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

Ladies and gentlemen, good day and welcome to the Q4 FY '23 Earnings Conference Call to discuss operational and financial performance for Royal; Orchid Hotels Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal from Nuvama. Thank you, and over to you, Mr. Agarwal.

Thank you, operator. On behalf of Nuvama Wealth, I would like to welcome you all to the fourth quarter FY '23 Earnings Call of Royal Orchid Hotels Limited. The management today is represented by Mr. Chander K Baljee, Chairman and Managing Director; and Mr. Amit Jaiswal, Chief Finance Officer. I would like now to hand the floor over to the management for the opening remarks, followed by the Q&A. Over to you, sir.

I'm Chander Baljee. Good evening, and warm welcome to everyone. Thank you for joining us for this Royal Orchid Hotels Limited Earnings Conference Call for the fourth quarter and financial year '22-23. Please note that Q4 and financial year '22 results, press release and investor presentation are available on the Exchange. I hope you have had the opportunity to browse through the highlights of the performance. In the current financial year, the industry bounced back very strongly after COVID. From April 22 onwards, we have done robust business, which was evident in the financial results of all the fourth quarters of this year. We continued the success story in the first quarter also. In fact, we have built on the success and this phenomenal business in the fourth quarter. The same is evident in the first quarter as well. The company has posted a robust growth because of the strong business model and effective risk mitigation strategy. We are aiming to post better margins than what our company has witnessed in the recent past. The fourth quarter as well as the year-end result of '22, '23 has been one of the best in the last 10 years. Financial highlights of the company for the fourth quarter on a consolidated basis are as follows: consolidated revenue from operations for Q4 was INR 72.55 crores as compared to INR 39.53 crores the year before that, a growth of 84%. This was attributed to increase in ARR occupancy and also increase in F&B business. Consolidated EBITDA for Q4 was INR 25.8 crores as compared to INR 14.24 crores in the previous year, an increase of 81%. Consolidated PAT before exceptional items for Q4 stood at INR 12.98 crores as compared to INR 5 crores the previous year, an increase of 159%. Financial highlights for the company for the 12 months ended 31st March on a consolidated basis are as follows. Consolidated revenue from operations was INR 263 crores as compared to INR 138 crores previous year, a growth of 90%. This was attributed increase in ARR and occupancy and also increase in F&B business. Consolidated EBITDA was INR 98.3 crores as compared to INR 40 crores in the previous year, an increase of 143%. Consolidated PAT before exceptional items stood at INR 49.98 crores as compared to profit of INR 26.88 crores in previous year, an increase of 86%. During the quarter, we've been able to increase the average room rate for Q4. It stood at INR 5,657 as compared to INR 4,035 in the previous year, a growth of 40%. We are well in line with our vision to complete 100 hotels before the end of the calendar year to 2023. And we are looking forward to opening new hotels in different cities. Here as we talk, we are operating 90 hotels. During the quarter, we witnessed RevPAR growth led by higher ARR. We believe that last year has seen a revival and we have bounced back with a better result in the current financial year. Management has set out a strategy to diversify the product offering, provide unique customer experience and work towards a robust balance sheet. I would like to conclude my opening remarks by saying that we are witnessing major signs of growth for our industry as a whole, and which will show up in our overall earnings and quality over the next several quarters. Thank you. And now we can go the floor open for questions.

[Operator Instructions] Our first question is from the line of Rahul Bhangadia from Lucky Investment Managers.

Congrats on a great set of numbers, sir. And -- just if you could just give us a sense how are the -- how is the growth plan on the managed in terms of number -- manages keys in terms of number of rooms and all shaping up for the next 1 to 2 years. What are we looking at in terms of overall numbers?

See we are looking at -- today, we are sitting at about totally all hotels combined, we are looking at 90, 90 hotels. Now we have got in the pipeline about 24 hotels. And I think by September, we should definitely cross 100 hotels. And looking forward, the way business has grown in the last 1 year or so, the number of hotel openings which are happening, I think we should be able to cross, next half-year, another at least 40 to 50 hotels. That means, we are looking at almost reaching 140, 150 hotels by the end of this financial year.

So 140 to 150 hotels by the end of FY '24, we are talking about, sir?

Yes.

