting off, I would like to point out that this is the first quarter when both the current quarter and year-on-year comparable quarter have full consolidation of ACIC portfolio, given the August 2023 acquisition date. Our asset income, which captures the revenue generated from our hotels stood at INR 296 crores, registering a year-on-year growth of 10% as compared to same quarter last year. This growth is driven by same-store assets delivering a strong RevPAR growth of 15% year-on-year. The ACIC portfolio had muted revenue growth as we have currently focused on completing the transition from Marriott franchise to [ Marriott Manage ] coupled with fixing the cost structure. We have -- with those initiatives completed, our focus for ACIC portfolio now shall solely be towards increased market penetration and revenue growth during financial year 2026. Our asset EBITDA, which captures hotel level profitability stood at INR 122 crores for the current quarter, registering a year-on-year growth of 13% as compared to same quarter last year. Asset EBITDA margin stood at 41.2%, demonstrating a 90 bps year-on-year improvement. ACIC portfolio margins stand now at 39.4% for the quarter, which should move towards 40% or so going forward in Q4 financial year '25. We have seen material reduction in net corporate G&A and ESOP expense, both at INR 4.4 crores each. On the basis of this, I'm happy to report that our reported consolidated EBITDA stood at INR 113 crores for the current quarter, registering a 25% year-on-year growth as compared to same quarter last year. Consolidated margins too have reached to 37.9% with headroom for further margin expansion going forward. Depreciation expense has been stable at INR 29 crores. We have one of our pre-IPO high-cost loans during the quarter, which has been refinanced and could result in an annual saving of INR 16 crores. However, this comes with a noncash accounting entry related to the write-off of the upfront fees paid prior to the takeover of the loan. This has been stated our reported finance cost by INR 6.5 crores to INR 62 crores. All in, our reported PAT stood at INR [ 23 ] crores, adjusted to noncash finance cost entry, our PAT would have been circa INR 30 crores. From a capital structure perspective, our net debt as on December 31, 2024, stood at about INR 2,060 crores with a cost of debt of 9.4%. The quarter-on-quarter increase in net debt on account of growth -- on account of growth CapEx that we have incurred for the acquisition of the Trinity Hotels in Bengaluru, Holiday Inn Express additional rooms and W Hotel developments. Our operating assets are now at trailing 12 months net debt-to-EBITDA of 4.3x after adjusting to the growth CapEx that has been incurred. With that, I shall now request Ashish to take us through the market and the business update.

Thank you, Rajat. As Rajat mentioned, we've witnessed a fairly strong 15% RevPAR growth for same-store assets. This was a result of continued demand from an expanding office market across our key cities, and a record passenger movement of 77 million passengers during the last quarter. New hotel supply continues to remain very low in key cities and creates a perfect environment for RevPAR growth. Bangalore and Hyderabad, two of our key markets and also the markets where we are adding new inventory, continue to see robust office sales growth and a strong increase in airline passengers. The amount of investment and interest that the tech sector is getting alongside global capability center will continue to boost demand in these cities. Our Bangalore benefits from a very large space. And while Hyderabad we feel has phenomenal infrastructure in place. As we see continued revenue growth, we remain focused on leveraging it to improve our EBITDA margins, as Rajat mentioned, at the asset level, the delivered EBITDA margins are 41.2%. Within that, the same-store assets achieved EBITDA margin of 42.2%, ACIC almost reaching about 40%. As discussed in past calls, we are working on a few fronts to deliver strong growth in addition to what we expect from our same-store assets. I think the first part of that is pre-transformational in which we are changing the whole portfolio construct, where the upper upscale and upscale hotel portfolio, through various steps will double in inventory from about 1,000 current rooms to over 2,000 rooms. It is important to note that this segment of hotels operate at a much higher revenue per room as compared to our current portfolio average. This increase in inventory is happening via the following; work has started to add 54 rooms in Sheraton, Hyderabad and 22 rooms in Hyatt Regency, Pune. These shall be completed in FY '26. And since these are part of existing operating hotels, the stabilization timeline shall be very rapid. Next, we are repositioned two of the upper-midscale ACIC assets in Pune and Jaipur, adding to about 330 rooms into a Courtyard By Marriott and the second hotel Tribute Portfolio By Marriott. The 217 room Courtyard in Pune will therefore be the second Courtyard in our portfolio following the hugely successful Courtyard By Marriott in Bangalore outer Ring Road. The W Hotel in HITEC City, Hyderabad and the Westin Tribute Combo Hotel in Bangalore, Whitefield will together add about 530 rooms in key and high-performing micro markets. We have witnessed both of these micro markets, which is HITEC City and Whitefield performed very strong over the past few quarters. In our upper-midscale portfolio, we are adding about 80 rooms to our existing Fairfield By Marriott in Chennai in Sriperembudur. The existing 153-room hotel has seen strong performance within our portfolio. And after this expansion, that hotel would be 230 rooms. Lastly, in our mid-scale or the Holiday Inn Express portfolio, we have seen successful renovation and re-branding of the erstwhile Caspia Pro into Holiday Inn Express with 133 rooms. This hotel reopened in December 2024 and is gradually capturing market share within the Greater Noida precinct. The other 170-odd rooms in Calcutta and Whitefield Bangalore are fully ready and waiting for final approvals, which are expected shortly. We also continue to make good progress for asset recycling as discussed on our earlier calls, and this will help us re-allocate a capital for both better margins and improved proceeds. I would request participants to access at quarterly FY '25 investor presentation that has been uploaded to view some of the images of the growth projects we are working on. This will give you a good idea on how we are transforming our portfolio and its impact on the financial outlook. With this, I shall open the floor for Q&A.

