SAMHI Hotels Limited (SAMHI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Business Update Conference Call of SAMHI Hotels Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs opinions and expectation of the company as on date of this call. These statements are not guarantees 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 and the and CEO of SAMHI Hotels Limited. Thank you, and over to you, sir.

Thank you. Good morning, everyone. Today, we wanted to speak to all of you about a recent transaction that our board approved yesterday. So in summary, SAMHI has agreed to acquire in a business called RARE India. It's a platform which was started in 2003 and supports more than 60 small experience-led hotels with about 990 rooms across states in India, Bhutan and Nepal. Post SAMHI's investment, there is a proposed affiliation with Marriott under which rare will be appointed and recognized as Marriott's exclusive portfolio platform for the outdoor collection by made on oil for these markets. Our total investment is limited at about INR 47 crores or INR 470 million , which will allow us to acquire up to 70% stake in RARE India over the next 12 months. So a combination of primary and secondary. We will obviously talk about RARE India and the broader opportunity, but basically, this follows our time-tested strategy of discovering undervalued, underappreciated assets, in this case, an operating platform and collaborate with global brands to create and discover the inherent value. I think there are a few key rationale because of which we have considered the small strategic investment. Number one, as we've all noticed as how the leisure segment in India and globally has shown phenomenal growth over the past few years and especially hotels, which are relatively smaller and experience led have shown a strong pricing power. This transaction interestingly allows SAMHI to create a scalable brand-led platform in an extremely asset-light and capital-efficient model. It's a unique transaction, which allows SAMHI to develop a brand platform but through an application with the Marriott [ bond voice ] leading distribution network. A legacy of 20 years, rare started way back in 2003 or all. So it's a legacy of 20 years, a well-regarded founder and team who have remained committed to the portfolio. will allow to actually focus -- continue to focus on its core competence of Tier 1 business hotels, while we support creating value in RARE. We believe there are 5 reasons, compelling reasons that make this transaction in a way transformational. First is the inherent growth in the experience-led leisure business. The legacy of the business, we are investing in it, which has been more than 20 years. It has respected founder, a great set of partners and teams. There is an exiting scale of 67 hotels and about 990 rooms with immense growth opportunity our entry price, which is about total put together, about INR 45 crores, INR 47 crores and the asset-light model for growth and in the end, but not the least appreciation of Marriott to support distribution, which we believe is the biggest challenge for any brand platform. This is a quick summary of the transaction. We are very happy to kind of report this because this marks 21st for SAMHI. The first is our entry into the leisure segment in a scalable manner. And the second is the fact that this SAMHI's first asset-light investment, which means after the first investment of about INR 45 crores, even with is over a 12-month period, we expect this platform requiring very little capital as it scales up. So we think that in the long term, it offers tremendous growth opportunities without really requiring us to put any material capital expenditure. This is a quick summary of the transaction. I'll now open the floor for Q&A and address all other through the questions itself.

[Operator Instructions] Our first question comes from the line of Vikas Ahuja from Antique Stockbroking Limited.

A good move in terms of diversification. Ashish, my first question is I was looking at the numbers of RARE India, and they have been growing at 15%, 16% over the 3 years. And we are paying INR 45 crores to INR 47 crores, what you have called for that 70% of the business and the company is currently doing INR 3 crores as a revenue. So just trying to understand, see this major distribution everything, obviously, we are helping. We would be helping them once the acquisition is over. Are we kind of -- I'm just trying to understand why we are paying this kind of a multiple for this transaction? And especially with everything going around plus platforms and software, which is which 1 of these companies, like the invent of onto cloud. So these companies are anyway under so much of pressure. Why we are paying such kind of a multiple for this? That's my first question.

Yes. So Vikas, thank you. So first of all, the total consideration we're paying is about total primary secondary put together will be about INR 45 crores. The total enterprise value of RARE is actually INR 4 crores. So it's not that 45% is being paid for 70%, Vikas, just to clarify, right? The total enterprise value agreed for our investment is about INR 49 crores for the 100% of the current business value. So that's one clarification. The second, in terms of value, we are right, the trailing revenue is up $0.5 million or INR 3 crores. But see, this is not a backward-looking earnings acquisition. It's an opportunity to build a platform. Now the value that is being paid has been paid for the following. Number one, this company is 23 years. has held these relationships with about 65-odd hotels, 900 rooms or a fairly long period of time. Second, if you go on rareindia.com, and by the way, all of this will go through our transformation, you will see the quality of assets at RARE is giving us access to. Now in the end, the value will be created as RARE transforms from being a B2C platform -- from being a B2B platform to being a B2C platform, which is where the real income stream will start coming through. But there is a tremendous value in the fact that it carries an existing scale of about 1,000 rooms. So if you see the total enterprise value is just about INR 4.5 lakhs per room. And if you put the B2C transition and the application, the fact that the hotels will be sold on ad.com, I think the equity multiplier is massive. So absolutely, this acquisition is not based on an earning multiple because they're very, very -- the whole business is going to be transformed from where it is to where it will be. It's about the value of the portfolio, the properties, the scale and the transformation value that we will bring fairly quickly. Now you're right, the will be made by us, Vikas, no doubts about it. But if you look at a reasonable estimate of what this platform can generate it is expected to generate almost 60% to 70% return on capital employed. So while we are doing that effort that us and our shareholders have been more than adequately compensated for that as well.