Sir, could I ask you to please come near to the speaker phone. You are not audible, sir. Thank you.

Yes. Can you hear me now?

Yes, loud and clear, sir. Now loud and clear.

Okay. So we are talking 140 to 150 hotels. That would be what, roughly we're talking 8,000 to 9,000 rooms, we are at roughly about 5,400 rooms as on date. So what are we talking in terms of number of rooms?

By September, which I can give you as a definite kind of a figure, we will be able to add about almost 1,000 rooms towards 6,500. And I think another 6 to 8 months after that, we should be able to add another -- you're right, about another 1,500 to -- 1,000 to 1,500 rooms. Yes.

Okay, okay. So we are looking at, let's say, 7,500 to 8,000 rooms by the end of FY '24.

Yes. Yes. We should be able to do that.

Okay. Sir, the second one is actually not a question, but just a request which I made in the last call as well. Our presentation doesn't give any bifurcation of what has been our earnings through our asset-light model and our ownership model. It's left to the investors to kind of keep either speculating or ask you on the call repeatedly as to what have you earned from the respective segments? And the other thing is that while we do give occupancy numbers for the various segments, I think it might just add a little more value to the investors if you could just give us a occupancy numbers for the properties, which are probably, let's say, 1 year old or 2 years old and the properties which have been recently added, which gives a sense to the -- which has given the sense to everybody as to how has the occupancy progressed for mature properties and the not-so-mature property, which have got linked to your network. So that was just a feedback and a suggestion.

If you see our Slide #35 in the presentation, we have classified our revenue to owned lease joint venture and managed hotel. We have bifurcated this time in the presentation. So from managed total what we have earned, we have given. And also, we are also giving the EBITDA what we are getting from managed total and owned hotel, leased hotel and JVs.

Let me just confirm this. Which slide number are you talking about here?

If you see the slide number, 35. That we have given the earnings bifurcation.

[Operator Instructions] Our next question is from the line of Darshil Zaveri from Crown Capital.

So apologies, I just joined the call a bit later in case of a repetitive question. So what I wanted to ask what kind of revenue growth and margin growth are we expecting in the next 1 or 2 years because we've been expanding our number of hotels. So what kind of ballpark range that we could have?

See, as far as the revenue growth is concerned, this year, we have almost touched INR 300 crores okay? Because one of our associate revenues do not get reflected in the consolidated financials. If you add that, we have almost INR 300 crores. Our targeted revenue for next -- this current financial year will be INR 400 crores and EBITDA of INR 120 crores. That is what targeted. It looks like achievable.

So sir, this INR 400 crores would include revenue from the associated company?

Yes. It will obviously, it will -- around INR 28 crores of revenue of associates has not been consolidated. So...

Our next question is from the line of [ Navdeep Paya ], who is an individual investor.

This is in addition to one of the previous questions. So you're looking to add about 3,000 keys in FY '24 from 5,000 to 8,000. So the question is, sir, are these mostly greenfield projects? Or are these more in tie-ups with hotels which are maybe unorganized right now -- in the unorganized segment right now?

It will be a combination of both. First of all, let me correct you, they're not 3,000 rooms being added? We'll be adding, as I mentioned to you about 1,500 to 2,000 rooms. And we are looking at adding -- this last year, we've added almost about 40 hotels. So this year also a similar number will get added. So that's what I said that we are today sitting at 90. And so we may be able to add about at least 40 hotels in this year. So our target is, we can't tell you exactly how much is because that depend on opportunities which come our way. But there will be a combination of either some conversion hotels, which are already there, we convert it, that's the fastest way to do it. And some projects will be brownfield, where the structure is already up and interior is going on. So those are hotels that will come up within this year. If any greenfield budget is there, which we are also signing, that take at least 2 years to come up.

Right. Just to sum up on Mr. Baljee, let me tell you, around 24 hotels are already there in the pipeline, which are signed. And that will add another 1,100 rooms. So we'll reach 6,500 rooms very shortly. Then further, we are targeting another 1,500 rooms maybe in another 20, 25 hotels. So with that, we will touch 7,500 to 8,000 rooms.

Understood, sir. So of these 40%, 45% growth that you're targeting in terms of either hotels or rooms, what is the broad bifurcation in terms of conversions of existing hotels versus brownfield or greenfield additions, new capacity?

