INDUSTRY ( & )

SEGMENTS

(Business)

TRAVEL & TOURISM

ACCOMODATION TRANSPORTATION ATTRACTIONS TOUR OPERATIONS TRAVEL AGENTS & CATERING

Hotels & , apartments, camps, guest houses, A fragmented lodge, bed & Theme parks & sector with a breakfast natural attractions number of establishments, Airline including scenic Offer customised independent travel agencies specialise house boats, companies, locations, cultural & tours, including agents & many in making travel & , cabins & cruise services, educational travel, online businesses. accommodation . Catering railways, car attractions, accommodation & They also sell arrangements for facilities includes rentals & more. monuments, events sightseeing associated products business travellers & include , local & medical, social or such as insurance, promoting , professional causes. car hire & currency conference trades. roadside joints, exchange. cafeterias & retail outlets serving food & beverages.

SEGMENTS

(Consumer)

Rural Tourism • The aim is to develop interest in heritage and culture; & promote visits to village settings to experience & live a relaxed & healthy lifestyle

Medical Tourism • Tourists seek specialised medical treatments, mainly ayurvedic, spa & other therapies • The primary purpose is achieving, promoting or maintaining good health & a sense of well-being

Heritage Tourism • Tourists visit India for its cultural heritage in various cities • The country’s rich heritage is amply reflected in the various temples, majestic forts, pleasure gardens, religious monuments, museums, art galleries, urban & rural sites

Luxury Tourism • The luxury travel market in India registered a growth rate of 12.8 per cent in 2016, the highest in comparison with any other BRIC country.

Adventure Tourism • A wide range of adventure sports are covered under this category with specialised packages

Eco-Tourism • Vast variety of flora & fauna in various states is a major factor behind their growing popularity as tourist destinations. • Thenmala in Kerala is the 1st planned destination in India.

Pilgrimage Tourism • One of the biggest contributor to tourism industry. India being religious hub for different cultures attracts a large number of tourists every year

ECONOMIC CONTRIBUTING ACTIVITIES

Travel & Tourism is an important economic activity in most countries around the world. As well as its direct economic impact, the industry has significant indirect and induced impacts.

The ‘Direct Contribution’ of Travel & Tourism to GDP reflects the ‘internal’ spending on Travel & Tourism (total spending within a particular country on Travel & Tourism by residents and non-residents for business and leisure purposes) as well as government 'individual' spending - spending by government on Travel & Tourism services directly linked to visitors, such as cultural (eg. museums) or recreational (eg. national parks).

The ‘Indirect Contribution’ includes the GDP and jobs supported by: -Travel & Tourism investment spending - Government 'collective' spending - Domestic purchases of goods and services by the sectors dealing directly with tourists.

The ‘Induced Contribution’ measures the GDP and jobs supported by the spending of those who are directly or indirectly employed by the Travel & Tourism industry.

TRAVEL AND TOURISM SECTOR

(GLOBAL)

Travel & Tourism is a key sector for economic development and job creation throughout the world. In 2016, Travel & Tourism directly contributed INR150 lakh crore (approx.) and 10.9 crore jobs worldwide. Taking its wider indirect and induced impacts into account, the sector contributed US$7.6 trillion to the global economy and supported 29.2 crore jobs in 2016. This was equal to 10.2% of the world’s GDP, and approximately 1 in 10 of all jobs.

10.2% GDP contribution Business spending Foreign 29.2 Crore jobs 23% visitors spending Contributed INR490 28% Lakh Crore (approx.)

Domestic Leisure spending spending 72% 77%

Tourism & hospitality’s impact includes people travelling for both leisure and business, domestically and internationally. In 2016, 76.8% of all travel spend was as a result of leisure travel, compared to 23.2% from business travel. Domestic travel generated 72% of the sector’s contribution to GDP, thus making a significantly larger contribution than international travel, with foreign visitor spending at 28%. Travel & Tourism is an export sector, attracting foreign spending to a country in the form of international visitors. In 2016, global visitor exports accounted for 6.6% of total world exports (approx. 91 lakh crore) and almost 30% of total world services exports. India is expected to establish itself as the fourth largest Travel & Tourism economy by TOTAL CONTRIBUTION TO GDP 2027, both in terms of direct and total GDP, only behind China, the USA and Germany.

TRAVEL AND TOURISM SECTOR (GLOBAL)

Tourism & hospitality’s direct contribution to GDP grew by 3.1% in 2016. This was faster than the global economy as a whole which grew at 2.5%, for six consecutive years, the Travel & Tourism sector has outperformed the global economy. In addition to outpacing global economic growth, the Travel & Tourism sector also outperformed several other major global economic sectors in 2016. Specifically, direct Travel & Tourism GDP growth was stronger than the growth recorded in the financial and business services, manufacturing, public services, retail and distribution, and sectors, but was marginally slower than growth in the communications sector.

TEN YEAR FORECASTS

Travel & Tourism’s direct contribution to GDP is expected to grow at an average of 3.9% per year over the next ten years. By 2027, Travel & Tourism is expected to support more than 38 crore jobs globally, which equates to 1 in 9 of all jobs in the world and the sector is expected to contribute around 23% of total global net job creation over the next decade. Meanwhile, total Travel & Tourism GDP is expected to account for 11.4% of global GDP and global visitor exports are expected to account for 7.1% of total global exports.

A key challenge for Travel & Tourism in short term period will be a general slowdown in consumer spending power which will impact consumer spending on Travel & Tourism. The combination of higher inflation caused by recovering oil prices (which could have knock-on impacts for air fares), rising debt servicing costs as interest rates rise, and a slowdown in job creation across the globe is curbing global spending power.

TRAVEL AND TOURISM SECTOR (INDIA)

The Direct contribution of Travel & Tourism to GDP in 2016 was INR4,809.80 crore (3.3% of GDP) and is expected to grow by 6.8% pa to INR9,948.50 crore (3.5% of GDP) by 2027. This primarily reflects the economic activity generated by industries such as hotels, travel agents, airlines and other passenger transportation services (excluding commuter services). But it also includes, for example, the activities of the and leisure industries directly supported by tourists.