Okay. Fair enough. Secondly, how does this RARE India investment fit into SAMHI's long-term strategy given the company's historical focus on business hotels and office spaces. Could this investment signal the broader shift towards leisure and experiential hospitality or it remains a small adjusted figure?

I think it's an adjacent opportunity. We remain fairly bullish and committed to our core business, Vikas. So that's why we've taken a bit of an asset-light point of view on leisure rather than deploying a lot of capital. We remain fairly excited, committed and comfortable deploying capital in Tier 1 business hotels that will continue to be, by far, the principal strategy for the foreseeable future. RARE India is a unique opportunity. And for the price and the amount of investment we are making, it can become a significant scalable asset-light model in future. But I don't think it distracts us from what we do on a daily basis. And that's why there is a value to the team as well because the India team has been running this business for the last 2 decades. And also trying bringing this collaboration or repletion of Marriott ensures that there is very little friction to grow this platform with an existing team and the brand, and therefore, we can continue to focus on where we make most money.

Yes, yes, sure. And my final question is, could you please share your current EBITDA? So we can understand the implied valuation on EV EBITDA multiple pay?

No, Vikas. That's difficult because it's a partnership firm right now, which is being converted into a private limited company. So in a partnership from the arriving EV EBITDA is just a very flawed method. I will repeat that we are paying about INR 4.5 lakh per room value for an asset-light platform, INR 45 crore value if today, you were to go to a new startup, a founder who started a company with no business, you would see -- when my investors invested in SAMHI in 2011 in a business center with 0 hotels, the pre-money valuation was $5 million, right? Now when you look at a team, which has been running a company for the last 23 years, when you look at a platform with 1,000 rooms and 65 hotels in 15 states, 3 countries, I think the price is extremely extract. It's a very low entry price for the value that we created. So again, I'll urge everyone to not look at backward looking. It's no different to some of the assets we've acquired, Vikas, in the past, where we paid acquired assets, a 2% yield and 3% yield and 4% yield, but today, we are sitting at 20% yield and 30% yield. So our inherent business model is to buy or invest in underappreciated, undiscovered assets, in this case, operating platform, and our entire valuation is based on what value we will create out of that.

Our next question comes from the line of Jinesh Joshi from PL Capital.

Yes. I just wanted to know that how many persons and that are currently listed on a already have a branding partner? And also, what is the typical list to see that a hotel needs to pay for listing on the platform? I mean, is it linked to the revenue? Or is it kind of fixed in nature?

Great question, Jinesh. So as of today of the 67 hotels, there is no brand application that these hotels have. They, of course, are listed on OTS. A few of the hotels may have applications like Mr. and Mrs. Smith, which are very similar platforms globally, so all of that rationalization will happen. But most of the hotels are independently owned independently operated, being represented by RARE for a long time. There may be some overlaps with Mr. & Mrs. Smith, maybe 1 or 2 with small luxury hotels of the world, but not really beyond that. Okay. There is no global brand distribution, which is conflicted at this point of time. Two, in terms of the transformation. So right now, you're right, there are 2 sorts of contractual opportunities that RARE has. One is subscription fee, which is very minimal, which ranges from INR 2 lakhs to INR 4 lakhs per hotel per year for it to be listed. They are also entitled to 18% to 20% commission on direct sales. But because RARE has not completed the transition from B2B to B2C, their platform, the booking engine, all of that was not ready. They were not really generating any B2C income, even though they're entitled to an 18% to 20% commission. Post the investment by us and actually equally important application is Marriott there are a few things which are going to happen. Number one is, of course, we're going to enable RARE India to start receiving direct bookings, which will be then distributed on marriott.com as part of the outdoor collection by Marriott Bonvoy. So as we've always learned, it's a very powerful distribution platform gives the portfolio a very wide visibility. So we think as we transition RARE from current B2B model to B2C, the subscription fee will really become kind of a moot point. Honestly, it's a it's a very small amount, negligible. -- the real source of income will be the B2C business that where India will start generating because of it being the exclusive partner for this region for outdoor collection by Marriott Bonvoy.

Got that. So just to confirm, 18% to 20% commission is what will get once or contain typically list on the platform and the booking essentially happens through that platform. But that understanding is correct, right?

Right.

