ICRA said that the reaffirmation in rating of Royal Orchid Hotels Limited (ROHL/the company) factors its healthy operating and financial performance during 9M FY2024 and anticipated sustenance of the same given the favourable demand outlook for hotel industry in FY2025.

The company has reported healthy uptick in revenues in 9M FY2024, with demand stemming from leisure, social meetings, incentives, conferences and exhibitions (MICE) / weddings and pickup in business travel and FTAs (foreign tourist arrivals).

The favourable demand outlook for the industry and expansion of ROHL’s hotel portfolio are likely to support revenues and accruals in FY2025. The debt metrices are likely to remain comfortable, supported by the anticipated healthy accruals, despite the proposed debt-funded capex.

The rating also positively factors in the company’s asset-light model of operations (over 79% of rooms operated under management contracts/franchise), which limits capex requirements and project execution risks.

Further, ROHL has a well-diversified hotel portfolio across segments (five-star, four-star, economy hotels, resorts and service apartments) and has witnessed healthy inventory growth to 5,765 keys as on December 31, 2023 from 1,944 keys in FY2014.

The rating, is however, constrained by ROHL’s inventory concentration in the Karnataka and Gujarat regions (over 40% of keys).

While ICRA notes that the company has recently increased its presence in other regions such as Punjab, Odisha, Haryana and Himachal Pradesh, the ability to achieve material geographical diversification over the medium term remains to be seen.

Further ROHL’s revenues are vulnerable to the inherent cyclicality of the hospitality industry, economic cycles and exogenous events.

The Royal Orchid Group of Hotels has a portfolio of 100 operating hotels across 65 locations in India as of 31 December 2023. The company operates vide the following brands: Royal Orchid (five-star), Royal Orchid Central and Regenta Central (four-star), and Regenta Inn (economy hotels); as well as resorts and service apartments.

The scrip had risen 1.02% to end at Rs 362.20 on the BSE yesterday.