Royal Orchid Hotels Ltd Reports Sharp Margin Contraction Despite Record Quarterly Sales

Quarterly Revenue and Operating Profit Reach New Highs

In the December 2025 quarter, Royal Orchid Hotels Ltd achieved its highest-ever net sales at ₹113.03 crores, signalling robust top-line growth amid a recovering hospitality sector. Correspondingly, the company’s PBDIT (Profit Before Depreciation, Interest and Tax) also reached a record ₹29.94 crores, indicating operational efficiencies and improved revenue generation capabilities.

These figures mark a notable improvement compared to previous quarters, suggesting that the company has been able to capitalise on increased travel demand and higher occupancy rates. However, this positive top-line momentum has not translated into bottom-line gains, as the company’s profitability has been undermined by rising costs and financial expenses.

Profitability Metrics Show Significant Decline

Despite the encouraging revenue and PBDIT numbers, Royal Orchid Hotels Ltd’s Profit Before Tax (excluding other income) plunged by 65.96% to ₹5.44 crores in the same quarter. The net profit after tax (PAT) also contracted sharply by 49.3% to ₹9.02 crores, highlighting the impact of increased interest expenses and other non-operating factors on the company’s earnings.

The company’s interest costs surged to ₹13.24 crores, the highest recorded in recent quarters, reflecting the strain of elevated debt levels. This rise in financial charges has significantly eroded the operating profit gains, resulting in a squeezed bottom line.

Return on Capital Employed and Cash Reserves at Lows

Royal Orchid Hotels Ltd’s Return on Capital Employed (ROCE) for the half-year ended December 2025 fell to a low of 8.45%, underscoring the diminished efficiency in generating returns from its capital base. This decline in capital productivity is a concern for investors seeking sustainable profitability.

Additionally, the company’s cash and cash equivalents dropped to ₹31.32 crores, the lowest level in recent periods, raising questions about liquidity management amid rising debt obligations. The debt-to-equity ratio climbed to 2.82 times, the highest in the company’s recent history, signalling increased leverage and financial risk.

Non-Operating Income Constitutes Significant Portion of Profit

Another noteworthy aspect of the December quarter results is the substantial contribution of non-operating income, which accounted for 47.44% of the Profit Before Tax. This reliance on non-core income sources may not be sustainable and could mask underlying operational challenges.

Stock Performance Versus Sensex: A Mixed Picture

Royal Orchid Hotels Ltd’s stock price has shown a mixed performance relative to the broader Sensex index over various time frames. Year-to-date, the stock has declined by 12.37%, significantly underperforming the Sensex’s 2.89% fall. Over the past month and week, the stock has dropped 7.89% and 5.91% respectively, compared to the Sensex’s more modest declines of 0.97% and 1.56%.

However, the longer-term returns tell a different story. Over one year, the stock has gained 6.55%, slightly lagging the Sensex’s 8.98% rise. More impressively, Royal Orchid Hotels Ltd has outperformed the benchmark substantially over three, five, and ten-year periods, delivering returns of 50.76%, 427.29%, and 510.84% respectively, compared to the Sensex’s 34.96%, 58.83%, and 256.84% gains. This long-term outperformance highlights the company’s potential for value creation despite recent headwinds.

Market Capitalisation and Mojo Ratings

The company currently holds a market capitalisation grade of 4, reflecting its micro-cap status within the Hotels & Resorts sector. Its Mojo Score stands at 26.0, with a recent downgrade in Mojo Grade from Sell to Strong Sell on 11 February 2026, signalling heightened caution among analysts and investors. This downgrade reflects the deteriorating financial trend and the challenges faced in sustaining profitability and managing leverage.

Outlook and Strategic Considerations

Royal Orchid Hotels Ltd’s recent quarterly results underscore the dual challenge of maintaining revenue growth while controlling costs and financial expenses. The record sales and operating profit are encouraging signs of demand recovery, but the sharp contraction in net profit and elevated debt levels raise concerns about the company’s financial health and operational resilience.

Investors should closely monitor the company’s efforts to improve capital efficiency, reduce leverage, and enhance cash reserves. The high interest burden and reliance on non-operating income suggest that operational improvements alone may not suffice to restore robust profitability in the near term.

Valuation and Price Movement

Royal Orchid Hotels Ltd’s stock closed at ₹366.20 on 16 February 2026, down 2.20% from the previous close of ₹374.45. The stock’s 52-week high stands at ₹594.10, while the 52-week low is ₹324.20, indicating a wide trading range and volatility in recent periods. The intraday high and low on the news generation date were ₹370.30 and ₹360.00 respectively, reflecting cautious investor sentiment amid the company’s challenging financial backdrop.

Conclusion: Navigating a Challenging Phase

Royal Orchid Hotels Ltd’s latest quarterly results reveal a company at a crossroads. While top-line growth and operating profit have reached new highs, the sharp decline in net profitability, rising interest costs, and deteriorating capital efficiency present significant challenges. The downgrade to a Strong Sell Mojo Grade reflects these concerns and the need for strategic recalibration.

For investors, the key considerations will be the company’s ability to manage its debt burden, improve cash flow, and sustain operational momentum in a competitive hospitality environment. Given the current financial trend and risk profile, cautious evaluation and comparison with sector peers are advisable before committing fresh capital.

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