Kamat Hotels (India) Limited (KAMATHOTEL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Kamat Hotels India Limited Q1 FY 2027 earnings conference call hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Kamat Hotels India Limited. On behalf of the company and Valorem Advisors, I'd like to thank you all for participating in the company's earnings conference call for the first quarter of the financial year 2027. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management team joining us on today's call. We have with us Mr. Vishal Vithal Kamat, Executive Director; Mr. Milind Wadekar, Chief Financial Officer; and Mr. Nikhil Singh, Company Secretary and Compliance Officer. Without any further delay, I request Mr. Vishal Kamat to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Purvangi. Namaskar everyone, and namaskar, and welcome to the earnings call to discuss the results of the first quarter of the financial year 2027. So with that, I would like to say -- firstly, before we begin, I would like to welcome our new Chief Finance Officer, Mr. Milind Wadekar, who has joined us this quarter. He has an extensive experience of more than 30 years in finance and, in that particularly, 20-plus years in the hospitality field right from the Leela Group to the Chalet Hotels, where he was the CFO and EVP. Last, he was EVP, Finance and Investor Relations at Ventive Hospitality. We are very happy that we have a person of his caliber and ethos joining our group. So we are very, very excited on behalf of Dr. Kamat, myself and our entire Board and team, we have already welcomed him. So I'm sure that he will add value to us all with his rich experience. I'm also pleased to share that Kamat Hotels has delivered a very exceptional start to the financial year, supported by a robust growth in the top line and also a robust growth in our EBITDA with meaningful margins and meaningful expansion. In Q1 FY '27, consolidated revenue grew over 10% to INR 91 crores. This also which Mr. Milind will share in more details on why it is even better than actual what it looks like when his turn comes. Driven by, again, efficiency and I must appreciate our team for their pricing discipline and their operational efficiency, which translated into a phenomenal improvement in our EBITDA, rising to 36% higher from -- to INR 25 crores from the previous quarter same year (sic) [ previous year same quarter ]. So our EBITDA margins have also expanded towards the 27% compared to earlier year's same Q1, 22%. So that is a good news for us, and it's a good sign of the times to go ahead. This has, of course, strengthened our balance sheet and helped us while we've been doing this, reduce our loans further, though that is not an issue, our target, which was and is to be absolutely 0, and we are on the target to make net zero and eventually 0 on our balance sheet towards that. So looking ahead to the rest of the FY '27, there is a clear momentum. There's a clear pathway in front. And in this, Mr. Milind Wadekar will add to our current vision, current growth plan. So we look at even a faster and a better and a more robust growth in the coming time ahead. So while we have a priority to leverage our brands across India and improve our performances of our existing hotels, so we do intend to do that keeping in line with our ethos of being friendly, eco-friendly, adding value to society also while we are growing for ourselves. Turning to the industry. Overall, the industry has been resilient. Generally, our colleagues in the industry have shown very good results. We are happy that we have done better than many of our colleagues. It's always a healthy competition. But the sector is booming. The sector is growing well. In fact, a lot of growth is also coming in from alternative hospitality, such as health economy. Like now, we recently -- one viral clip of a gentleman who has come to India for knee surgery replacement. Now then they come and they stay for long tenures. They stay initially in the hospital. After that, they move to hotels where they are supported. We have people like that staying in Orchid who stay -- who get treatment in Lilavati or Hinduja or in other such hospitals. So that's also a very good plus point that we have. There's also a rising travel aspiration. This global turmoil has been both a bane for our industry and a boon in terms of the LPG crisis and all which many people asked last time and overall have been discussing. But that small problem turned out to be a big gain for the nation because tourism boomed, people did not travel outside India. People went again to remote and popular local destinations in tourism. Even city tourism also grew, people traveling within India because on one hand, because of global fuel shortages, airline cancellations were rampant, not only in the Gulf where it was due to war, but it is also in Southeast Asia, where certain countries could not meet their requirement of fuel for aviation. And hence, many had curtailed, which many of you must have read in the newspaper. On top of that, Europe is -- there's a heat wave, there's a migration crisis and there's a hyperinflation due to the Ukraine war continuing over so many years. So the cost of living and the cost of enjoying has shot up so much that most Indians prefer to go to other locations. And those other locations happen to be within their own country. America, on the other hand, with Donald Trump