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

In the consolidated number, it is there.

Could you delve upon the development plans for Goa hotel? We have 73 rooms, what plans we have to expand it. I understand some land also, whether we have taken any additional land there, because that's a good place where occupancy is very high.

Yes. See, due to the shifting of the CRZ line, we have got an additional area where we can build rooms, and I think about 48 rooms can come up in that particular area. And then, we have taken some land adjoining that on the rear side where we can come up with a bigger banquet hall as well as about 20 rooms and a spa. So that is being planned. In fact, I was in Goa on Saturday with architects to discuss that, and we should be finalizing this plan in the next month or so, then giving it for sanction. And once that is done, we will start the construction.

Can we expect that by FY '24, this project will be complete, let us say a year or let us say, 14 months.

100%. In fact, we are trying to target is to at least partly complete the project by September or October.

Next question is from line of Rishabh Shah from Nuvama Wealth.

So, first thing just a couple of bookkeeping questions. So, can you, I mean, kind of for the quarter and for the 9 months, can you give a breakup or the revenue from management contracts, as well as revenue-share contracts and leases.

In our management business, we have done for the quarter around the revenue of total revenue of around INR 9.7 crores. This has come primarily from the management business. And out of the total revenue of INR 76 crores, see INR 76 crores we have done the total revenue for the quarter what has been sub-leased. So out of that, around INR 9.7 crores is from the management business, and from the leased business, we have done around INR 9 crores from the leased business.

And balance would be from the owned properties?

Owned properties and revenue shares.

And the same for the 9 months?

See, for the 9 months, if you really look at it, then around INR 26 crore has come out of the management business and lease business is around INR 47 crores, and balance from our owned and revenue share hotels.

And secondly, basically about the pipeline that we have mentioned, so you have mentioned that we will be adding 1,134 rooms that will be over 2023, so most of this would be getting added by September itself. So I just want to kind of understand how is the ramp-up of the new hotels? I mean, what kind of time does it take for these new hotels to reach the average occupancy, say 70% to 75%?

Normally, any hotel -- we are entering the markets, I think by the second year we get towards 70%, 75%. And of course, in our Asia destination, you maybe 60%, 65%. In our city destination, this location will be 70%, 75% in year 2.

So around, just one or somewhere above year 2, 3 is optimum levels?

That is right.

And thirdly, can you kind of throw some light on the advanced bookings that you have received for the Q4, maybe January to March or a period beyond that? How is that shaping out.

Advanced booking cycle has reduced a lot. Statistics of MakeMyTrip and all those people where normally a largest booking comes one to 3 days in advance. Then there will be some booking come into more 5, 6 days and there will be very few bookings coming a month or 2 months in advance, except some conferences or some weddings. For weddings, they have to book in advance. And also some foreign groups, which is of course, now come only in the next season because this season is getting over. They'll probably come next year.

Okay. So is it kind of an indicator of, maybe say, increasing competition or maybe last minute travel bookings. I mean, what to read into that?

By and large, the market has changed. You see, people who earlier used to plan annual holidays, apply for leave, the children's holidays and all that. Now what's happened is there is lot of long weekends. Example, there are so many long weekend. So people take maybe one day casual leave on a Monday, Tuesday is a holiday, Friday, Saturday, Sunday and Monday. So lots of that is happening. And people are going out to maybe 3 or 4 small holidays and one long holiday. That has just become the trend. And now to book also it's become easier. If you really look at -- you just get into an OT website and within a few minutes your booking is there. You go home, pack your bag and you leave. Lot of driving holidays have come up in the past. And I think the trend has changed and people are really looking Facebook and Instagram, people putting their posts on that. So lot of people want to see that and then keeping up with the [indiscernible] as we've said, they also want to go on holidays.

[Operator Instructions] Next question is from the line of [ Ronak Rathi ], individual investor.

So, I joined the call a bit late. Just want to understand on -- where do we stand on the debenture raising plan as of now?

Yes. The Board has authorized us so far to evaluate the option of raising INR 200 crores. So at the moment, we are evaluating because we have enough funds available within the company. So at an appropriate time, we will go for the raising of the fund as and when it is required.

And also, sir, as we are in middle of the upcycle in hotel industry, so do you come across a situation wherein, let's say, you have taken a hotel on management basis, but then probably the owner of the property might get a feeling that he might be able to now manage the property on its own and try to do it by himself instead of being associated with Royal Orchid. So how do we kind of align the owner interest as well as our interest in the upcycle as well?

