Samhi Hotels Cuts Debt, Targets Rs 3,000 Crore Free Cash Flow. Can Its Valuation Discount Narrow?

Samhi Hotels has entered a new phase after cutting debt, lowering borrowing costs and outlining a pipeline of premium hotel developments that it expects will generate more than Rs 3,000 crore in free cash flow over FY27-FY31. The company plans to use most of this cash to fund expansion without taking on significant additional debt, while new hotel openings could add close to Rs 1,000 crore in annual revenue by FY31. 

Despite these changes, Samhi continues to trade at the lowest enterprise value-to-EBITDA multiple among listed hotel companies. Investors are now watching whether stronger cash generation, lower leverage and a shift towards higher-end hotels will be enough to reduce that valuation gap. 

The company's investment case has historically been shaped by a highly leveraged balance sheet and uneven earnings. Management now argues that improving operating performance, a stronger financial position and a pipeline of premium properties could support more predictable earnings over the next several years. Whether those improvements translate into a higher market valuation will largely depend on execution and the successful ramp-up of hotels under development. 

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Operating Model

Samhi is India's largest owner of multi-branded hotel rooms. Rather than operating hotels itself, the company typically acquires or develops hotel assets, owns the underlying real estate and appoints global hospitality companies to manage daily operations. This allows it to focus on asset ownership while relying on established hotel brands for operations, distribution and customer acquisition. 

Its hotel portfolio is managed by international operators including Marriott, IHG and Hyatt. As of FY26, Samhi had 4,899 operational rooms, with another 1,669 rooms under development. Once these projects are completed, the portfolio is expected to expand to 6,568 rooms by FY31. 

Marriott accounts for about two-thirds of the company's portfolio, while Hyatt and IHG make up the balance. By partnering with global hotel chains, Samhi gains access to established loyalty programmes, international distribution networks and a broader customer base. The company is also repositioning its portfolio towards premium hotels, which typically generate higher room rates and operating margins than mid-market properties.

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Premium Push

Samhi's next phase of growth is centred on expanding its presence in the premium hotel segment, where room rates and operating margins are typically higher. Management wants upscale and upper-upscale hotels to account for a larger share of revenue over the next few years, reducing its reliance on mid-market properties. 

The company has divided its portfolio into three segments based on pricing. The upper-upscale and upscale category comprises 2,182 rooms, or about one-third of the total portfolio. Of these, 1,123 rooms across five hotels are operational under brands including Renaissance, Sheraton, Courtyard and Hyatt Place, while another 1,059 rooms are under development. 

This segment contributed 43% of revenue in the fourth quarter of FY26. Management expects that share to increase to about 60% as new hotels become operational. To support that target, Samhi is developing five additional properties under premium brands such as W Hotels, Westin and Tribute Portfolio. 

The upper mid-scale category remains the company's largest by room count. It comprises 2,397 rooms across 15 hotels, with 2,047 rooms already operational and another 350 rooms under construction. Most of these properties operate under the Fairfield by Marriott and Four Points by Sheraton brands. 

While the upper mid-scale portfolio generated Rs 142 crore, or 41% of fourth-quarter revenue, management expects its contribution to fall to around 25% over time as premium hotels account for a greater share of earnings. The remaining 30% of the portfolio is made up of mid-scale hotels, where 1,729 of the 1,989 rooms are operational and another 260 rooms are under development. 

The company expects its development pipeline to come on stream in phases between FY27 and FY31, providing a steady addition of new capacity rather than a single large expansion. 

Beyond business hotels, Samhi has also entered the leisure hospitality market through the acquisition of a majority stake in RARE India. The platform operates 73 boutique hotels, heritage palaces and wildlife lodges with a combined 1,015 rooms across India, Nepal, Sri Lanka and Bhutan. The company plans to expand this business through its partnership with the Outdoor Collection by Marriott Bonvoy, adding another growth avenue alongside its core urban hotel portfolio. 