[Operator Instructions] The first question is from the line of Karan Khanna from Ambit Capital.

So Ashish my first question is on the broader market. We've seen about 3 or 4 years of very strong performance on the luxury hotel rooms. Increasingly, do you think that in the next 2 to 3 years will possibly see the mid-scale and the upscale segment doing potentially better than the luxury segment? And in that context, how do you think about potential RevPAR outperformance for your portfolio compared to, let's say, the luxury hotel rooms in the next 2 to 3 years?

So thanks, Karan. You're absolutely right. We have now seen, I guess, about 8 to 9 quarters of strong performance. The early indicators for the current quarter continued to indicate pretty strong growth on a year-on-year basis. We think the occupancy levels are now mid-70s in several markets touching high 70s. If you were to break that within day of the week occupancy we're seeing week days doing anywhere between 80% to 90% occupancy levels in some of our key markets and hotels. And therefore, that really leaves the room for rate growth. I think in terms of segment performance, Karan, we feel that for the next several quarters, all segments will continue to perform well. Having said that, we believe that the inventory position that we have created in Bangalore and Hyderabad and the future supply that we are bringing through the W in Hyderabad, the Westin Tribute in Bangalore. I think that will have a substantial impact on how SAMHI's performance turns around over the next few quarters and years, because these are undisputedly some of the best-performing markets, not just in terms of hotel performance. Also in terms of office absorption and airline growth. So I think our excitement is stemming from the fact that we've secured the right growth pipeline in cities which are fairly well poised for continued RevPAR growth. And you will see the impact of that starting this year when we add rooms to, let's say, Sheraton, Hyderabad next year when we start -- and by next year, I'm taking FY '27 when we start seeing the opening of an W in HITEC City Hyderabad and then, of course, beyond that, the Westin in Bangalore.

Sure. This is helpful, Ashish. My second question pertains to your net debt. So we've seen about almost INR 2 billion increase this quarter, and your net leverage is at about INR 21 billion, which is your peak net debt guidance as well. Do you still maintain the 4.5x net debt to EBITDA for FY '25 and 3.5x for FY '26? And as a follow-up, do you also see any potential asset recycling opportunities materializing soon? In which case, the leverage or the net debt to EBITDA potentially could be at a lower level?

So Karan, first, just to clear, you're absolutely right. We have the peak leverage levels right now because we've already accounted for the CapEx we spent on Bangalore acquisition and Hyderabad. Now starting quarter 4, all of the CapEx that we're incurring -- in development of these assets is coming from our internal accruals and free cash. With that, we remain fairly confident of achieving the 4.5x net debt to EBIT on a reported basis end of the current fiscal year, and then subsequently because our EBITDA growth is pretty substantial we expect that to quickly reaccelerate for the 3.5x net debt-to-EBITDA levels. So we are absolutely on track. And to add to that, I did make a comment, Karan, that we are making good progress on asset recycling. We believe that as we start that program, that will obviously further assess our ability to further decelerate -- further accelerate the deleveraging which means that the past to that 3.5x could be slightly quicker based on the success of that asset recycling. And we are making good progress so far.

Sure. My third and last question, you've rebranded Caspia Pro in Greater Noida to Holiday Inn Express. So if you can talk a bit about how has been the change in terms of the ARR RevPar since last week of December when you rebranded this into an Holiday Inn Express.

