Suba Hotels Ltd Management Discussions

1. ECONOMIC OVERVIEW

Global economy

The global economy through FY 2025-26 was characterised by moderate but uneven growth, gradual disinflation and continued monetary easing across major central banks, set against persistent geopolitical friction, shifting trade and tariff arrangements, and episodic disruption to international aviation. Travel and tourism nevertheless remained one of the more resilient components of global services activity, with international arrivals sustaining their post-pandemic recovery and cross-border hotel investment volumes rising materially over the trough of recent years. For an operator such as Suba, whose demand base is overwhelmingly domestic, these external conditions were relevant principally as a backdrop to inbound and MICE demand rather than as a direct driver of performance.

Indian economy

India retained its position as the fastest-growing major economy during the year under review. As per the Provisional Estimates released by the National Statistical Office, real GDP is estimated to have grown by 7.7% in FY 2025-26 against 7.1% in FY 2024-25, with nominal GDP growth of the order of 9%. Growth was broad-based: manufacturing expanded in double digits, Private Final Consumption Expenditure accelerated to 7.7% from 5.8%, and Gross Fixed Capital Formation grew 8.2%, reflecting the continued public capital expenditure cycle.

Of particular relevance to the Company, the contact intensive composite of "trade, repair, hotels, transport, communication and broadcasting services" grew at approximately 11% in FY 2025-26 against 6.6% in the preceding year · among the strongest prints in the national accounts and direct evidence of the strength of travel, mobility and accommodation demand during the year. Total infrastructure capital outlay of the order of Rs 11.21 lakh crore, sustained expansion of regional air connectivity, and the widening national highway and rail network continued to open feeder markets in Tier-2 and Tier-3 India, which is the core catchment of Subas portfolio.

2. INDUSTRY STRUCTURE AND DEVELOPMENTS

India travel and tourism

Indias travel and tourism economy has moved decisively past its pre-pandemic peak. The sectors total contribution rose from approximately USD 191 billion in 2019 to approximately USD 256 billion in 2024, a compound annual growth rate of roughly 6% over the period, with the Government articulating a USD 3 trillion tourism economy ambition by 2047. Domestic tourist visits reached an all-time high of approximately 2,510 million, and foreign tourist arrivals continued to

recover towards approximately 9.65 million. Critically for the Companys positioning, close to 95% of tourism demand in India is domestic, which insulates the sector from external shocks to a degree not shared by more inbound-dependent markets.

Domestic visitor spending in 2024 of approximately USD 181 billion exceeded 2019 levels, indicating recovery not only in volumes but in wallet share. Segment-level growth is broadening beyond conventional leisure into religious, wellness, medical, adventure and rural tourism. The religious and pilgrimage tourism market alone · supported by the PRASHAD scheme and large-scale corridor development at Ayodhya, Varanasi, Ujjain and comparable destinations · was estimated at approximately USD 203 billion in FY 2024 and is projected to reach approximately USD 441 billion by FY 2032, a compound annual growth rate of approximately 10%.

Policy support remained a defining feature of the year. The Union Budget for FY 2025-26 raised the Ministry of Tourism allocation to Rs 2,541.06 crore; 50 premier destinations were identified for development in partnership with States, with hotels in these locations eligible for inclusion in the Infrastructure Harmonised Master List; interest-free fifty-year loans aggregating Rs 3,295.8 crore were extended to 40 projects across 23 States; and Swadesh Darshan 2.0 progressed with 34 approved projects. Operational airports increased from approximately 75 in 2014 to 147 in 2025, with a stated target of approximately 220 · a structural widening of the feeder markets on which regional hotels depend.

Indian hotel sector

The Indian lodging market entered FY26 in a demand-led upcycle with supply additions lagging demand growth. Total room supply stood at approximately 417,000 keys as at 31 May 2025, of which branded inventory was approximately 148,689 keys · implying branded penetration of only around 36%, well below China, Japan and other comparable Asia-Pacific markets. This penetration gap is the single most important structural opportunity for organised, multi-brand operators in India, and it is concentrated precisely where Suba operates: in the unbranded and independent inventory of Tier-2 and Tier-3 cities.

