Royal Orchid Hotels – A Five Star Check-in

Royal Orchid Hotels Limited is engaged in the accommodation and food service activities, such as hotels, resorts and restaurants, and food and beverage service activities, such as restaurants and mobile food services.

The Company operates and manages hotels / resorts and provides related services.

It operates approximately 47 business and leisure hotels in 33 popular destinations.

Upon analysing ROHL numbers vis-a-vis industry peers, it’s an out performer. If the trend continues for next two quarters clearly, it will be re-rated.


Occupancy levels:

Under Owned, JVs and Leased category which is the main revenue earner for the Company, the occupancy stands at 76% for ROHL as against the industry average of 65.6%. A huge difference indeed!

However, under Management Contract hotels, occupancy has come down to 62% from 66% a year ago. The main reason being, around 8/ 10 hotels have been added in the last one year where occupancy levels are much lower may be even 50% but going forward they will give much better numbers after having come under the Royal Orchid fold.

As per latest HVS Report, which is considered a benchmark for the Hotel Industry, Royal Orchid ranks 11th on all India rank in Branded Chain hotels. The HVS report has released the list of top 20 Hotels and the best performer is ROHL whose ranking has jumped from 15th place to 11th place. Clearly no mean achievement.


Comparison with peers: 

There are just 5 hotel stocks in the Top 20 list of HVS which are listed on the bourses. Indian Hotels and EIH Ltd are ahead of ROHL while Leelaventure and ITC are behind ROHL.

It will be pertinent to note that the top slots are occupied by foreign brands like Marriott, Carlson Rezidor, AccorHotels, Hyatt and InterContinental (all in first seven).

Indian Hotels and EIH Ltd are the only two listed scrip’s in the first ten Brands having current market cap of around 14500 and 8700 crores respectively. ITC Group is difficult to evaluate being part of a diversified group.

Now this leaves just two Brands which are present in first ten Brands i.e. Sarovar and Lemon Tree which slight ahead.

Sarovar is an unlisted outfit which is into Asset Light Management Contract model and in January 2017, Louvre Hotels Group, the second largest hospitality group of Europe acquired a majority stake for an undisclosed amount.

Lemon Tree has filed its RHP with SEBI on September 21, 2017 for IPO which is likely to be of around 1250 crores for 25% equity valuing the Company at around 5000 crores. This IPO will entirely consist of Offer for Sale from existing investors mainly PEs led by Warburg Pincus. The issue will consist of 20 crores shares of Rs. 10 each. Present paid up capital of Lemon Tree is Rs. 786 crores, a bloated equity unheard of in the Indian equity space as far as Hotel Sector is concerned.

Lemon Tree is still in losses for the past many years till FY16-17.

However, Lemon Tree and ROHL are strictly not comparable as former is historically into Asset Heavy model like Indian Hotels and EIH Ltd whereas ROHL, sensing the trend of the market and international Brands, has shifted to Asset Light Model except 10 hotels which are either owned, JVs, Subsidiaries or on lease.

It is pertinent to note that international Brands of Hotels just bring their expertise of Management of Hotels to the table and get a decent if not hefty management fees from the owners for managing the property. Brand value created over a long period of time is their USP and drives the customers’ preferences towards those Hotels.

It is here where ROHL fits in as a budding and established outfit who has no peer to compare with. The possible exception being Sarovar Group of Hotels already grabbed by Louvre.


Business Model and Finances:

Latching on to this tested trend of Asset Light Model, ROHL has a separate fully owned subsidiary which handles the Managed Hotels business of 37 hotels and is growing. This subsidiary has already broken even, currently into profits and will be contributing to the Consolidated numbers of ROHL.

The company’s Goa and Bengaluru Resorts and Convention centres’ subsidiaries are into profits and contributing to the consolidated numbers.

It’s 4-Star Hotel run through its 51% owned subsidiary already into cash profits and likely to earn net profits in current year thus lessening the burden on nos.

Jaipur 5 star facility which is a 50:50 joint venture is still a drag on consolidated now but likely to at least break even in FY 17-18.

In the last 12 months, the Company did an excellent job by restructuring its borrowings by reducing its interest burden by 300 basis points apart from entering into longer duration instalments mainly with TFCI AND RIICO.

On a standalone basis, the long term borrowings are around 40 crores and on Consolidated basis sub-100 crores.

Entire loan burden can be wiped out in one go if the Company is able to dispose of its Powai (Mumbai) and Tanzania land parcel. Thus, making it a debt free Company. On this front Company is on its toes and it is expected that the current FY will see positive developments. Even otherwise it’s loan size is well under control and serviceable keeping in view the size of operations.

