Whalesbook
Royal Orchid Hotels Navigates Growth Amidst Accounting Changes
Royal Orchid Hotels (ROH) has presented its Q3 FY26 investor update, showcasing robust top-line growth while grappling with a significant dip in profitability, largely driven by the adoption of new accounting standards. The company's consolidated revenue for the quarter surged by 24.3% year-on-year (YoY) to ₹117.9 crore, and by 35.9% quarter-on-quarter (QoQ) to ₹117.9 crore. Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) also saw a healthy increase of 13.8% YoY to ₹34.8 crore, with the EBITDA margin standing at a respectable 29.5%.
Financial Deep Dive
However, the reported Profit After Tax (PAT) tells a different story. Consolidated PAT plummeted by 52.9% YoY to ₹7.7 crore, and by 49.3% on a per-share basis (EPS) to ₹3.3. This sharp decline, despite revenue and EBITDA growth, is primarily due to the adoption of Indian Accounting Standards (IND-AS). The company explicitly noted that IND-AS led to a notional increase in depreciation and finance costs, which reduced consolidated PAT by ₹6.42 crore for Q3 FY26 and ₹12.58 crore for the first nine months (9M) of FY26. For the 9M FY26 period, consolidated revenue grew 14.6% YoY to ₹287.5 crore, while PAT declined 30.4% YoY to ₹22.1 crore.
On a standalone basis, the performance presented a mixed picture. Revenue grew 3.4% YoY to ₹59.8 crore in Q3 FY26, but EBITDA saw a marginal dip of 6.3% YoY to ₹16.7 crore, and PAT fell 15.3% YoY to ₹6.7 crore.
Balance Sheet Shifts Under IND-AS
The company's balance sheet reflects significant changes driven by IND-AS. Total consolidated assets jumped from ₹538.2 crore in FY25 to ₹1,026.8 crore in FY26, largely due to an increase in Right-of-Use assets (from ₹104.6 crore to ₹561.9 crore). Correspondingly, consolidated lease liabilities surged from ₹121.3 crore (FY25) to ₹554 crore (FY26). This accounting shift has led to a substantial increase in overall debt, with total debt (borrowings plus lease liabilities) rising from ₹221.3 crore in FY25 to ₹655.5 crore in FY26. Despite this debt increase, cash and cash equivalents saw a decrease from ₹26.7 crore in FY25 to ₹15.6 crore in FY26.
Vision 2030 & Asset-Light Strategy
Looking ahead, Royal Orchid Hotels has laid out an ambitious 'Vision 2030' plan, aiming to operate over 345 hotels with more than 22,000 keys by FY30. A key pillar of this strategy is a pronounced shift towards an asset-light model, emphasizing management contracts and franchising. The company also plans to introduce new lifestyle brands, such as 'Iconiqa', and targets a return on capital employed (ROCE) exceeding 25%. This growth blueprint aims to empower youth by training hospitality professionals.
Peer Comparison
The Indian hospitality sector has experienced a robust recovery post-pandemic, with major players like Indian Hotels Company Limited (IHCL) and ITC Hotels reporting strong revenue and profit growth. While Royal Orchid Hotels is focusing on expansion and an asset-light model, many competitors have also seen significant improvements in occupancy rates and average room rates, often translating into substantial YoY profit increases. The current quarter's reported PAT decline for ROH, especially when contrasted with the sector's overall buoyancy, highlights the impact of accounting standard changes on reported profitability, a factor investors will closely monitor.
Risks and Outlook
The primary challenge for Royal Orchid Hotels in the immediate term will be to translate its aggressive expansion plans into profitable growth. The significant increase in debt and lease liabilities, although explained by IND-AS adoption, will require careful management. Investors will be watching how effectively the company executes its asset-light strategy and integrates new properties while maintaining profitability. The company's ability to achieve its ambitious Vision 2030 targets, including the projected ROCE, will be critical in the coming years.