Branded signings of 42,071 keys were recorded to December 2024, with a further 9,478 keys added in Q1 2025 and greenfield signings rising sharply to 28,281 keys in 2024 from 13,600 keys in 2023. Of branded signings in 2024, approximately 77% and of openings approximately 83% were in Tier-2 and Tier-3 markets, confirming that the industrys growth axis has shifted away from the metros. Industry-wide pricing power continued to improve, with average daily rates and RevPAR both recording high single-digit to low doubledigit growth during the period and industry occupancy sustaining in the mid-to-high sixties.

By segment composition, midscale and upscale together account for a substantial share of branded inventory · roughly 28% and 19% respectively · which maps directly onto the Companys core operating segments. Investment interest also deepened, with 2024 recording 25 transactions worth approximately USD 340 million and Q1 2025 a further USD 117 million, improving both liquidity and exit visibility for hotel assets.

The shift to asset-light operating models

The most consequential structural development in the Indian hotel industry over the last cycle has been the separation of hotel ownership from hotel operation. Operators expanding through management contracts, franchise arrangements, leases and revenue-share structures have been able to add keys at a fraction of the capital intensity of owned development, and have consequently reported materially superior returns on capital employed relative to asset-heavy peers. Owners, in turn, obtain brand, distribution, and revenue management. Subas business model is constructed around this structural shift, and its FY26 performance should be read in that light.

Sources: JLL Hotels & Hospitality Group; HVS ANAROCK Research; NSO Provisional Estimates of National Income FY 2025-26; Ministry of Tourism; Union Budget FY 2025-26 documents.

3. COMPANY OVERVIEW

Suba Hotels Limited is a multi-brand, multi-segment hospitality platform operating across the upscale, midscale and limited-service segments of the Indian market, and is stated by the Company to be among the ten largest hotel chains in India by operating portfolio. The Company was promoted by first-generation hoteliers Mr. Mansur Mehta and Mr. Mubeen Mehta, and has grown from a single-asset operation into a national platform through a combination of organic development, lease and revenue-share arrangements, and international brand partnerships · most significantly its appointment in 2022 as the exclusive master franchisee in India for Choice Hotels International, under whose Clarion, Quality Inn and Comfort Inn brands a substantial part of the portfolio now operates. Choice Hotels International (NYSE: CHH) is one of the largest and most successful lodging franchisors in the world. Choice currently franchises more than 7,000 hotels, representing nearly 570,000 rooms, in more than 40 countries and territories. The Company transitioned to a public limited company in 2024 and its equity shares were listed on the NSE Emerge platform in 2025.

As at 31 May 2026, the Company operated 101 hotels with 4,612 keys across more than 50 cities and 74 locations, with approximately 65% of the portfolio located in Tier-2 and Tier-3 cities. A further 32 hotels with 1,759 keys were in the committed pipeline, taking the total portfolio to 133 hotels and 6,371 keys. Approximately 32% of hotels are located in prime micro-markets, with 20 properties positioned around business hubs, 18 on pilgrimage circuits, seven near airports and one within a Special Economic Zone · a deliberate spread designed to balance corporate, leisure and religious demand cycles across the calendar year.

4. OPPORTUNITIES AND THREATS

Opportunities

• Branded penetration gap: With branded keys at roughly 36% of total Indian supply against 60-70% in comparable Asia-Pacific markets, the conversion of independent hotels to branded inventory represents a multi-decade runway. The Companys franchise and management platform is purpose- built to capture this conversion opportunity without deploying balance sheet capital.

• Tier-2 and Tier-3 demand shift: With approximately 77% of branded signings and 83% of branded openings occurring in Tier-2 and Tier-3 markets, and approximately 65% of Subas portfolio already located there, the Company is positioned ahead of, rather than behind, the industrys growth axis.

• Religious and pilgrimage tourism: With 18 hotels on pilgrimage circuits and a national religious tourism market projected to compound at approximately 10% to FY 2032, the Company has a structurally under-supplied, price-inelastic and highly predictable demand pool, capable of delivering occupancies in excess of 90% during peak periods.

