Royal Orchid Hotels Limited (ROHLTD) Earnings Call Transcript

Ladies and gentlemen, on behalf of Kaptify Consulting Investor Relations team, I welcome you all to the Q1 FY '26 Post Earnings Conference Call of Royal Orchid Hotels Limited. Today, on the call from the management team, we have with us Mr. Chander K. Baljee, Chairman and Managing Director; Mr. Arjun Baljee, President; Mr. Keshav Baljee, Non-Executive Director; and Mr. Amit Jaiswal, Chief Financial Officer. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. We will begin the call with an opening remark from Mr. Chander Baljee, followed by key performance and financial highlights, the growth plan and vision for the coming year, post which we will open the floor for Q&A. Over to the management.

Dear friend, good evening, and a warm welcome to each one of you to our Q1 FY '26 post earnings conference call. A few weeks ago, I was at our resort in Bangalore, watching the final touches being put on our new 28 cottages, getting ready to welcome guests. It was a reflection of Royal Orchid Hotels's renewed stronger and ready for the next phase of growth. We spent the last few years building, strengthening and fine-tuning our foundations. And now, like that resort, we are stepping into a new chapter, fresher, stronger and ready to grow faster than ever before. This is our inflection point. Our Q1 results proved that this transformation is well underway. Consolidated revenues grew 8% Y-on-Y, PBT rose 25% Y-on-Y. Net profit after associates jumped 28% Y-on-Y. This performance is driven by 6% growth in room revenue, 7% growth in F&B revenue and 24% growth in other services. Our average occupancy for JLO hotels held steadily at 69%, while ARRs improved 6% to INR 5,488 from INR 5,168 last year. Managed hotels achieved INR 4,031 ARR versus INR 3,823 ARR. That is 5.5% over the last year with new managed properties ramping up. We expanded our footprint this quarter by taking our signed portfolio to 9,605 keys, comprising 591 JLO, 1,268 leased properties, 7,746 managed and franchised properties. Today, Royal Orchid stands at 118-plus hotels across India. Looking ahead, Vision 2030 is our North Star. Tripling our hotels from 115 to 345, growing keys from 9,605 to 22,000. We will achieve this through sharper brand architecture, consolidating under 5 strong brands. Swift execution, proven by Iconiqa Mumbai project completed in just 12 months. Sustained profitability, maintaining 19%-plus ROCE at company level. Financial underscore this momentum. Consolidated revenue of INR 78.8 crores, that is plus 8%. EBITDA, INR 23.7 crores, that is plus 11%. PAT before exceptional items at INR 11.2 crores from INR 8.7 crores, a stellar 28% growth. Our asset-light continued to deliver high growth with strong returns, backed by a healthy balance sheet and robust cash flows. Trends. This is more than incremental progress. This is a gear shift. We are entering a phase of compounding growth where scalability, technology and unforgettable guest experience will define us. We will extensively use AI to meet our objectives. By blending Indian [want] with operational precision, we aim to be amongst India's largest and most admired hotel companies in the next 5 years. We have the foundation, we have the momentum and we are just getting started. Thank you.

[Operator Instructions]

Before we go to Q&A, Arjun, would you like to talk a bit about ICONIQA?

I'm more than happy to. Thank you. Would you want a quick -- I think everybody would want to see a quick presentation of the hotel.

Sure.

You can put that up.

That's the hotel brochure?

Good evening, everyone. I'm Arjun Baljee, and I was entrusted with the job of getting this hotel done in under a year and within budget. So ICONIQA has 291 keys. The hotel is now soft launched. I think we've been asking about when, when, when for the last 4 quarters. And I think we're very, very happy to say that we are soft launched. We're seeing, in a limited way, to get in guests and get feedback from paying customers. They are -- the feedback has been extremely positive. And I'll just run you through the quick hotel brochure to explain what we've done over the last year. So this isn't a usual 5-star hotel. We've decided that we're going to look at the guest first and build up and as we've been saying. So in each of the rooms, I think we're the world's first hotel that has an in-room smart laundry closet. That is a game changer and a huge benefit to the customer. So gone are the days where you have to call up laundry and get your shirt ironed or use that clunky ironing board. In the rooms, we've -- the smaller pain points, right, take away -- include a non-alcoholic mini bar. All our rooms come with espresso machines with our own unique blends. And we've gone into the details of how to make beds more comfortable and more supportive and actually gone to the depths of designing the sheets and mattresses to our spec. The hotel has 4 different F&B offerings. As soon as you enter, there's -- you can go to the next slide, please. So those are the rooms. Rooms are in 7 different categories. We have 4 different dining options. We have a pan-Indian exciting modern restaurant. We have a bar on the ground floor, which serves Asian food. We have a rooftop day club, which has Japanese and Mexican. And I think in Mumbai, we are the largest swimming pool on the roof and we have the largest jacuzzi. And so I think from a guest amenity perspective, we have really tried to see how you can make an exciting hotel to compete with the larger luxury offerings that are there within our neighborhood, but also ensure that we create this hotel at a cost that meets our 3 -- one of the 3 targets, which is a high return on capital. So I'd invite you all to come and stay with us when you're in Mumbai next and actually experience ICONIQA, which we're very happy to say that is now soft launched.