So Karan, the Holiday Inn Express, Greater Noida opened in December 2024. So it's just been just about a month, just give me a second. I'm just looking at the performance data. So this hotel used to operate at a rate of about INR 2300. Early numbers, and that's because it is the first few days. The hotel is currently trading month-to-date at about INR 5,600. So we have seen a 2x growth, but word of caution. Quarter 4 is undoubtedly the best quarter, at least our company tends to see because of how business travel -- stacks up in this current quarter. So I am not guiding people to think that Holiday Inn Express Greater Noida will sell at INR 5,600. But it's just that it has transformed into a 2x chain with renovation and rebranding.

[Operator Instructions] We have the next question from the line of Pradyumna Choudhary from JM Financial Family Office.

I just wanted to understand a bit more on the ACIC side, what has been the revenue growth? You spoke about muted RevPAR growth over there. So -- that means it's been absolutely flat? And second would be, what really was happening in terms of -- you spoke about transition and all, but -- on the ground what really was happening, which actually prevented us from growing on the ACIC portfolio given the strong tailwinds across the hotels that we are currently seeing?

Thank you for your question. So let me first assure you what we are seeing is a part of the plan and not either a surprise or disappointment. So just to give you numbers, during the quarter that we just reported, the total income in ACIC remains flat vis-a-vis the same quarter last year. But the EBITDA margins expanded by about -- actually, the growth in EBITDA was about 10%, with a margin expansion of 300 basis points. So what had happened was that till about October, November -- this assets was franchise and in November, the transition from Marriott Managed. All the efforts towards restructuring the organization, change in food and beverage has now been implemented, and that's why even on a flat revenue, we have delivered almost a 10% EBITDA growth. The second thing which happened Pradyumna which is really standard when you transform a hotel from franchise to Manage is you tend to drop a lot of business, which is low-rated and not high margin. So the first thing one needs to do is to free up the bandwidth to secure the high-rated high-margin business, but the first step has to be to lose and let go of the low-rated low-margin business. So that has happened in the last quarter. You will see the revenue growth coming into this portfolio starting the current quarter, because now all of that cleanup has happened, a lot of low-rated accounts have been now flushed out of the system. It is a part of the plan, which is delivering us margin expansion, EBITDA growth and starting quarter 4, as we start seeing revenue growth coming into this portfolio, you will then see a significant flow-through impact on to the bottom line.

Understood. And just to follow-up here. A muted revenue growth was account of lower occupancies or lower muted ARR growth or was it a combination of both?

Actually, if you ask me pretty much the same, both are flat and so is the F&B income also, right? So it's actually when I'm looking at the data here, we are seeing occupancy remains flat. The rate also kind of remained flat and F&B income was exactly the same INR 13.2 crores, INR 13.2 crores for the quarter. So overall metrics were kept flat, but the EBITDA went from INR 19 crores to INR 21 crores.

All right. And my last question is regarding the CapEx plan for FY '26 and FY '27. If you could just give the broad numbers, that would be ready helpful.

Yes. So FY '25, we have now [ retreat ] -- we have made a lot of investments. In the current quarter, we only expect about INR 20-odd crores of capital expenditure, which is quarter 4. For the next fiscal year, we have approximately INR 200 crores of capital expenditure, of which about INR 50 crores will go towards the new rooms opening in Sheraton and Hyatt Regency. And the good news is that, that capital expenditure brings immediate profits because these are existing operating hotels. And then the balance, about INR 125-odd crores, INR 140 crores is between W Hyderabad and W and Westin Bangalore Whitefield.

And FY '27 plans you have or that too...

About INR 150 crores a year for FY '27, FY '28 for us to be able to deliver the Westin in Bangalore in FY '29, as we have indicated. So for both FY '27 and FY '28, you expect about INR 150 crores annualized capital expenditure.

We have the next question from the line of Jinesh Joshi from PL Capital.

Sir, just one observation from my side. Our in-store RevPAR growth is about 15%. But our revenue growth is 11%, which perhaps indicates that the F&B revenue growth in this quarter was a bit subpar. Now given in this quarter, the MICE revenue typically tends to be higher given the concentration of [ wedding ] date. Any reason why the F&B revenue growth was lagging this time around? And also in this context, how should we think about F&B growth going ahead?