The Total contribution of Travel & Tourism to GDP (including wider effects from investment, the supply chain and induced income impacts) was INR14,018.50 crore in 2016 (9.6% of GDP) and is forecasted to rise by 6.7% pa to INR28,491.80 crore by 2027 (10.0% of GDP).

TRAVEL AND TOURISM SECTOR (INDIA)

Travel & Tourism generated 25,394,500 jobs The total contribution to employment was In 2016, India generated INR1,529.30 crore in directly in 2016 (5.8% of total employment) and 40,343,000 jobs in 2016 (9.3% of total visitor exports*. By 2027, international tourist by 2027, Travel & Tourism will account for employment). By 2027, Travel & Tourism is arrivals are forecasted to total 17,284,000, 31,910,000 jobs directly, an increase of 2.1% pa forecast to support 49,868,000 jobs (9.6% of generating expenditure of INR2, 901.70 crore, over the next ten years. total employment), an increase of 2.0% pa an increase of 6.1% pa. over the period.

* Visitor Exports is the spending within a country by International tourists. TRAVEL AND TOURISM SECTOR (INDIA)

COMPONENTS

Leisure travel spending (inbound and domestic) generated 94.6% of direct Travel & Tourism GDP in 2016 (INR12,07,900 crore) compared with 5.4% for business travel spending (INR689.0bn). Domestic travel spending generated 88.0% of direct Travel & Tourism GDP in 2016 compared with 12.0% for visitor exports (ie foreign visitor spending or receipts).

Business Induced Foreign spending 13% Direct visitors 5% 34% spending 12%

Indirect 53%

Leisure Domestic spending spending 95% 88%

Leisure travel spending is expected to grow by7.0% The total contribution of Travel & Tourism to Domestic travel spending is expected to grow by pa to INR25,391.10 crore in 2027. GDP is nearly three times greater than its direct 7.1% pa to INR23,942.90 crore in 2027. Business travel spending is expected to grow by contribution. Visitor exports are expected to grow 6.1% pa to 7.2% pa to INR1,453.50 crore in 2027. INR2,901.70 crore in 2027.

Travel & Tourism is expected to have attracted capital investment of INR2,284.90 crore in 2016. This is expected to rise by 5.7% pa over the next ten years to INR4,14,900 crore in 2027.

Travel & Tourism’s share of total national investment will fall from 5.8% in 2017 to 5.7% in 2027.

TRAVEL AND TOURISM SECTOR (INDIA)

TRENDS & STRATEGIES

- Online travel operators Over 70 per cent of air tickets are now being booked online in the country. A number of online travel & tour operators, which provide better prices & options to consumers, have emerged in India.

- Wellness Tourism The widespread practice of , , siddha & naturopathy that is complemented by the nation’s spiritual philosophy makes India a famous wellness destination.

- Cruises Government of India has estimated that India would emerge with a market size of 12 lakh cruise visitors by 2030-31. The government is planning to set up five cruise terminals in the country.

- Adventure It is one of the most popular segments of tourism industry. Owing to India’s enormous geo-physical diversity, it has progressed well over the years. Part of India’s tourism policy, almost every state has definite programme to identify & promote Adventure tourism.

- Camping sites Promotion of camping sites has been encouraged with adequate acknowledgement of its adverse effects on environment. Besides providing unique rewarding experiences, responsible conduct of camping can be a major source for both additional economic opportunities in remote areas as well as an instrument of conservation.

- Spiritual Tourism India has been known as the seat of spiritualism & India’s cosmopolitan nature is best reflected in its pilgrim centers. India has been recognised as a destination for spiritual tourism for domestic & international tourists.

- Branding The launch of several branding & marketing initiatives by the Government of India such as Incredible India! & Athiti Devo Bhava provides a focused impetus to growth.

TRAVEL AND TOURISM SECTOR (INDIA)

TRENDS & STRATEGIES

- Multiple channels Players are opting for many channels to maximise sales & ensure convenience for their customers. For example, Thomas Cook & Kuoni India launched their online portals to compete with others. On the other hand, makemytrip.com is planning to go for the offline channel to complement its existing portal & has already launched mobile apps for maximising sales.

- One stop solution Players are trying to ensure convenience for their customers by providing all services available on a single portal. For example, makemytrip.com & a host of other websites provide a comprehensive basket of offerings which include outbound & inbound travel for leisure & business trips, hotels & car booking, packages within India or abroad, etc

- Marketing Strategy Players are using innovative marketing strategies to succeed in this sector. For example: The Goa Tourism Development Corporation (GTDC) is planning to organise familiarisation trips or “fam” trips for international tour operators to showcase Goa as a tourist destination. It has also planned to promote Goa in international markets through the print & electronic media. Benefits such as such as priority reservation & Indian rail pass for train travel are also being extended to foreign tourists Incredible India 2.0 campaign and ‘Adopt a Heritage’ were launched in September 2017.

- M-Visa Indian government has also released a fresh category of visa – the medical visa or M visa, to encourage in India. Indian medical tourism is expected to reach INR52,000 crore by 2020.

- E-Tourist Visa In November 2017, a total of 214,000 foreign tourists arrived on e-Tourist Visa, in comparison with 137,000 foreign tourists in October 2016, registering a growth of 56.2 per cent over previous year.