• Capital-efficient scaling: Approximately 95% of the portfolio operates under franchise, managed, lease or revenue-share arrangements requiring nil or minimal capital expenditure, with immediate payback. Incremental keys can therefore be added without a proportionate increase in invested capital, supporting return on capital employed as the platform scales.

• Choice Hotels master franchise: The exclusive India master franchise provides access to global brand equity, a loyalty base of more than 45 million members, international distribution and reservation infrastructure that would be prohibitively expensive to build independently, and a credible proposition when negotiating with domestic hotel owners.

• Direct channel and commission arbitrage: A shift in the direct booking mix, corporate contracting and search and metasearch optimisation, offers a quantifiable margin opportunity through reduced blended distribution cost.

• Infrastructure and policy tailwinds: Regional airport expansion under UDAN, national highway and expressway commissioning, Smart Cities funding, Swadesh Darshan 2.0 and the inclusion of hotels in the Infrastructure Harmonised Master List collectively widen feeder markets and improve financing access for hotel projects.

Threats

• Supply response in target markets: Elevated signings and greenfield activity in Tier-2 and Tier- 3 markets may, over the medium term, compress occupancy and rate in individual micro-markets where new supply outpaces demand formation.

• Competitive intensity: Domestic and international chains, aggregator-led branded budget platforms and well-capitalised regional operators are all pursuing the same conversion opportunity, which may pressure franchise and management fee economics.

• Distribution dependence and commission pressure: Online travel agents retain significant pricing and inventory influence in the midscale and economy segments; adverse changes in commission structures or ranking algorithms could affect both volumes and margins.

• Demand sensitivity to exogenous events: Travel demand remains vulnerable to public health events, geopolitical disruption, aviation capacity constraints, adverse weather and localised civil disturbance, all of which can affect occupancy at short notice.

• Regulatory and tax change: Changes in the goods and services tax rate structure and associated input tax credit treatment for hotel accommodation, and in licensing, excise or fire and safety requirements, can affect both realisations and cost of compliance across a geographically dispersed estate.

• Counterparty and renewal risk: A model built on leases, revenue-share arrangements, management contracts and franchise agreements carries the risk of non-renewal, renegotiation on adverse terms, or owner default, and depends on the continuation of the master franchise relationship with Choice Hotels International.

• Talent availability: Attracting and retaining trained hospitality talent in smaller cities remains a persistent constraint for the industry and a determinant of service consistency across a franchised estate.

5. SEGMENT-WISE / BRAND-WISE PERFORMANCE

The Company operates in a single reportable business segment · hospitality · and predominantly in a single geography, India. Accordingly, segment reporting under Ind AS 108 / AS 17 is not separately applicable. The Board nevertheless reviews performance across three operational dimensions: brand, operating model and customer segment. These are set out below.

5.1 Brand-wise portfolio (operational hotels as at 31 May 2026)

Source: Company data as at 31 May 2026. Share of keys computed on total operational keys.

The portfolio is deliberately balanced between the Companys proprietary brands and its licensed international brands. Click Hotels, the Companys own midscale brand, accounts for 37 hotels and approximately 30% of the portfolio by property count, providing brand ownership, unencumbered economics and full control over positioning. The Choice Hotels portfolio · Clarion, Quality Inn and Comfort Inn · contributes 60 hotels and 2,881 keys, providing international brand equity and global distribution. This combination of owned and licensed brand equity is a distinguishing feature of the platform, and more than 30% of the estate operates independent of any third-party franchise.

5.2 Operating model mix

No single operating model accounts for more than approximately half the portfolio. This is a deliberate construction: franchise and managed arrangements deliver capital-free scale and fee income, leases and revenue-share arrangements deliver operating control and a share of property-level upside, and the small owned estate provides asset backing and full economic participation in the Companys two legacy properties. Approximately 95% of the estate carries nil or minimal capital expenditure obligations, and the committed pipeline of 32 hotels preserves the same mix.

5.3 Operating metrics

Implied occupancy is computed as RevPAR divided by ARR and is derived, not separately disclosed. Hotel and key counts are as at 31 May 2026.