We try to give our best to the owners. Of course, this is a thing which happens across the country and across the world also. When the hotels are doing well, the owners [Technical difficulty] I don't need the management company. So these things happen. There will be some hotels which will drop-out. One drops out, 10 comes in. So it is okay. This is part of the businesses.

I would like to add here what Mr. Baljee has just said. See, the amount of services what we as a management company give to the individual owner, the value of those services is much more than the fees what the owner has to give it to us. Like, hypothetical example I'll give you one, that the OTA business can come directly to the owner also, but he will have to shell-out a large commission, the percentage of commission of an individual owner is much more than what we get for the chain. So that itself is one point which can let the owner be with us.

And sir typical, what is this cycle like, once the MOU is signed between the company and the property owner, so generally post that, what are the activities that are taken, because we have seen that, let's say, you are saying that there are already 10 or 20 hotels that have been signed, but it takes a bit of time for us to go-live with that particular hotel. So is there any kind of refurbishment that happens with each and every such hotels with whom we enter into some sort of management contracts? So why there is this time lag from date of entering into the agreement versus to actually going live?

These hotels come to us in the various stages. Some are greenfield, the hotel might take 3 or 4 years. Some are brownfield. The structure is ready and yet to do the interior. Some hotels are -- already operating hotels, they have to be refurbished. So there can't be any hard and fast rule that so much time it will take. Also depends on what is the financial capacity of the owner to bring in the timely fund or does he engage some relative of his to look after the project or a professional project management company. Sometimes you just engage somebody to look after who is not professionally qualified. So this is a very variable kind of a thing. You can't say that the hotel will come on x period of time. Some hotels come up very fast and some take long time and some don't come up at all also.

And sir, in this bull-cycle also, are we getting enough inquiry for the management of such hotels or the trend is shifting more towards the owners who would like to manage it by themselves or there is no change as such? There is ample opportunity for Royal Orchid?

Lot of inquiries today. In fact, we are sometimes such is the inquiry we don't even compare, everybody says come and see the hotel. We are not able to cope-up with that. So that's why we are beefing-up our development team also and we're adding more people in the development team. So that we can evaluate hotels faster, evaluate hotels, inspect hotels faster.

And sir, let us say Jaipur hotel was a laggard for us in our financial performance. So with the improvement in infrastructure, let's say Delhi-Mumbai Expressway got opened and there are multiple initiatives also taking up, plus the hotel has also now come to a mature state. Do we see turnaround happening for specific hotels? Are you seeing any kind of early signs of it? I know the Expressway has just got live recently, but otherwise in a just a broad sense I want to get an understanding from you.

This hotel has turned around. In fact, Amit will give you the figures also. The hotel has turned around. And I think it's turned profitable for the first time in so many years. And now the debt is very manageable. Business is very robust. So I don't think there will be a drag on the company any longer.

This hotel has been posting cash profit, but book loss over the years. So this will be the first financial year when this hotel is going to post profit. And last, if you really look at the numbers, all the 3 quarters it has posted a net profit. So that laggard with which the hotel was pulling us down has gone, I guess, and now almost INR 1.17 lakhs of associated profit you can see in our published number, that is from this hotel only.

And also the management fee that you mentioned for the quarter 3 is around INR 9.7 crores. So that is the revenue figure, but if I have to get a ballpark understanding like how much it might contribute to my, like at EBITDA level also, I understand there might be lot of overlapping of expenses to lease revenue or the other operating revenue, but however, if I have to just get a ballpark understanding, right, typically if we missed.

Almost 48% to 50% goes to our EBITDA level.

Sir, just a small request. If we can kind of capture all these figures in investor presentation also going forward, because if you would look at your comparable peer group companies, they are kind of disclosing it in their investor presentation. And that also help us in kind of extrapolating or envisaging how the performance will be because there are lot of moving chains to our company, like there is lease revenue, there is a management fee, there is room revenue from the owned properties. So it could give us a bit of sense of how we can expect the numbers going forward if I have to extrapolate the projection.

Point well noted. We will cover in our investors presentation going forward these details also.

