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

No, no. That's what I told you. Iconiqa rent has been -- there's no rent, which has accrued on Iconiqa Hotel. It will start accruing only from 15th of November.

Okay. So we have paid some renting in advance. Is that what we are trying to say?

No, no, no. We have not paid in rent in advance. We have done the adjustment of Ind AS adjustment for the entire period of INR 25 crores and discounted it for this period and booked at INR 6.35 crores in depreciation and finance costs towards that rent.

Okay. And for the second half, how much rent we are expecting in terms of cash flow?

Cash flow. As far as the cash flow is concerned, in the second half means from October to March, we will be incurring around INR 12 crores, INR 13 crores of rent.

We'll take the next question from Prashant [indiscernible].

First of all, I would like to congratulate you on the opening of Iconiqa. The pictures look really amazing on TripAdvisor and the reviews do as well. And 11 months is an amazing time to open it. And my question is perhaps to Arjun. In terms of -- I know that you guys are focused on return on capital. And I would love to understand the framework you have for an asset like Iconiqa, which is a leased asset, how you guys think in terms of return on capital for an investment like that? As the company, I guess, we want to scale up a few more Iconiqas in the future. I would love to understand your framework on this.

Sure. Thanks for the question, Prashant, and we'd love to see you at the hotel, if you'd experience it firsthand rather than just through TripAdvisor. But when we decided that we focus a company like a private equity shop and figure out how does one -- how do those guys look at a return on capital, right? And everything -- while it is Excel, you're looking at a very data-driven theory on where you would deploy your money. So things like STR reports, things like what's happening in the market, is there going to be absorption of commercial spaces, so on and so forth. You look at all that data to figure out demand. Now it's not accurate, okay? It can never be accurate. But it is -- given the experience we have and given what is happening in the market, it gives you some dipstick understanding of if you were to do hotel positioned in a -- let's say, it's upper mid-scale or in the upscale lifestyle like we were talking about or like Iconiqa is, if you were to do an upscale lifestyle hotel, what is the industry benchmark of what it would cost, okay? So there are rule of thumbs and those numbers are available out in the public domain. So the way we think about it is that if a chair cost INR 20,000, can we get that chair done for INR 8,500. Those are fundamental value engineering things that we look at in order to help reduce cost, our input cost into the project to begin with, okay? You know your end goal. You know where the market is. I mean, it will be foolish of us to say we can come in here and invest and outperform the Fairmounts of the world. I mean, it's foolish. So you have to be -- you need to first create what is the target segment you want to go after, what returns and yields that target segment generates. Then what is the sort of return metric and profile you want to create. Therefore, determine what sort of cost you want to incur and take it from there. So it's -- there's a bottom-up approach and a top-down approach that one looks at from a investment of this scale. And this is large scale for us, right?

Yes. That makes sense. But I guess -- in terms of -- is there a particular number you guys want to target like after the hotel stabilizes in terms of yield on the asset?

Well, listen. Asset is a very different metric. So let's look around us. We look at the ROCE metric, which we said, listen, 25% return on capital is kind of what we really want our portfolio to perform it. And that will be great. Now from a comparison perspective, our competitors own their assets. Therefore, they have huge interest and repayment and huge amounts of CapEx upfront. We, in turn, have lease rent. So there is an asset liability per se on -- for both people. So we're just looking at how does one earn a return on that dollar invested in quicker, right, from a cash basis because you guys at the investors value us on a cash basis, right, and not really the NAV of the asset. That was really our thesis.

[Operator Instructions] We'll take the next question from Chirag.

First question on the Iconiqa expense that we reported in the quarter. So you said there's a INR 2 crore OpEx with regards to Iconiqa and there is INR 3 crore employee expense. So INR 5 crore is the impact on the P&L for the quarter? Is it the right understanding?

Yes.

And what is -- and what were the total revenues from...

Around INR 5 crores.

INR 3 crores. Okay. And second question is on the rent. So you mentioned that there is no rent cash outflow in the quarter. And it will only start from 15th of November. So why is there isn't the hotel has started.

We had a rent-free period of 3 months from the date of getting the -- when the hotel is ready to operate.

We take the next question from Anshuman.

So my first question is, what is the lower ARR in Q2 versus the last year Q2 and this year Q1 and similarly lower occupancy rates? Also, how does this equate with the net guest being higher -- so domestic increased by 14,000 Y-o-Y, while foreign guest reduced 4,000 Y-o-Y.