Yes. So I think a very good question. So I'll just further break. So first of all, absolutely yes. RevPAR growth of 15%, resulting in a TR -- total revenue growth of 11% means lower than 15% -- actually lower than 11% F&B growth. So we have seen F&B grow at about 5% on a year-on-year basis. Now within that, what is interesting is that we've seen the venue revenue, which is what you're referring to, the meeting spaces , the boardrooms and all of that has actually grown at 13% year-on-year. So you've seen reasonable growth in the MICE or the Events-related business. It is the specialty restaurants, the outlet income, which has remained almost flat, right? So we have seen some sort of flattening of revenues in the outlet revenues. I cannot really necessarily -- I think it's too early to blame external factors. Given us quarter or so we are reviewing internally both our pricing, product, probably some marketing approach that we need to make in 3 or 4 specialty restaurants that we have. Our total F&B contribution is just about 25%, 26%. -- is not very substantial, but we see opportunities to improve the outlet revenues because we don't really see a problem per se, as you mentioned, in the overall MICE or the Events revenue.

Got that. And sir, in the opening comments you also mentioned that the ACIC portfolio is expected to shift from the franchisee route to the management contract in November. So with the shift happening, what kind of RevPAR growth are you expecting given the fact that in the 9 months, your number on the ACIC side was relatively flattish?

So I think the main focus now is -- so first of all, the whole transition has been completed, all the organizational changes that needed to be made, I would believe 90% of those changes have been fully completed so far. The focus there for now is completely repricing the asset. Our expectation is that from current quarter, you'll start seeing the RevPAR growth coming in. Actually, the rate growth coming into the ACIC portfolio. Occupancies are at 72%, 73%, so they are pretty stable and good. You will see a churn of the rate mix and I think in FY '26, you should expect a 9% to 11% total revenue growth in ACIC.

Sure. And the last question from my side and the margin [indiscernible] exercise in ACIC, is it fully complete? Or do you think that further elements in terms of cost [indiscernible] are yet to be pending, which can lead to further improvement in margins? Because I believe this 9% to 11% RevPAR growth, the flow-through to EBITDA will be there from this element. But anything from the cost side, which can lead to an improvement in the margin is what I want to understand.

So I think on cost, we have -- so whatever you're seeing with flat revenue. We have got the margins up from almost 32% to 40% now. Going forward, the margin expansion will really be a result of flow-throughs from incremental revenue. So first of all, we do definitely see the margins in ACIC portfolio across 40%. Remain there for an annualized basis. You'll always see quarter 1, quarter 2 being slightly lower. But I think on a full year basis, you will see ACIC definitely cross 40% plus. But that movement from, let's say, 39% for the quarter or for the last year, let's say 36%, 37% to 40% is now going to be largely a factor of flow-through of incremental revenues.

The next question comes from the line of Abhishek Khanna from Kotak.

Yes, I just wanted to check. I understand the Caspia, Delhi is going for renovation starting January, as you mentioned in the presentation. Could you share what was the contribution to earnings in terms of, let's say, the revenue or EBITDA for this hotel annually, if any?

INR 1 crore. That's it.

Negligible. Got it. And when do you expect to complete this renovation broadly 1 year or so and start...

Yes, that's about 1 year. Our Fairfield Portfolio today, Abhishek, delivers us an EBITDA and [indiscernible] of our Fairfield Portfolio. So our Fairfield portfolio -- so our Fairfield portfolio does an EBITDA per key of about INR 10 lakhs to INR 12 lakhs. We do expect this hotel to kind of be positioned on the lower end of that. So I would say, closer to the INR 9 lakh, INR 10 lakh per EBITDA per key. Effectively, Abhishek this hotel was being kept operational, because of the licensing issues, and that's why the EBITDA was just about INR 1 crore. As we renovate this hotel and it's a pretty quick light renovation for Fairfield. We do expect the contribution from these 140 rooms to be materially different to what we've seen in the past -- it's in FY '27.

Got it. And second, on Slide 10 of your presentation, where you've given the waterfall from the asset income and the asset EBITDA 3Q '24 to 3Q '25. It says the acquisition contribution is INR 56 million. Does that include ACIC and Trinity both, isn't that too less and the EBITDA contribution is INR 4 crores or -- you mentioned in the notes that it is ACIC plus Trinity. Is it both of them or just Trinity?

Both. Because ACIC, we will take two same-store starting 1, April. Yes. So once we complete the fiscal year project, the sanctity of the numbers. From 1st April or first quarter FY '26, ACIC will be kind of included in the same store. In such point, ACIC and Trinity both are adding up to that acquisition impact.