The quality of FY26s operating performance is best seen in the composition of RevPAR growth. RevPAR rose 11.7% while ARR rose 6.4%, meaning that roughly half the improvement came from occupancy rather than rate. Implied occupancy improved by approximately 330 basis points to 68.5%, broadly in line with the national branded average and materially ahead of the Companys own FY24 level. Growth was therefore volume-led as well as price-led · a healthier mix than rate-only expansion, and evidence that newly added properties are stabilising rather than diluting portfolio performance.

6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

FY26 was the Companys first full financial year as a listed entity and the year in which the platform crossed Rs100 crore of annual revenue for the first time. Revenue from operations grew 44.3% to Rs11,435.28 lakhs, EBITDA grew 15.2% to Rs2,681.79 lakhs and profit after tax grew 18.9% to Rs1,801.28 lakhs.

6.1 Statement of Profit and Loss

Revenue

Revenue from operations grew 44.3% to ?11,435.28 lakhs from ?7,924.32 lakhs, on top of 51.6% growth in the preceding year. Growth was driven by three reinforcing factors: expansion of the operating estate through franchise, managed and revenue-share additions; a 6.4% improvement in average room rate; and an approximately 330 basis point improvement in implied occupancy that lifted RevPAR by 11.7%. Other income more than doubled to ?153.63 lakhs, principally reflecting treasury income on the proceeds of the public issue held pending deployment.

Operating costs and margin

EBITDA rose 15.2% to ?2,681.79 lakhs. EBITDA margin on total revenue moderated by approximately 595 basis points to 23.1% from 29.1%. The margin movement is attributable almost entirely to other expenses, which increased 71.5% to ?5,583.01 lakhs and rose to 48.2% of total revenue from 40.7% · a 748 basis point increase. Cost of materials consumed in fact improved as a proportion of revenue, to 8.3% from 9.4%, and employee benefits expense was broadly stable at 20.4% of total revenue against 20.2%, indicating that the margin movement is not a function of wage or input cost inflation.

The increase in other expenses is consistent with the composition of the years growth. A larger proportion of incremental revenue was contributed by lease and revenue-share properties, where the Company consolidates full hotel revenue but also absorbs lease rentals, property operating costs, power and fuel, and distribution commissions · a structurally lower-margin, higher-turnover revenue stream than pure franchise or management fee income. Newly commissioned and recently acquired properties additionally carry pre-opening, ramp-up and renovation-phase costs before reaching stabilised operating levels. Management regards the margin moderation as a function of portfolio mix and asset ramp- up rather than of pricing or cost discipline, and expects margins to recover as the FY25 and FY26 additions stabilise.

Profitability and earnings per share

Profit before tax grew 15.3% to Rs 2,229.64 lakhs and profit after tax grew 18.9% to Rs 1,801.28 lakhs, with PAT margin at 15.5% of total revenue. Basic and diluted earnings per share were effectively unchanged at Rs 8.70 against Rs 8.69, as the growth in absolute earnings was offset by the increase in the weighted average number of equity shares outstanding following the issue of capital during the year. Shareholders should read the flat earnings per share alongside the substantial strengthening of the balance sheet and the deployment capacity created during the year.

7. KEY FINANCIAL RATIOS

In accordance with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, details of significant changes in key financial ratios · being changes of 25% or more compared to the immediately previous financial year · are set out below, together with explanations.

8. OUTLOOK

The Companys stated ambition is to emerge as Indias largest hotel chain by property count, and its strategy for doing so is explicitly capital-light: acquiring or contracting high-EBITDA hotels through franchise, management, lease and revenue-share arrangements rather than only through owned development. The seven pillars of that strategy are asset- light acquisition, renovation and modernisation of underperforming assets, turnaround of weakly managed properties, strategic location selection including selective metro entry, disciplined capital allocation towards debt reduction and targeted refurbishment, and the capture of demand created by improving connectivity and Tier-2/Tier-3 policy tailwinds.

