In a recent arbitration ruling, Royal Orchid (NS:ORCD) Hotels Limited (ROHL) has secured a favorable outcome in its dispute with Rock Reality Private Limited. The award, pronounced on September 10, 2024, and received by the company on September 12, 2024, addresses several key issues from the arbitration case.
The primary points of the award include the rejection of Rock Reality's claim for specific performance, which aimed to renew the lease of the property in question. This is a crucial win for Royal Orchid Hotels as it allows them more flexibility with the property moving forward. Importantly, the company has also been granted the right to a full refund of its security deposit, amounting to INR 2.14 crore from Rock Reality Private Limited.
In addition to the refund, ROHL is entitled to INR 25 lakh in damages, which will accrue interest at a rate of 12% from the date of the award. Another critical component of the ruling is that Royal Orchid Hotels is allowed to remove any fit-outs or other property belonging to it, further protecting its financial and operational interests.
The arbitrator dismissed most of the counterclaims made by Rock Reality, with the exception of the request for peaceful vacant possession of the property. In this regard, Royal Orchid Hotels has been ordered to vacate the property within 12 months, during which time the company will continue to pay rent at INR 43.71 per sq. ft., as well as parking charges.
Moreover, Royal Orchid Hotels is entitled to recover the cost of the arbitration proceedings, which has been set at INR 10 lakh. Finally, the award specifies that the applicable stamp duty will be levied under the Karnataka Stamp Act, 1957.
The outcome of this arbitration is expected to have a positive impact on the financial health of Royal Orchid Hotels, as the security deposit refund and damages will enhance the company's liquidity.
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However, investors should also note that the stock is comfortably trading above its fair value of INR 344 per share. With the CMP of INR 371.1, there is a downside potential of INR 7.1% and therefore any potential rise from this positive news should not make you jump the gun and go long right off the bat. High P/E relative to peers is also highlighted by ProTips therefore you should always go through ProTips to make sure any important piece of information does not go unnoticed.
Leaving valuations aside, the financial health score of 4 out of 5 makes it quite a good stock for the portfolio. So what investors can do? Wait for the dip for the valuation to get reasonable then then they can look for buying opportunities.
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