behaving exactly what the world needs because of which American overall popularity is decreasing. And hence, people have not gone for tourism as much to America, visa issues being another additional issue. Hence, again, who has benefited is our country and our vicinity. That's why even tourism in Sri Lanka and all there again, which is India-friendly places like Sri Lanka and Thailand, they kind of benefited. But most of our population, as we have seen in Manali and our other hotels have traveled. And this time, the weather also gave a very good way. Last year, you might recall, there was floods, there were flash floods, there was damage, a lot of highways and roads got destroyed, but the government has done a very good job, both central and states, in each of these places, because of which the roads have been made so well that this year we have not faced any issue in tourism in -- even remote place like Manali was excellent. So we have benefited from all this. And against this backdrop, our focus on this quarter was on 3 priorities, which was: strengthening our performance, scaling up on our new properties -- which further Mr. Milind will take, and enhancing our guest experience through a lot of technological things which we have been doing, some of which the guest experiences, some which the guest does not -- as any experiences, but he does not know. A lot of, in fact, what improvement in services are there are from technology where it doesn't -- it affects the guest, but the guest does not realize it. And I think that's a big credit to our IT team. So we've made very good progress on our various properties. We've ramped up our operations in Orchid Panchgani, which had opened last year in September, October. Orchid Rishikesh -- Orchid Rishivan in Rishikesh, which has also been doing good and will further grow. Then IRA by Orchid Hyderabad in HITEC City that last year did not do so well because it was new. This year, it is doing much better and will further ramp up. And our latest baby who has joined the family is IRA by Orchid Bhavnagar, which has just opened, but has got a very good response. It is one of the best banqueting halls in Bhavnagar in terms of size, in terms of grand and our food, which has been greatly appreciated. So we've been already getting a lot of traction from the social side, especially for weddings and groups. And once now the season of Bhavnagar will start post monsoon, where a lot of NRIs and others come back to Bhavnagar and Saurashtra and other parts. So we will have that advantage to us. Apart from that, Dholera has been doing exceedingly well, thanks to Tata plant, thanks to other announced silicon and chips manufacturing, thanks to other industries. So that effect is going to come tremendously on Bhavnagar. And flights also have improved. Navi Mumbai to Bhavnagar flights are there, flights to other places also come. So we are very buoyant that once Bhavnagar stabilizes by next year, particularly, its full year will add just as these others have added and that same cycle will continue and accordingly, the growth will be there. So that's also something really very good. We also have expansion, which we have signed our second property in Dwarka. This is the Orchid Dwarka, this Dwarka in a 63-room hotel and which should be starting operations by latest December this year. So I think that will further strengthen our presence both in the pilgrimage market and in the overall Gujarat market. Previously, we also guided that our hotels are there coming up in Gwalior, Dehradun, Nashik, Rishikesh and Mandvi. So our Gwalior hotel also should start by Diwali. We are very buoyant. The owners are doing a good job or a great job rather in terms of expediting and finishing. So we should look at Gwalior opening this year. Dehradun is delayed. There are challenges due to which they have delayed, that could be delayed by another anywhere 6 months. Nashik is going on. So the work is going on. The target is to open before the Kumbh, the main Kumbh. Rishikesh, our expansion, which is the hotel next to us, the second hotel that we have taken, work is going on that will go on as per expected. And also Kutch Mandvi also is on track, and that is going on as expected. Apart from this, there are some others in pipeline. But as we always share on this call, till such time as it is not signed, we do not talk about speculation. We only discuss and talk about what is signed so that there is a clear outline towards the future growth for all of us. So as we have expanded our portfolio primarily under Orchid brand, we are also positioned to scale our existing infrastructure, our IT backbone, our distribution through brand.com and our loyalty program. Our brand.com, which is now khil.com and irahotels.com, basically have been improving in its direct booking tractions due to various benefits being given additionally to our customers. So that also has been showing very good traction in general. So that's something we are going to further work on. This integrated ecosystem which we have created is also helping us to drive the occupancy and also then the ARR. The occupancies of this quarter have been excellent, and that's detailing more Mr. Wadekar will give. So with that, I think I will take it over to Mr. Wadekar to take it forward, and I would be more happy to answer the questions which many of my fellow participants and colleagues will have. Thank you. Namaskar.