Right. And sir, my second question with respect to platform ownership and expanding the network coverage is -- for example, there's an isolated owner. And if he needs to partner with Marriott, I mean, we can also do that directly given the fact that quite a bit of the properties that are listed on the platform, have an ARR of approximately 25,000 plus, which indicates that ports quite mature. So what is the advantage of having an access to Marriott and network, why are the RARE platform, which essentially will benefit us rather than independently or until the branding partner. So just wanted to understand this mix for lease?

Very good question, actually. So today, if you see, we need to go back into the history and pedigree of RARE. The reason why RARE a bootstrap company with its current founder and team has sustained itself for over 2 decades and has had some legendary owners and properties remain a part of it is because of its underlying pieces of only selecting highly curated experiential, story-led, host led hotels. And this is a relationship business units, right? So if you look at a lot of owners who build the RARE community, I always tell my team, it's more a community than a company actually, right? That community is all about authentic stories, experiences, host-driven. That sort of story is what has remained RARE's -- and will continue to be RARE's strength by the way. And RARE continue to do that even when it was not affiliated with any distribution platform, it did that successfully even when it didn't have a substantial investment to back growth. So with the investment and the ability to put those hotels on a global distribution platform, we think were the attractiveness for future owners become even higher. Now can our a RARE owner become -- go to Marriott directly? Answer is yes, but there is nuances to it. If you're directly going to marry it for a franchise or a management agreement, a very small 15-room hotel in [ Nogra ] Valley or a [indiscernible] in the backwaters of Kerala, does it want to change its look and feel and design and all of those nuances to be a Marriott branded hotel? I don't think it will make economic sense. So there is a huge pool of assets where the whole value is in the authenticity and the story and not necessarily a inessential traditional brand standard. So RARE helps us to aggregate or collect all of those portfolios together and get them distributed. If somebody has a 50-room hotel or a 40-room hotel, is willing to rebrand, renovate, bring to a certain brand standard and then make a part of the Marriott core brand, of course, he can do that. And there'll always be a case like that, by the way.

Got that. Sir, one last question from my side. We have mentioned in the presentation that the revenue potential from this platform could be about INR 90 crores to INR 100 crores in medium term. And effectively, the number of hotels and rooms are doubling. So just wanted to make some sense whether we have already shortlisted those hotels that could perhaps come under the brain? Or is it bite to comment as of now?

So the journey of RARE from current 67 to about 100 is fairly visible there is an active pipeline of about 25-odd properties, which are -- so I will caution you that RARE and its founder, Shobha, have a fairly strict checklist before they onboard a RARE Hotel, which will include, as I said, things like authenticity, story, involvement of the host, but more important, the touch points on sustainability and community. So unlike many other aggregator platforms where the chase numbers has to be 100 and 200 and 300, I don't think we, as an investor, support that sort of story. So there is a very careful selection and curation of the properties, which can come on rare. But in spite of that high bar, there is almost a 25 to 30 active pipeline so the path from, I would say, current 67 to about 90 to 100 is fairly visible. And Jinesh, both the 100 going to 120 to 150 is a systematic growth of the portfolio. If you see the geographic distribution, we think layer has remarkable reputation in the north, in the mountains, especially [indiscernible], PT, [indiscernible] it has very, very strong in the Central India. I think there is a lot of undiscovered gens and jewels in south of India. They have just done their first hotel in Bhutan, which open up a new market for them. They've always had presence in the pale which can grow, and we think in times to come, Sri Lanka is a fairly interesting market. So with such a broad spectrum, their reputation and now the ability to distribute alongside our investment on midi.com, I guess, 120 to 150 million should be considered as a near-term target and not a long-term target.

Our next question comes from the line of Karan Khanna from Ambit Capital.

Ashish, just 1 question. You say that over 70% of the rail hotels operated at a pricing level higher than 25,000 right. all these stock dealer integrated into the Marriott Bonvoy ecosystem. Do you anticipate a further uplift in the rates due to the global distribution? Or is the strategy primarily focused on increasing occupancy into the Marriott member base?

So not just state that current if you dig deeper into the air portfolio, more than 50% of hotels today are static pricing, which means they follow fixed pricing methodology, which is very rare as the word says. We think that the distribution always helps both. It helps you with pricing and it helps us with volumes, right? So we believe that the RARE distribution, by the way, currently is also bringing the powerhouse of our Marriott services clustered to boost revenue for the RARE properties. So it will not just be an electronicm.com distribution, we also think that this massive infrastructure that we have co-built for our Marriott operated hotels will also be kind of used to boost the sales volume in this hotel. So we do expect -- and these properties are unique and special. So do they deserve the higher price, the answer is a lot, yes. So we do think that both the pricing power and the volumes will significantly go up with this whole partnership that we've put together, of course, in addition to the platform growth.

Just a follow-up and a ton if you look at -- so the strategy going forward, given that you looked at acquiring underappreciated assets and now perhaps under a presale platform. So how does this transaction change the long-term fund process in terms of acquiring assets or focusing on coal markets. Now there's experiencing patterns which -- are you sort of tap into? Or this just one-off and perhaps depending on this, you look at more opportunities in the experience in our levers?

