RED HERRING PROSPECTUS Dated December 28, 2005 Please read Section 60B of the Companies Act, 1956 100% Book Built Issue ROYAL ORCHID HOTELS LIMITED Registered Office: Hotel Harsha, No.11, Park Road, Bangalore 560 051 Corporate Office: No.1, Golf Avenue, Adjoining KGA Golf Course, Airport Road, Bangalore 560 008 Tel: (91 80) 2558 4242; Fax: (91 80) 2509 2014; Contact Person: Mr. G. Tirupathi Rao, Company Secretary and Compliance Officer; E-mail: [email protected] Website: http://www.royalorchidhotels.com (We were incorporated as Universal Resorts Limited, a public limited company under the Companies Act, 1956 on January 3, 1986. On April 10, 1997, our name was changed to Royal Orchid Hotels Limited.) PUBLIC ISSUE OF 6,820,000 EQUITY SHARES OF RS. 10 EACH FOR CASH AT A PRICE OF RS. [●] PER EQUITY SHARE AGGREGATING RS. [●] MILLION BY ROYAL ORCHID HOTELS LIMITED (“THE COMPANY” OR “ISSUER”) (THE “ISSUE”). THE ISSUE WOULD CONSTITUTE 25.04% OF THE FULLY DILUTED POST ISSUE PAID-UP CAPITAL OF THE COMPANY. PRICE BAND: Rs. 150 TO Rs. 165 PER EQUITY SHARE OF FACE VALUE Rs. 10 ISSUE PRICE IS 15 TIMES THE FACE VALUE AT THE LOWER END OF THE PRICE BAND AND 16.5 TIMES THE FACE VALUE AT THE HIGHER END OF THE PRICE BAND In case of revision in the Price Band, the Bidding/Issue Period will be extended for three additional working days after revision of the Price Band subject to the Bidding/Issue Period not exceeding 10 working days. Any revision in the Price Band and the revised Bidding/Issue Period, if applicable, will be widely disseminated by notification to the National Stock Exchange of India Limited (“NSE”) and the Bombay Stock Exchange Limited (“BSE”), by issuing a press release, and also by indicating the change on the website of the Book Running Lead Managers and at the terminals of the Syndicate. The Issue is being made through a 100% Book Building Process wherein up to 50% of the Issue will be allocated to Qualified Institutional Buyers (“QIBs”) on a proportionate basis. Out of the portion available for allocation to the QIBs, 5% will be available for allocation on a proportionate basis to Mutual Funds only and the remaining QIB Portion shall be available for allocation on a proportionate basis to all QIBs, including Mutual Funds, subject to valid Bids being received at or above the Issue Price. Further, at least 15% of the Issue will be available for allocation on a proportionate basis to Non-Institutional Bidders and at least 35% of the Issue will be available for allocation on a proportionate basis to Retail Individual Bidders, subject to valid bids being received at or above the Issue Price. RISK IN RELATION TO THE FIRST ISSUE This being the first Issue of Equity Shares of the Company, there has been no formal market for the Equity Shares of the Company. The face value of the Equity Shares is Rs. 10 and the Floor Price is 15 times of the face value and the Cap Price is 16.5 times of the face value. The Issue Price (as determined by the Company in consultation with the Book Running Lead Managers (“BRLMs”) on the basis of assessment of market demand for the Equity Shares by way of book building) should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding an active and/or sustained trading in the Equity Shares or regarding the price at which the Equity Shares will be traded after listing. GENERAL RISKS Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on their own examination of the Company and the Issue including the risks involved. The Equity Shares offered in the Issue have not been recommended or approved by the Securities and Exchange Board of India (“SEBI”), nor does SEBI guarantee the accuracy or adequacy of this Red Herring Prospectus. Specific attention of the investors is invited to the section titled “Risk Factors” on page viii of this Red Herring Prospectus. ISSUER’S ABSOLUTE RESPONSIBILITY The Company having made all reasonable inquiries, accepts responsibility for and confirms that this Red Herring Prospectus contains all information with regard to the Company and the Issue, which is material in the context of the Issue, that the information contained in this Red Herring Prospectus is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Red Herring Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The Equity Shares offered through this Red Herring Prospectus are proposed to be listed on the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE) and