Royal Orchid Hotels Ltd.

Hospitality Industry Analysis-

The Indian hospitality sector is highly cyclical in nature. A positive cycle lasts for around five-
six years whereas a negative cycle lasts for around four-five years. A positive cycle in the
Hospitality Industry is characterized by a sustained improvement in occupancy and a steady
rise in ARR. Many players start to add capacities to capture growth during a similar point in
time, leading to an oversupply of rooms which leads to a negative cycle.
Business hotels and destinations are impacted by macroeconomic volatility, leisure
destinations are impacted by non-economic factors such as tourist infrastructure, political
stability, etc. Demand in Tier 1 cities is influenced by macroeconomic variables such as
inflation, GDP, etc., whereas in Tier 2 and 3 cities, it is influenced by factors such as health
concerns, safety, etc.

First Cycle – FY97-03: Early years of the Hospitality Industry in India were mainly
characterized by fragmented non-branded and non-franchisee hotels. Branded hotels such
as IH, ITC, Oberoi Hotels and Resorts, and Indian Tourism Development Corporation could
be mostly found in metros and certain prime tourist destinations. Due to healthy room
additions and the dot-com crisis, there was an oversupply of rooms leading to a fall in
occupancy in FY02 to 52% from 55% in FY99. RevPAR fell to INR1,870 IN FY02 from INR2,320
IN FY 97. This happened when there was an average inflation of 7%, hence, reflecting this
underperformance, the stock price of EIH/IH declined.

Second Cycle – FY03-08: International Hotels realized that they cannot depend heavily on
larger, matured economies for growth after the downturn in FY2000, due to which brands
such as Hilton, Marriott and Hyatt entered India and set up leisure destinations in India.
Domestic tourists touched 56.3cr in CY08 from 30.9cr in CY03(12.7% CAGR) and foreign
tourist arrivals (FTA) rose to 52.8lk in CY08 from 27.3lk in CY03(14.1% CAGR). ARR increased
from INR3,269 to INR7,989 and occupancy expanded to 69% from 57%. Due to such
favourable growth in the industry, EBITDA, ROE and M-cap of EIH and IH increased.

Third Cycle – FY09-14: A global recession and the 26/11 attacks in Mumbai adversely
affected the Hospitality Industry. Growth in FTA slowed down, affecting the luxury business
hotels and leading to a fall in occupancy/RevPAR to 60%/INR4,595 in FY09 from
69%/INR5,496 from 69%/INR7,722 in FY08. Even after tourist volumes started to recover
from FY10, occupancy and ARR did not improve as: 1) hotels offered discounts to attract
tourists, 2) expansions planned in the previous upcycle started to come on stream, and 3)
global macroeconomic concerns continued. EBITDA, ROE and M-cap of EIH, IH and ROHL fell.
 EBITDA Margin M-Cap (in INR cr)
35.0% 8,000.0
30.0% 7,000.0
25.0% 6,000.0
5,000.0
20.0%
4,000.0
15.0%
3,000.0
10.0% 2,000.0
5.0% 1,000.0
0.0% 0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY09 FY10 FY11 FY12 FY13 FY14

EIH Ltd EIH Ltd

Royal Orchid Hotels Ltd Royal Orchid Hotels Ltd
Indian Hotels Company Ltd Indian Hotels Company Ltd

ROE EV/EBITDA
25.0% 70
20.0% 60
15.0% 50
10.0% 40
5.0% 30
0.0% 20
FY09 FY10 FY11 FY12 FY13 FY14
5.0% 10
10.0%
0
15.0% FY09 FY10 FY11 FY12 FY13 FY14

EIH Ltd EIH Ltd

Royal Orchid Hotels Ltd Royal Orchid Hotels Ltd
Indian Hotels Company Ltd Indian Hotels Company Ltd

Fourth Cycle – FY15-20: After the last downcycle, room additions declined to an annual rate
of ~6% during this time period. Before covid-19 struck, demand increased as domestic
tourists increased from 143.2cr to 232.2cr and FTA increased from 80.3lk in CY15 to 109.3lk
in CY19. With an increase in demand for rooms by ~8.5% over FY15-20, occupancy improved
to 66% in FY20 from 60% in FY15 and RevPAR had a 4.1% CAGR over the same time period.
Although ARR did not grow as hotels continued to offer promotional schemes to attract
customers. ROE and EBITDA of EIH, IH and ROHL increased over the given time period but
the m-cap of these companies was affected by Covid-19.
 EBITDA Margin M-Cap (in INR cr)
25.0% 20,000.0
18,000.0
20.0% 16,000.0
14,000.0
15.0% 12,000.0
10,000.0
10.0% 8,000.0
6,000.0
5.0% 4,000.0
2,000.0
0.0% 0.0
FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18 FY19 FY20

EIH Ltd EIH Ltd

Royal Orchid Hotels Ltd Royal Orchid Hotels Ltd
Indian Hotels Company Ltd Indian Hotels Company Ltd

ROE EV/EBITDA
12.0% 35
10.0% 30
8.0%
6.0% 25
4.0% 20
2.0% 15
0.0%
2.0% FY15 FY16 FY17 FY18 FY19 FY20 10
4.0% 5
6.0% 0
8.0% FY15 FY16 FY17 FY18 FY19 FY20

EIH Ltd EIH Ltd

Royal Orchid Hotels Ltd Royal Orchid Hotels Ltd
Indian Hotels Company Ltd Indian Hotels Company Ltd

Fifth Cycle – from FY22: The Hospitality Industry was severely affected by the Covid-19
pandemic which led to a fall in occupancy levels from the multi-year high of 66.1% in FY20
to 9% in H1FY21. With the gradual removal of restrictions, occupancy rates increased to
34.5% in H2FY21 and then to 50.3% in FY22. With the trend of staycations and workations,
demand stayed strong in H1FY23. As per CARE ratings, occupancy inched back to pre-covid
levels – averaging 63%-65%, and it is expected that the demand will continue to rise
because of: 1) influx of foreign travellers, 2) continued growth in business travel and
wedding demand, and 3) healthy growth in domestic leisure travel. With room additions
being slow as the industry players turned cautious, leading to inventory additions lagging
demand growth – ARR is expected to witness healthy growth ahead.

Peer Comparison:
Peer Comparison as on 13th July, 2023-

S.No Name CMP P/E Mar Cap Div NP Qtr Sales Qtr ROCE
 Yld Qtr Profit Qtr Sales
. Rs. Rs.Cr. % Rs.Cr. Var % Rs.Cr. Var % %
Indian 338.8
1 Hotels Co 393 58.34 55821.7 0.25 4 493.53 1625.43 86.39 13.29
2 EIH 211.6 35.5 13232.74 0.53 92.16 996.09 637.06 111.68 15.98
Chalet
3 Hotels 429.3 56.08 8801.74 0 39.18 572.13 337.87 128.28 9.24
Lemon
4 Tree Hotel 93.6 64.71 7415.38 0 59.02 278.59 252.69 111.39 11.87
Mahindra
5 Holiday 300 53.04 6042.22 0 56.31 254.82 711.61 31.15 9.93
6 ITDC 323.75 46.83 2776.78 0 14 710.98 156.47 74.5 27.15
Barbeque- -
7 Nation 660.45 177.6 2574.35 0 -11.6 2166.67 280.23 11.64 8.99
Royal
8 Orch.Hotel 322.6 18.8 884.74 0.61 13.12 119.76 72.55 83.53 26.36