Despite having gained over 600 percent in the past five years, analysts see Royal Orchid Hotels' stock rising further from its current levels. Some even believe the potential upside could be over 40 percent.
The stock has been in focus in the recent past after rising around 30 percent in 13 trading sessions this month. In fact, all hotel stocks in the hospital sector have been buzzing of late as the outlook for the holiday season in April and May seems quite rosy.
"Major cities have witnessed occupancy ratios of 80 percent. This is the highest in a decade. Also, inventory by new hotels is not likely to come in anytime soon. So, existing firms will get better premiums and ROEs are likely to be better and hence they are seeing a good pick-up," AK Prabhakar, Head of Research at IDBI Capital, told Moneycontrol, adding that he is bullish on the hotels segment as a whole.
In fact, some experts believe this upward trend is here to stay, at least for a few years.
"Street participants are expecting hotel cycle to start upmove at ground level, which can last for 2-4 years. Many hotels are increasing prices by 10 percent, which was not seen since the previous cycle which ended in 2008," said Akash Jain, Vice President - Equity Research, Ajcon Global.
The higher occupancy ratios could trigger a sharp rise in average room rates (ARRs) and EBITDA margin for Royal Orchid Hotels in FY19, ICICI Securities said in a research note.
The company's management also told CNBC-TV18 that it is expecting average revenue per room to grow 8-10 percent this fiscal year, adding that last year’s ARR was Rs 3,800.
Going by ICICI Securities' estimate of the company's operating profit in FY19, which is around Rs 50 crore, the stock is currently valued at 14 times its EBITDA, as against an industry average of 25 times.
So, despite the recent spike, there is still room for the stock to rise by over 40 percent, the brokerage said, adding that it has a price target of Rs 300-305 apiece for the stock.
Another key area of focus for the company the debt on its books. Royal Orchid's management told CNBC-TV18 that the company currently owes a total of Rs 36 crore. The plan is to bring this figure down by selling non-core assets like the company's land parcels in Tanzania and at Powai in Mumbai, the latter of which it plans to sell this financial year.
Over the past one year, Royal Orchid has risen by over 120 percent. At 09:54am, the stock was trading at Rs 216.50 on BSE, down 1.37 percent from its previous close. It touched an intraday high and low of Rs 224.50 and Rs 211.50, respectively.
(With inputs from Sunil Shankar Matkar)