the Company has received in-principle approval from the stock exchanges for the listing of the Equity Shares pursuant to letters dated December 6, 2005 and December 5, 2005 respectively. NSE will be the Designated Stock Exchange for this Issue. BOOK RUNNING LEAD MANAGERS REGISTRAR TO THE ISSUE ICICI SECURITIES LIMITED SBI CAPITAL MARKETS LIMITED MCS LIMITED ICICI Centre, H.T. Parekh Marg, 202, Maker Tower ‘E’, Sri Venkatesh Bhavan, Churchgate, Cuffe Parade, Plot No. 27, Road No.11, M.I.D.C. Mumbai - 400 020 Mumbai – 400 005. Andheri (East), Mumbai - 400 093 Tel: (91 22) 2288 2460 Tel: (91 22) 2218 9166 Tel: (91 22) 2820 1785 Fax: (91 22) 2282 6580 Fax: (91 22) 2218 8332 Fax: (91 22) 2820 1783 E-mail: [email protected] E-mail: [email protected] E-mail : [email protected] Website: www.icicisecurities.com Website:www.sbicaps.com Website: www.mcsind.com BID / ISSUE PROGRAMME BID / ISSUE OPENS ON : THURSDAY, JANUARY 12, 2006 BID / ISSUE CLOSES ON : TUESDAY, JANUARY 17, 2006 TABLE OF CONTENTS Section I – Definitions and Abbreviations Definitions and Abbreviations………………………………………………………………...... i Issue Related Terms……………………………………………………………………………... i Company and Industry Terms…………………………………………………………………... iii Conventional/General Terms …………………………………………………………………… iv Section II - General Certain Conventions; Use of Market Data……………………………………………………… vi Forward-Looking Statements …………………………………………………………………... vii Section III - Risk Factors ………………………………………………………………………....... viii Section IV – Introduction Summary ………………………………………………………………………........................... 1 The Issue................. ………………………………………………………………………......... 3 Summary Financial Information …………………………………………………………......... 4 General Information ………………………………………………………………………......... 7 Capital Structure ………………………………………………………………………............... 13 Section V – Objects of the Issue Objects of the Issue ………………………………………………………………………........... 20 Basis for Issue Price ………………………………………………………………………......... 36 Statement of Tax Benefits………………………………………………………………………. 39 Section VI - About Us Hotel Industry Overview........…………………………………………………………………. 46 Our Business …...…………………………………………………………………...................... 51 Regulations and Policies ………………………………………………………………………... 66 Our History and Certain Corporate Matters …………………………………………………… 68 Our Management ……………………………………………………………………….............. 77 Our Promoters ………………………………………………………………………................... 89 Related Party Transactions ……………………………………………………………………... 92 Group / Related Companies ……………………………………………… 93 Currency of Presentation………………………………………………………………………... 98 Dividend Policy ………………………………………………………………………………… 99 Section VII - Financial Information Consolidated Financial Statements……………………………………………………………… 100 Unconsolidated Financial Statements…………………………………………………………… 130 Financial Information of Subsidiaries...................……………………………………………. 156 Changes in Accounting Policies ……………………..…………………………………………. 172 Selected Consolidated Financial Information…………………………………………………… 173 Management's Discussion and Analysis of Financial Condition and Results of Operations…… 175 Section VIII - Legal and Regulatory Information Outstanding Litigation ………………………………………………………………………...... 190 Licenses and Approvals…………………………………………………………………………. 196 Material Developments ………………………………………………………………………..... 205 Other Regulatory and Statutory Disclosures……………………………………………………. 206 Section IX - Issue related Information Terms of the Issue ………………………………………………………………………............. 215 Issue Structure…………………………………………………………………………………... 218 Issue Procedure ………………………………………………………………………................. 220 Restrictions on Foreign Ownership of Indian Securities..……………………………................. 244 Section X - Description of Equity Shares and Terms of the Articles of Association Main Provisions of Articles of Association …………………………………………………….. 245 Section XI - Other Information Material Contracts and Documents for Inspection ……………………………………………... 265 Section XII – Declaration ………………………………………………………………………....... 268 DEFINITION AND ABBREVIATIONS Term Description “Issuer” or “Company” or Royal Orchid Hotels Limited, a company incorporated under the “ROHL” or “Royal Orchid Companies Act Hotels Limited” “We” or “us” or “our” Unless otherwise specified, these references mean Royal Orchid Hotels Limited and its subsidiaries ISSUE RELATED TERMS Term Description Allotment Issue of Equity Shares pursuant to the