Project on Royal Orchid Hotels Ltd.

(Stock Analysis)

Royal Orchid Hotels Ltd.(Stock Analysis)

March 25, 2011

(CMP: Rs 63.7) Buy Target Price: Rs 110 ________________________________________

CompanyProfile:

Royal Orchid Hotels Ltd. is an India-based company. Royal Orchid engages in the operation and management of hotels/holiday resorts, as well as the provision of related services in India. The company operates 15 business & leisure hotels in 7 destinations. The Royal Orchid Hotels are amongst Indias fastest growing hotels. The group achieved remarkable position in the hospitality industry and now operates more than 15 hotels across Bangalore, Mysore, Pune, Jaipur, Goa and Hyderabad. The Companys hotel properties include Hotel Royal Orchid, Royal Orchid Central, Royal Orchid Resorts and Ramada in Bangalore, Royal Orchid Metropole and Royal Orchid Brindavan, heritage properties in Mysore, Royal Orchid Central, Pune, Jaipur, and Royal Orchid Galaxy Resorts, Goa. The Companys subsidiaries include Icon Hospitality Private Limited, Maruti Comforts and Inn Private Limited, Royal Orchid Hyderabad Private Limited, AB Holdings Private Limited, Royal Orchid Jaipur Private Limited and Royal Orchid South Private Limited.

Royal Orchid Hotels Ltd. (ROHL) showed substantial rise in its bottom -line and top-line due its unique business model & aggressive expansion. ROHL registered 23.2% rise in its sales in Q3 FY11 to Rs 24.85 crores from Rs 20.17 crores in Q3 FY10. During the same period, ROHL saw stunning 55.71% growth in its net profit to Rs 3.27 crores from Rs 2.10 crores in Q3 FY10. Aggressive Expansion: ROHL have eight hotels opening up this year. Currently company has 1,500 rooms in pipeline coming up in next two years of which majority will open in this year before December. Company currently has 15 operational hotels which will scale up to 22-23 hotels by December of this year. The required funds (in tune of Rs 150 crores) for the same are raised by the company.

Low Debt Volumes: The company is having a low debt volume of leads to the debt equity ratio of 0.69x in FY10 which is very low as compare to its peers. Low debt gives an advantage to the company to raise funds for its expansion plans. ROHL is planning its first corporate bond issue to finance new hotels in the cities of Mumbai and Hyderabad. Unique Business Model: Royal Orchid Group of Hotels has grown immensely in the last few years despite the recessionary trends of market and striving to emerge as one of the larger hotel chains in the country. The hotels of the Company are situated across the major markets in India giving it an advantage of adequately balanced representation. With the new hotels of the Company coming up in Hyderabad, Jaipur, Shimoga, Hospet, Mussoorie, Mumbai, Delhi & Shimla the group is poised for a substantial growth in near future. Outlook and Conclusion: At the current market price of Rs 63.7, the stock is trading at 11.17x FY11E and 8.41x FY12E respectively. Price to Book Value of the stock is 0.87 & relatively cheap compared to peers. With the improvement in industry trend & positive outlook of the companys future, I initiate BUY with a long term investment horizon with the price target of Rs 110.

(Disclaimer: As per SEBI requirements it is stated that, the writer and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while report is in circulation.)