TRAVEL AND TOURISM SECTOR (INDIA)

GOVERNMENT INITIATIVES TOURISM POLICY

Swadesh Darshan Special boards -Based on specific themes, government has identified 13 circuits which The Ministry has set up a Hospitality Development & Promotion Board, includes Krishna Circuit, Buddhist Circuit, Himalayan Circuit, North East which will monitor & facilitate hotel project clearances/approvals. Circuit & Coastal Circuit. -Tajmahotsav: the 10 day celebration provide a platform to experience Tourist Boards India’s arts, craft, culture, cuisine, dance & music. The Ministry, in consultation with state/UT administrations, has -Under Budget 2017-18, the government allotted INR928 crore (approx.) proposed to employ tourist police at prominent tourist spots. for Integrated development of tourist circuits under Swadesh Darshan scheme. Tax Incentives An investment-linked deduction under Section 35 AD of the Income Tax Pilgrimage Rejuvenation and Spiritual Augmentation Drive Act is in place for establishing new hotels in the 2-star category and (PRASAD) above across India, thus permitting a 100 per cent deduction in respect of National Mission on Pilgrimage Rejuvenation & Spiritual Augmentation the whole or any expenditure of a capital nature. was implemented by the Ministry for enhancing the facilities provided & infrastructure at pilgrimage centres of all cities Incentives from Ministry of Tourism -Assistance in large revenue-generating projects. National Tourism Policy 2015 -Support to Public Private Partnerships in infrastructure development -Formulation of National Tourism Policy 2015 that would encourage the such as viability gap funding. citizens of India to explore their own country as well as position the -Schemes for capacity-building of service providers. country as a ‘Must See’ destination for global travellers -Under Union Budget 2017, INR96 crore was allocated for promotion & Project Mausam publicity of various programmes & schemes of the Tourism ministry. Under ‘Project Mausam’ the Government of India has proposed to establish cross cultural linkages & to revive historic maritime cultural & E-Tourist Visa economic ties with 39 Indian Ocean countries. In 2015, Government of -Since April 2017, the facility has been made available to citizen 161 India linked China Silk Road project with Project Mausam. countries. -Growth of 67.3 per cent was registered during the month of October 2017, as a total of 176,000 tourists arrived in India on E – Tourist Visas, as against a total of 105,000 tourists during October 2016. -Foreigners travelling to India on e-tourist visa will receive a BSNL SIM card which will be pre activated and loaded with talktime and data.

TRAVEL AND TOURISM SECTOR (INDIA)

GROWTH DRIVERS OPPORTUNITIES

Infrastructure Medical Tourism More than half of the Ministry of Tourism’s Plan budget is channelized for -The presence of world-class hospitals & skilled medical professionals funding the development of destinations, circuits, mega projects as well as makes India a preferred destination for medical tourism. infrastructure projects. -India’s earnings from medical tourism could exceed INR59,000 crore by 2020. Growing Demand -Tour operators are teaming up with hospitals to tap this market -Domestic expenditure on tourism is expected to rise due to the growing -201 thousand medical tourists arrived in India in the 2016 as compared income of households. to 134 thousand in 2015. -A number of niche offerings such as medical tourism & eco tourism are expected to create more demand. Cruise Tourism -Cruise shipping is one of the most dynamic & fastest growing segments Rising FDI of the global leisure industry. -Hotel & Tourism sector has received cumulative FDI inflows of -Government of India has estimated that India would emerge with a INR69,000 crore from April 2000 to September 2017. market size of 12 lakh cruise visitors by 2030 – 31. -International hotel brands are targeting India .e.g. Carlson group is aiming -Moreover, India is looking to take advantage of its 7,500Km coastline to to increase the number of its hotels in India to 170 by 2020. tap growth potential of the cruise tourism segment. -Hospitality majors are entering into tie ups to penetrate deeper into the market, such as Taj & Shangri-La entered into a strategic alliance to Rural Tourism improve their reach & market share by launching loyalty programme aimed -The potential for the development of rural tourism in India is high as at integrating rewarded customers of both hotels. most of its population resides in rural areas. -This can benefit the local community economically & socially, and facilitate interaction between tourists & locals for a mutually enriching Policy Support experience. -100 per cent FDI is allowed under the automatic route in tourism & hospitality, subject to applicable regulations & laws. Eco-Tourism -100 per cent FDI allowed in tourism construction projects, including the -India is often termed as hotspot of bio-diversity & this rich natural development of hotels, resorts & recreational facilities. heritage is unparallel in many ways. -Campaigns such as Incredible India & Athithi Devo Bhava were launched -Such valuable resource base gives impetus for the practice of variety of to harness the tourism industry’s potential. alternate tourism forms & many of which are already in existence. . -For example: The national parks, wildlife sanctuaries & biosphere reserves.

TRAVEL AND TOURISM SECTOR (INDIA)

PORTERS FORCES

THREAT OF NEW ENTRANTS COMPETITIVE RIVALRY THREAT OF SUBSTITUTES HIGH MEDIUM The Indian hospitality sector is highly LOW fragmented with a large number of small and unorganised players; this increases Entry is easy as it is not capital intensive, competition Threat of substitute products is minimal as but a player needs to achieve economies no substitutes are available in the market of scale and access to distribution channel Customers’ low switching cost and price to compete sensitivity are increasing competition among players

BARGAINING POWER OF BARGAINING POWER OF SUPPLIERS BUYERS MEDIUM HIGH There is the threat of forward integration; for Low switching cost gives customer high instance, the airline starts selling directly to bargaining power customers Customers are price sensitive and have The cost of switching suppliers is low information about the services being provided

TRAVEL AND TOURISM SECTOR (INDIA)

Rising incomes mean a steady growth in the ability to access In June 2016, the Indian government approved 150 countries under healthcare & related services the Visa on Arrival scheme to attract additional foreign tourists. Per capita income is expected to increase at a CAGR of 7.33 per The Visa on Arrival scheme registered an average growth of 133.90 cent over 2014–18 per cent over 2010–16. According to IMF, nominal per capita income in the country is Indian government has also released a fresh category of visa – the estimated to increase at a CAGR of 4.94 per cent during 2010-19 medical visa or M visa, to encourage medical tourism in India.

The period of October to March accounts for maximum tourism in the country.

TRAVEL AND TOURISM SECTOR (INDIA)

LEADING STATES/UTs

TRAVEL AND TOURISM SECTOR (INDIA)

COUNTRY RANKINGS

HOTEL, RESORTS, RESTURANTS SECTOR (INDIA)

With a consistently growing middle class and increasing disposable income, the tourism and hospitality sector is witnessing a healthy growth. 'Hotel Industry in India' success story is only second to China in Asia Pacific. The World Travel and Tourism Council, says that India ranks 18th in business travel and will be among the top 5 very soon.

