Royal Orchid Hotels Limited (NSE: ROHLTD, BSE: 532699) has unveiled an ambitious plan to boost its return on capital employed (RoCE) from 20.00% to 25.00% within the next five years. The company's strategy focuses on enhancing profitability and implementing stringent cost control measures, as outlined by CFO Amit Jaiswal.

Asset-Light Expansion Strategy

At the core of Royal Orchid's growth plan is an asset-light expansion strategy. The company aims to achieve 80.00% of its growth through management contracts, while the remaining 20.00% will come from revenue-sharing models. This approach is designed to minimize investment requirements and optimize capital efficiency.

Debt Management and Financial Outlook

Royal Orchid Hotels expects to maintain its debt levels at approximately Rs 90.00 crore. This conservative approach to leverage aligns with the company's focus on improving profitability and returns.

Benefiting from GST Rate Reduction

The company anticipates significant benefits from recent changes in Goods and Services Tax (GST) rates for hotel rooms. Effective September 22, the GST rate for rooms priced below Rs 7,500.00 has been reduced from 12.00% to 5.00%. This tax adjustment is particularly advantageous for Royal Orchid, given that:

• The company's average room rate is Rs 6,000.00
• 85.00% of its rooms are sold below the Rs 7,500.00 threshold

This positioning gives Royal Orchid a competitive edge in the market, potentially driving higher occupancy rates and improved margins.

Recent Corporate Governance Activities

A recent postal ballot conducted by Royal Orchid Hotels revealed mixed results on two key resolutions:

1. Appointment of Non-Executive Director: The resolution to appoint Mr. Sunil Sikka (DIN: 00083032) as a Non-Executive Director did not pass. The voting results showed:

2. Increase in Managerial Remuneration: A special resolution to approve an increase in the managerial remuneration of Mr. Chander K. Baljee, Managing Director, also did not pass. The voting breakdown was:

These voting outcomes suggest that shareholders are closely scrutinizing the company's governance and compensation practices, which may influence future decision-making and strategy implementation.

Conclusion

Royal Orchid Hotels' ambitious target of 25.00% RoCE, coupled with its asset-light growth strategy and favorable positioning in the wake of GST reductions, presents a promising outlook for the company. However, the recent shareholder votes indicate a need for the management to align more closely with shareholder expectations, particularly in areas of board composition and executive compensation. As the company moves forward with its growth plans, balancing these stakeholder interests will be crucial for long-term success.

Royal Orchid Hotels Limited has successfully completed the acquisition of the remaining shares in Icon Hospitality Private Limited, transforming it into a wholly owned subsidiary. The strategic move, which was finalized on October 11, 2023, marks a significant expansion in Royal Orchid's hospitality portfolio.

Acquisition Details

The acquisition involved the purchase of a total of 929,872 shares from two key shareholders:

• 917,872 shares acquired from P. Dayananda Pai
• 12,000 shares acquired from P. Satish Pai

Both transactions were executed through demat transfer, ensuring a smooth and efficient process.

Timeline of the Acquisition

This acquisition is the culmination of a process that began earlier in the year:

• May 2023: Royal Orchid Hotels initially disclosed its intentions to purchase these shares.
• October 2023: The company executed the Share Purchase Agreement, setting the stage for the final transfer.
• October 11, 2023: The acquisition was completed, officially making Icon Hospitality a wholly owned subsidiary of Royal Orchid Hotels.

Strategic Implications

This move by Royal Orchid Hotels demonstrates the company's commitment to expanding its presence in the hospitality sector. By fully acquiring Icon Hospitality, Royal Orchid gains complete control over the subsidiary's operations and assets, potentially leading to:

• Enhanced operational synergies
• Streamlined decision-making processes
• Improved resource allocation across the expanded portfolio

The acquisition aligns with Royal Orchid's growth strategy and may contribute to strengthening its position in the competitive hospitality market.

As the hospitality industry continues to evolve, such strategic acquisitions could play a crucial role in shaping the future landscape of hotel management and operations in India.