We can't say right now because see the development teams are under discussions. Now we are -- we go and talk to somebody, and if it is a greenfield project, we'll sign that also because we have to keep our pipeline going for the years to come. And whereas if there's a conversion then they will sign a conversion. So I can't really tell you which will really get converted, which will not get converted. But I can assure you there are large number of inquiries come into our chains to date, and we are working towards both conversion or brownfield and some greenfield projects also.

Understood. And sir, even I missed your maybe initial couple of minutes of your commentary, any outlook that you can reshare if you've already shared on the overall industry in terms of supply, how much supply, fresh supply is coming in the industry, if you can share anything on that?

See, what happens in hotel industry when the demand is good. Now this year, the sector has done well. So this year, people have woken up, yes, we should set our hotel and this is a sector, which was earlier like a blacklisted sector, people won't touch it. And I remember whenever we used to approach banks, particularly HDFC Bank, they used to say, no this sector is not in our list at all and this year, they themselves approached us, and we got the loan swapped, and we got very, very good terms from them. So as a sector looking positive, but the supply will start coming in from, say, 2 to 3 years from now. [ Supply will start to coming in. ] So 2 to 3 years' time, if everything goes well, the way Indian economy is going, you can see all parameters that our business will grow. So demand will be -- will outstrip the supply at least in the next 3 years. So we can look forward to a good time in the next 3 years.

If you all go through the last budget, for the first time in the history of India, that the tourism sector has been given so much importance in the budget. And the government is very on-go on this. So we are looking forward to that and the growth in the industry will be robust in the next 2, 3 years. The demand is growing heavily, but supply may take some time for the supplies to come.

Okay. So sir, just to maybe quantify to an extent, next 2, 3 years, you see supply addition being less than maybe in the single digits. Am I understanding this correctly?

As far as the newer hotel is concerned?

Yes, new hotel, of course.

Yes. new hotel. Because the industry is such that once you plan to open a hotel, it takes 3, 4 years to start the operations. Even if you plan a hotel today, it will take minimum 4 years for the hotel to get operational.

Our next question is from the line of Sakshi Chawla from Swan Investment. [Operator Instructions]

I have two questions. One was I wanted to understand that what is the ARR trajectory going forward for the next 1 or 2 years? And my second question was that in the -- on the room addition that you spoke about, what percentage or how many rooms would be on the lease and revenue share model?

We are targeting whatever hotels we set out, about 15% of the hotels we're targeting for revenue share and balance 80%, 85% will be on management. I suppose we're targeting, say, 40 hotels, then I would say, about 5 or 6 hotels should be on revenue share and balance hotels will be on either franchise or management.

As far as the ARR growth is concerned, we have seen a growth of almost 40% from last year. And further, yes, there are scope because the kind of occupancy is going up. So we are looking forward to another 10%, 15%. 15% growth in the ARR in the current financial year.

Okay. And you think that you can maintain the occupancies? Or you think that the occupancies would obviously increase going ahead?

So occupancy, I don't think so it is going to increase any further because we are already doing 77% occupancy. I don't see that it is possible.

Our next question is from the line of Rahul Bhangadia from Lucky Investment Managers.

Sir, just a follow-up question on one of the comments that you made regarding the revenue and the EBITDA number that you're expecting for FY '24. You said about INR 400 crores of top line, INR 120 crores of EBITDA. That seems reasonably lower than the EBITDA margin that you are reporting today. I just wanted to understand, is there some math here that I'm missing?

I'll explain it to you Rahul. As we said that now we are only growing in the revenue share model, okay? We are not going to own any asset. So if we increase in revenue share model, what happens is the return, the margins are lesser in revenue share models than the owned hotel. If you see our slide, we have given the margins of what we have done in owned and what in lease. So in lease model, what happened, the margins are around not more than 15% of the growth. So even if the revenue grows and the maximum this growth in the revenue will come from the leased asset. So the margins will not be that much.

[Operator Instructions] Our next question is from the line of Raj Tolkar, Individual Investor.

Congratulations on a good set of numbers. Just a few questions from my side. The first one would be, can you share how do the modalities work in the managed properties model? And how does the accounting work in this case as well?