According to the Economic Survey of India (2016/17), the buoyancy in the country's GDP remains unchanged in recent years, with 2015/16 ending at a 7.6% growth and 2016/17 witnessing a GDP growth of 7.1%. In particular, the country's services sector grew at 7.7% last year, with the trade, hotels, transport and storage subsector registering a 7.8% growth estimate.

The hotel industry is highly cyclical; while demand dynamics are related to the economic cycle, the lumpy nature of supply additions and long gestation period of project executions aggravates cyclical peaks and troughs. Demand-supply dynamics have a strong bearing on profitability. In the long term, the demand-supply gap in India is very real and there is need for more hotels. The shortage is especially true within the budget hotels and the mid-market hotels segment. There is a need for budget and mid-market hotels in the country as travelers look for safe and affordable accommodation. Various domestic and international brands have made significant inroads into this space and more are expected to follow as the potential for this segment of hotels becomes more obvious.

HOTEL, RESORTS, RESTURANTS SECTOR (INDIA)

DEMAND & SUPPLY TREND (Occupancy, ARR, RevPAR)

On a nationwide basis, new branded and organized supply grew by merely 5.9% over the preceding year. Overall demand increased by 9.6% in the same period.

ROOM NIGHT DEMAND VS AVAILABLE ROOM NIGHTS (2002/03 – 2016/17)

HOTEL, RESORTS, RESTURANTS SECTOR (INDIA)

Occupancy: - Market wide occupancy of 65.6% was consequently 3.5% higher than the 2015/16 performance of 63.3%. Occupancy rate: - When viewed by positioning, Five-Star Deluxe and Three- Star Hotels clocked 66.5% occupancy each in 2016/17, ratio of rented or while Four - Star Hotels achieved 65.6% occupancy. Five-Star Hotels were just shy of the 65% mark and closed at a used space nationwide occupancy of 64.6%, whereas Two-Star Hotels managed 62.7%. compared to the

total amount of ARR: space available - Average Room Rates too have shown promise as the nationwide numbers appreciated by 2.4% in 2016/17 over last fiscal and were the highest in four years. ARR/ADR: Though, the degree to which rates have grown continues to be marginal. average room rate/ average daily rate (room revenue per room)

Nationwide occupancy for all branded hotels was 65.6% in 2016/17, hotels RevPAR: that have existed since 2012/13 Revenue per achieved 68.4% occupancy last year. available room

Similarly, hotels that have been operating since 2013/14 clocked 67.9% occupancy in 2016/17.

On the average rate front, while India's ARR was Rs.5,658 in 2016/17, for hotels in existence since 2012/13, the ARR last year was more than Rs.6,000.

PERFORMANCE OF EXISTING HOTELS (2012/13 – 2016/17)

HOTEL, RESORTS, RESTURANTS SECTOR (INDIA)

First-year occupancy of hotels that opened in 2012/13 through 2014/15 was all in the mid-to-late thirties, do note that hotels that opened in 2015/16 averaged 42.7% and, new openings of 2016/17 averaged 45.9% occupancy in their very first year.

Similarly, while first year ARRs were successively lower than their preceding years from 2012/13 to 2014/15, the ARR for hotels that opened in 2015/16 and 2016/17 have seen an increase in comparison to their preceding year.

PERFORMANCE OF NEW HOTELS (2012/13 – 2016/17)

RevPAR: Nationwide occupancy crossed the 65% mark for the first time since 2007/08, with hotels bagging an overall weighted occupancy of 65.6% in 2016/17, an increase of 3.5% over the previous fiscal. The increase in occupancy was complimented with an increase of 2.4% in weighted average rate (`5,658) during the same period. The growth in both occupancy and average rate resulted in the nationwide RevPAR rising by 6.0% over the previous fiscal to reach Rs.3,709. Two-Star and Four-Star categories recorded RevPAR growth of 7.4% and 7.2%, respectively.

HOTEL, RESORTS, RESTURANTS SECTOR (INDIA)

GST Under GST Indian stands to benefit from homogeneous and uniform taxes, in addition to easy utilization of Input Tax Credit (ITC).

Average Room Rate GST (Rs.) In the past, the taxes that were applied on inputs, such as raw materials, food, cleaning supplies, and amenities, could not be Below 1,000 Not applicable adjusted against the output without multiple complications. This 1,000 – 2,500 12% will now be much easier under the GST regime. 2,500 – 7,500 22% Above 7,500 28%

Other advantages of the new taxation include administrative ease and clarity for end consumers. The GST at 28% for rooms averaging is the highest in the region, the overall impact of this indirect tax on the Indian hotel sector is likely to be favorable.

Economic risks, high capital costs, competition in the industry, Barriers to Entry Medium poor infrastructure facilities and scarcity of land. Bargaining power Low Higher competition, especially in metros. of Suppliers Bargaining power High Higher in metros due to increasing room supply. of customers Intense in metros, slowly picking up in tier-2 and tier-3 cities, entry Competition High of foreign hotel chains, startups/online industry Threat of Low No direct substiute avaiable Substitutes

HOTEL, RESORTS, RESTURANTS SECTOR (INDIA)

No. OF ROOMS

Category of Hotels No. of Hotels No. of Rooms 2014 2015 2016 2014 2015 2016 One Star 41 13 26 1193 530 785 Two Star 80 53 68 1902 1149 1922 Three Star 554 419 529 22724 17618 22633 Four Star 134 208 197 7969 9847 9972 Five Star 92 128 125 11744 15043 15230 Five Star Deluxe 113 138 127 23907 30032 27775 Apartment Hotels 113 1 - 249 126 - 5 6 7 77 110 110 Heritage Hotels 42 36 30 1237 1163 1065 Silver Bed & Breakfast Establishment 52 481 283 242 2415 1359 Unclassified 117 420 - 8323 26256 - Total 2333 1903 1394 79567 104289 81011

HOTEL, RESORTS, RESTURANTS SECTOR (INDIA)

FUTURE SUPPLY

- The fiscal year 2016/17 saw the existing rooms supply grow by 6.8% over the previous year, resulting in the nationwide existing supply totaling 1,19,219 rooms. This takes into account 6,289 new openings during the year. - The proposed supply pipeline has reduced significantly from 2007/08. In 2016/17, the number stands at 47,067, a decrease of approximately 10,000 rooms from 2015/16. The increase in existing supply, coupled with the decline in proposed supply pipeline, is indicative of a substantial number of previously announced rooms having entered the market in the last fiscal. - It is anticipated that around 30,000 branded hotel rooms are to be developed over the following five years, taking the total anticipated branded supply to 1,49,276 rooms by 2021/22.