So Karan, I think our focus remains Tier 1 business, 0and I cannot repeat that enough, not kind of telling that this is not significant. I think this creates a massive future value in ROCE scalability. The fact that we now have the ability to grow our platform current without every time putting capital. So we were seeking an opportunity where the same skill set that we've applied to assets turn around, which are extremely capital intensive can be used to get to a more operating asset-light platform where the same approach, same industry knowledge, same relationships can help us expand. So there's a lot of value here, but we should not forget the fact that if when I were to talk in FY '30, right, I think our leisure asset light would probably be not more than 5%, right? 5%, 7% of our top line, we are gunning for a INR 3,000 crores top line by that year. So if the asset-light strategy comes to being even INR 150 crores to INR 200 crores or INR 25 crores. That's honestly sub-10%. So we should not deviate from what really makes us money and what has gotten us this far. And what's the high conviction bet on the growth of the office and the aviation market. We've been tracking leisure as we've kind of spoke to a lot of investors in the past. We've been tracking leisure for the last 2 years. We were trying to find a unique set of opportunity for ourselves and when we saw are the scale, the size, legacy, the team, the ability to partner and grow this, we just thought it was a very good -- a descent opportunity for us. Now point two. You know I love for data, okay? And the reason why we never invested in leisure was because we thought that our circle of competence is in business hotels. You know our ad platform. The data that we have on that is all business hotels. So our ability to underwrite leisure hotels was highly diluted because we didn't have any data. But we do think that investing in RARE will help us build a database of information and knowledge about leisure market. And can we leverage that for selective turnaround bets in the leisure asset space. I think that's something that we'll evaluate as time comes. But what we know for certain is that the very small investment we are making, a, has its own benefits of compounding. But two, there is a side effect that we'll start getting a lot of data about the leisure segment, which could turn out to be very valuable for us in future as we seek that segment.

Our next question comes from the line of Achal Kumar from HSBC Bank.

Just a couple of questions. So first of all, I think we are showing that the revenue production is almost 30x from where you are today. So how -- can you assure us the path to reach that INR 90 crores to INR 100 crores of revenue and how far we are talking about?

Achal, Page 11 of our investor deck, and I think there are 3 or 4 levers to that really, right? The first lever is, of course, the network, how far the network grows. So right now, it's about 60-plus we expect it to almost double. And as I was responding to the earlier question, that doubling is based on a very visible pipeline of about 25, 30. And the balance, of course, is a broader opportunity. So one variable to that jump is really the network effect. The second is the fact that currently, there is 0 B2C income or when I say negligible B2C income, right? That's a new stream that will get created as we invest our money, convert RARE from B2B to B2C, start their website to become tech enabled to start taking direct bookings, integrate that with marriott.com and Bonvoy, right? So what will happen is that all of that integration will create a new source of revenue which is today is 0. So it's not a multiplication. It's actually the fact that it's a new source of business that is going to be generated through this whole partnership investment, tech and then the affiliation with Marriott. So that -- I don't look at multiple, it's just a simple business of how much business you can produce -- and what's your takeout? What's your fee rate on that. I think that's what we have underwritten. In terms of time line, we expect what we have shown on Page #3 to be a 3- to 4-year deliverable that in that period, this portfolio should get to INR 100 crore top line really.

Right, right. Just one clarification. So you have given the rate of 25,000 average pricing, what is the average overall occupancy rate for this RARE at the moment?

So currently, the occupancy ranges from 35% to 45%. So it's a low occupancy. Typically, these are -- also a lot of these hotels tend to be seasonal but I think there's 35% to 45% occupancy thing, there's tremendous opportunity to boost occupancy for the owners here using the distribution. And two, as you boost occupancy, you get more visibility of the business, you have the ability to price them.

Next question comes from the line of Vaibhav Muley from Haitong Securities.

Am I audible?

Yes, you are. Yes.

Okay. Great. My first question was regarding the tech capabilities required for the B2C transition. Does RARE currently possess those capabilities? Or does SAMHI need to make additional investments and build those take capabilities to transition towards the B2C model?

So Vaibhav, the investment we're actually making in RARE is to enable that transition, but here is a lesson. Building a simple tech interface to take a booking is not that expensive and actually, there are a lot of off-the-shelf products available. the real expense comes when you're trying to build the distribution and which we believe is extremely expensive, given the world is becoming more and more competitive. That's why we took this strategic call that alongside our investment in rare, we also have an in parallel discussions going on for an affiliation of Marriott because that access to distribution in my opinion, is I believe it's intently expensive if you want to build it on your own. So that, as always, we have done in our business hotel segment. That's something accessing through an existing operator who also happens to be a world leader, honestly, in terms of distribution. So our investment that we are making in RARE web is towards enabling RARE India to build its tech platform, which enables it to link to marriott.com, and then allow individual RARE properties also to link to RARE India. So that's the investment we are making in RARE.

