July 21 (Bloomberg) -- Royal Orchid Hotels Ltd., an Indian franchisee of the Ramada brand, is reviving a plan to build its first overseas hotel and acquire a property at home as economic growth boosts travel and tourism.
Royal Orchid based in Bangalore plans to build the hotel in Dar Es Salaam, the largest city in the East African nation of Tanzania, in the next two years, Managing Director Chender Baljee said. The company also plans to spend 100 million rupees ($2.1 million) to acquire a hotel in India in the year ending March 31, he said. Shares gained as much as 2.7 percent in Mumbai trading.
“Tanzania is a politically stable nation compared with other African countries,” Baljee said in an interview today. “Things are improving and we expect a better performance for the company.”
Royal Orchid is trying to tap rising business travelers to Africa as Indian and Chinese companies invest in a continent that sits on the world’s biggest deposits of platinum and diamonds. Companies including Bharti Airtel Ltd. are expanding in Africa as economic growth boosts demand for products from motorcycles to mobile-phone services.
“This is the right time for expansion because right now real estate is in doldrums around the world,” Abhishek Jain, an analyst at Shah Investor’s Home Ltd., who rates the stock a “buy” said from Mumbai. “Their capital expenditure will be lower now than in a boom cycle. I believe it is a good strategy for the company.”
Seven Indian Cities
Tanzania’s economic growth will probably accelerate to 6.2 percent this year, according to the International Monetary Fund. Bharti Airtel, India’s biggest mobile-phone company, last month spend $9 billion to acquire the African assets of Kuwait’s Mobile Telecommunications Co. to enter the continent’s market including Tanzania.
Royal Orchid had put its plan to build the hotel in Tanzania on hold since 2008, Baljee said. Royal Orchid, which has declined 2.9 percent this year, rose 0.7 percent at 79.05 rupees at 1:36 p.m. in Mumbai.
Royal Orchid, with 13 hotels in seven Indian cities, will open two more in the southern Indian cities of Hospet, Shimoga and northern town of Mussoorie by December, Baljee said. The company is also building a 135-room hotel in Jaipur and another 230-room hotel in Hyderabad to be ready before March 31, he said. Royal Orchid is also planning a hotel in Mumbai.
The company runs the Ramada hotel, which is franchised by Wyndham Worldwide Corp., in Bangalore.
Baljee’s company raised two billion rupees by selling shares in 2006 and took three billion rupees through bank loans last year. The company’s consolidated revenue fell 14 percent to 1.2 billion rupees in the year ended March 31 and net income plunged 77 percent to 49 million rupees.
Tourist arrivals in India last year declined 3.3 percent to 5.11 million because of the worst recession since World War II, terror attacks on Mumbai and H1N1 virus, according to the Ministry of Tourism. The fall was the first in seven years.
India earned foreign exchange valued at $11.39 billion from tourism last year, three percent less than the previous year. Arrivals increased 10.8 percent for the four months to June of the current year compared with the same period last year, according to the tourism ministry.
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