GROWTH OF ROOM SUPPLY – INDIA PROPOSED BRANDED HOTEL ROOMS ACROSS MAJOR (2000/01 – 2021/22) CITIES (2016/17 – 2021/22)

Share holding pattern as on 201709 Promoter % - 66.91

Free Float % - 30.39

Overview

Market Cap. - 476.4 cr. About Company

Mid cap Royal Orchid (ROHL) is a mid-sized hotel company and operates five star, four star, serviced 52 Week High/Low - 227.40/ 81.75 apartments, resorts and /MICE and budget hotels. The company has 14 Industry Hotels, &Restaurant subsidiaries (13 domestic, 1 international), 4 Joint Ventures, 49 hotels in 35 locations with an MCap. (sector) - Rs 5,91,781.82 Cr inventory of 3,300+ rooms. It operates under flagship brands – Royal Orchid, Royal Orchid th Sector Sales - Rs 1,01,639.67 Cr Central, Royal Orchid Suites, Regenta Hotels & Regenta . Currently, it’s the 11 largest Sector Net Profit - Rs 2935.99 Cr hotel company in terms of number of rooms in the country. Summary Investment Rationale Financials (cr.) FY15 FY16 FY17 - Asset light strategy: Revenues 147.75 158.53 162.53 Out of the total number of rooms which company currently has, around 70% are under management PAT -6.79 -3.64 1.41 contract and only 6% are owned by the company. This strategy makes the business less capital -1.42 -0.48 0.91 EPS intensive, saving it from heavy fixed costs related to buildings and major operating costs. The P/E 00.00 00.00 98.87 Industry P/E 86.77 company charges 2-3% of the revenue as management fees and an incentive fee which varies from EV/EBITDA 8.03 10.47 19.16 6-8% of the gross operating profit. ROHL bears no expenses and even the responsibility of D/E 0.56 0.52 0.54 renovation is on the property owner. RoCE 3.79 4.97 6.14 RoE -4.06 -2.26 0.87 - UK Bespoke tie-up: Company declared a strategic partnership with Bespoke Hotels Ltd. Bespoke Hotels manages over 200 properties worldwide, with over 50 represented hotels in India and stands as the UK’s largest independent hotel group. This partnership will enable ROHL the ability to offer its guest hundreds of hotels options across multiple global markets.

ROYAL ORCHID HOTELS

- Growth in hotels & keys: Company has been increasing the number of hotels in the country on regular basis. Recently, it opened 49th hotel in Nashik and has a target of 50 hotels and 3500 rooms by the end of this fiscal year and addition of more than 1000 hotel rooms by next year.

- Increasing Occupancy & ARR This year Occupancy ratio went up to 76-77% from 58% in previous year and the company is further expecting a steady growth in occupancy and a 10% regular growth in ARR in the years to come. Profit of the company rose by 52% in comparison with the previous year.

- Personnel training: Human resource is one of the major assets in the industry. For this, company has taken up skill development in a large way; all its associates are being trained under American Hotel & Lodging Association (AHLA) courses. This will result in enhancement of the services across the board.

- Sale of non-core assets: Currently, company has 2 non-core land parcels, one in Powai, Mumbai (15,000 sq. feet) and another in Tanzania. Company is planning to dispose both the lands and is positive on selling off the Mumbai land in this fiscal year and expecting 50-53 crores from it. Most probably the receivables from this deal will be utilized to pay off the standing debt, which is around 83 crores (consolidated).

- Reduction in GST rate: ROHL used to pay 21% tax under the pre-GST regime. GST rate on restaurants and hotel stay has been reduced (room rent upto INR 7500) from 28% to 18%. As majority of hotel’s room fall under this category, company is expected is get benefitted from this.

Risks and concerns-

- Increase in supply from formal/informal sources can keep a check on ARRs: Around 66% of sales is done through OTA, mainly IBIBO and Makemytrip and 25% via company’s OTS.

- Brand name- all major league hotels give almost the same look, feel and service quality. It’s the brand that drives loyal customer memberships which is a key to profits. So any harm to brand value of company will directly hit its financials.

- Joint Venture reducing profitability – Its Joint venture Ksheer Sagar Developers Pvt. Ltd. which is into civil engineering has been posting a substantial loss since years.

- Large and branded hotels can provide stiff competition. ROYAL ORCHID HOTELS

* as on 31st December 2017 Pushkar and Nashik were added in January 2018 and February 2018 respectively.

ROYAL ORCHID HOTELS

Business Model (as on 31st December 2017)

Categorization

ROYAL ORCHID HOTELS

Revenue Breakup

Others 8%

Food & Rooms & Beverage Accomodation 35% 57%

Growth – Properties & Rooms

No. of Properties

No. of Rooms

ROYAL ORCHID HOTELS

PROFIT & LOSS STATEMENT

- Most of the expenditure after operating income is incurred in depreciation of assets and interest payment for debt. Decreasing interest expense over the years has been leading the company towards profitability. And this is further expected to come down.

