Royal Orchid Hotels is a group of 3,4,5 star hotels with major presence in Bangalore with pan india ambitions.Company had come out with IPO in 2006 at valuation of around 400 cr and raised 100 cr from investor. Total revenue is around 58 cr at time of IPO and company was operating around 490 room keys in Bangalore and Mysore then. Since then companies expanding into various cities of India through build, lease and managed contract which is common in India. Due to liquidity issue company has to go through debt restructuring in 2013 and sale some of its newly build hotel properties in hyderabad and ahmedabad to delevarage its balance sheet and since last 3 years company has reduced its consolidated debt from Rs 300 cr to below 100 cr currently and plan to further reduce the debt my sale of land parcel in Mumbai. Currently now company is focusing on management contract model for expanding its pan india presence.
Company total number of room keys under various categories as per Q2 2016 17 investor presentation.
Company plan to reach around 50 hotels and 5000 total room keys in next 1 year. Hotel industry since last 8-9 years is going through tough time however supply of new branded hotel is decreasing since 2014 and since 2015 occupancy rate is improved to more than 60% pan india and last quater occupancy for royal orchid is 68%. Recently company has paid dividend of Rs 1 after many years and posted turn around result in q3 2016 17. In recent concall management sound bullish about medium term prospects for the company. Current stock price is Rs 89 and market cap is around 250 cr and considering land asset
which company plan to dispose off net debt is less than Rs 50 cr. In current overvalued market it seem reasonable bait considering strong brand image, ownership of around 500 3,4,5 star rooms after excluding for jv partner share (it cost around 50 lakh to build per room for 3,4,5 star hotel on average). So at current valuation we are getting other assets in almost minimum valuation. For valuation comparison recently Le meredian hotel (Mac Charles India) with 200 room key is bought for around 600 cr valuation by Embassy Group giving valuation of around 3 cr per room.
Since last 4-5 years topline is stagnant as average room rent and occupancy level in hotel industry is subdued due to over capacity and company focus on asset heavy model of building new hotels in hyderabad and ahmedabad among others which has backfired. In fy 2016 company has revenue of 158 cr with opm of 13% with improved occupancy level opm can move upto 30% and benefit can pass on to bottomline if hotel industry cycle revives.
(1) Promoters has more than 3 decades of experience in hospitality industry with IIM predigree
(2) Company has good brand recall in Bangalore and other localities
(3)Website of company is good with online booking facilities. Company also have hotel management training institute in Bangalore to train manpower
(4)As occupancy level improves per room realization may improve which can cause increase in topline and bottomline
(5) Strong govt push through Incredible india, e-visa and other campaigns to improve tourist inflow likely to benefit the company
(1) Hotel industry is cyclical in nature with last two quaters Q3, Q4 contributes significant portion of topline and bottomline
(2) As it is discretionary in nature so global recession, weather related disruptions,law and order related issues, political issues affect hotel industry negatively
(3) Upcoming GST may be negative for hospitality companies and particularly 3/4/5 star hotels
Disc: Recently i have taken position in this share at around Rs 86