Royal Orchid Hotels Ltd 128.00

Founded in 1973 by Chender K Baljee, the Baljee Group which has been re-branded as Royal Orchid Hotels is soon becoming one of India’s most recognized names in hospitality with major presence in Bangalore. Royal Orchid Hotels Limited (ROHL) - the flagship company comprises of hotel assets, their management and the branding & marketing activities of these hotels. Apart from having ownership of hotels company also undertakes management contract with third party owners, so as to encourage the development of hotels and simultaneously provide with them with the benefit of professional management and a well recognized brand. From a modest beginning of owning single hotel in Bangalore, ROHL currently operates following eight hotels.

Name	Place	No of rooms	Categoty
Royal Orchid	Banglore	195	5 star
Royal Orchid Central	Bangalore	130	Business class
Royal Orchid Harsha	Bangalore	80	Budget
Royal Orchid Resort	Bangalore	54	Resort
Royal Orchid Metropole	Myosre	30	Heritage
Royal Orchid Brindavan Garden	Mysore	25	Gateway
Royal Orchid Golden Suites	Pune	71	Serviced Apts
Royal Orchid Central	Jaipur	70	Business class

Importantly, company follows a unique business model of taking properties on lease or entering into a contract for managing & operating the existing hotel instead of owning them outright. This has helped the company manage its funds efficiently, have lower payback period on its projects & earn attractive operating margins. Besides, it’s very clear from the above, that company is having presence across the hospitality category and is also de-risking its revenue model geographically. In the next few months, company is planning to open “Royal Orchid Central” – four star category hotels at Pune (120 rooms) and Hyderabad (65 rooms) to cater the business class. Subsequently it has plans to operate two five star hotels under brand Royal Orchid, one each at Mumbai and Delhi. It is also planning to set up one near the upcoming international airport in Devanhalli in Bangalore.

Off late ROHL has signed an agreement with New Jersey based Wyndham Hotel group which operates Ramada hotels globally. Under this agreement company will develop and manage 10 hotels over five year under Ramada brand in India. In 2009, ROHL is targeting international foray by opening hotels in Dubai and South East Asian countries. But for major growth, company wants to target the lower end of the hospitality pyramid and has plans to set up a chain of 50 budget hotels across India under the brand ‘Pepper Mint’ in next 3 to 5 years. Out of these 50 locations planned, 11 have been tied up with Indian Railway Catering and Tourism Corporation, which are Chandigarh, Nagpur, Jodhpur, Agra, Bhopal, Tirupati, Jalpiaguri, Darjeeling, Jaisalmer etc. Thru this tie-up ROHL is expected to get these properties on a 30 year lease for development and running of budget hotels. It ahs also won a bid from the Konkan Railway Corporation for developing a 60 room budget hotel in Madgaon for which land has been taken on a 60 year lease from the railway authority. Recently company acquired Royal Orchid Central, Bangalore property at a consideration of Rs 82 cr which was being managed by itself. To summarize, company is constantly looking to expand to several Tier II & III Indian cities through joint ventures, management contracts, leasing or setting up of its own properties.

Ironically, the current supply of 110,000 rooms is inadequate either to meet the demand of 4.4 million tourists who visited India last year-a figure that, according to the tourism ministry, will touch 10 million in 2010. Secondly, the hospitality industry in Bangalore is upbeat, with increase in average occupancies of the hotels and the city is emerging as international business destination. With the demand from IT, ITES and the financial service sector in cities such as Bangalore, Pune and Hyderabad growing, the demand for rooms in these cities is on a rise. Hence ROHL along with seven of its subsidiaries is expected to end FY08 with total revenue of 150 cr (excl. other income) and NP of 35 cr for FY08 on consolidated basis. This translates into EPS of 13 Rs on equity of 27.25 cr. Considering its issue price @ 155 Rs in Jan 2006, and 52 week H/L as 120 / 238 Rs its one of the safe bet in current market. Investors are strongly recommended to but at current levels with a price target of 180 Rs (i.e. 40% returns) in 9-12 months