Seize Nepal’s Hospitality Goldrush: OHL’s Premium Pivot or Lazimpat’s NPR 800 Crore 5-Star Powerhouse Investment!

1. Executive Summary

Oriental Hotels Limited (OHL), operating the Radisson Hotel Kathmandu (260 rooms, Lazimpat), is a key player in Nepal’s 5-star hospitality sector. This report evaluates OHL’s investment potential in the secondary market and the feasibility of building and operating a new 260-room 5-star hotel in Lazimpat, equivalent to OHL’s Radisson, from an investor’s perspective. Key metrics include construction costs, timelines, operational requirements, and market valuations, with OHL’s current share price sourced from Nepalstock.com. Investors should weigh OHL’s high valuation against risks and consider the new hotel’s long-term potential amid Nepal’s tourism growth.

2. OHL Investment Overview

2.1 Company Profile

• Business: Operates Radisson Hotel Kathmandu, a 260-room 5-star hotel in Lazimpat, with 6 restaurants, spa, fitness center, and meeting spaces for 800 people (Radisson Hotels).

• Financials (FY 2080-81, Q2 2081/82):
o Revenue: ~NPR 350 crore (-12.21% YoY).
o Net Income: ~NPR 97.72 million (-46% YoY).
o EPS: NPR 8.25.
o Book Value per Share: NPR 343.59.

2.2 Current Share Price and Valuation

• Share Price: NPR 947 (as of May 18, 2025, Nepalstock.com).

• Market Capitalization: NPR 947 × 11,844,950 shares = NPR 11,195,254,492.50 (~NPR 1195.52 crore).

• Valuation Metrics:
o P/E Ratio: 114.78 (NPR 947 ÷ NPR 8.25), significantly above peer Soaltee Hotel’s P/E of ~20, indicating potential overvaluation.
o P/B Ratio: 2.75 (NPR 947 ÷ NPR 343.59), reasonable compared to hospitality norm of ~2.
o Conservative Valuation:
▪ P/E = 20: NPR 8.25 × 20 × 11,844,950 = NPR 1,954,416,750 (~NPR 195.44 crore).
▪ P/B = 2: NPR 343.59 × 2 × 11,844,950 = NPR 8,139,554,462 (~NPR 813.96 crore).

• Investment Insight: OHL’s high P/E (114.78) and -46% earnings decline reflects economic slowdown and competition risks (19 five-star hotels, New Business Age). The share price (NPR 947) exceeds conservative valuations, suggesting caution for secondary market investors.

3. New 260-Room 5-Star Hotel in Lazimpat

3.1 Construction Costs and Timeline

• Total Cost: NPR 3,998,767,500 (~NPR 399.88 crore), including:
o Construction: NPR 2,962,050,000 (~NPR 296.21 crore) for 175,000 sq.ft. at NPR 16,926/sq.ft., adjusted for 2025 inflation (6%), commercial use (2.5x), and Lazimpatpremium (10%).
o Additional Costs: NPR 1,036,717,500 (~NPR 103.67 crore) for equipment (20%), permits (5%), and contingency (10%).

• Timeline: 3.5–4 years (42–48 months), including design/permits (9 months), construction (24 months), and fit-out (9 months). Delays possible due to Lazimpat’s traffic and monsoon disruptions (The Longest Way Home).

• Investor Insight: High upfront capital (NPR 399.88 crore) and 3.5–4-year timeline requires significant funding and patience, suitable for long-term investors with risk tolerance.

3.2 Construction-Based Valuation

• Valuation: NPR 5,398,336,125 (~NPR 539.83 crore), based on 1.35x replacement cost (NPR 3,998,767,500), reflecting tourism growth (1.01 million arrivals in 2023, targeting 2.5 million by 2034).

• Investor Insight: The NPR 539.83 crore valuation upon completion offers a potential 35% appreciation over construction cost, but liquidity in the secondary market depends on project execution and tourism recovery.

4. Operational Requirements and Costs

4.1 Time to Full Phase

• Total Time: 4.5–7 years (3.5–4 years construction + 1–3 years ramp-up to 60–70% occupancy).

• Ramp-Up:
o Year 1: 30–40% occupancy (domestic tourists, MICE events).
o Year 2: 50–60% occupancy (growing international arrivals).
o Year 3: 60–70% occupancy (mature operations, per OHL and Soaltee Hotel).

