Viceroy Hotels Limited

India's robust economic growth, driven by strong consumption, rising incomes, and higher discretionary spending, is fueling a robust hospitality sector. Travel patterns have stabilized, air traffic improved, and overall demand influences are positive. Hyderabad, a key market, benefits from strong economic fundamentals, thriving IT and pharmaceutical sectors, and expanding Grade A office space, leading to sustained corporate travel demand. A significant demand-supply gap in upscale and luxury hotels in Hyderabad creates a favorable environment for operators to enhance pricing power and profitability.

For Q2 FY26, Viceroy Hotels reported a total income of INR31.86 crores and an EBITDA of INR8.82 crores, achieving an EBITDA margin of 27.7%. Profit after tax stood at INR4.38 crores, influenced by a deferred tax adjustment from FY25. ADRs showed strong growth, with Marriott at INR6,620 (up 9% YoY) and Courtyard at INR6,837 (up 13% YoY). However, Courtyard's occupancy was significantly impacted by renovation, reaching only 31.5%, contributing to a combined occupancy of 56.9%. For H1 FY26, total income was INR58.31 crores, with an EBITDA margin of 23.4% and PAT of INR1.36 crores.

Viceroy Hotels is executing a phased INR120 crore investment plan to enhance guest experience and unlock long-term value. Phase 1, focusing on Courtyard (adding 56 new rooms, spa, gym, bar, and facade upgrades), is nearing completion with INR50-55 crores spent and expected to be fully operational by December 2025. Phase 2 will upgrade 295 Marriott rooms and expand the Convention Center from 10,000 to 20,000 sq ft, with Convention Center work starting April 2026 and completing by September 2026, and 168 Marriott rooms targeted for upgrade by March 2027. The remaining INR70 crores of the budget are allocated to Phases 2 and 3, with an expected ROI of 2-3 years for the total investment.

The company's Greenfield project at Madhapur is currently in the land conversion and design stage, with appointments for architects and interior designers underway. The land is leased from relatives of the Managing Director on a 25% EBITDA lease rental basis, with payments deferred until the property generates healthy EBITDA. This project, along with active pursuit of Brownfield acquisitions and potential expansion into touristy destinations, underscores Viceroy Hotels' commitment to expanding its portfolio and strengthening its leadership in the hospitality sector, particularly in the high-growth Hyderabad market.

Despite renovation-induced occupancy challenges, Viceroy Hotels has successfully pushed ADRs by leveraging the limited supply in Hyderabad and its strong market position. The company aims for a portfolio-level EBITDA margin of over 30% in the near term, with a longer-term target of 40% once all 463 rooms and the modern convention center are fully upgraded. Strategic investments in back-of-house operations (MEP) and outsourcing laundry are also contributing to improved long-term margins and operational efficiency. The company expects MICE segment contribution to increase from under 30% to approximately 50% post-Convention Center expansion.

The INR120 crore renovation plan is being funded through a combination of INR37.5 crores from a rights issue, ongoing internal accruals from hotel operations, and an open credit limit of INR70-80 crores from Kotak. The company has also refinanced its debt, repaying a promoter's loan and securing new financing from Kotak at a reduced interest rate of 8.25%. Interest costs related to expansion are being capitalized, reflecting a prudent approach to funding growth and enhancing shareholder value.