Exclusive 30% ROI private deal to invest in a rapidly growing youth focused franchise business
SIGMA is an up-and-coming youth focused hotel operator brand looking to raise INR37.5mn via debt - to double its capacity over next 12 months.
Sigma (name changed) is a youth focused hotel operator brand running 20 properties across India
The company brings in a unique proposition to capture an underserved segment (18-35 yr urbanized Indian) lacking a youth focused hotel product / brand to call their own
Sigma expects to achieve c. INR130mn in revenues by FY22 and has already raised c. INR150mn in equity till date
A scalable asset light franchise driven business model has helped Sigma expand by 4 properties per month while achieving c. 30%+ operating margin
The company is seeking debt financing to fund transformation capex for its new properties
Opportunity to invest a minimum of INR1.5mn as 5 year unsecured loan at 25% annual interest rate with cash EMIs to start from month 4 onwards. Benefit of accrued interest and principal to be passed on. Expected cash-on-cash of 2.0x
Ideal for individual investors (HNIs, professionals etc.)
Need for revamping youth’s hotel stay experience
Urbanized Indian youth (18-35 YO) occupy a significant share (c. 170mn persons) of India’s total population. They have a large travel appetite, relatively different consumer behaviour and lower budgets amounting to INR400-800 per night.
Yet there is an absence of a youth focused hotel brand in the country. The market for long tail and alternative hotel supply i.e. hotels having less than 50 rooms, is largely unorganized which in turn holds the key to serving these brand and value conscious customers.
How Sigma is filling the gap?
Sigma, a full-stack hotel operator brand was founded in 2014 to cater to the dynamically changing travel and living behaviour of India’s youth. It provides affordable stays for as low as INR400-800 per bed night and a youth-focused kitchen-less F&B offering with a social, shared and vibrant community at core.
The company has raised INR150mn equity capital to date and includes notable investors including, but not limited to the Family Office of a large RE PE Firm, major angel networks and early stage investment platforms.
Scalable and economical business model
Sigma follows an asset light franchise model wherein it takes over an under-utilized property and transforms it to into a youthful 50 bed hotel. It takes complete responsibility of the day-to-day operations while ensuring healthy rentals for the property owner.
Over the years Sigma has maintained high Customer Satisfaction Index (CSI) scores which has helped in building strong customer loyalty and brand moat. Currently, it operates 20 ultra-budget youth hotels and sources 50% of its revenues directly i.e. without intermediaries like Online Travel Agents (OTAs).
The asset light model has unlocked interesting unit economics for Sigma with c. 30%+ operating margin while enabling rapid scalability @4 hotels p.m.
The investment opportunity
Sigma has 25 properties in its expansion pipeline and expects to add 50+ properties in NTM. To support transformation capex across these new properties, Sigma is seeking to raise debt amounting to c. INR37.5mn (i.e. INR1.5mn per property).
The company would be backing each debt injection with equity participation of its own to ensure alignment of interest and to fund day to day operating costs.
The investment is estimated to generate an effective ROI of c. 30%+ over a 5 year tenure, supported by high margins which the company has already been achieving. The investor would hold first charge on operating cash flows of a standalone SPV through which the investment would be structured.
The Indian Hotel & Stay is a INR1,38,000cr ($19bn) market of which 75% is dominated by the Affordable category. 1 out of every 2 millennials prefer homestays, hostels and other alternate stays as against hotels, making it the fastest growing category. This effect has heightened in particular because of the pandemic, leading to newer use cases such as workations.
Sigma’s expansion will unlock new growth avenues which in the long run will help it achieve better unit economics, faster operational breakeven and an enhanced market share.
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