Today on concall someone asked managementās view on share price which is apparently very cheap. Management categorically denied that they do not indulge in any activity to control the share price. May be he wanted to get a sense on whether promoter is looking to increase their stake.
I am just curious on the valuation part. Valuation has not been discussed in detail on this thread so request others to share their views.
What multiple should be assigned to managed hotels? Isnāt EVEBITDA more appropriate for owned hotels? Their owned hotel of 195 rooms in Bangalore alone may fetch value equal to current market cap at 1.5cr per room. How to value leased hotels? It may depend on term of lease period. Ofcourse these numbers will have to be adjusted for Debt and Operating efficiency and they have land parcels.
A good article, highlighting both the opportunity and challenges in the hotel sector today. Some excerpts which I found interesting are below.
Keshav Baljee, the Managing Director of Spree Hotels and owner of Royal Orchid hotels from his more than a decadeās experience in the hotel industry, points out that the situation was very different a few years back, especially when internet and smartphones were not in everyoneās hands. ā You couldnāt discover the non-hotels before. Earlier hospitality meant only hotels. But now it includes home stays, serviced apartments and guest houses. Staycations have also started.ā he says.
Technology has been the biggest disruptor in the industry. Technology is powering all hotel bookings. With the emergence of smartphones and rise in the availability of the internet, online travel agents have come to the fore with their apps and websites. They are the actual disruptors of the industry. āNow, you just donāt enter a hotel and say, āHi! I want to book a hotel room,ā āstates Baljee.
The second factor that has also assisted in the enhancement of the sector is that the customers now are very price sensitive as they can now easily check and compare prices online. 10-12 years before discounts were not much of an option, but now it has become widely prevalent everywhere. There are now so many non-hotels competing with the actual hotels that price competition has also increased. It has been a boon for the tourists and has eroded a lot of the profit margins for the hotel industry.
Below articles are interesting and highlights issues of deep discounting and arm-twisting by online aggregators (specially OYO). Eventually better sense will prevail and everyone will agree to more reasonable terms which helps every participant in the industry to grow. The present model is definitely not sustainable.
Patu Keswani of Lemon Tree in his Q2FY19 concall has explained this model very well and has interesting views on it within next couple of years.
Royal Orchid Q3 FY 19 Con call Highlights
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New hotels launched this year under mgmt contracts will take 12 months to stabilize the realization. Thus, causing variation in room realization of Mgmt rooms and JLO rooms.
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EBITDA is flat due to one off expenses to the tune of Rs. 50 lacs in standalone PnL.
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Interest rate in Jaipur hotel subsidiary is at around 13.5% which is expected to go down in coming 1-2 quarters. No further interest rate reduction expected.
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Entered into new lease contract in Nagpur. Hotel is of 5 star standard and has the biggest banquet in the city. Current ARR is around 3000 which is expected to improve to 4000 in future.
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Total debt is of Rs. 95 Crores.
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About Land parcel in Powai-Already in talks with 3-4 potential developers. IL&FS crises has lead to delay in transaction has developers is facing liquidity crises due stop in credit facility from financial institution. However, expected to complete transaction by Q1-Fy 20.
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Q4 will show some growth due to hike in corporate contracts.
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Growth in Consol figures is more than Standalone
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Want to increase total properties from 50 to 100 in 2-3 years. 40 will be managed and 10 will be lease
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Macro scenario- demand more than supply-will take at least 3 years for supply to catch up to demand
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Hotels in India are very underpriced. In 2008 prices in bangalore were at par with overseas properties but now the gap has increased substantially. Possible for rate hike across all hotel categories.
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Bangalore and Goa properties are doing very well. Jaipur is bad. New supplies are continuously coming.
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Expected wedding business to do well in this year as their are more wedding dates in CY 2019 than 2018.
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Company enters into lease agreement for min 10 years which could go upto 20 years.
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Cannot ruled out possibility of next generation joining the business. At present, 2 sons are in seperate hospitality business.
Improvement in ARR might lead to supply surge from Unorganized sector, AirBnB and Homestay. However, hotel experience far different than homestay plus target customers are different. So impact might be minimum. -
Continues to maintain consol EBIDTA outlook of 45 Crores on Consol basis.
Disclosure-already Invested in company
Royal Orchid Hotels announced the opening up of three new properties - in North Goa, Noida (Uttar Pradesh) and Belagavi (Karnataka) within next 2 months.
Of the three new openings, two properties (in Goa and Noida) will be positioned under the Regenta Central brand while the one in Belagavi will be positioned as a Regenta Resort.
What is an update on land parcel in Powai and africa as they are on sell?
Prashant
I did research on reviews of various hotels of Royal Orchid just to get insight on the quality of management of the business. The reviews from tripadvisor website is positive. Sharing the same for the benefit of everyone.
