ROHLTD - Royal Orchid Hotels Ltd Share Price

Management provided an optimistic outlook for Royal Orchid Hotels, reflecting a transformation phase with significant growth expected in the coming years. For the first quarter of FY26, the company reported consolidated revenues of INR 78.8 crores, an 8% increase year-on-year (Y-o-Y). Profits before tax (PBT) rose by 24.5% to INR 11.2 crores, with a net profit after associates surging 28% Y-o-Y, showcasing the efficacy of their strategic initiatives.

Looking towards the future, management highlighted their "Vision 2030," aiming to triple the number of hotels from 115 to 345 and increase keys from 9,605 to 22,000. They forecast a sustained return on capital employed (ROCE) of over 19%. Key growth drivers include an asset-light strategy with strong returns, leveraging technology like AI, and a sharper brand architecture with five distinct offerings designed to cater to various market segments, including the upscale lifestyle brand Iconiqa.

Management identified their recent expansion to 118-plus hotels and enhancements in average room rates (ARR), which increased 6% to INR 5,488. Iconiqa's Mumbai property is projected to achieve a top-line revenue of INR 65-70 crores from September to March, with expectations for the entire fiscal year reaching about INR 100 crores at a 15% margin after lease expenses.

In summary, management's major forward-looking points include:

• Achieving 22,000 keys by 2030.
• Sustaining over 19% ROCE.
• A projected top-line revenue of INR 100 crores from Iconiqa in its first operational year. These initiatives underline the company's focus on scalable growth and improving guest experiences, positioning Royal Orchid as a leading player in the hotel industry.

1. Question: "What is the cash profit calculation and should it be adjusted for lease liability principal?"

Answer: Yes, when we calculate cash profit, we add depreciation to PAT. However, we don't subtract the lease liability principal amount, which is part of depreciation. For FY25, if we deduct the INR 8.6 crores from cash profit, it would drop from around INR 68 crores to INR 60 crores, indicating that cash profit should be adjusted for lease liabilities for a more accurate understanding.

2. Question: "How do you plan to allocate capital from your current cash profit base?"

Answer: Our focus is on growth. From the expected INR 70 crores cash profit in FY26, roughly 40% will be retained for growth and expansion, with investments in new revenue share hotels and renovations for existing properties. We are diligently using cash flow to support this growth. Most of the funds will go toward improving our facilities and opening new hotels, ensuring we leverage every opportunity for expansion.

3. Question: "What are your revenue expectations for Iconiqa after its full launch?"

Answer: We anticipate that Iconiqa will be fully operational by September 2025. For FY26, we expect between INR 65-70 crores in top-line revenue from this hotel. Our initial target is to break even within three months, followed by targeting a yearly revenue of around INR 100 crores with a 15% profit margin after accounting for lease rent.

4. Question: "How much incremental revenue and profits do you expect from management contracts in the next two to three years?"

Answer: Management contracts generate management fees rather than direct top-line revenue, since the revenues from these hotels don't appear in our books. We expect to grow our revenue share from about 15-20% through these contracts, with detailed revenue guidelines provided in our investor presentations.

5. Question: "How much will you invest for the expansion of Iconiqa properties?"

Answer: While we are looking to expand the Iconiqa brand, growth will be gradual and selective. We plan to invest about INR 25-30 crores in revenue share projects over the next year. However, we will be choosy regarding Iconiqa's branding to ensure that all properties meet our high standards.

6. Question: "What are your expectations for the margins in FY27?"

Answer: For FY27, we expect margins to improve significantly, potentially reaching a profit around INR 75 crores, excluding the impact of IndAS. Our operational efficiency, along with the growth in revenue share and management contracts, will be key to enhancing margins going forward.

7. Question: "What caused the marginal drop in occupancy rates despite strong ARR performance?"

Answer: The drop in occupancy is typically due to seasonal variations. This quarter, we experienced lower performance partly due to the war situation affecting North India and the adverse publicity impacting the Goa market. Historically, Q1 tends to be slower compared to Q3 and Q4, where we expect to see better occupancy rates.

8. Question: "Can you elaborate on your brand architecture and the distribution of keys across brands?"

Answer: We plan to have a diverse brand portfolio, including Regenta Z for budget travelers, Regenta Place for upscale offerings, and Crestoria for unique boutique hotels. Our flagship brand will be Regenta Hotels and Resorts. Each brand will cater to specific market needs, allowing us to leverage various segments effectively while planning for about 22,000 keys by 2030.

9. Question: "How much cost was incurred for Iconiqa, excluding deposits?"

Answer: Most of the costs for Iconiqa are accounted for by the owner, while we have a refundable deposit of INR 40 crores. Additionally, our internal costs for operating supplies like linens and crockery will be around INR 15 crores, which will sit in our financial books as operational expenses.

10. Question: "Are there any one-off costs in this quarter's financials?"

Answer: There are no one-off costs this quarter. All expenses are reflective of our ongoing operating costs, and we have not incorporated any unique or one-time fee structures in our financial reporting for this period.