Royal Orchid Hotels Limited (ROHLTD) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I welcome you all to the Q1 FY '23 Post Earnings Conference Call of Royal Orchid Hotels Limited. Today, from the management, we have with us Mr. Chander Baljee, Chairman and Managing Director; Mr. Amit Jaiswal, Chief Financial Officer; and Mr. Prashant Mehrotra, Chief Operating Officer. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which exemplify our judgment and further expectations concerning the developments in our business. These forward-looking statements involve risks and uncertainties that may cause actual developments and results to differ materially from our expectations. Also, this is a reminder that this call is being recorded. I would now like to hand over the floor to Mr. Chander Baljee, Chairman and Managing Director, to give his opening remarks, post which we will open the floor for Q&A. Over to you, sir.

Good evening, and a warm welcome to everyone. Thank you for joining us for the Royal Orchid Hotels Limited Earnings Conference Call for the First Quarter of Financial Year '22/'23. Please note that Q1 of -- for year '23 quarter results, press release and investor presentation are available on the exchanges. I hope you'll have the opportunity to browse through the highlights of the performance. Last 2 years have been very tough for our industry. We have sailed through these turbulent times very successfully. The industry was coming into normalcy from November '21 onward, when the third wave of Omicron hit us in January 2022. But we recovered from the third wave quickly and bounced back in March '22. From April '22 onwards, we have done robust business, which is evident from the financial results of the first quarter. We have learned a lot during the last 2 years of how to be pragmatic in difficult times and how to control our -- the cost of our operation. And the benefit of our learning is visible in the present quarterly results. The company has posted robust growth because of strong business model and effective risk-mitigation strategy. As our business bounces back to normalcy, we are aiming to post better margins than what our company has witnessed in the recent past. In the first quarter, results have been one of the best in the last 10 years. Financial highlights of the company the first quarter ended 30th June '22 on a consolidated basis are as follows: Revenues from operations for Q1 was INR 60 crores as compared to INR 39.53 crores in Q1 '22, which is a growth of 53%. This was attributed to the increase in ARR and occupancy and increase in F&B business. EBITDA for Q1 was INR 24 crore, as compared to INR 14.24 crores in Q1 '22, an increase of 69%. EBITDA margin stood at 40%. PAT before exceptional items for Q1 stood at INR 11.53 crores, as compared to INR 4.93 crores of Q1 '22, an increase of 134%. During the quarter, we've been able to increase the average room rate from Q1 '23, which stood at INR 4,080 as compared to INR 2,769 for Q1 '22, a growth of 76%. During last year, we had opened 9 hotels with 388 keys. In the first quarter, we have opened 2 hotels, taking our total tally to 73 hotels, with 4,546 keys. It is well in line with our vision to operate 100 hotels by 2023 and are looking forward to opening new hotels in different cities of India. During the quarter, we witnessed RevPAR growth led by higher ARR. We believe the industry has seen a revival and we have bounced back with better results in the current financial year. The management has set out a strategy to diversify products, provide unique customer experience and work towards a robust balance sheet. I would like to conclude my opening remarks by saying that we have been -- we are witnessing major signs of revival for the industry as a whole, which will show up in our overall earnings quality over the next several quarters. Thank you. And now we can throw the floor open for questions.

[Operator Instructions]

Sir, firstly, I wanted to understand what is the current occupancy and pricing versus the pre-COVID levels? And do you think this current occupancy and pricing will further improve as we progress in FY '23?

Yes. See, there has been a phenomenal rise in the occupancy as well as the ARR. So currently, we are operating our hotels at around 78% occupancy. And the average increase ARR also around -- from the last year same quarter, if you compare, there is a robust growth of roughly around 60% -- 60% to 70% growth is there in different hotels as far as the ARRs and occupancy is concerned. Occupancy, of course, around 80%. I think going beyond 80% becomes a little difficult. But the ARR, there is a scope for another 10%, 15% increase in the ARR, which we are very confident of having in the quarters to come.

Understood. And secondly, looking at the EBITDA margin for the stand-alone entity versus the subsidiaries, it looks like the subsidiaries are making a lower margin versus the stand-alone entity. So what is the strategy here to improve the profitability of subsidiaries? And I mean, I also saw FY '21 annual report, so there were a couple of subsidiaries which are loss-making like Icon Hospitality [ Jheel Sagar ], [ Maruti Comfort ]. So if you can highlight like, what is the strategy to make them profitable?

