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Wednesday, May 27, 2009

Royal Orchid Hotels Ltd:-Future outlook and growth prospects

Scripscan:Royal Orchid Hotels Ltd
Traded in:Nse-bse

Story:Starting with a budget business hotel in Bangalore, the hospitality chain has grown with the IT and BPO sector. It now operates four properties in Bangalore and two each in Pune and Mysore. Early last year, it opened its first property in North India in Jaipur.Unlike its national peers which cater to the entire gamut of travellers, Royal Orchid is exclusively focussed on business travellers. It offers its services under six sub-brands, each catering to a particular niche in the business travel market. At the top end is the Royal Orchid branded hotels, which offer typical 5-star amenities to guests. At the other extreme is Royal Orchid Harsha economy business hotels. Besides, the company offers boutique hotels (RO Central), business leisure (RO Getaways) and service apartments (RO Suites). It also has an exclusive licensing agreement for the development of 10 Ramada branded 4-star hotels in India. Recently, the company entered the budget travel market by launching Peppermint hotels in Hyderabad.By ''11, the company plans to emerge as a national business hotel chain with 20 properties operational across major business and leisure destinations in the country. Towards this, the company is investing around Rs 500 crore partly funded through IPO proceeds raised in ''06 and debt, which has already been tied-up. The company is on course to open six RO properties in ''09, one each in Delhi, Mumbai, Bangalore, Hyderabad, Noida and Shimla. Next on the target are Chennai, Udaipur, Goa, Indore and Bikaner. It is also planning an international foray and recently acquired a 30-acre property in the Dar Es Salaam in Tanzania, Africa. It plans to develop a business hotel-cum-resort on the property in the next 2-3 years.Going forward,I expect profitability to improve as the company opens more properties outside Bangalore.At its current price of Rs 61 per share, the stock is valued at single digit valuations.In contrast, its peers such as Taj GVK and Asian Hotels are trading at a much higher valuation. This is despite the fact that Royal Orchid has one of the strongest balance-sheets among its peers and has got the highest dividend yield in the industry.Prsent price offers the right entry point for long-term investors interested in capital growth along with decent dividend income.

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