So Anshuman, let me tell you the ADR -- ARR, we have got 5,479 as against 5,114 for last year. Our occupancies were 67% as against 70% last year. And in our managed segment, we had an ADR of 3,552 as against 3,574 last year, occupancy of 54% as against 58%.

He's asking why is it lower?

Why is it lower means, see, generally second quarter when it rains across the North India, the occupancies were quite low. In rains the -- and even Goa market also did not do that well in this year, reasons of -- there are a lot of issues which is going on in the Goa market, the taxi issues and all. So that is why the occupancies got a little bit hit, whereas ADR, we have improved upon the ADR since last year.

Yes. And my another question is that what has led to higher payroll cost Y-o-Y and Q-o-Q?

As we explained, the payroll cost includes the 3 months preopening payroll cost of Iconiqa of around INR 3 crores. That is why you are seeing a surge in the payroll cost whereas the revenues have started coming only mid-September. That is why the payroll cost looks a little higher for Iconiqa.

Okay. And my last question is that where have you on modernization in our Goa and Bangalore hotels?

Mr. Baljee, would you like to...

Yes. Yes. In Goa hotel, we are actively pursuing it, but there is an issue of change of land use where certain parties have gone to the court to stop the smooth conversion of land. But I'm told that the thing should be through very shortly. So once the land use issue is settled, plans are ready, then we will get the plan sanctioned. And we hope that -- but right now, we don't want to do anything right now, any case because it's a season. So we hope to start the work sometimes in the month of April when there is no season as far as we think. As far as the other hotels are concerned, we have just completed our 28 rooms -- [ 28 ] wooden cottages in the resort in Bangalore. So that has been done, and it's come out very well, received also very well. Just about less than a month ago, we started that. It gives a very [indiscernible] like ambience in the whole place. The inventory from 54 has gone to 82 rooms. And we hope to increase the revenue by about at least 70%, 80% of the room revenue. We are taking up the Dhaba renovation and the banquet hall renovation very shortly. The plans are getting ready, tenders are being invited. That work is going on. We have out of the 50 room, which were to be renovated in Royal Orchid Hotel -- 37 rooms were already renovated. The balance 13 rooms, we have just kept it hold till the month of March. And March, we'll start. Everything ready. So I think once we start in 2 months' time, April and May, we hope to finish those renovation. We are also now planning to renovate our Central Hotel that is Manipal Center on MG Road, which is 130-room 5-star -- 4-star hotel. There, we have just invited a few architects to give us some plans. So I think in about 3- to 6-month plan, plan should be ready, and then we'll take up that innovation also. So this was our renovation and expansion plan is.

We'll take the next question from [ Yash Dantewadia ].

I'm sorry, this is repetitive and I missed the first half of the con call, really sorry for that. My question is regarding this Iconiqa hotel. Just wanted to understand, I've seen online for a lot of days, it's already sold out. I think even on this weekend for Friday, I think it's showing sold out. So the INR 100 crore number on this hotel, how far do you see it annual number? I'm talking about F&B included. Is INR 100 crore a right estimate? Or are you expecting more or less?

Next year, we are targeting because we have started in the mid of September. So this year, definitely INR 100 crores is not possible. But next year, we will definitely cross INR 100 crores.

Right. And as far as your 4-star hotel in Bangalore that's there, and you were talking about renovations, could you approximately give us some cost guidance on that and renovation room by room [Foreign Language], are you going to close down the hotel?

No. We're not going to close down the hotel. That's something I can tell you. We are very prudent in that way. Even with our main flagship, the Royal Orchid in Bangalore, we closed down floor by floor. So Royal Orchid Central, Manipal Center will go under the knife in a phased manner, perhaps a floor retirement, but we will not close the hotel down.

But could you give us some sort of guidance on the cost or range would work?

I think you're a little pretty premature. As Mr. Baljee said, we're in the middle of just finalizing the plan of how to go about it and then where to position it. And earlier, we had stated that once you position the hotel with the right use of the right return profile for the asset, then we'll figure out the investment, and we'll figure out how to go about this. So just -- I think it's -- we're a couple of weeks away from actually giving those numbers or estimate...

That's fine. But are we trying to convert -- so I know Bangalore, I'm from Bangalore. So it's a very premium area, right, MG Road. My question is, are you trying to convert that into a 5-star hotel by any chance? Is -- are we going to see a renovation of that scale? Or is it going to remain a 4-star hotel?