The company has some small land parcels which may be disposed off being non-core assets.

Considering all of these, the Market Cap of ROHL is just 400 crores.



 On the ownership front, the promoters are led by Chander Baljee, an IIM Ahmedabad alumni having 4 decades of hotel management experience under his belt. The promoters own 70.5% and Jupiter Fund owns around 5%. Besides, some more funds have also taken an entry such as Arvind Sanger of Geosphere and Goldman Sachs in small quantity. All these Funds have taken position around the current market prices giving a reasonable indication that the present market price is worth putting in money for long term investments.



The hotel industry generally goes through long business cycles of either up or down. FY1617 saw the end of a long downward business cycle which lasted for 8 to 9 years. Industry experts led by analysts are predicting the start of an upward business cycle in hotel sector.

This has been aided by demand supply mismatch of inventory. Regulatory hurdles, spiralling cost of land suitable for Hotel projects, ever increasing cost of construction inputs, loan servicing burden has reached to a stage where fresh launches are hard to see. Projects after projects are stuck up at various stages and completion of these has become nightmare for owners and developers. This has proven to be the Achilles heel for the industry with no short-term solutions in sight.

The hotel industry is likely to pick up after various hiccups e.g. lack of private sector investment, GST and demonetization blips thus giving a fillip to business travels and MICE activities.

A big demand is knocking on the doors of hotel rooms.

Domestic travel for leisure both weekends and long term is ever increasing thus, fuelling the demand for rooms.

Development in the airline sector and government’s heavy spending on road sector is firing all cylinders on tourism thus leading to demand for an increasing number of rooms to stay.

There is no substitute to 4 and 5 star hotels and resorts.


My rationale for liking ROHL

ROHL is in a sweet spot as its mainly AFFORDABLE 4 and 5-star hospitality sector. Besides, the company has under its kitty some marquee heritage outfits also at key locations. It’s inventory bouquet is excellent.

The company witnessed continuous strangulating times in the last 10 years along with other industry players. But it stood its ground and resisted dilution of equity. The result is that it is the only company in the listed space with the same paid up capital what it was in January 2006. A good peer comparison would be the equity structures of top players like Indian Hotels, EIH Ltd or even Leelaventure.

It will be interesting to know that Company had its IPO in January 2006 and raised around 110 crores @ Rs. 165 and the entire fund was deployed towards part financing the acquisition of marquee assets which are now productive and have hidden intrinsic value vis-a-vis market value. Just to mention its wholly owned 5-star flagship facility at Bengaluru was valued at approximately 600 crores by ICICIDirect in one of its research reports to its clients.

It has a track record of having paid hefty dividends of 60%, 60%, 50% in 2006, 2007 and 2008 respectively before the collapse of hotel sector starting with 2009 / 2010 onwards. This just speaks of the pedigree of the Management. It’s heartening to see that it has come back on dividend list in FY17.

A Management capable of taking tough and decisive action during trying times to stay afloat.

At peak levels on Consolidated basis the debt stood at 380 crores, which is now sub 100 crores taking it on the way to a debt free Company.

Foreign funds are smelling an opportunity and have started taking positions in bits and pieces on the counter displacing tired bulls.

Recent relationship with Bespoke of UK based is an icing on the cake. This relationship shall open the gates of all properties of ROHL for customers of Bespoke based all over Europe thus improving the occupancy levels and improvement in ARR. Simultaneously it will also enable wide customer-base of ROHL numbering around 1.4 lakh visiting Europe to book stayal in more than 200 hotels managed by Bespoke. It is also expected to be bottom line accretive.

All in all a win-win relationship for both the partners.

Hotel industry is at the first stage of its upward cycle. Early movers will be benefited of this upward cycle. It’s always advantageous to board a stationary train and occupy choicest seat rather than boarding a speeding train which has many pitfalls. Boarding a stationary train and that too a right and faster one seems to be the case with Royal Orchid Hotels.


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Gulshan Polyols – Grossly undervalued !! Proxy FMCG play !!

Gulshan Polyols Ltd is an agro processing Company with a turnover of 500 crores FY16-17. Gulshan’s product lines consist of Sorbitol, MD, DMH, animal feed ingredients like gluten, germ and enriched fibres mainly meant for cattle, aqua, animals etc. mainly maize and Rice processing, , Native Starch, ENA and HFRS. It’s a sub-400 crores market cap outfit which is trading at 7X its FY 16-17 cash profits.

It is a multi-locational, multi-product company having a consistent profitable record for decades together.

