Royal Orchid

Pan-India Presence & New 5-Star Hotels Help Co Derisk Bangalore-Centric Biz Model

THE worst seems to be over for the Indian hospitality industry. Nothing illustrates this better than the turnaround in the fortunes of Bangalorebased Royal Orchid Hotels. With four properties in the IT city, it was one of the many hotel stocks which fell when the Indian IT industry began to face headwinds in 2008. In the past one year, however, the stock has managed to beat the Sensex, though not by a very wide margin. The stock has generated a return of close to 80% since the beginning of the current year against a 70% appreciation in the Sensex during the period. 

   With factors such as a revival in business travel, concerns over security ebbing and start of the peak holiday season, hotels are seeing rising occupancy levels. Being an upcoming player in the hospitality industry, Royal Orchid Hotels has not been untouched by these developments. In January, occupancy levels at the company's properties had fallen to as low as 30%. They subsequently improved to 70% by the end of November this year. Its average room rate during the period jumped from Rs 3,500 per night to Rs 4,700-4,800 levels. With the upswing in business, the company seems to be stepping up its investment. It recently completed a four-star project (104 rooms) in Ahmedabad and is planning to set up five-star hotels in Hyderabad and in Jaipur. These two projects will open in October 2010. It recently acquired a 53% stake in Amartara Hospitality at Powai in Mumbai. It plans to develop the property as a four-star hotel with 250 rooms. The hotel is expected to open in 2011. 

   Royal Orchid now has a presence in Bangalore, Mysore, Pune, and Goa. With this joint venture and new five-star hotels coming up in Jaipur and Hyderabad, the company will have a pan-India presence, thus de-risking its business from excessive dependency on the Bangalore market. 

   Revenues from these new projects should certainly boost the company's bottomline during the second half of the year. Orchid is hoping to see its net profit in the range of Rs 8-10 crore in the second half, which will be more than double the figure it reported during the first half of the fiscal. Though the September-March period is always the peak season for the hotel industry, this year it's special owing to market expectations of a revival in economic sentiment.