Understood, sir. Second question was on the key risk factors that we have mentioned in the presentation, mainly regarding the some of the properties may not be transitioning to marry distribution platform within the intent and time frame. Can you elaborate more on that? How many properties do you expect actually to transition without any specific orders because of conflicting affiliations?

So Vaibhav, as of today, we don't see a definitive numerical risk here, but we said that it is a risk factor that we need to highlight to the market and the investor community. There are 67 hotels as we go through integration, we have said there could be a potential that there's some properties which have a conflicting affiliation. As I said, there is no brand application in any of these properties. So the founder has always been very clear about that. But there are similar experiential distribution platforms like Mr. & Mrs. Smith and SLH. Some of these properties may have those parallel applications, and we will need to work through as to how that conflict gets resolved. Not material, Vaibhav, plan for you, it could be in single digits, to be honest with you. And that's why we've said that while we see that as a key risk factor, but we feel that the total platform scale is not a threat because there's also a lot more new properties which are being evaluated to be added on. So the scale is not a threat, but from the existing 67, we wanted to think that there could be some which may not be able to be transitioned to marriott.com.

Okay, sir. But these properties will continue to remain listed on other OTAs?

No. OTAs, yes, yes, OTAs, yes. I mean the good thing if at all, good thing, is that a lot of RARE hotels are not on OTS today. which is, as you know, in today's world, rather rare. And we think that given the quality of these assets, the compelling stories they have to offer to the travelers, our ability to distribute them. They may not need to depend a lot more on external distribution platforms. but OTAs are always a formidable partner. So OTAs may remain a part of the distribution metrics, but I was talking about more branded distribution platforms, not the OTAs.

Understood, sir. And in the past, we have seen leisure being a very volatile segment in terms of demand visibility, and it is more prone to all the geopolitical uncertainty as well. which is why SAMHI has always referred from investing more into leisure. And we are focused on core demand markets where there is a strong demand visibility for medium term. But this is a bit of a deviation from that strategy. do you think we'll pursue more and more investments into leisure segment now going forward with this acquisition?

So Vaibhav, you've hit the nail on the spot. The reason about volatility, customer preference is changing very frequently. Is the reason that you've completely stayed away from making big box asset investments in leisure. I don't think our thesis changes with this. There's a reason why I've taken an asset-light bet. We've taken a bet on a very different segment of leisure, which is small experience led rather than big box products and investment-led investments. So yes, I think we'll continue -- as I said, we continue to be a big believer of the office and the airline and the business hotels that drive that business. This is an asset-light, that's why we're deploying a very limited pool of capital. Just to put things in perspective, this INR 45 crore investment over a 12-month period will be probably just about 10% of our free cash that we are generating, but to get access to a fairly scalable platform, right? So yes, we'll remain focused on business when it comes to asset investment, and we have taken this as a long-term strategic bet being asset-light.

Our next question comes from the line of [ Rimaldip Edge ] from MAS Capital.

Congratulations for entering the new space to the market moment. My question which you alluded to earlier, actually, this marks came first structure and into exponential measure. As the platform can do you see some continuing acquiring or integrating more experience assets around rate?

Not really. I mean, there could be one-off for a long-term period, but not really. We're not looking at starting to invest capital for experiential leisure because we just think the 2 don't go together. I mean these RARE hotels are experiential because their owners have, for last 10, 15, 20, 25 years have created those stories and experiences, right? I don't think it can be replicated by an investor just putting capital even if that investor is us on a deep right. So that's why we formed this story to be very compelling. And honestly, cannot be replicated because if you want to replicate RARE, it's not about INR 45 crores. It's not even about made honestly or any other division platform. It's the story of those 65, 67 hotel owners at remote places across India, which have created this really, really charming stories. So we like this in an asset-light model where we are more a strategic investor, we are more providing the support of linking it to existing operating partners for distribution. And after that, I think Shobha and her team are the people who built this company, they are totally committed and invested in scaling this up. So we can go back to doing what we do for a living and earn cash we think this platform has a massive value in future as it scales up because I don't think it can be replicated because for that somebody does need, if not 25, at least 10, 15 years, right? So that's the uniqueness about this opportunity. we don't see this getting us to start making sizable repeatable bets in creating leisure assets. One-off, I cannot never say no. We are an option investor. But other than that, is it going to change our strategy of starting to deploy a lot of capital in the lease space? The answer is no. not as of today.

Sure, sure. In fact, we go to the next question. Given RARE currently operates for a delivered 25,000, which is almost 4 of our bite and add to that Marriott Bonvoy was global distribution and at that same operational expertise. Are we underplaying it by saying INR 100 crores opportunity? Or are we looking at a bigger numbers there?