The committed pipeline of 32 hotels and 1,759 keys, which would expand the operating estate by approximately 32% by property count and 38% by keys, provides the near-term visibility on growth. The mix of that pipeline · 14 franchised, 12 leased or revenue-share, five managed and one owned · preserves the capital-efficient character of the platform. Alongside the addition of keys, management is pursuing revenue quality initiatives: increasing the direct booking mix and thereby reducing blended distribution cost, deepening corporate rate contracting, scaling the Suba Rewards, and optimising the allocation of inventory between direct and third-party channels.

The industry backdrop remains supportive. Demand growth continues to run ahead of supply growth, branded penetration remains low by international standards, and the policy and infrastructure environment continues to widen the addressable market. The Company is well positioned to capture demand created by increasing connectivity, new destinations, rising pilgrim travel, and policy tailwinds supporting Tier-2 and Tier-3 markets, particularly across its core geographies. Barring unforeseen disruption to travel demand, management expects the Company to sustain its growth trajectory in FY27, with margin recovery as recent additions stabilise and the balance sheet capacity created in FY26 is deployed into revenue-generating assets.

9. RISKS AND CONCERNS

The Company has a structured framework for identifying, assessing and mitigating risks that could affect the achievement of its objectives. The principal risks and the Companys response to them are summarised below.

The above is not an exhaustive list of risks to which the Company is exposed.

10.INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company maintains an internal control system commensurate with the size, scale, complexity and geographic spread of its operations. The system is designed to provide reasonable assurance regarding the efficiency and effectiveness of operations, the safeguarding of assets against unauthorised use or disposition, the reliability of financial reporting and the maintenance of proper accounting records, and compliance with applicable statutes, policies and procedures.

G iven that the operating estate spans multiple States and several operating models, the control framework extends to property-level revenue capture and reconciliation, inventory and rate parity across distribution channels, procurement and vendor management, cash handling at property level, fixed asset and capital work-inprogress control, and compliance with brand standards under the master franchise arrangement. Delegation of authority is defined, and material transactions require approval in accordance with the Companys approved authority matrix.

The internal audit function Vishwas & Associate, chartered accountants carries out audits in accordance with an annual internal audit plan approved by the Audit Committee, covering both financial and operating controls across a rotational sample of properties. Significant observations, together with managements responses and the status of remedial action, are placed before the Audit Committee, which reviews the adequacy and effectiveness of the internal control system and the internal audit function on a periodic basis. The statutory auditors have also reported on the adequacy and operating effectiveness of internal financial controls with reference to the financial statements, as required under the Companies Act, 2013.

The Board is of the opinion that the internal control systems in place are adequate and were operating effectively during the year under review.

11. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Hospitality is a service business, and the consistency of the guest experience across a geographically dispersed, multi-brand and multi-model estate depends directly on the quality, training and motivation of the Companys people. The Company regards its human capital as its most important operating asset.

During the year the organisation was strengthened at the senior level to support the Companys transition to a listed platform and its expansion programme, with leadership in place across finance, operations, business development and secretarial and compliance functions, drawn from established hospitality and professional services backgrounds. Recruitment during the year was directed principally at property-level operating roles at newly added hotels and at central revenue management, distribution and development capability.

The Company invests in structured training in brand standards, service delivery, revenue management, safety and hygiene, and applicable statutory compliance, including training required under the master franchise arrangement. Employee engagement, internal mobility across the estate and performance-linked recognition are used to support retention in an industry where attrition is structurally high.

The total number of employees on the rolls of the Company as at 31 March 2026 was 979 (previous year: 672). Industrial relations remained cordial throughout the year under review and there were no material developments in human resources or industrial relations that require disclosure.

12. CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forwardlooking statements" within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of future events, and actual results could differ materially from those expressed or implied. Important factors that could cause a difference include, among others, economic and political conditions in India and overseas, demand and supply conditions in the hospitality industry, changes in tax laws, regulations and government policies, litigation and labour relations, the ability of the Company to add and retain properties under its various operating models, the continuation of brand licensing arrangements, and the availability and cost of capital and inputs.

The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent development, information or event. The Company has sourced industry and market data used in this report from publicly available industry publications, government sources and research reports; while such data has been reproduced in good faith, the Company has not independently verified it and does not make any representation as to its accuracy or completeness.