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Financial Turnaround

Samhi delivered stronger financial performance in FY26, supported by higher room revenue, lower borrowing costs and a reduction in debt. The improvement marks a shift from the balance sheet-led concerns that have weighed on the company's investment case since listing, although a large part of the reported profit growth was aided by a one-time accounting gain. 

Revenue rose 12.3% year on year to Rs 1,279 crore, exceeding the company's guidance of 9% to 11% growth. The increase was driven by a 9.5% rise in revenue per available room (RevPAR), which reached Rs 5,365 during the year. EBITDA increased 8.8% to Rs 463 crore, resulting in a margin of 36.2%. Management said the margin was affected by the reduction in the GST rate from 12% to 5%, adding that like-for-like EBITDA would have grown 13% without this impact. 

Profit after tax jumped 562.6% to Rs 567 crore. However, the sharp increase was largely driven by the recognition of a deferred tax asset worth Rs 300 crore. Excluding exceptional items, profit before tax rose 89.3% to Rs 165 crore, indicating an improvement in the underlying business. 

Cash generation also improved during the year. Samhi reported free cash flow of Rs 300 crore, compared with a run rate of about Rs 90 crore since September 2023. The stronger cash generation came alongside a reduction in borrowings, as the company cut net debt by Rs 516 crore during FY26. The deleveraging was supported by a Rs 600 crore investment from GIC and proceeds of Rs 210 crore from the sale of four non-core assets. 

The reduction in debt lowered the company's net debt-to-EBITDA ratio to 3.0 times from 4.4 times a year earlier, with net debt standing at Rs 1,450 crore at the end of FY26. Management has set a target of bringing this ratio down to 2.5 times over the next 12 to 18 months, signalling that balance sheet repair remains a priority even as the company expands its hotel portfolio. 

Lower leverage also reduced financing costs. Following a credit rating upgrade to A+, Samhi's effective interest rate fell to 7.9% from 9.2% in FY25, helping finance costs decline to Rs 171 crore from Rs 222 crore. The lower interest burden is expected to improve future cash generation and provide greater financial flexibility for expansion. 

Cash Deployment

With debt declining and interest costs easing, management expects cash generation to accelerate over the next five years. It estimates the business will generate more than Rs 3,000 crore in free cash flow between FY27 and FY31, giving it the capacity to fund expansion without materially increasing borrowings. 

The company plans to deploy much of this cash towards its development pipeline, which includes the addition of 1,647 rooms at an estimated capital expenditure of Rs 2,200 crore. Any surplus cash could be allocated to acquisitions, long-term lease opportunities or returned to shareholders, according to management. 

The projects under construction are scheduled to open in phases, with 170 rooms expected in FY27, 480 rooms in FY29, 297 rooms in FY30 and 700 rooms in FY31. As these properties stabilise, they are projected to generate about Rs 1,000 crore in annual revenue by FY31, equivalent to nearly 80% of the company's FY26 revenue. Management does not expect to raise additional debt to complete these projects, allowing operating leverage to support future earnings growth. 

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Valuation Gap

Even after the improvement in its financial position, Samhi continues to trade at a discount to listed hotel peers. At a share price of Rs 170 as of July 16, the company traded at an enterprise value-to-EBITDA multiple of 11.7 times, compared with 12.7 times for Ventive Hospitality, 15.7 times for Lemon Tree Hotels, 17.2 times for Chalet Hotels and 21.9 times for The Leela Palaces, Hotels and Resorts. 

The discount reflects concerns that have persisted since the company's listing, including a leveraged balance sheet and inconsistent profitability. While both have begun to improve, investors are likely to look for evidence that these gains can be sustained before assigning a higher valuation multiple. 

The next phase of the investment case will depend less on balance sheet repair and more on execution. Delivering projects on schedule, ramping up occupancy at new hotels and translating higher room inventory into stronger earnings will determine whether Samhi can narrow the valuation gap with larger listed peers. 

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.

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