Thank you, sir. Good afternoon, ladies and gentlemen. Before moving to our financial performance, I would like to express my sincere gratitude to the Board of Directors, promoters and the leadership of Kamat Hotels for their continued trust and confidence. I truly believe Kamat Hotels is on a turnaround journey. The foundations the company has laid over the years will help us to scale up rapidly, strengthening operating performance and achieve structurally higher EBITDA as we grow. The Indian hospitality sector is witnessing a robust recovery driven by rising travel aspirations, improved connectivity, air as well as road and higher discretionary spending. According to industry estimates, India's domestic tourism is expected to grow around -- with a CAGR of around 10% to 12% over the next 3, 4 years, supported by growth in business travel. And Tier 2 and Tier 3 cities are emerging as key growth drivers where we are expanding, contributing to over 60% of new branded hotel supply in the coming years. Against this backdrop, I'm pleased to share that Kamat Hotels delivered a stellar operating performance in Q1 FY '27. Consolidated revenue for the quarter stood at INR 91 crores, a growth of 10% over INR 83 crores in quarter 1 FY '26. Importantly, our focus on driving operating leverages translated into 36% growth in consolidated EBITDA to INR 25 crores compared to INR 18 crores same quarter last year. EBITDA margins have expanded by robust 530 points, that is around 5.3 percentage points to 27% for the quarter compared to 22% in quarter 1 FY '26. If you look at flow-through for the quarter, what is flow-through is incremental EBITDA as a percentage of incremental revenue. It was more than 75% despite 4 new properties added in quarter 1 FY '27. I mean, the properties were added in last 2, 3 quarters, but properties were not there in Q1 FY '26, and these properties are scaling up. So there is some higher operating costs. In spite of that, our flow-through for the quarter is 75%. Now if we dive deeper into operating performance on a same-store basis, excluding IRA Mumbai, which closed on 31st March 2026 and 4 new hotels which were added for financials in this quarter, the revenue grew by 17% year-on-year and EBITDA grew by 21%. The new properties, Orchid Panchgani, Rishikesh, IRA by Orchid Hyderabad and Bhavnagar are scaling up and are expected to contribute meaningfully in the coming quarters. Our Big Box hotels in Mumbai and Pune, which are business hotels delivered a strong growth. Orchid Mumbai revenue grew 35% year-on-year with EBITDA up 50% year-on-year. Orchid Pune revenue grew 27% year-on-year, and we are rationalizing cost here to improve margins further. Both hotels are expected to generate cash to fund our own assets growth plan in near future. If you look at RevPAR at portfolio level, RevPAR for our 2 brands, that is Orchid and Lotus grew 18% and 17%, respectively, in quarter 1 FY '27. This is high-teen RevPAR growth, which is much higher than hospitality industry, which they have shown in the current quarter. In our investor presentation, you will see negative RevPAR growth for IRA by Orchid brand. But excluding IRA Mumbai, IRA by Orchid portfolio ARR was around INR 4,069, which is flattish as compared to previous year and RevPAR was INR 2,466 which is around 3% growth. Favorable tailwinds in domestic business and leisure market helped us to ramp up occupancy and RevPAR across our portfolio. This, combined with strong operating KPIs and stringent cost control drove a 126% growth in PAT to INR 9.7 crores against INR 4.3 crores last year. Our balance sheet is now very comfortable. Our leverages are comfortable. The consolidated debt as of last quarter is INR 105 crores with cash, cash equivalents, fixed deposits of INR 65 crores, resulting in net debt of INR 38 crores. With this, now I conclude my opening remarks, and I request to open the floor for question and answers.