Does that mean 960 keys plus 140 keys of Trinity, you're generating INR 6 crores of quarterly revenue and INR 4 crores of quarterly revenue?

Additional. So -- you're right. ACIC remained flat, okay. And therefore, a large amount of incremental revenue that you're seeing is actually from Trinity.

So you're saying the first bar, which is 2692 for asset income includes part of the ACIC income investment?

Because that was reported with. Absolutely.

Got it. And then the last question from my end. While you've given the CapEx plans for the next three years, INR 200 crore and INR 150 crores each for the year after that. That broadly adds up to what you've given as the planned CapEx for the Hyderabad and the Bangalore hotels. From what I remember adding INR 150 crores to INR 200 crores for Hyderabad and probably INR 300-odd crores for Bangalore existing plus new. Is that all the CapEx that you plan to do? Or there's some additional CapEx that you do -- that you will do for the renovation, et cetera, and the addition of existing keys that you're doing on the portfolio that you already have?

So Abhishek I'll just add to what I've said earlier. So if you see the total CapEx plan for Bangalore, continues till FY '29 okay? And in a -- when you're adding a whole block of rooms, a large part of that CapEx is actually ends being, not really back-ended, but like spend towards the completion of the project in F&B and other items, right? So the current INR 200 crores, INR 220 crores for FY '26, INR 150 crores each for FY '27, FY '28. And then, of course, the Westin Bangalore going into FY '29 gives us the whole pool of capital which is required for next year. Sheraton in Hyderabad room additions, we need about INR 50 crores for that. It is required for some bit of -- the renovation in Caspia in Delhi for instance, is very low. It's about INR 8 lakhs, INR 10 lakhs per key, about INR 14 crore renovation that we are and [indiscernible]. for Caspia, Delhi. And the rest is basically going towards the Westin and the W. Don't forget, we already have assumed in our -- of course, we don't give a guidance. But in our internal business plan, our financial statement already carrying approximately INR 40 crores to INR 50 crores of expense that we take through our P&L, and that pretty much captures all capital expenditures that is needed to be incurred in our existing operating portfolio. So in addition to the CapEx that we are setting aside outside of the P&L, our P&L always carries a significant amount of charge towards capital expenditure, both maintenance and sometimes slightly longer term, and that number will be about INR 40 crores, INR 50 crores.

Got it. So just confirming the next 2 years of INR 150 crores each would also probably include some towards, let's say, expansions at Chennai and the other hotels that you do?

That's right.

With the balance for W/Bangalore being slightly there in FY '29 is how it is.

Only for Westin, Bangalore. The W will be fully spent in FY '26 and FY '27. We're pretty much on track to open that hotel in FY '27 right now. So W has to have -- go through that capital expenditure for this period. The renovation of the existing hotel in Trinity is not a high amount, and that will also be done in FY '27. Early FY '28 and Westin goes in FY '29 [indiscernible].

[Operator Instructions] We have the next question from the line of Shubham Ajmera from SOIC.

I just had a question that in quarter 4, do we see -- basically, do we see our top line growth reverting to 10% to 15% level in quarter 4?

We are seeing pretty good business in books, Shubham. But I'd like to abstain from giving a very definitive guidance. But I can for sure say that looking at the business on books today, and we still have 60-odd more days to go in the current quarter. The total revenue growth does remain higher than what we've seen for the prior quarter.

Okay. Basically, second question was -- when we look at the EBITDA margins of our hotels versus some of the other listed hotels. Do we expect that even our EBITDA margins will start inching towards 41% to 42% level?

Yes, absolutely. No doubt about it.

Actually, we don't like too much of breaking the numbers because it looks like unnecessary justification. But if you look at our upscale portfolio, which is very stable. There is no new addition -- no ACIC. We actually see EBITDA margins of, what, 43%, 44% there. And as we integrate ACIC as some of the mid-scale hotels starts to improve performance, I think the least we expect is the number that you just mentioned.

The next question is from the line of Yashowardhan Agarwal from Arthya Wealth & Investment.

So my first question is on the debt. So we've explained that how net debt to EBITDA will look like referring in terms of absolute debt. So sir, if you can talk about that, how is our debt reduction plan to look. And the absolute debt that you are expecting by FY '26 [indiscernible]. So if you can talk on that?

Yash, I think I only partly got your question, which is the first part that how do we intend to reduce our debt, right? Can you repeat the second part of the question you were saying?

[Operator Instructions].