The good thing about asset-light is you need to really worry about your downside, okay, because the upside is not requiring you to put more capital. If I talk about SAMHI's core strategy, I know my downside, but from my upside, I need to find these hotels, they have to buy the asset or in many cases, lease if it's very capital efficient. Here, we think that the portfolio size will be underplaying gross, right? We think this portfolio could be a lot bigger than what we've indicated on Slide #11 because there are these existing unique properties across or subcontinent, which are ready to be discovered and ready to be distributed and ready to the story to be told to the world right. In terms of the impact that RARE and this partnership can make for the performance of those hotels, we wanted to bite what we can show, right? So we think that we can clearly help the property owners to uplift their post rate and definitely the volumes over the next 1.5 years, 2 years. Don't forget, while we talked about more than 70% of the hotel selling it upwards 25,000 there are probably 30% of the hotels today, which sell upwards of INR 45,000 in this portfolio. So this portfolio's pricing forward could be substantially higher than what it is today because the discovery is what was missing. It was known to a thoroughbred community of RARE travelers, right, or what was called RARE circle. But this story needs to be discovered by a much wider audience of travelers who are seeking not big box, repeatable stone and marvel, but very, very on-ground community-led travel story. So what is good for us, Rondi, is we're not entering a portfolio where positioning or reputation is a concern, right? Even today, without distribution, these hotels were delivering rate upwards of 25%, many of them per of 45,000. So absolutely no risk on reputation. All we need to do is improve discovery and booking. And I think we can unlock a lot more value. But in terms of number, I think given this is the first foray, it wouldn't harm us to be more realistic than optimistic at this stage. We will revise this if we feel we are being pessimistic in due course.

I appreciate that, Ashish, I think I've always loved your thought process and all I can say at the closure is that [indiscernible] must be smiling from [indiscernible].

Our next question comes from the line of Rajiv Bharati from Nuvama Wealth Management.

Yes. So on Slide 11, this 25,000 [indiscernible], which you said, let's say, we owe that this number was what level?

Pre-COVID?

I mean a couple of times because...

No, it's not a -- so the volumes have obviously Rajiv shifted during COVID, but I will -- at cost of being a stuck record, I'll repeat that we're buying into legacy in terms of the quality of owners and properties, what we're just trying to get right is distribution and sales, right? So as I repeated earlier, this properties always were highly reputable, had its own fan base of travelers. So we have not really seen a big titanic shift in the pricing power of properties pre and post COVID. But I do think that the potential is a lot more.

Sure. So on your with B2C transition, and you said it's a partnership firm and because of, let's say, what are the legal thing, you can basically monetize the INR 50 crore inventory, right, if that transition happens, sir? This INR 53 crore revenue subscription plus B2C is instant, right? Is it how it is?

Well, I wish anything in instant because the transition Rajiv itself will take a few quarters, right? But I think and fundamentally, what you're saying is not wrong. The investment we are making in this can easily be recovered once the platform is fully integrated in our 18-month period, really, right, 18- to 20-month period. So I think that's why we've been saying that our entry price is so low that it allows to take a big bet on red becoming much bigger, being a lot more useful to its community. So you're right, our investment is so small that we think once the platform is stabilized, we should be able to recover it back 18 months to 20. I wouldn't be as optimistic to say a single year, but we would think about 18 months to 24 months is what we will recover our investment.

Yes. So 2 questions here. So one, because both the line items on the top line are income, usually free fee income has a much larger flow through. So we see only 25%, 30% flow-through. So one, why is that? And then, let's say, even if you take, let's say, INR 15 crore EBITDA for which is, let's say, 1 year, 5 years out and the promoters sold looks extremely cheap, right? I mean from a seller's point of view, I mean why did this help?

Okay. So a couple of things. Your margins -- our margins are low because we are not investing in building our own distribution, we are entering it, a, right? So if we were to not have an application with a global distribution like Bonvoy, on paper margins will look higher, but we are also aware that the upfront investment will be a lot more and the success rate may be really poor, okay? So we have taken the route of the margins being more moderated because we know that we are renting the -- we are piggybacking on a global affiliation. That's point one. Point two, and absolutely right, this is what we have debated internally that from a financial return perspective, if we really mess this up, this should be a 5, 6x, right? If it totally mess this up. And if we do it right, then this would be the sort of investment that all investors. So this could be the seas candy moment for SAMHI, where the investment you're making should be your return every year for the rest of the life, right? Now why did the current team engage with us? So first of all, don't forget, they continue to own 30%, which is really sizable as we scale up this business. You will -- all of you will meet Shobha at some point. She is an artist. For her finding the right strategic partner was more important than seeking a headline number, right? And I think there was a bit of elegance when they recognize their current business model is not reducing the revenue. So the first question that Vikas has about valuation, right, so you take the first and the last thing, and you realize somewhere it mean is where you discover value where the existing shareholders have a lot more value to be created in future with this investment. Therefore, don't get fully priced for future value. And we've also paid -- we not look back in the past to value the portfolio. But we've looked at the future to make sure that all constituents see excitement in terms of their wealth creation. So I think, Rajiv, we felt that Shobha was looking for a strategic partner and not an investor. I completely agree with you. She may have found better valuation with strategy investors and the sort of valuation being talked about today in this payback in sin. They're not even close to 35%. You will have to add on more 0 to that are, right, for the scale. So I think it's about finding this unique partner, and she's not a young start-up funder for the last 4, 5 years changing valuation She's a legend in this space who's been doing it for the last 2.5 decades, have reputation proceeds her, and I think she was looking for more than just investor. She was looking for a real partner. And our ability to stitch this whole application between RARE and Marriott is, I think, what creates most value for everybody as her property owner and hopefully Marriott as well.