And sir, just one last question from my end. If we have to get an understanding, like I saw the recent credit rating report which says we have got 4 to 5 owned properties. So if we want to get an understanding, sir, how much is the revenue contributed from your own property, how much would be that and how much Bangalore contributes out of it, just to get an understanding on the geographical concentration?

See, If you really look at the contribution of Bangalore, the major contribution comes from Bangalore only. Out of the total revenue, almost in 9 months -- if I take the 9 months revenue, almost INR 70 crores odd has come from Bangalore itself.

And in that also because I believe we have got 3, 4 properties over there. Is it one specific property that is contributing significantly over there or it is distributed?

Our flagship hotel in 9 months, out of total INR 191 crores, INR 47 crores has come from the flagship hotel.

[Operator Instructions] Next question is from the line of Amit Agarwal from Nuvama Wealth.

My first question is, of course, on what is the current cost of debt which you have on the books?

There are 3 debts as I told earlier, okay? The standalone debt is at 9%. And the debt in Jaipur hotel it is at 9.5%. And the debt in the Icon is at 11%.

Right. And if you, as you suggested to go for NCDs, what could be the potential level which you're looking at?

See, we are looking somewhere around 9%, but we understand that our rating also has to improve, okay. And after this third quarter result, we are going for the re-rating of our company. Once that comes, then we will look at, but definitely we are looking at somewhere around 9%, 9.5%, not beyond that. Anywhere between 9%, less than 10%.

And another question on overall strategy going ahead for next couple of years, in terms of expansion, what I wanted to understand from you is, when you're looking to get into, let's say a new hotel or new property if you take, what would you be looking for? Is it more of geographical expansion or is it basically tourism, but maybe you have reduced tourism in Bihar and couple of other things. So is there any specific which you look at for expansion purposes where there are gaps and you want to fill-in? I mean, if you can throw light on the strategy for expansion.

We are looking at, actually look at map. We are very much North, West and South. But in South, Tamil Nadu and Andhra and Telangana is recovered, Central India which is covered, Eastern side, we've covered, North Eastern side we have to cover. So we have a lot of things to cover. But we are working very aggressively on that, and I think by next quarter you will see many more cities which have where we have planted our flag. And that will continue. So I think we are well on our way and we're also looking at some expansion overseas also.

So I was just coming to the overseas expansion part. I mean, any particular places where you could throw light on where would you be looking for expansion and would it be management contracts or revenue-sharing, how would you be going about it?

Mostly management contracts. We are looking at Sri Lanka. We are looking at Maldives. We are looking at, maybe Southeast Asia. These are the things, but at the moment I can't give you specific because we just started talking to people.

And the expansion would be primarily, as you said, asset-light model. So it will not affect your balance sheet going forward. Can I take that?

Expansion, as I mentioned to you, will be only in the Goa hotel and the Bangalore resort. There will be some capital investment. But otherwise, no.

Next question is from the line of Rajesh Agarwal from Proprietary Advisor.

Now, FY'22-'23 is coming to a fag-end. Will be very opportune for us to know what is the management's mind for the next year's targets both on the topline and EBITDA level?

See, Mr. Agarwal, this year's target was INR 300 crores of topline and INR 80 crores of EBITDA. And as far as the EBITDA is concerned, I think we are almost there and we will be over-shooting the EBITDA target this year. So EBITDA, we should be closing somewhere around INR 95 crores of EBITDA, and topline most probably anywhere between INR 280 crores to INR 290 crores we should be able to do, depends on next 1.5 month of business. So next year we had set a target of somewhere around INR 375 crores -- anywhere between INR 375 crores to INR 400 crores depending on another revenue share of how many hotels we can add. Already, we have added 2 in this current financial year. So another 2 or 3 we want to add. And if that happens, then we will definitely be able to touch INR 400 crores because organic growth cannot be more than 10%, 12%. So that is the way we are looking at anywhere between INR 375 crores to INR 400 crores of topline and an EBITDA of around INR 120 crores, INR 125 crores.

[Operator Instructions] Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Gentlemen, thank you very much for joining us on this call. And I appreciate all the questions that you had asked and the requests for further information in the next quarter, that we will take care of. And I can assure you that we are on the right path of growth and things should be doing well. We are very optimistic about the country's future, industry's future, and particularly our own company's future. We've taken the right steps and that should yield results in the coming quarters. Thank you.

Thank you so much.

Thank you very much. On behalf of Royal Orchid Hotels Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.