4-start hotel, but we'll upgrade it.

Okay. And my next question is, are we going to see any more hotels coming under the lease contract this year, like the Iconiqa in Mumbai? Do you have anything more on that scale under discussions of any sort?

So listen, discussions is one, but what -- on the upcoming hotels on the 38 hotels that we've listed out, there are 5 hotels under the revenue share model that we are currently working towards executing. There is the Regenta, which is a 120-key hotel in Gurgaon Sector 20, Lucknow is a 172-room hotel, a large property. And then you've got the North Goa asset in Dodamarg, again under Regenta Resort. We have a small Crestoria, the first of its kind, it's going to be really, really boutique lovely under revenue share as well.

How many rooms is that, the last one?

Crestoria is about 40 keys. But it's upscale. It's very upscale, and it will be a really nice hotel experiential. We've got...

All in all, what are we guiding for next year? Next financial year?

We have given the guideline in our presentation, if you really look at it. Next 2 years, we have given. And we are -- I think we should be there.

We're at the 450 mark.

Right, right. And are we confident of this number?

Yes.

Yes. Yes.

We'll take the next question from Aishwarya.

I have 2 questions. First one is, could you throw some light on the role being played by senior management teams between them on strategy, new hotel openings, negotiations, et cetera?

Mr. Baljee?

Yes, you see all new projects are now discussed almost on a weekly basis with the development team and the cluster heads. Cluster heads are also involved in evaluating the project. The development team brings the project, evaluates it, brings to the cluster head. And then we have a joint Zoom call or so to say yes or no, and/or maybe seek some more information about the market, either the market, so many hotels gets turned down because the market is not -- hotel may be good. The owners may have very ambitious plans, but the market may not be that strong or stable. So some hotels will be turned down. Some hotels, we go into deeper details and get more information. But all this has to be done very confidentially and very fast because otherwise, information can lead to the market. But today, owners are also very smart. They engage a consultant who lines up most of the various chains. So we have to really show that how we are really actually performing and against the competition -- against the competition chains. So we have to show that in certain. In certain booking -- a lot of markets, we are performing better. Some we are not performing that good. So there, the focus is on now sales and marketing. We will gain new professions in sales and marketing. And their focus is to look at all the hotels, which are not doing -- are not in the 1 or 2 positions in the market. How are they? So we're trying to push that also. So a lot of work has gone in and we trying to get AI also into action to improve our, one is, efficiency, reduce costs and increase sales and profitability.

Right. My next question is we have recently seen Indian hotels acquiring something on the wellness side. So any plans that you will have on similar lines to acquire any allied businesses, or any other hotel or smaller chains or something on the food and beverage side?

No. We are looking at acquisition. But obviously, acquisition has got to do with something with how much deep pockets you have. And Indian hotel does have much deeper pockets with Tata backing also. But this is something which is definitely being explored by us. And so that will bump up our development rather than going organically one by one, 1, 2, hotels, if we need a little bump. So we are exploring. I can't tell you what we're exploring, but we are definitely exploring that. Maybe smaller weaker chains, which we're trying to see whether we can have a strategic tie-up with them.

[Operator Instructions] I have a question on chat from [indiscernible] Desai. Can you provide some context on the F&B revenue trend going forward? And since it is down this quarter, where do you see it? Any guidance for EBITDA margins and debt for FY '26, '27?

So let me just take the F&B question. Over the last few months, we've had a strategic review of the F&B of our hotels to understand which -- what restaurants work, what doesn't work, what food works or doesn't work. Obviously, the customer is rapidly changing, the customer demands and preferences are changing and stand-alones are eating the lunch of the mid-market hotel players. So in that light, we are in the middle of revamping and rolling out new F&B concepts along our managed hotel partners today. So in the next couple of months, the F&B will have, whether it's the menus refresh, whether it's concept refresh. So all of that is being done strategically as we speak. So rest assured, I think F&B contributes about 40% of revenue right now, and that number should remain stable and not go down.

Since there are no further questions, would you like to give any closing comments?

I'm really happy to see a lot of participations by the people and a lot of questions which we can think of for the next quarter and be prepared for better answers. Thank you very much for joining us, and we look forward to your continued support. And we can assure you from our side that we'll leave no stone unturned to make this company better and better quarter-on-quarter. Thank you.

Thank you, sir, and thank you to all the participants for joining on this call. Thank you to the management team. This brings us to end of today's conference call. Thank you.

Thanks, everyone.

Thank you.