[Operator Instructions]. Our first question comes from the line of Rohan Joshi an individual investor.

Namaskar.

Yes, my question was just about this update on the properties that are going to be opened this quarter. Sir, are they according to the plan or has the LPG availability construction (sic) [ constraints ] and supply shortages have affected the time line for this thing?

No. The -- actually, we are talking about 2 hotels, like one is the Orchid Hotel Dwarka, which should open in this coming December -- November, December. It is not in this quarter, but it will open in November, December, but we see its outlay. And similarly, Gwalior, we see it as end October, November. So it's not in this quarter, but in the coming quarter. And it has got -- Dwarka has been opened faster than -- or on track rather because the owner has done accordingly. And in Gwalior, it has got -- it is opening now, but it could have opened a little earlier. But then based on whatever the owner -- because the owner has to do the CapEx, the owner has to do the various certain things. So we are dependent on the owner, and that is why basically we could get delayed at times. But what is important is that even if it was delayed by now whatever a few months, important is that now we see it opening and we see it horizon on the -- we see it opening on the horizon. So that is more important. I mean, like Dehradun should have opened a long time back, at least a year back. Candidly, I can say that at least if I will, but it's not our property, unfortunately, and we have to depend on our owners. So whatever based on that we do, we do. Again, Mandvi, the owners are very proactive and on the ball. So they are doing an excellent job. Rishikesh is going on as per currently the progress. So we'll know about that. Nashik has been a little delayed due to certain technical points, which is beyond the scope of the owner, considering certain things which are there. So we are understanding over there. So that's basically the outlay.

So Rohan, if your question is supply chain challenges on account of war, has that impacted? The answer is no. I mean, these challenges are behind us now. I mean, the properties what we are expected to open, there could be some delays. I mean, like Vishal-ji mentioned, one property, there are delays from owner side. But otherwise, we are on-track.

And sir, my second question was about the occupancy rate. So it has improved in Q1. As I know it improved to 66% in Q1. So what can we see the further trajectory of the occupancy rate going forward in Q2, Q3? If you can give just a rough estimate the ballpark idea?

See, typically, hospitality industry, quarter 1 and quarter 2 are soft and business picks up. It is business travel as well as leisure in second half of the year, right? So quarter 1 occupancy growth has shown good trend, and we expect this trend to continue for the remaining 3 quarters. Typically, business hotels cross more than 75%, 80% occupancy. Leisure properties are seasonal depending on the micro market occupancy differs, but we'll show strong growth.

Our next question comes from the line of Gunit Singh with Counter Cyclical Investments.

Congratulations on a great set of numbers. I would also like to congratulate you for bringing in someone with the experience of our new CFO into the organization. So that shows the intent of the company. So I actually have a question for the -- for our new CFO. So sir, is there any strategic pivot or something different that you plan to do or how you plan to steer the company forward? I would like to hear your thoughts on that.

So we are evaluating various growth options. I mean, I don't want to say anything now. I mean, but yes, we are thinking or rather evaluating various growth options. And our balance sheet leverages are very comfortable. We are at INR 38 crores, INR 40 crores net debt position. Even if I take 3x multiple of my forward EBITDA, we can raise debt comfortably up to INR 300 crores on the balance sheet.

Got it. So previously, we have been more towards leased and managed properties on an asset-light model. So like you mentioned in the previous remarks that the profits from Pune and Mumbai, they might fund our expansions or internal expansion. So will we be looking at our own self-owned hotels in the future? Is that something that we would be shifting towards?

So we will look at combination of both. I mean, asset-light model where we take properties on lease or revenue share. And we'll look at our own hotels as well. I mean, we may look at some brownfield hotels, which can be refurbished and put into operations immediately or we'll look at some land parcels in deep micro -- deep market and develop our own hotels. So we'll look at both. And since both these our business hotels are expected to grow, it will generate sufficient cash to fund our expansion plans.

Got it. And sir, the hotels which are opened before FY '26, are there any hotels which are loss-making and the hotels which were opened in FY '26, I mean, are most of them currently loss-making? And I want to understand like we stopped our lease with IRA Mumbai, which wasn't profitable for us. So are we planning something for the hotels which are loss making open before FY '26, something similar like that? Or what is the way forward?

So see, based on our accounting standard, which we've been -- before also, you must have heard this, is that when we open a new hotel, we book all the expenses of that opening in the P&L of that hotel of that year. So but naturally, it looks as a loss. But eventually, that losses in the coming years does not remain a loss and our hotels become a profitable running entity. So any hotel which is opened in, now for example, Bhavnagar, Bhavnagar on its P&L today, on its stand-alone P&L is a loss. Why? Because we have travel expenses, we have mobilization expenses, certain things which are not in the owner's scope, which is in our own scope or they may be our own additional proprietary certain softwares and all which we have, which are not -- which are our cost. So those are but naturally in the initial, there is going to be a P&L loss on that front. But eventually afterwards, once the hotel stabilizes as in after the first 1 year, they are in profit. This is a similar case of any -- whether it's Sambhajinagar, whether it's whatever, those hotels, whichever have started first year, they always have because very rarely can a hotel do that much unless it's a large hotel or there is an exception like in the case of Ayodhya. It started off from first year, it was in profit, even though there also there was mobilization expenses. So that is one thing. That said, I think Mr. Milind can take it forward.