Disclosure: Invested in the stock.Hotel ratings2.pdf (26.9 KB)
Quarter Results
Investor Presentation
Hiā¦
Was going through their Q1 FY 23 results and their concall. The results were very encouraging. The company reported very strong profitability in Q1 @ 11 cr at PAT level. Plus they are guiding for a topline of 280 - 300 cr for FY 23.
They also guided for consolidated EBITA of 35-40 pc for FY 23 !!! All this should translate into a PAT of > 50 cr for FY 23. At a mkt cap of 550 odd cr, the company looks like trading at cheap valuations despite the recent run up in the stock price.
For a company operating 80 hotels across India, the valuations really look really attractive to me. Plus they are likely to take their Hotels count to north of 100. Most of the new additions are likely to be managed hotels with no to little capex requirements. The travel trends in July were also encouraging, as indicated by the management.
Disc : initiated a tracking position @ 200 on Friday. Will add if the management is able to walk the talk.
Investor PPT - Q1 results
In the concall, management has guided for > 280 cr topline and an EBITDA margin of > 35 pc for FY 23 !!!
Latest management interview. Management indicating that occupancies are around 80 pc in Aug 22!!!
August is a lean season for leisure tourism. Clearly business/corporate travel seems to be picking up. This is a very positive sign for the company and the entire sector.
Disc: invested.
The financial statements are riddled with holes. Capex since last several years is almost nil. There is a history of making losses. Company was a defaulter and went through CDR mechanism. Several litigations, auditorās qualifications, defaults, etc. are present on the statements. Even in FY22, there are several auditor qualifications and adverse remarks. There is continuous promoter selling. No wonder valuation is so low, unlikely to go away.
https://archives.nseindia.com/corporate/ROHLTD_09112022175751_ROHLInvestorsPresentation09112022.pdf
Posting the Q2 investor ppt.
A very good Q2 performance when seen from YoY perspective.
However, the company is raising 200 cr debentures with bullet payment after 5 yrs. I personally feel that the mkt is concerned about the same and not rewarding the stock price.
Q3 and Q4 are always good for the company. CFO has guided for 100 cr EBITDA for FY 23.
Disc: holding. Have halfed my position size by booking 25 pc profits. Continue to monitor the company.
Numbers thrown by the management in con-calls need to be taken with a pinch of salt. Donāt understand how the management predicts ā¹400cr revenue in 2-3 years (src: concall) with management contract model. If we do quick math on the latest quarter numbers, the company does only (~20%) of its revenue through Mgmt contract rooms which when annualized is roughly ā¹45-50cr. Now if the company makes ā¹50cr with 3500 rooms (under mgmt contract), they will need to do approximately 7000-10000 rooms in order to reach the ā¹400cr mark number (FY23 expected revenue if ā¹250-280cr). Seems really far-fetched.
There also seems to be a complete mismatch between management talk and actions. They talk about taking managed hotels as the core strategy going forward but but then go ahead raise ā¹200cr. Why does the business need so much money if the focus is completely on asset light model?
On top of this, constant promoter selling doesnāt help (Keshav Baljee, son of Chander Baljee has completely sold out his stake).
I would advise caution.
Royal Orchid Hotels Q3 concall highlights -
Sales at 72 vs 52 cr yoy, mainly due to increase in ARR, occupancies and higher F&B sales
EBITDA at 27 vs 19 cr yoy
PAT at 15 vs 6 cr yoy
ARR at Rs 5900 vs Rs 4400 yoy
Aim to be operating 100 - 120 hotels end of FY 24
Board has approval to raise 200 cr NCD. Not going for it right now as the current fund position is comfortable
Growth in next few Qtrs to be as healthy as in the last few Qtrs - According to chairman
Current room capacity at 4600. Aim to add 1000 rooms by Sep23
Expect 15-20 pc of additional rooms via leased model, rest via managed model
Expect a topline of aprox 70 cr for Q4
Expect to close FY 23 with an EBITDA of 95 cr
FY 24 tgts - 375 to 400 cr sales, EBITDA around 120 cr
Disc: holding, biased, not a buy/sell recommendation
Royal orchid has 4600 rooms. They are quoting average revenue per room to be 5900 Rs and Occupancy level above 70%. If we multiply 70% of 4600*5900 the average revenue per day should be around 1.9 crores per day. Considering that a qurter has 90 days, the quarterly revenue shiuld be 170 crores. Why it is 72 crores.
My guess is that a large part of the business is based on lease model where they are not the owners. So are they adding only the fees income they are earning on lease properties? Any body can through some light?
As per the latest investor presentation of Q3Fy23, 3640 rooms are under management contract , where realisation is on the basis of revenue sharing. In one of the conference call, mgmt said that revenue sharing is 6% for the managed hotels. You need to revise your revenue calculation accordingly.
6%? Or u want to say 60%.