Thank you, Arjun. We will now take questions. [Operator Instructions] We'll take the first question from Chirag.

First of all, congrats on good set of numbers. My first question is on the cash profit calculation. So when we -- what we are doing is we are adding the depreciation to the PAT to arrive at the cash profit. But if my understanding is correct, we are not reducing the lease liability principal amount, which is actually part of depreciation to arrive at the cash profit. So for instance, for FY '25, that number was INR 8.6 crores. Now if I remove that from the cash profit that we have reported, that number dropped from INR 68-odd crores to INR 60 crores. So is this the right understanding? First of all, I wanted to clear that. Is this the right understanding that the cash profit is -- should be adjusted for the lease liability principal amount?

Yes. So Chirag, let me tell you the cash profit what we are showing in our presentation, if you really look at it. I'll just go to the slide, slide number --

19.

If you see the Slide #20, Chirag, if you see the Slide #20, yes, so we have shown the cash profit rightly there INR 8.6 crores is the Q1.

Yes, so I have seen that number. So for FY '25, the number that you have reported is INR 68.2 crores. And that number would have arrived...

I have given the Ind AS and without Ind AS. Both are given.

Yes. So I think -- so there is 1 slide in which you have given cash profits, right, in which for FY '25 reported INR 68 crores but that does not -- it is before removing the principal amount.

Obviously, I understand. That's why we have started giving the Ind AS and without Ind AS. So without Ind AS is what you are speaking about and with Ind AS is that.

Got it, okay. So my second question is an extension to this one. Now we have INR 60 crores as the cash profit base from our current hotels. And the expansions will add further to this. I want to understand broadly, what are you thinking in terms of capital allocation? So you have a INR 60 crore base of say free cash. Out of this, some, let's say, INR 6 crores, INR 7 crores, INR 8 crores will go towards some fixed asset purchase or some renovation, et cetera, et cetera. So say, broadly you have INR 55-odd crores of free cash coming from the current operations, which will increase because of all the ongoing expansions. So could you give me like a breakup that...

Let me tell you, Chirag, please understand the company is on a growth path and we are using the cash profit for that growth. If you really look at it, in Bombay hotel itself, we have pumped in a lot of cash, our money, which will again come back in a year's time, okay? So we are using it very diligently our cash for the growth of the company. We are signing a lot of revenue share hotels for which we need cash. However, to start a revenue share hotel where there is no CapEx requirement, but there is a working capital requirement of INR 4 crores to INR 5 crores in any -- even in the smaller hotels. So we are using our internal cash flow for that.

Correct. So my question was that only, that out of this current sustainable INR 55-odd crores of free cash that we have, which will increase because of ICONIQA and other hotels, broadly, what is the thought process in terms of how much would you want to retain going forward out of this INR 55-odd crores current base for, let's say, as you said...

Like in '26, there will be a little growth in the cash profit, which will be around INR 70 crores. And next year, there will be a substantial cash profit.

So how much...

Chirag, just to add to that, I think to say how much of that INR 55 crores free cash flow we want to retain towards, let's say, towards growth versus in the company, right? This is an opportunistic market today. If you look at what is -- if you look at the opportunities we are sitting on and look at the hotels that were added on, let's say, revenue share as well, over the next 1 year, the revenue shares per se will take between INR 25 crores and INR 30 crores of investment from our side. This is between, let's say, the Gurgaon hotel and a few others that we've -- say, 4 others that we've added. The other piece is -- so that's on the growth side. So for argument's sake, let's assume that 40% of the cash is going towards growth. Then there's the renovation of the existing hotels that we currently have, which we are investing in consistently...

