Royal Orchid to go public by year end

Bangalore's biggest hotel chain, Royal Orchid Hotels, has announced its intention to go public by the end of the year to finance its expansion.

The hospitality chain, with an estimated one-sixth share in the city's three-star-plus category, is expected to file the prospectus for its Rs 100-crore IPO with the Securities and Exchange Board of India (Sebi) next week.

WestBridge Capital Partners, a venture capital fund, has also decided to invest Rs 25 crore in Royal Orchid. The hotel chain had been actively seeking capital inputs for the last few months to finance its ambitious plans to expand to other cities besides Bangalore.

"We saw a unique, high growth-potential company, a strong management team and an emerging market need. Besides the chain is one of the most profitable companies in the Indian hotel industry," said K P Balaraj, managing director at WestBridge. "We see high growth in the Bangalore market," he added.

The company said that the IPO was mainly aimed at the group's recently started expansion programmes in Pune and Hyderabad. "We are aiming at becoming a pan-Indian chain with presence in all the metros and mini-metros in the country," he said on a visit to Mumbai. The two greenfield expansions, a 100-room business hotel and a slightly smaller one in Pune, are expected to be completed within a year.

The company, with a total of 460 rooms at its four hotels in Bangalore and Mysore, had last year acquired the Metropole Heritage Hotel and also increased the capacity of its biggest hotel in Bangalore, the Royal Orchid, from 140 to 195 rooms earlier this year.

Baljee, an IIM-A graduate who started out his career in hospitality with the flagship Hotel Harsha in Bangalore in 1973, said the recent momentum in the company's main market has made it imperative for the group to expand into other cities.

With the average room rents in the company's home market doubling in the last two years, the company's "operations in Bangalore had stabilised," he said.

The group, which expects Bangalore's three-star-and-above segment capacity to double in the next two-and-a-half years, also plans to take its share from 460 rooms to 560 during the same period.

Laljee, whose managed an impressive Rs 17-crore net profit last year over a turnover of Rs 58 crores, believes his strategy of providing value-for-money accommodation for business travellers will remain the group's USP in the new markets as well. Orchids rates are currently cheaper than those of bigger chains by around 20%.

"We have been able to keep the prices down because of the tight controls we have over our expenses, and that will continue to be our main selling point," Baljee said.

The company is also on the look-out for business partners for its foray into the bigger cities like Delhi and Mumbai where it does not expect to maintain its ownership model due to the higher costs of real-estate.

It is also expected to complete the acquisition of a strategic 51 per cent share in a 50-room luxury resort on the outskirts of Bangalore by the year-end. The group also runs a hospitality training centre in Bangalore.