But can you just point out what is the enterprise level revenue for this asset less last year for 67?

It's only subscription. They're not doing any B2C sales. It's just INR 3 crores.

No, no, the enterprise level in the sense if you were to look in the entire thing.

What's the total enterprise sales of the 67 , you have it in the model now. But 200 is in the model. Rajiv, give us a second, we'll come to you. We have it in the Excel.

Yes. While we do that, one slide above, which is Slide 10. The total investment you're doing or the post-money valuation is INR 72 crores, INR 49 plus 23, it comes to close to 65%, right? And you said 70%. Can you spite math? I mean, what is the gap?

No, so there's also secondary right? It's just not a primary.

So the 47 includes primary secondary, right? 47 divided by 76, yes.

No, no, no, no. It includes everything, primary and secondary. So 4 divided give the max number INR 23 crores into come close Yes. Just the second -- and by the way, by well in pulse to answer. INR 250 crores is the enterprise-wide sales, gross sales, yes.

Rajiv, [ Nakul ] here. So the transaction is structured into a primary and a secondary primaries of around INR 23 crores, again, dividing 2 tranches. One is upfront. The second would be within 12 months. The secondary is around INR 24 crores. Again, part of it is upfront and part within 12 months. Total enterprise value on a pre-money basis is around INR 4 crores. So that's kind of how the transaction is stitched. Total at investment is not that.

So your money is 49%, 23 is your primary put together post money and your total investment you're putting is INR 47, INR 47 by 70 to become 25 versus 70% is what you said. So are we missing something here?

No, no, no, because we are buying -- the secondary purchase is happening right now at INR 49 crores, right? Actually, sorry, 2 stages. The first is happening at INR 40 crores, right? So you're right. The first primary purchase is happening at now INR 49 crores but INR 40 crores. The second one is happening at a price to give a blended value of INR 49 crores. So you're absolutely right. It's slightly lower than that, the way math work. Rajiv, we'll put it on an Excel to needed just to kind of clarify how the structure is, because the deal is being structured in a 12-month phase, even though it's a small amount, what's happening is the first round actually that we're investing now or will invest in the next month or so, we'll be at a pre-money of INR 40 million -- INR 40 crores. It's the second round, which takes it to a blended value of INR 49 crores. but we already have some primary upfront as well secondary upfront as well. So that's why the gap of 5% on our calculation is coming.

Our next question comes from the line of Raghav Malik from Jefferies.

Congrats on the acquisition. Just a question, a follow-up on the pipeline that you have in place the 25 hotels that are already start to sum up. So how much, how many of those would be in that 40, 45,000 plus pricing range was obviously on scale? And what is the time period, please 25 bets to come on?

I think it will follow the same pattern. So when we talk about 70% of hotels remaining upwards of INR 25,000 I think the pipeline, it's fair to assume will remain very similar, especially when you on both the properties, how you yield manage and enhance the productivity and performance, obviously, is the factor of distribution. So for future properties, we should not assume any significant variation, we should follow the similar trend, right? About 30% of the properties are upwards of INR 40,000, highly experiential, very unique. Most parties are upwards of 25,000 pays again, very, very experienced led in remote in very unique locations. I think the pricing, AR distribution will remain pretty much the same, actually.

But there will be a delta that will come post the Marriott integration there on the [indiscernible]?

Yes, my sense is 15%, 15-odd percent improvement is the power of distribution and the ability to fill up the demand curve brings to that 15%, 20% upside. That's what we've seen in actually any segment in this sector. But in the end, a lot also depends on the RARE owners because they are the custodians of those hotels and how do they want to drive the performance.

Sure. Understood. And for the 120, 150, like what is the medium-term time line indicators?