See, as far as [ Jheel Sagar ], that is our Jaipur hotel and Icon, Central Bangalore. These are the 2 hotels which are little drag as far as subsidiary is concerned, but Maruti and the Goa hotel will definitely make more profits in time to come. And the Jaipur hotel is a little seasonal. It's a seasonal hotel because the first quarter, historically, it doesn't do that much great performance, being the summer is there in Jaipur. But in the last 2 quarters, it will definitely bounce back and do very well.

So we expect an overall improvement in margins, going forward, right, from 1Q level?

Yes, yes.

Okay. And sir, last question from my side. So 1Q, we saw INR 60 crores revenue. Where does the company aim to be, let's say, 3 years from now in terms of any revenue ambitions you have?

See, revenue -- and listen, let me tell you, we are looking -- we are -- there will be a little organic growth as well as inorganic growth. And we are trying to touch -- take the revenues to maybe in 3 years' time to, say, around INR 400 crores.

Sir, just one clarification here. Sir, you mentioned about inorganic growth. So if you can highlight more like what you are planning here, is it like -- is it going to be asset-light model? Or is it a heavy model?

No, definitely, it will be an asset-light model. Because by inorganic growth, I meant that -- see, we are taking more and more hotels on management while the management fees straightaway goes to our top line and bottom line. But simultaneously, we are also trying to sign hotels on rev share, revenue share basis also. So these are the two strategies where a lot of investment is not required. Rev shares, they are marginal security deposit investment management. There's no investment at all required. So that -- these are the two ways which we'll grow. And of course, getting asset right now, we are not looking at.

We'll take the next question from Yash Aggarwal.

Congrats, on a good set of numbers. I had a few questions. So a large part of our hotels is managed and franchisee hotels. I just wanted to understand, how does the revenue and cost recognition work here? I'm a little new to the company. So if you could just explain how the revenue and cost recognition works in the managed hotels for you.

See, as far as cost is concerned, we already have a fixed costs across our company, whereas on the -- the corporate expenses are almost fixed. However, say, for every 10 hotels, we may add a cluster head or a VP-level person to provide support to the company -- to the newer hotel. So I think the revenue growth will be substantially higher than the cost growth because most of the fixed costs are already there. So that is how we're going to work in the future and try to limit our -- we have learned a lot in COVID of controlling costs, and we've already done it. And so we are a very lean and mean kind of an organization today, and this is how we are going to grow in the future.

So sir, actually, my question was more than -- suppose if I have 5 managed hotels, so all of those revenues and costs are accounted for in our [ bank ] profit/loss statement? Or do we only account for some bit of sort of commission income? Was -- how does the recognition work for us?

It accounts only for our fee, which will come to us. We charge a fee to the company, which is usually around aggregate of about 6% of the turnover. That's a fee we charge them. So that will come to our listing. Costs and other things, the revenue, the loss will all be on the owner's account. It doesn't reflect in our balance sheet.

Sure. And sir, is there any initial -- suppose when a [indiscernible] sign up a managed hotel, is there any renovation expense or something that we have to do? Or it's all on the owners?

All on the owners. 9 properties, all expenses are on the owners.

So incrementally the hotels that we are adding, I think, 12 to13 hotels that you mentioned in the presentation, are they most on a managed basis, sir? Or beyond this...

Mostly on managed basis. They'll be -- going forward, maybe about 10% of the hotel will be on revenue share, where the cost and revenue will come on to our books.

So out of the INR 60 crores, could you outline how much of the revenue is from the managed hotels?

See, from the managed hotels, roughly -- as far as revenue is concerned, so they contribute to roughly 20% of the revenues.

So about INR 12 crores to INR 15 crores or INR 10 crores to INR 15 crores, that's a right assessment?

Yes, yes.

And the margins on this could be extremely high, right? Because this is completely flowing into EBITDA for...

No, margins are quite high as far as the fees are concerned. But we have a certain fixed cost of managing the -- these managed hotels that are basic costs of the sales offices and blah, blah things. So -- but yes, of course, the margins are high. And as we add more and more hotels, the margin will further grow.

Okay. Sir, on the questions of -- the previous participant question of the occupancy and ARR. So has that improved further from the first quarter? Or is there some bit of cooldown in terms of seasonality? And how do you expect this to...

We have maintained the run rate of occupancy in the current quarter also, and there is marginal growth in the ARR growth.