- On standalone basis, company has been profitable. It’s the subsidiaries that have been reducing the profitability of the company. Though, in coming year, company is expecting most of its subsidiaries to start booking profits. Over the past 7 years, its other income has grown at a CAGR of 10.5%. The biggest component on OI is the debenture interest received from subsidiary and dividend income. Interest on fixed deposits also is a part of OI. This growth is significant as a substantial portion of the company’s investment in its subsidiary has been converted into debentures, so the interest on the debentures will continue to accrue in the future and its subsidiaries are becoming profitable, so it is able to get it return in investment from the subsidiaries in form of dividend income. ROYAL ORCHID HOTELS

BALANCE SHEET

- Other assets include goodwill, deferred tax asset and other current assets.

- The continuous fall down in reserves and surplus is due to the loss that company had occurred since years.

- In the financial year 2013-14, company disposed off its furniture & fixture and plant & equipment in large quantities and it paid off a bank term loan reducing its outstanding long term borrowings substantially.

ROYAL ORCHID HOTELS

CASH FLOW STATEMENT

- In FY 2014-15, company paid off a big portion of its debt (short term and long term) which reduced its liability and was a major reason for a drastic change in its operating earnings and cash flow from financing activities. In FY 2014-15, Company also sold off its fixed assets (as mentioned earlier), making its cash flow from financing activities to record a sweeping hike.

KEY RATIOS

METRIC/FIGURES 2017 2016 2015 2014 2013 2012 2011 RoA (%) 0.41 -1.06 -1.83 -8.30 -2.12 -0.84 2.21 RoE (%) 0.87 -2.26 -4.06 -21.34 -6.09 -2.28 5.35 RoCE (%) 6.14 4.97 3.79 -6.51 0.88 2.9 6.44 Receivable days 35.85 35.34 34.42 33.17 29.21 26.29 22.67 Inventory days 4.75 4.83 5.04 5.51 5.25 4.91 4.19 Payable days 97.52 92.06 71.31 79.41 77.59 60.48 47.32 Cash conversion cycle -56.92 -51.89 -31.85 -40.73 -43.13 -29.28 -20.46 Total debt/equity (x) 0.54 0.52 0.56 0.78 1.24 1.34 1.08 Current ratio (x) 0.69 0.45 0.50 0.58 0.38 0.29 0.66 Interest ratio (x) 1.17 0.81 0.65 -1.30 0.25 0.85 2.51 Cash flow per Share 9.24 8.56 9.58 5.51 17.94 9.30 16.12 Price to Cash flow 9.68 8.23 4.2 5.56 1.62 5.24 4.03 Free cash flow/ Share 4.64 2.26 2.93 -13.95 1 -24.88 -23.25 Price to Free cash flow 9.68 31.18 13.75 -2.19 29.10 -1.96 -2.8 Sales to Cash flow 6.46 6.80 5.67 9.47 3.28 6.34 3.46 EPS (x) 0.91 -0.48 -1.42 -13.77 -4.27 -0.96 4.49 P/E (adj.) (x) 193.25 0.00 0.00 0.00 0.00 0.00 14.50 P/BV (x) 2.91 1.20 0.67 0.49 0.38 0.61 0.81 EV/EBITDA (x) 19.16 10.47 8.03 -15.99 15.74 14.36 9.33

ROYAL ORCHID HOTELS

Du-Pont 2017 2016 2015 2014 2013 2012 2011 RoE (%) 0.87 -2.26 -4.06 -21.34 -6.09 -2.28 5.35 PATM (%) 1.35 -1.77 -3.92 -31.20 -8.08 -1.51 11.23 Sales/Total Assets (x) 75.32 71.94 64.13 56.49 34.44 50.58 57.12 Assets to Equity (x) 57.10 58 53.80 66.83 54.04 71.79 30.20

- Company is operating at negative cash conversion cycle implying efficient use of its working capital. Company does not have to pay for its inventory until it has sold its final associated product, letting it to use cash on hand for other purposes.

- RoE has been increasing due to improvement in all profit margin, asset efficiency and equity multiplier.

OUTLOOK Company looks set to take off with its robust expansion plans with increasing efficiency in working of its subsidiaries. With no downward aspect in sight, the industry is expected to improve as demand growth will be pacing out the growth of supply. Along with the subsidiaries making profit, the debt portion is also being planned to bring down. This will not only increase its bottom-line by many folds but will also improve per share value and future earnings prospects.

SINCLAIRS HOTELS & RESORTS

Share holding pattern as on 201709 Promoter % - 56.96 Free Float % - 43.04

Overview Market Cap. - 218.9 cr. About Company Small cap 52 Week High/Low - 570/281 - Company owns and manages chain of hotels in India. At present the company has 7 hotels Industry Hotels, Resort &Restaurant which are located in Darjeeling, Ooty, Port Blair, Burdwan, Dooars, Siliguri, Kalimpomg, having an inventory of around 400 rooms. MCap. (sector) - Rs 5,91,781.82 Cr Sector Sales - Rs 1,01,639.67 Cr - Debt free: Sector Net Profit - Rs 2935.99 Cr The company is running debt free for more than 10 years now, unlike most of the competitors in the Summary industry. Financials (cr.) FY15 FY16 FY17 - Ownership: Revenues 29.26 39.04 47.06 All the 7 hotels it operates are owned by company itself along with zero debt give company a strong PAT 4.74 7.05 9.01 leverage position for future growth prospects. EPS 8.51 12.66 16.18 P/E 33.78 25.47 18.4 Industry P/E - Hill stations: EV/EBITDA 13.69 10.02 9.99 Company has all is hotels in varied and popular hill stations but are most of them are concentrated D/E 0.00 0.00 0.00 in the eastern region of the country. 10.78 16.09 18.05 RoCE RoE 7.13 10.03 11.49 Risks and concerns-

- Management Transparency- Management lacks transparency in its business operations which may keep the investors at bay and limit its long term growth.

SINCLAIRS HOTELS & RESORTS

INCOME STATEMENT

- Over the last 5 years, company has been growing its sales at 27% CAGR and bottom line at 24% CAGR.

- The company hasn’t borrowed since years and is virtually a debt-free firm.

-Along with positive EPS, company has also been giving out dividend year after year.

