Suba Hotels NSE SME IPO review (Not Rated)

•    The company is engaged in the business of hospitality and is one of India’s largest domestic hotel chain in the mid-market segment.
•    It has speedily expanded its reach to stay tuned with the time to meet rising hotel rooms demand.
•    It has posted growth in its top and bottom lines, with robust performance for FY25.
•    It is operating in a highly competitive and fragmented segment.
•    Based on its recent financial data, the issue appears fully priced.
•    Well-informed investors may park moderate funds for medium to long term.

ABOUT COMPANY:
Suba Hotels Ltd. (SHL) is one of India’s largest domestic hotel chains in the mid-market sector with 88 operational hotels as of July 2025, comprising 4,096 keys across over 50 cities, around 81% of which are located in emerging markets in tier 2 and 3 cities. The hotel chain also boasts a portfolio of 40 hotels in the pre-opening phase, encompassing 1,831 rooms. (Source: JLL Report). It operates in the mid-market hotel sector, consisting of upscale, upper-midscale, midscale, and economy brands domestic as well as international. SHL primarily caters to guests across business, leisure, and religious tourism, delivering superior service standards at attractive price points. Its hotel portfolio encompasses a diverse range of business models, including owned, managed, revenue share & lease, and franchised properties. 

SHL currently categorize hotel portfolio into four distinct hotels categories based on business models that includes owned, managed, revenue share & lease and franchised hotels. The hospitality sector demonstrates robust growth as branded hotel signings reached 42,071 keys by December 2024, with continued momentum in Q1 2025 adding 79 new hotel signings totalling 9,478 keys. Notably, Tier 2 and 3 cities dominate the expansion landscape, accounting for 77% of all branded hotel signings and 83% of actual openings (11,352 keys) in 2024. Management contracts remain the preferred business model, representing 81% of total signings, while franchise agreements and lease/revenue share arrangements account for 14% and 5% respectively. (Source: JLL Report).

India's tourism industry, with its rich tapestry of heritage, culture, and diversity, is rapidly emerging as a global destination of choice and a significant catalyst for economic development. Acknowledging its potential for employment generation, the Union Budget 2025-26 has devoted Rs. 2541.06 crore to enhance infrastructure, develop skills, and streamline travel processes. A cornerstone initiative involves transforming 50 premier tourists’ destinations in partnership with state governments through a competitive approach, ensuring superior facilities and accessibility. Through dedicated efforts, the tourism sector is positioned to propel India's journey toward developed nation status by 2047. (Source: JLL Report).

SHL’s diverse range of hotel categories such as owned, managed, revenue share & lease and franchised hotels and extensive portfolio of domestic and international brands are strategically designed to cater to various market segments. Positioned in prime locations and competitively priced, it offers exceptional value, which has driven rapid expansion into markets traditionally underserved by chain-affiliated hotels. As of July 31, 2025, its portfolio of operating hotels consists of 5 owned hotels consisting of 227 rooms, 19 managed hotels consisting of 823 rooms, 16 hotels on revenue share & lease basis consisting of 577 rooms and 48 franchised hotels consisting of 2,469 rooms. As of March 31, 2025, it had 689 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6799200 equity shares worth Rs. 75.47 cr. at the upper cap. The company has announced a price band of Rs. 105 – Rs. 111 per share of Rs. 10 each. The IPO opens for subscription on September 29, 2025, and will close on October 01, 2025. The minimum application to be made is for 2400 shares and in multiple of 1200 shares thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.05% of post-IPO paid-up equity capital of the company. From the net proceeds of the issue, the company will utilize Rs. 53.48 cr. for capex on upgradation and last-mile funding of hotel premises, and the rest for general corporate purposes.

The IPO is solely lead managed by Unistone Capital Pvt. Ltd., while Bigshare Services Pvt. Ltd., is the registrar to the issue. NNM Securities Pvt. Ltd., is the market maker, as well as a syndicate member. 

After issuing initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 265.00 per share between August 2013 and April 2015. It has also issued bonus shares in the ratio of 2.666 for 1 in June 2024. The average cost of acquisition of shares by the promoters is Rs. 2.72, and Rs. 2.73 per share.

Post-IPO, company’s current paid-up equity capital of Rs. 17.44 cr. will stand enhanced to Rs. 24.24 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 269.09 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (On a consolidated basis) posted total Income/Net Profit of Rs. 35.20 cr. / Rs. 2.78 cr. (FY23), Rs. 53.00 cr. / Rs. 8.96 cr. (FY24), and Rs. 79.99 cr. / Rs. 15.15 cr. (FY25). Boosted top and bottom lines in a pre-IPO year raise concern as it is operating in a highly competitive and fragmented segment.

For the last three fiscals, the company has reported an average EPS of Rs. 6.32, and an average RoNW of 27.13%. The issue is priced at a P/BV of 4.07 based on its NAV of Rs. 27.29 as of March 31, 2025, and at a P/BV of 2.19 based on its post-IPO NAV of Rs. 50.77 per share (at the upper cap).

If we attribute its FY25 super earnings on post-IPO expanded equity base, then the asking price is at a P/E of 17.76, and based on its FY24 earnings, the P/E stands at 30.00. Thus, based on its recent financial data, the issue appears aggressively priced.

The company has posted PAT margins of 7.91% (FY23), 16.90% (FY24), 18.94% (FY25), and RoCE Margins of 22.37%, 26.80%, 35.55%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performances and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown Royal Orchids, Sayaji Hotels, as its listed peers. They are currently trading at a P/E of around 28.9 and NA (as of September 26, 2025).  However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORDS:
This is the 28th mandate from Unistone Capital in the last three fiscals (including the ongoing one). Out of the last 10 listings, 5 opened at discount, and the rest with premium ranging from 3.84% to 105% on the date of listing.