See, any hotel, whether owned or taken on lease, I mean, it normally takes 2 to 3 years for them to scale up and stabilize, right? So first year of operation, there could be losses at EBITDA level, but you have to look at long-term trend. And our hotels are scaling up. All hotels are scaling up. And wherever we see any loss at operating level, we take corrective action there and there and try to control our cost or improve our revenues.

Got it. So I mean, my question was regarding hotels opened before FY '26. So FY '25, FY '24, are any of them still loss-making?

No, no, not really, not really. I mean, all are making profit after lease charges.

That's great. That's great. So my final question would be regarding the ARR for Orchid hotels. So I mean, we have seen that the ARR has not been growing for Orchid hotels. So are we taking any initiatives? Or do we plan to take any price hikes this year? I mean, what are your thoughts on that?

Ideally, hotel performance should be judged by RevPAR, that is revenue per available room, right? So I mean, where we think there will be resistance to further improvement in ARR, we go through occupancy route. Now as I already covered in my opening remarks, my Mumbai property, occupancy went up to 91% and RevPAR went up to almost 40%. So that point of time, that micro market was supporting us on occupancy level. So we decided to keep rates flat and sell more and more rooms, right? In Pune, we are driving both. So it depends case to case and depends on the particular month, depending on how is the demand for that hotel in that micro market. So there is no thumb rule per se. But yes, now we are looking at both. I mean, the intent is always to drive both, but it depends on the competitive forces as well.

Our next question comes from the line of Pranav Nayak, an individual investor.

Namaskar.

So basically, my question stands on the EBITDA margins. So our EBITDA margins as far as I know is approximately 27%. So what actually helped this margin? Was it temporary factors or it's a long-term scenario?

Pranav, this is long term. I mean, our target is to take EBITDA margins up to 30%. And it comes from both, I mean, higher revenue as well as cost. So we are looking at various options or to control our -- or to rationalize our cost. One of it is moving to renewable energy for our some of the properties. So this is a continuous process. And I think this is not one-off EBITDA margin. This will remain stable or improve further.

Okay, sir. So this 30% EBITDA margin, when will we see those colors, like when we will be able to see -- when will we reach that kind of 30% EBITDA margin?

Not immediately. I mean, we have to walk that path and -- but our internal target is 2 years -- 2 to 3 years.

Okay, sir. And another question that I have is on the...

Please understand, I mean, as we scale up, I mean, my revenue will also go up, right? So I have to hit that 30% margin on higher revenue. Correct?

Right. Correct. Perfect. Sir, on the like current demand environment, I have a question. So basically, looking at the proper mix, like corporate lease, MICE, pilgrimage, what do you think will change meaningfully, like which segment will grow faster, which will be slower? And what are we targeting as a company in this product mix, like which exactly product mix you see that in future will have a meaningful change?

So Pranav, there are many business drivers. When economy grows, the business travel grows, right? Now with rising aspiration, leisure travel experiential travel is increasing. MICE business is improving. So all these factors will drive business for hospitality. And we have seen this trend last 3, 4 years. The trend is expected to continue. I mean, we feel India is structurally long-term uptrend as far as hospitality is concerned.

Our next question is from the line of Mahavir Jayen, an individual investor.

So I just wanted to know like with the company's debt position improving substantially, what are the current priorities with respect to the surplus cash, like new property or further deleveraging or shareholder return?

So this is growth-driven company, and we would like to grow, right? And we'll judiciously deploy this capital for growth, whether it is managed properties or our own properties. So we'll look at growth options.

Okay. And what is the expected time line for the newer properties to reach mature occupancy rate and profitability?

So in 2, 3 years, new property matures and it is EBITDA positive.

Our next question is from the line of Akshay Sadhla, an individual investor.