So I think as I said that the path to from current 67 to, let's say, 90 to 100 is pretty short term, we should think in the next 12 to 15 months, right? And then we would expect that another year or so, we should get to that intended 120, 150 million number. I think that's based on mapping the existing pool of opportunities because don't forget, RARE typically looks at a property having had some legacy has been in operation. So typically, a new build asset is highly unlikely to be a RARE hotel. But therefore, which means that the pipeline that we're talking about, there is a reasonable amount of scanning, which has been done. So we think that 120 to 150 should be, as we mentioned here, should be a 3-year target. The first target being met in 15 to 18 months and the second, let's say, a year, 1.5 years after that.

Next question comes from the line of [ Abhishek Khanna ] from Kotak Securities.

I was just wanting to check and you said INR 250 crores of revenue from the top platform a think standing today. does that not even a little lower in the context of INR 25,000 and 43% of I would have thought that number comes closer to INR 400 INR 500 crores. That's one. INR 40 crore, 50 crores, I think the numbers that I'm getting is maybe INR 25,000 and an occupancy, which is more closer to 22%, 23%, unless something I'm going around with? The second, when you say you're expecting a INR 50 crores of B2C income, what is the level of revenue that you are assuming these hotels to generate versus if the current number is about INR 250 crores?

So Abhishek, what we've done is we have taken a 35% occupancy and just an average rate of about INR 20,000 to get to that 250, that's just a modeling number. In terms of the occupancy, we clearly think that when we looked at the demand patterns, we really looked at the fact that the occupancy should be not less than in 50%, 55% and the rates should move up at least in our opinion, about 15-odd percent. So the occupancies need to really move up, and that's just the power of distribution. So most of the upside will likely come from occupancy increase. We have assumed or we have underwritten that there will be approximately a 10-odd percent CAGR in the rates over the next 2 years as we strengthen the distribution. And that's how with the network with the 120 or 120 or 125-odd hotel network, we think that the total value of the income in the assets would be about INR 800-odd crores. right, which is currently about INR 55 crores to INR 60 crores. So it will be about INR 800-odd crores, and then the total B2C income will be in circa about INR 100-odd crores.

So the INR 800 crores for the full 1,150 INR 125, which means, let's say, INR 400-odd crores per title for the existing portfolio as things starting today, the answer which you're expecting a B2C income of INR 50 crores and EBITDA of INR 15 crores. Just to confirm one thing while I got the sense of it from a response to an earlier participant, but the delta between the EBITDA and your B2C income is largely what was to the affiliate partner out there?

Absolutely. Absolutely. So the majority is the application fee and very small overhead really.

Just 1 final question. I agree this is something are getting back to the same question of why not going directly to Marriott, and I understand that Marriott would probably not be interested in doing these 15, 20 properties as things stand today. Do you think there is an outer chance that once they've created a category with you, they might just be open to do it anyway with the partner directly without making too many enhancements to the asset per say?

So as you know, that Marriott has launched this platform called Outdoor Collections by Marriott Bonvoy in the U.S. And the outdoor collection is exactly intended to curate a platform of these back and beyond experience-led small properties. What is important, Abhishek to note that RARE now under the application will have an exclusive rides for outdoor collection by Marion oil for India, Nepal, Bhutan and Sri Lanka. So it's a pretty substantial commitment from both partners that they are allowing RARE to be the exclusive partner for outdoor collection by Marriott Bonvoy, which is the platform which has an curates such assets in the U.S. So we think that this application -- and by the way, but Marriott will also commit capital through a different manner to ensure that as we launch this platform, there is a very strong marketing funds available from the Outdoor Collection of Marriott Bonvoy. So it's not just our investment that we're making in there. It's also that Marriott will also postpone, especially more on the funding the OpEx in the initial time. So while the numbers are very small, but it's a substantial commitment from both -- or all 3 actually there, SAMHI and Marriott, to be able to use RARE as the exclusive platform for the outdoor collection. So will there be a possibility that if somebody is doing a 60, 70 room hotel, Abhishek? Answer is absolutely yes. And that is usually not a typical arrow del also. So that segment, that scale, we cannot comment on, but the smaller, the true is 15 with a history, we'd like to believe the majority of them will remain to be on the air. There are always beats in these things that we ship, which we can't deny, but I'm just talking about the intended strategy and commitment of the partners today.

Thank you. Ladies and gentlemen, due to the time constraint, that was the last question for today. I would like to hand the conference over to the management for the closing comments. Thank you, and over to you, team.

So thank you so much, everybody, for your time today. As I mentioned earlier, we have stayed away from leisure, but we feel that taking the small asset-light pet will give us entry into a segment, which, honestly, with the discretionary and the disposable income in India growing could will itself be a very large segment. So while we remain focused on what we know best, do best, love most, which is Tier 1 boring business hotels, which made a lot of money. We do think that our strategic investment in RARE with the existing team and meditation will turn out to be a pretty sizable platform that I think we'll just enjoy not just as investors, but I also hope all of will enjoy his travelers also. So we look forward to talking to you all soon. Thank you so much.

Thank you. Ladies and gentlemen, on behalf of SAMHI Hotels Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.