SAMHI Hotels to turn profitable by FY24-end, says MD

The company has reported losses for the last three consecutive years. This quarter too, the company reported losses but narrower than the corresponding quarter of the previous year. When can the company turn around?

In the first two years, 2021 and 2022, we faced significant Covid-related challenges, while in FY23, finance costs had a notable impact on our bottom line. In the first quarter of the current fiscal year, our PAT losses amounted to Rs 83.5 crore.

Despite our efforts in IPO recapitalisation and debt reduction, the impact of these measures is not evident in Quarter 1. This trend is likely to continue in Quarter 2 as well, given that the IPO occurred on September 22.

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However, when viewed in perspective, our loss of Rs 83.5 crore was significantly impacted by finance costs of around Rs 107 crore. If you consider the reduced debt in the company as of the current date, the finance costs are expected to decrease to about Rs 60 crore. Adjusted for this change, our losses on the same quarter - number basis would have been approximately Rs 35 crore - 36 crore, including some ESOP expenses and one-time costs.

With our current EBITDA run rate, the level of debt, and the lowered finance costs, the company could potentially report losses of only about Rs 18 crore - 20 crore if EBITDA numbers remain stable. With assets contributing positively to profitability and significantly lower finance costs starting in Quarter 3, we believe the company is well-positioned to report a profit in the next few quarters.

Moreover, a critical factor is that we expect to start generating free cash from Quarter 3 onwards. The loss in the first quarter includes finance costs, depreciation and ESOP expenses. Therefore, from Quarter 3 onwards, we are confident that the company will begin producing free cash, opening the way for growth and further debt reduction.

So, if free cash flow generation is expected to take place in Q3, perhaps a turnaround in your profitability in the same quarter?

No. So, profitability I would expect more towards the end of the fiscal year because the ESOP cost of Rs 11.5 crore per quarter will continue till Quarter 4. And after that, it substantially reduces to just about Rs 4 crore a quarter. And obviously, it kind of completely gets knocked off in a three-year period. So, we would believe the profitability would be more towards the end of the fiscal year.

The company’s operational performance is down by 14 percent. What has dragged down the operational performance on a year-on-year basis? Also, what can be expected on a steady-state basis going forward?

Again, there is that impact of the ESOP and one-time expenses. The margins before the ESOP and the one-time expenses have remained at the 34 percent benchmark. So, really not a material shift. Whatever is the dilution you're seeing in the margins between 34 percent to about 25 percent between the first quarter last year and (first quarter) this year is largely on account of ESOP expenses and one-time cost. But at an operating level, we've seen revenue grow at about 14 percent, EBITDA grow about 12.5 percent. And that momentum actually continues through the second quarter as well.

What kind of operational performance growth can be anticipated?

Considering that Quarter 1 is typically the weakest quarter in the year, achieving a 12.5 percent growth rate, we anticipate even stronger performance in the upcoming quarters, namely, Quarter 3 and Quarter 4.

With occupancy levels expected to remain above 70 percent through the first two quarters and rate growth at around 16-17 percent, we anticipate that EBITDA growth in the third and fourth quarters will comfortably surpass the 15 percent mark.

Let's just focus on revenue per available room (RevPAR) which has grown by 14 percent. A) The segment-wise break-up behind the growth number. B) How do you expect this number to grow?

Looking at the performance of different segments in our portfolio, the RevPAR has consistently grown over seven percent. In fact, for the second quarter, we anticipate further improvement, projecting a 15 percent growth in RevPAR, up from the 14 percent in the first quarter.

What kind of free cash flow generation are you expecting from Quarter 3? And what is your capex requirement for the ongoing year?

We expect finance costs to reduce to around Rs 110 crore -Rs 120 crore for H2, allowing the company to generate approximately Rs 60 crore-70 crore in free cash during the second half of this fiscal year. Regarding capital expenditure, we foresee an investment of about Rs 80 crore-100 crore from now until the end of FY25. We're confident that this capital expenditure can be covered by free cash, especially considering our projected six-month cash flow of about Rs 50- crore - 60 crore, with even higher cash flow expectations over the 18-month period.

Talk about the company's net debt to EBIDTA. By how much will the finance cost come down in the remaining part of the year?

The real turning point for us will be Quarter 3, expected in January or early February. Quarter 2 won't see substantial changes since our IPO occurred on September 22nd.

How is the demand stacking up on the ground? Which are the segments which are witnessing traction? What has changed for you after listing in terms of strategy?

Demand continues to grow at a high single to early double-digit rate, while supply is lagging behind, increasing by only two to four percent in various cities. Given this, I expect the demand-supply balance to remain favorable for several quarters.

What kind of traction are you seeing because of the World Cup?

Events like the G20 summit and World Cup have impact for a few days. However, when we look at our performance in Quarter 1 and Quarter 2, it's clear that our growth trajectory remains strong. Quarter 1 showed RevPAR growth of 14 percent, and in Quarter 2, we achieved a15 percent RevPAR growth, even with the G20 event taking place.

Again, probably we are one owner, which has a very large share of inventory in Ahmedabad. For those two days or three days, India-Pakistan and the finals, clearly it's going to be a home run. But we got to look beyond that. We actually think a lot of excitement that we are seeing in the first 11 days of October is not necessarily just Ahmedabad, it's also Bangalore and Hyderabad- where business is repeated.