We are also adding facility in our Goa hotel. There also, we'll use the...

So if you look across the board, let's say about 40% is going towards growth, 40% is going today towards internal improvements, okay? So does that give you a rough idea of where capital will be allocated out of the INR 55 crores for this coming year?

Yes, that was really helpful. So broadly, what you are saying is 70%, 80% will be retained for growth as well as, let's say, renovations and brownfield expansions, including Goa hotel and all. And the rest, you can look at either distributing it to the shareholders or based on -- so that was the number that I was looking for. Like how much you...

Yes. Listen, last year as well, there was a dividend declared, right? So the question is, do you -- at the appropriate time for shareholder value is consistently being created. And I think you will see more value out of, I guess, the company performing better and growing better rather than distributing anyway. That's a call that the Board takes along with this.

Right. And this INR 25 crores, INR 30 crores what you mentioned, which will go for this year, which will be spent in this revenue sharing, the new hotels that are coming under revenue sharing model. So based on the ARRs and occupancy and all those things that you would have considered based on the current market rates, what is the payback that you see for these INR 25 crores, INR 30-odd crores that you're investing in the revenue sharing model?

Very difficult to really say that because what happens when you start the hotel, for example, revenue share hotel when you sign. The execution or opening of the hotel depends on the owner because he has to finish the project. Now sometimes the project will take 1 year, sometimes the project 2 years, sometimes a project will take 6 months. So this will be very difficult for us to say, but we would have not invested, only maybe advance would have been paid to the owners. And once we start, then the payback is pretty good. And of course, at that time, unfortunately, there is some circumstances beyond our control, some war. For example, there was a war this year. And April and May, 2 months had an impact on North hotels, North and Western hotels, Gujarat and all that. And now we don't know what's going to happen with the Trump tsunami which is coming. So things are -- so I can't tell you exactly what is the payback, but our attempt is that whatever as far as revenue share is concerned, we get our returns and definitely in 2, 3 years or so, we'll get our money back and then after that is all profit.

We'll take the next question from [Majid Ahmed].

My first question is, when is the new property ICONIQA in Mumbai is getting started full fledged this year? And what is the revenue that you're looking in profits for FY '26 from this hotel?

You answer this question? Arjun, yes, go ahead.

Sure, okay. I can take that. So we hope that the hotel is fully operational in the next 3 weeks. That is our internal target to get it done. The property is ready. It's being tested. There are -- and by tested, I really mean that with 291 keys across the hotel, you have to go and test each and every room to say that they are guest-ready. We're fortunate that the project is now opening post the rains. So we've been able to test it for immense amounts of rainfall in Mumbai. So let's say it opens in September, right? So September to March, looking at roughly between INR 65 crores and INR 70 crores of top line revenue is what we hope to achieve in these 9 months is that -- or 8 months. Amit, would you like to add anything to that?

Yes. So the margins, first year, we would like to -- first target is to breakeven in the next 3 months. And once we make breakeven, then we will do a good margin. As far as the yearly, see, we make budgets yearly. So after these 6 months, we are looking at INR 100 crore top line from this hotel with a 15% margin after the lease rent.

That's helpful. And my second question, sir, is that besides this ICONIQA launch as most of the additions that you're going to look for growth are in management contracts, how much incremental revenue and profits does the company expect from other management contracts for the next 2 to 3 years?

See, as far as management contracts are concerned, please understand the revenue of managed hotel doesn't get into our books. We only get the management fees. The top line of the -- only the revenue share hotel, which around 15%, 20% of it will be revenue share, that will definitely get into our books and in the consolidated revenues. And as far as the guideline is concerned, we have already given it in our presentation, okay, for next 3 years guideline. It's already there in the investor presentation. You can refer to that and quite in detail.

Okay, sir. Royal Orchid plans to add more ICONIQA properties over next 1 to 2 years. Would this be under lease agreements or management contracts, given that the lease contract would contribute more to the ARR and profits?

Keshav Baljee, you can take this.

Can I just make 1 -- Mr. Majid, just 1 thing. While it is a question of adding ARR and you said, yes, the lease comes with its own set of challenges, right, which is, obviously, it's a capital outflow. And from the Mumbai experience, we've built this hotel and we built a new brand, not with the intention of keeping it as one. The hope is that we expand ICONIQA, but we expand ICONIQA with what the brand stands for and what it should be. So I think Mr. Baljee can add to this. I think there are opportunities that are coming our way to expand the brand, both in terms of lease and in terms of management. It's a question of capital allocation and for us to see bandwidth as well.

