Royal Orchid Hotels Sets 25% RoCE Target In Five Years As Focus Shifts On Cost Control

Royal Orchid Hotel Ltd is ready to sharpen its focus on profitability and cost control, as the company looks to boost its return on capital employed (RoCE) to 25% within the next five years, up from the current 20%.

Speaking to NDTV Profit's Know Your Company show, Royal Orchid Hotels' Chief Financial Officer, Amit Jaiswal, highlighted the company's shift to an asset-light expansion model and growing exposure to the mid-market segment.

“We want to take RoCE to 25% in five years,” Jaiswal said. “Eighty percent of our growth will come from management, 20% from the revenue share model. There will be investment there, but it will be very minimal.”

This push comes at a time when Royal Orchid Hotels is trying to maintain a strong balance sheet, with debt levels expected to “hover around the same Rs 90 crore mark".

While leasing generally brings lower margins than outright ownership, Royal Orchid’s model generates healthy cash flows and requires lower investment. Not to mention, it is only 20% of the company's overall pie of total revenue.

“80% of our growth will come from management, 20% from the revenue share model. There will be investment there, but it will be very minimal,” he said.

Royal Orchid Hotels is also expecting strong impact from the recent GST revision, where GST rates on hotel rooms priced lower than Rs 7,500 has been reduced from 12% to 5%, effective September 22.

Talking about the impact of the GST rejig, Jaiswal admitted that the company has a lot of exposure to the below Rs 7,500-priced segment.

"We are averaging an average room rate (ARR) of Rs 6,000, and almost 85% of the company’s rooms are being sold below Rs 7,500. Only a fraction of the rooms are being sold at over Rs 7,500. The new GST rates, therefore, will certainly give us a competitive edge," Jaiswal concluded.