Got it. Sir, one final question from my side. What is the net debt of the Company, gross and net debt?

The net debt of -- on consolidated basis, is around INR 88 crores.

INR 88 crores. Okay, okay, sir. And sir, I suppose if you want to meet on a separate basis, on a one-on-one basis, how can we do that? Because we can...

You can get in touch with Mr. Vinay Pandit, who is there on the line. He will take it forward.

You take the next question from [indiscernible].

Congratulations on a brilliant set of numbers, sir. Sir, I just wanted to ask, sir, because you -- I think Q3 and Q4 might be given better numbers. So could you give any guidance in terms of what revenue do we expect by FY '23? And as you have already said, margins will improve. So could you just give some...

Revenue, we should be able to touch around INR 280 crores for the current financial year. Maybe a little better...

A little better. The first 2 quarters will give about 40% of the revenue. And the second 2 quarters, we were 60%. It may vary a little up and down, but keeping -- if we extrapolate what we have already seen with the INR 60 crores, then total that is INR 240 crores. But we do expect 280 to -- more than INR 280 crores as some also likely to come into the pipeline. So our target is to cross INR 300 crores.

Yes. So that's amazing, sir. And the margins will keep on increasing [ in crores ]. So sir, would it be fair to assume we'll do more than 40%, 45% margin?

Not 45%, is not possible in our industry. So -- but yes, but it will be around 40%, definitely. EBITDA.

Yes, yes, EBITDA. And sir, just my one last question, sir. Any risks that we see that might -- we might just face or some problems that we might face, except the pandemic because the slowdown, recession, do we have any peers or anything?

Not really. See, we can't predict into the future, like pandemic was not predicted. I don't [ see ] any other major risks in our business.

We'll take the next question from the line of Rahul.

Before taking my questions, sir, and first of all, congratulations on a great set of numbers. Sir, you've always given a broad outline of trying to reach 100 hotel properties. Given your already existing ones and the pipeline that you have shared in the presentation, you will already be touching about 90. So 100 is literally not far away. So what is the next phase that we are looking at beyond 100?

Yes, actually, particularly in the management contract space, the growth is exponential. So this year, I would say, in the next 1 year, if we are able to reach 100, then definitely we can do -- easily add about 30 to 40 properties [ every ] year or so. I think that should be -- it is the target and our only hope because sometimes, opening hotels, the circumstances are beyond our control because the owner is controlling and driving the project. He have some funds constraints or he may have some organization constraints, which is why he's not able to deliver or so. So -- but then we do provide support to him and guidance on how to execute the project. Certain people take the guidance, certain don't.

Okay. Okay. Sir, secondly, given the uptick in the industry and the profitability that we have reported and the continued profitability, we should expect by the year-end pretty much being close to a net debt-free kind of a situation? Or -- what do we plan to do with all the cash flows that we are going to generate?

You see what -- like Amit had also mentioned, that we are getting into some revenue share deals also. We're actively looking at revenue share deals, where there will be some working capital requirement and we will be requiring money to pay the deposit. We'll require money to start up the hotel, some operating supplies we have to give. So I think it will be a combination of both. We will reduce our debt to some extent. And the balance money we will deploy for getting the more revenue share hotels.

Okay. Sir, just third update. Is there any further asset or something that you can monetize? The last we heard, you had something in Africa as well. Anything that you can kind of monetize that is left to be managed on the books?

See, Africa debt has been in the market. The market there was quite depressed, but now I'm told that the market has picked up because there's been a change of government and change of heart that is actually inviting investors. So I'm told that the area is developing. At the moment, the area develops, then obviously -- then we will get buyers. And I am planning to visit Africa this month so that -- to meet some prospective investors and all that. And -- but at the moment, since there is no distress in the company, so we don't want to gain a tearing hurry. I have waited patiently for so many years. We will go there, and we'll try to explore and try to monetize the asset within this financial year.

Lastly, I don't have a question. It's a suggestion. In the presentation, sir, in quite a few of the slides, it's basically a comparison between Q1 FY '22 and Q1 FY '21. There is -- I'm assuming it's a comparison to '23 and '22, but a lot of places just mentioned '21 and '22. It's a little confusing. If that could be corrected, thank you.

All right.

We take the next question from Rishikesh.

Sir, my first question is, I need a clarification on the EBITDA margins that you said for FY '23. So did you say like 40% for whole year FY '23?

Yes.