Royal Orchid to add 500 rooms
Hospitality firm to take management route to raise its portfolio to over 4,000 rooms
Mumbai: Regenta & Royal Orchid Hotels (RROH) will add about 500 hotel rooms across nine hotels, taking its overall portfolio to a little over 4,000 rooms and 60 hotels in 40-odd locations. This will be achieved over the next six months using the management contract route, said a senior company executive.
A mid-tier hospitality firm, RROH is also looking to double the number of existing hotels to over 100 with room inventory growing in the range of 60% to 70% over the next two to three years.
Chander K Baljee, managing director, RROH, said, “The immediate additions are being made primarily through management contracts. However, the next phase of growth will see us use a combination of franchise, management, revenue sharing and leasing options to breach the figure of 100 hotels by 2022. While the number of hotels will double, the increase in guest rooms will not be in the same proportion because guestroom inventory may not be uniform across all the new hotels.”
The expansion will not be capex intensive for the hotel company as it will be achieved taking the assetlight route. The management will selectively pursue the leasing approach primarily to establish a presence in the key metros such as Mumbai and Delhi.
“We are planning to add a few hotels on lease in some matured markets. If an opportunity comes by we will take this approach select markets that are crucial to our business. We are scouting around, but are not in a hurry to do so. Hotel asset owners are also warming up to the idea of franchising and we will adopt this route to expand. Of the next about 50 hotels, 30 will be through franchisee route, 20 management contracts and about five through leasehold agreements,” said Baljee.
The company has upgraded most of its hotels and expects annual capital expenditure of Rs 10-20 crore to renovate/ refurbish other hotels. These will be funded through internal accruals.
In a supply constrained environment, the company expects average room rates to increase by 10% year on year as demand for hotel rooms continues to be very healthy. The future growth drivers, Baljee said, will be a combination of incremental room revenues and new management contracts that will be added over the next two to three years.
Analysts said with an annual average cash profit of about Rs 30 crore (projected to increase year on year) and Rs 94 crore of gross debt on its books (at consolidated level), RROH could become a debtfree company in three years.
Amit Jaiswal, chief financial officer, RROH, said, “If we use the cash primarily for debt repayment, then we can become a debt-free company in the said timeframe. However, there are a lot of opportunities in the market and if we get some good leases with a minimal investment then it would make sense to invest money there. It’s a decision that the company Board will finalise the best use option of cash profits generated in the business.”
The company also has a land parcel in Mumbai’s Powai area and the management has already initiated talks with a potential buyer. However, owing to the NBFC crisis, the deal is taking longer than expected.
“We continue to be in talks with the potential buyer and the deal should close once the funding tap opens,” said Baljee, adding that some portion of the money raised could be used for retiring debt in addition to pursuing leasehold options in matured markets.