See, there are a lot of people approaching us that give us ICONIQA as a brand and all that. But we are very clear in our mind that it should be a 5-star hotel. It should be a lifestyle hotel. And so it has to really give the feel -- look and feel that we are trying to give. The service delivery and all that, we will be giving, which will really be iconic. So we are working on that. So we'll be very choosy in giving the ICONIQA brand to some other properties or putting other things unless they meet certain basic standards. So we are very clear that this will be -- other brands are Regenta and Regenta Place. We have clearly mentioned that. And so there won't be any ins around that. There'll be then Regenta Z brand, which will cater to the [Gen Z] which is the growing, growing market. And there, we may even look at franchise also because we have some franchise hotels, which will be probably gradually converted into the Z brand. And then, of course, we also have another brand called Crestoria, which will be more boutique kind of hotels where there's no cookie-cutter thing and they are unique in their old own ways. Some hotel is there, which doesn't fall into the iconic Regenta, all these places. So there, we are going to be having Crestoria because it will be a nice hotel to have and in our portfolio. So basically, like all big chains are doing this kind of a thing, we've also done this and with a hope that in each of the brands, we will grow. In fact, a lot of Regenta Places are coming up now. And this also is very design specific. We're making it like a very nice look and feel to the hotel. We already have 2 or 3 hotels in this place and some Z brands are coming up. So total brand architecture is being relooked at, along with the design and experience and the value proposition which each brand will give. And of course, across the board, we have a commitment that, yes, we'll be -- we'll have to provide value to the customer and that will be our distinguishing feature.

So the growth would majorly come, especially in this ICONIQA, through lease model, right, rather than the...

Yes. Lease, it can be managed also, but we'll have to have a total control over the property because we can't let something come up and then we know that the standards are not being maintained. So we're going to go with kind of a cautious approach, right? So you can't expect 100 ICONIQA's to come up. No, it will be gradual, whereas as far as others are concerned, like the Pyramid, there will be more growth in Regenta, more growth in Place, more growth in Z, limited growth in ICONIQA and Crestoria in terms of numbers.

We'll take the next question from Mohit Patel.

Sir, if I see new hotels added, there are only 2 managed hotels. The Mumbai hotels isn't mentioned here. So does this signify hotels which have gone live or which have been tied up? Or does the average occupancy on Slide 34 and ARR mentioned is with respect to these 2 hotels?

Yes. These are the 2 hotels opened last quarter, and therefore, they've been reported here, which is 145 keys. And if you look at the next slide, obviously, this gives you our portfolio at #34 tells basis what is opened for last quarter. ICONIQA and a slew of other hotels that, I guess, have been announced in the press as well that we have opened will be announced -- obviously, will come into this quarter's reports.

My another question is like if ICONIQA is a leased hotel and in 5-star category, we don't see mention of that on Slide 33 under leased category. When and where will be Mumbai -- when and where will be the Mumbai hotel will be visible?

Okay. So Mumbai hotel, as I said, will open formally next month, and therefore, it will only come into this quarter's report. I can't put it in the last quarter because it's not yet open. So in this asset portfolio mix, this was for last quarter as on date, right? If you look at the upcoming hotels, which is on Slide 35, the Slide 35 tells you that there's 2,577 keys that are coming up. And that is from last quarter ended onwards. So what has happened over the last couple of months is obviously, this data changes, right? So ICONIQA opens in the next couple of weeks and so on and so forth. The hotels that will open in the next few months out of this list.

Okay. And how has the accounting has been done for the deposit paid and CapEx done towards the Mumbai hotel? How much of this has been done by us and how much by an asset owner?

Mr. Jaiswal, you're on mute.

See, the entire property is the asset owner, it is of the asset owner only. We are a lessee. And we have given them a refundable deposit of INR 40 crores. That is reflecting as a refundable from the owner, which we will be directing in due course of time from the rent.

Yes, some investment which is regarding operating supplies and other things.

Roughly around...

We have to make, which we are going to be making. But most of the expenses have been given as a deposit or advance rent to the owners and which will be accounted for during the course of the next year.

Okay. And sir, in spite of marginally lower average occupancy in JLO, the ARR has been strong improvement Y-o-Y. But quarter-on-quarter, it has been a drop. What's the reason for the same?