SINCLAIRS HOTELS & RESORTS

BALANCE SHEET

- Company came out with a buy-back in FY2013-14 at Rs.390 per share (41% premium).

- Capital Work In Progress (CWIP) includes expenditure on new/existing projects which are pending allocation. It has been reducing over the years implying company has been finishing its ongoing projects.

- Investments in various fixed and floating rate schemes have been done in the current year.

SINCLAIRS HOTELS & RESORTS

CASH FLOW STATEMENT

- In FY 2013-14, company gave a loan and sold its equity shares to an associated company- Savannah Hotels Pvt. Ltd. which ceased to be an associate from July 25, 2013. - In current year, company paid a dividend of INR22,582.

KEY RATIOS

METRIC/FIGURES 2017 2016 2015 2014 2013 2012 2011 RoA (%) 8.62 7.46 5.12 7.56 15.18 3.36 5.98 RoE (%) 11.49 10.03 7.13 9.56 18.16 4 6.91 RoCE (%) 18.05 16.09 10.78 12.93 19.75 6.04 9.51 Receivable days 10.80 10.26 9.27 13.66 15.24 14.86 12.89 Inventory days 2.53 3.38 3.81 4.47 5.13 6.09 4.81 Payable days 14.52 17.70 19.44 23.25 23.35 20.72 18.17 Cash conversion cycle -1.19 -4.06 -6.36 -5.12 -2.88 0.23 -0.47 Total debt/equity (x) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Current ratio (x) 7.94 2.24 0.67 1.09 1.68 2.33 12.33 Interest ratio (x) 66.26 62.76 53.75 92.84 191.30 86.62 90.51 Cash flow per Share 33.52 25.20 18.41 14.24 5.85 4.70 5.01 Price to Cash flow 11.92 12.79 15.61 17.19 49.87 57.68 64.44 Free cash flow/ Share 30.95 12.91 -1.83 3.89 7.27 -11.29 -17.41 Price to Free cash flow 12.92 24.97 -156.90 62.93 40.16 -24.04 -18.55 Sales to Cash flow 2.52 2.78 2.85 2.84 5.52 5.07 4.93 EPS (x) 16.18 12.66 8.51 12.51 23.60 5.09 8.62 P/E (adj.) (x) 18.4 25.47 33.78 19.58 12.37 53.30 37.48 P/BV (x) 2.4 2.46 2.37 2.08 2.2 2.13 2.54 EV/EBITDA (x) 9.99 10.02 13.69 17.07 28.00 26.21 18.02 SINCLAIRS HOTELS & RESORTS

Du-Pont ratios 2017 2016 2015 2014 2013 2012 2011 RoE (%) 11.49 10.03 7.13 9.56 18.16 4 6.91 PATM (%) 29.62 28.50 24.02 41.39 79.05 31.85 47.44 Sales/Total Assets (x) 75.25 56.46 51.05 62.21 54.81 36.04 45.27 Assets to Equity (x) 21.82 9.26 26.23 26.38 9.85 10.76 4.69

OUTLOOK Given its single straight forward business model and debt-free financials, the company is on a firm hold to seize the benefit of growing industry and keep booking profits year after year. The factor that the management doesn’t disclose much about its business operations may leave the investors unconvinced, limiting its long term growth.

BYKE HOSPITALITY LTD.

Share holding pattern as on 201709 Promoter % - 45.29 Free Float % - 54.71

Overview

Market Cap. - 652.99 cr.

Mid cap About Company

52 Week High/Low - 220.70/150.25 The Byke Hospitality is a mid-market leisure hospitality services company. It has a business Industry Hotels, Resort &Restaurant model combining asset light approach along with targeting niche vegetarian segmentin budget MCap. (sector) - Rs 5,91,781.82 Cr hotels. The company has 2 business segments: Owned/Leased hotels and Room chartering. Sector Sales - Rs 1,01,639.67 Cr Currently, it has 12 properties (3 yet to be operational) (2 owned and 10 leased) with an Sector Net Profit - Rs 2935.99 Cr inventory of 874 rooms.

Summary Financials (cr.) Investment Rationale FY15 FY16 FY17 - Asset light strategy: Revenues 181.42 231.52 269.98 Byke operates under a unique asset light model in which it acquires properties on lease bases PAT 20.03 25.94 31.70 EPS 5.00 6.47 7.90 (usually 15 years) with a lock-in period of 3 years, which is a part of the risk-management policy of P/E 33.07 24.19 19.75 the company. This significantly reduces stress on the balance sheet and gives Byke an advantage Industry P/E 65.83 over its peers as it is easier for the company to expand its business and utilize its capital in a more EV/EBITDA 18.00 12.03 10.03 profitable manner. D/E 0.12 0.09 0.06 RoCE 25.69 33.74 34.42 RoE 21.67 23.45 23.55 - Chartering Business: Under the chartering business, Byke buys room nights of mid-budget hotels in bulk across leisure, tourist and religious destinations during off-peak seasons. In the peak seasons they sell these room nights. During the peak season time, the room-nights are sold to the customers by the travel agents who in return earn a commission. Currently, the company has a presence in 60+ cities with 300+ active agents. It has relation with 500+ hotel owners and occupancy of chartered rooms has reached to 95% and contributes to more than 50% of total revenue. This model gives insights to the company on where to expand in hotel segment.

BYKE HOSPITALITY LTD.

- Robust Expansion plan: Byke is a fast growing hospitality services company, currently operating hotels (own + leased) at popular holiday destinations such as Goa, Matheran, Jaipur, Manali, Udaipur, Shimla and Mumbai (Thane). Its average occupancy level stands at around 65% at the end FY17. Going ahead, the management has already identified the new locations that it plans to enter and is targeting to add close to 8 new properties by the end FY18. The 8 new properties are likely to add close to 400-500 rooms. These expansion initiatives would help the company to become a pan India player. The current expansion is likely to be on the lease model, which would not require any significant capex. Company is also looking forward to set its footprints in Franchise model.