What is important that it has been a cash rich company because of it’s clientele mainly MNCs, FMCG and top-notch Corporates. In the last 5 Financial Years Company has generated Free Cash Flow of more than 235 crores and the entire cash has been ploughed back in the Company to create productive assets of grain based businesses. Capex Programme is 100% over.

It’s customers’ line reads like ‘Who’s Who’ including Colgate, Hind Unilever, Dabur, Asian Paints, Wipro, KansaiNerolac, Berger Paints, Pidilite, Britannia, Henkel, ITC, TNPL, Cadila, IPCA, Pfizer, Novartis, Merck, Glenmark,AstraZeneca, Bata, Lakhani, Relaxo, Sintex, BASF, a host of paper mills and pipe manufacturers. The company enjoys a long term relationship with its clientele for more than two decades.

In two of its products, the company enjoys market leadership i.e. Sorbitol and Calcium Carbonate. Both businesses are more than 25 years old.

In the last 3 – 4 years, the company saw an opportunity to enter grain based businesses and set up many verticals.

Beauty of grain based businesses is that nothing goes waste and apart from main products, plant generates gluten, germ, enriched fibres which are used for cattle, poultry, piggery, aqua based units. In FY 16-17 it sold these by products worth 75 crores which is expected to double to 150 crores in FY 18-19 as it has commissioned two new plants. 

Company has at least 8 locations where the plants are located.

Prominent among them is Muzaffarnagar based facilities which is on 65 acres of land. Here the company has a Calcium Carbonate Plant, Native Starch Plant catering mainly within a radius of 150 kms to numerous paper industry units. The plant capacity is 60K tonnes pa

It has got a rice based MD and DMH plant running at optimum capacity.

In FY16-17 they set up a rice based High Fructose Rice Syrup (HFRS) and Brown Rice Syrup unit which is completely an import substitute and first in India saving around US $ 20 Million pa.

Another important thing is that Company got its products certified from Germany. And they have started exporting to developed markets like USA and Australia.

Muzaffarnagar facility is the only facility in India which has got dual feed ie Corn and Rice at one place.

Sorbitol is their main product generating around 250 crs turnover from Bharuch, Gujarat. The plant has a capacity to process 80K MTPA corn and this capacity will be expanded in the near future to cross 100K pa. This plant is most modern and meeting all pollution norms.

It is worth noting that Sorbitol is exported to over 35 countries worth 70 crores.

Company has been able to enter grain based ENA Plant with 60 KLPD capacity located at Chhindwara, MadhyaPradesh. Raw material is rice and can be changed to other grains as well.
This unit has a distillery, bottling unit and captive power plan. Seed marketing of their brand, Golden Deer for Rum and whisky is already on for the last two years. The ENA plant incurred a project cost of over 100  crores and ready to go into commercial production shortly in the current quarter itself. ENA is a high entry barrier business and business parameters are quite promising. Here again Company will have by products of gluten, germ, enriched fibres and also Dry Ice which will be manufactured by recovering Carbon dioxide and compressing the same into Dry Ice.

All three main locations i.e. Muzaffarnagar, Bharuch and Chhindwara are equipped with captive power plants making them self sufficient power wise.

3 / 4 years back the company entered the business of setting up of Satellite PCC plants and have set up half a dozen such plants. Prominent among their customers are ITC, Orient Paper and two units at Basundhara Group, Bangladesh. Company expects to set up more such plants in paper industry in view of the paper industry doing well.

During FY 16-17, the Company generated a cash profit of 55 crores on a tiny capital of 4.69 crores.

Promoters hold around 59 percent and more than 16 percent is held by Reliance Mutual Fund and Antara Evergreen Fund. More than 4 per cent is in physical mode leaving a floating stock of just 20%

The beauty of their businesses is that in FY18-19 i.e. next year, will have a turnover of 1000 / 1100 crores and out of which 90% will be grain based mainly Corn / Maize and Rice. And these businesses will have around 150 crores worth of products as by product which are mainly animal based i.e. germ, gluten, enriched fibres and dry ice.

Last year the company had a turnover of 500 crores. It plans to achieve a turnover of 750 crores in FY18 & 1100crores in FY19.



Disclosure: I personally hold the stock so my views may be biased.

Disclaimer: I, am not registered under SEBI (Research Analysts) Regulations, 2014. No content on this blog should be construed to be investment advice. Any security specific discussion on this site is not a recommendation to Buy / Hold / Sell. The purpose of this site is solely for investor education. You should consult a qualified financial advisor prior to making any actual investment or trading decisions.

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