Royal Orchid to add 500 rooms

Hos­pi­tal­ity firm to take man­age­ment route to raise its port­fo­lio to over 4,000 rooms

DNA (Daily News & Analysis) Mumbai Edition - - FRONT PAGE - Ashish K Ti­wari [email protected]­

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.

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