Viceroy Hotels: Navigating Renovation for Future Growth in Hyderabad's Hospitality Market

Viceroy Hotels Limited recently held its Q2 and H1 FY26 earnings call, revealing a period of strategic transformation amidst operational adjustments. While the financial headlines for the quarter show a dip in profitability, the underlying narrative is one of calculated investment and a clear vision for long-term growth. The company, a prominent player in Hyderabad's hospitality sector, is undergoing extensive renovations and expansions designed to enhance its offerings and capitalize on the robust market dynamics.

For Q2 FY26, Viceroy Hotels reported a total income of INR 31.86 crores, a modest decrease from INR 33.76 crores in Q2 FY25. The EBITDA for the quarter stood at INR 8.82 crores, maintaining a healthy margin of 27.7%, reflecting strong cost discipline despite the operational challenges. However, the profit after tax (PAT) for Q2 FY26 was INR 4.38 crores, a significant reduction from INR 59.66 crores in the prior year, primarily attributed to a deferred tax element that factored into the previous fiscal's figures. On a half-year basis (H1 FY26), total income was INR 58.31 crores, with EBITDA at INR 13.64 crores, yielding a margin of 23.4%. The PAT for H1 FY26 was INR 1.36 crores.

Financial Performance Snapshot (INR Crores)

Operational metrics show a mixed picture, largely influenced by the ongoing renovation at the Courtyard by Marriott property. While Average Daily Rates (ADRs) demonstrated commendable improvement—Marriott's ADR rose 9% year-on-year to INR 6,620, and Courtyard's surged 13% to INR 6,837 in Q2 FY26—occupancy levels at Courtyard were significantly impacted, dropping from 81.6% in Q2 FY25 to 31.5% in Q2 FY26. This decline is directly attributable to rooms being inoperational due to renovation. Despite this, the combined occupancy for the complex stood at 56.9% in Q2 FY26. The company's strategy to push ADRs during this period of limited supply helped mitigate the impact on overall revenue.

Strategic Initiatives and Future Outlook

Viceroy Hotels is executing a phased investment plan totaling approximately INR 120 crores to enhance guest experience and unlock long-term value across its properties. Phase one, focusing on the Courtyard by Marriott, is nearing completion, with 56 new guest rooms now operational and the gym, spa, and rooftop bar expected to be ready by December 2025. This phase alone has seen an investment of INR 50-55 crores.

Phase two will involve expanding the Marriott Convention Center from 10,000 square feet to 20,000 square feet, a project slated to begin in April 2026 and conclude by September 2026. This expansion is crucial for positioning Viceroy Hotels to capture larger MICE (Meetings, Incentives, Conferences, and Exhibitions) events, with the MICE segment's revenue contribution targeted to increase from under 30% to nearly 50%. Concurrently, 295 Marriott rooms will undergo continuous refurbishment, with 168 rooms targeted for completion by March 2027. Phase three will focus on upgrading F&B outlets, the executive lounge, and the lobby, including a new Pan-Asian restaurant.

Management is confident that these upgrades will enable the company to achieve higher ADRs and occupancies, driving stronger revenue growth and improved margins. The target is to achieve an EBITDA margin north of 30% at a portfolio level, with a long-term goal of 40% once the entire 463-room facility and modern convention center are fully upgraded. The F&B and banqueting segment is expected to contribute 45-48% of total revenue, with an anticipated annual growth of 30-35% post-renovation.

Market Dynamics and Expansion Plans

Hyderabad continues to be a key focus for Viceroy Hotels, recognized as one of India's most promising hospitality markets. The city's strong economic fundamentals, driven by thriving IT and pharmaceutical sectors, ensure sustained corporate travel demand. Crucially, the supply of upscale and luxury hotels in Hyderabad remains constrained, creating a favorable demand-supply gap that Viceroy is actively leveraging. The company also highlighted its focus on improving operational efficiencies, such as upgrading Mechanical, Electrical, and Plumbing (MEP) systems and outsourcing laundry services, to further boost margins.

Beyond existing property enhancements, Viceroy Hotels is pursuing expansion through both Greenfield and Brownfield projects. A Greenfield project in Madhapur is progressing, with plans for a 200-room Courtyard by Marriott hotel on a 7,000 square yard land parcel. The land, owned by relatives of the managing director, is leased on a 25% EBITDA lease rental basis, ensuring no payments until the property is operational and generates healthy EBITDA. The company is also actively exploring Brownfield opportunities in Hyderabad and other tourist destinations like Tiger Reserves, aiming to acquire properties at the right price.

Conclusion

Viceroy Hotels Limited is in a transformative phase, strategically investing in its assets to enhance guest experience and capitalize on favorable market conditions in Hyderabad. While the short-term financial performance reflects the impact of these extensive renovations, management's clear vision, disciplined execution, and focus on operational efficiencies position the company for robust growth. The completion of renovation phases and new expansions are expected to drive significant improvements in revenue, occupancy, and profitability, reinforcing Viceroy's leadership in the hospitality sector and delivering sustained value to its shareholders.