Risks & Concerns

- Customer Reviews: Company’s various hotels like Byke Old Anchor in Goa which has an inventory of 240 rooms have been getting negative reviews by customers for issues related to basic amenities like unclean bed sheets, unhygienic sanitation, impolite and ignorant staffs etc.

- Revenue Concentration: Around 51% of company’s revenue comes from Charter model and more than 50% from the remaining 49% comes from food and beverages section, implying that company is earning comparatively minimum revenues from its core business of room rent.

- Lack of long-term moats in Business Model: For the Charter model, company doesn’t have any moat to sustain the business for long term. This model is completely dependent on agents and it is easy to lose agents to competition due to margin differentiation. Also, this model can be duplicated with ease. The hotel owners can also remove the company from the business chain and can go for contacting agents directly. As this model accounts for most of the revenue for the company, any hit to it will directly lead its financial health to fallback. This model is also in a stiff competition with other players like OYO rooms, Stayzilla etc. And given its poor ratings and reviews, expansion through leasing and franchise model doesn’t appear much promising.

BYKE HOSPITALITY LTD.

BYKE HOSPITALITY LTD.

Next Phase of Growth

BYKE HOSPITALITY LTD.

PROFIT AND LOSS STATEMENT

- Other assets include goodwill, deferred tax asset and other current assets.

- With improving reserves, company has been regular in paying off the debt. This will ensure the company to become more competitive in the market as its expansion plans come into effect.

BYKE HOSPITALITY LTD.

BALANCE SHEET

- Over last 5 years company has grew its sales at approx. 20% CAGR and bottom-line at approx. 30% CAGR.

- Implying the expenses have been managed effectively and company has made room to improve margins over the years, ensuring continuous improvement in per share value.

BYKE HOSPITALITY LTD.

CASH FLOW STATEMENT

- Factors like improved profits, increase in current liabilities resulted in an improved CFO in FY 2015-16 and FY 2016-17.

KEY RATIOS

Metric/Figures 2017 2016 2015 2014 2013 2012 2011 RoA (%) 18.31 17.55 15.33 13.30 7.47 2.91 4.19 RoE (%) 23.55 23.45 21.67 20.21 11.12 3.70 4.70 RoCE (%) 34.42 33.74 25.69 24.38 15.76 5.53 6.62 Receivable days 27.08 25.01 24.89 26.53 26.87 17.21 14.19 Inventory days 11.51 9.65 12.13 14.10 21.72 35.64 21.75 Payable days 11.09 15.85 20.20 28.04 33.32 13.82 1.51 Cash conversion cycle 38.5 18.81 16.82 12.59 15.72 39.03 34.43 Total debt/equity (x) 0.06 0.09 0.12 0.17 0.27 0.26 0.00 Current ratio (x) 2.57 2.12 1.78 1.28 1.12 1.60 4.71 Interest ratio (x) 43.4 26.39 14.79 11.05 5.88 7.47 364.04 Cash flow per Share 7.15 6.69 4.10 9.97 7.82 1.38 0.20 Price to Cash flow 25.94 23.38 40.30 16.05 14.36 46.94 213.86 Free cash flow/ Share -0.1 1.04 1.28 4.33 -2.84 -7.23 -13.37 Sales to Cash flow 9.41 8.63 11.03 7.79 6.44 17.73 88.54 EPS (x) 7.9 6.47 5.00 3.96 1.93 0.6 0.59 P/E (adj.) (x) 19.75 24.19 33.07 40.38 58.07 108.36 70.88 P/BV (x) 3.8 5.18 6.62 7.56 6.22 3.87 2.57 EV/EBITDA (x) 10.03 12.03 18.00 22.76 25.90 52.73 38.97

BYKE HOSPITALITY LTD.

Du-Pont ratios 2017 2016 2015 2014 2013 2012 2011 RoE (%) 23.55 23.45 21.67 20.21 11.12 3.70 4.70 PATM (%) 17.95 17.13 13.98 13.65 11.45 7.23 9.70 Sales/Total Assets (x) 293.87 274.49 229.41 198.54 138.87 105.03 278.61 Assets to Equity (x) 19.89 22.90 25.79 32.73 37.85 20.62 7.48

OUTLOOK From the business model point of view, company looks a risky bet for long term as its core business of room rents is earning minimal revenue for it. Although, the management seems aggressive in its expansion plans but looks like one of the basic and vital factors- Brand development, which is required to determine the long term sustainability of a hotel, is being ignored by the management. Hotel is going to get benefitted in short term due to its current strong financial health, improving industry state but if the management doesn’t address to the basic requirements of its customers then downward trend for the company isn’t very far too.

COMPARISON

METRIC/FIGURES (Cr.)Royal Orchid Hotels Byke Hospitality Sinclairs Hotels EIH Indian Hotels Kamat Hotels

Market Cap. 476.4 652.99 218.9 9065 15400 225.94 Sales 162.53 269.98 47.04 1527 4010 185.45 PAT 1.41 31.7 9.01 109.5 -83.16 44.53 Interest Coverage 1.17 43.4 66.26 10.33 2.31 2.56 RoE 0.87 23.55 11.49 4.29 5.69 116.53 RoCE 6.67 34.42 18.05 6.38 9.93 10.49 P/E 193.25 19.75 18.4 85.46 235.96 5.06 P/BV 2.91 3.8 2.4 3.5 3.75 3.73 D/E 0.54 0.06 - 0.14 0.78 10.44 EPS 0.91 7.9 16.18 1.86 -0.6 18.88 P/CF 9.68 25.94 11.92 28.29 22 1.26 EV/EBITDA 19.16 10.03 9.99 26.43 28 13.12 * as on 20/3/2018

Bibliography

- World Travel & Tourism Council (WTTC) - Data from individual Company website, annual report, investor presentation, conference call. - Ministry of Tourism - HVS website - IBEF website

Disclaimer

This report should not be taken as a recommendation and is solely for information purpose. Authored by Karan Agarwal (An individual investor and not a SEBI registered analyst) Email: [email protected] LinkedIn: www.linkedin.com/in/karanagarwal0111