• Investor Insight: The 4.5–7-year horizon to profitability delays returns, requiring investors to focus on long-term tourism growth (2.5 million tourists by 2034).

4.2 Effort and Operational Costs

• Effort:
o Staffing: 350 staff (1.35/room), with 3–6 months pre-opening training and 10–15% annual turnover.
o Marketing: NPR 15–20 million pre-opening, NPR 20–30 million annually post-opening, targeting MICE and international tourists.
o Management: Robust systems (PMS, POS) and quality control for 5-star standards.

• Costs:
o Pre-Opening: NPR 38,000,000 (~NPR 3.8 crore) for training, marketing, and systems.
o First 3 Years: NPR 3,215,846,000 (~NPR 321.58 crore), escalating from NPR 79.45 crore (Year 1) to NPR 132.41 crore (Year 3).
o Annual (Full Phase): NPR 1,324,102,500 (~NPR 132.41 crore), including staff (NPR 12.6 crore), F&B (NPR 60 crore), and franchise fees (NPR 20 crore).

• Revenue (Full Phase): NPR 400 crore (NPR 77.11 crore from rooms at 65% occupancy, NPR 12,500 ADR; rest from F&B, MICE).

• Investor Insight: High operational costs (NPR 321.58 crore over 3 years) and staffing/marketing efforts demand efficient management. The NPR 400 crore revenue potential at full phase offers a 10% net profit margin (NPR 40 crore), attractive for patient investors.

5. Operational-Phase Valuation

• Valuation: NPR 8,000,000,000 (~NPR 800 crore), averaging:
o Cost-Based: NPR 5,398,336,125 (1.35x replacement cost).
o P/E (20): NPR 8,000,000,000 (NPR 40 crore net profit × 20).
o P/S (2): NPR 8,000,000,000 (NPR 400 crore revenue × 2).

• Rationale: Balances construction cost (NPR 399.88 crore), revenue potential, and risks (OHL’s P/E 114.78, -46% earnings, competition from 19 five-star hotels, New Business Age). DCF valuation (NPR 4,158 crore) is excluded due to optimistic growth assumptions.

• Investor Insight: The NPR 800 crore valuation at full phase (Year 3 post-opening) suggests a 100% appreciation over construction cost, driven by Nepal’s tourism growth. However, competition and supply- demand gap pose risks.

6. Investment Considerations

6.1 OHL Secondary Market

• Pros:
o Established brand (Radisson) with 260 rooms in prime Lazimpat location.
o Strong MICE-driven revenue (92% jump in 2022–23, Kathmandu Post).
o Book value (NPR 343.59) supports P/B of 2.62, reasonable for hospitality.

• Cons:
o High P/E (114.78) and -46% earnings decline signal overvaluation and economic risks.
o Share price (NPR 947) exceeds conservative valuation (NPR 195.44–813.96 crore), suggesting limited upside.
o Competition from 19 five-star hotels pressures occupancy and margins.

• Recommendation: Hold or sell. Investors should monitor Q3 2081/82 earnings for recovery signs.
New entrants may find NPR 947 overpriced; consider waiting for a dip to NPR 700–800 (P/E ~20).

6.2 New Hotel Investment

• Pros:
o Modern facilities could outperform OHL, targeting NPR 400 crore revenue and NPR 8,000 crore valuation at full phase.
o Tourism growth (2.5 million tourists by 2034, RisingNepalDaily.com) supports long-term demand.
o Lazimpat’s prime location enhances MICE and international appeal.

• Cons:
o High capital (NPR 399.88 crore) and operational costs (NPR 321.58 crore over 3 years).
o Long timeline (4.5–7 years) delays returns, with risks from competition and tourism uncertainty.

• Recommendation: Long-Term Buy for Institutional Investors. Suitable for funds with 7–10-year horizons, leveraging Nepal’s tourism potential. Retail investors may find the timeline and risks prohibitive.

7. Risks and Mitigation

• Economic Slowdown: OHL’s -46% earnings decline reflects macro risks. Monitor Nepal Rastra Bank reports for stability.
• Competition: 19 five-star hotels, including Hotel Lhasa International (107 rooms, Lazimpat) and
InterContinental (225 rooms), increase supply pressure. Differentiate via superior branding and MICE focus.
• Tourism Uncertainty: 1.01 million arrivals in 2023 vs. 2.5 million needed. Track Nepal Tourism Board’s 2025–34 plan (RisingNepalDaily.com).
• Execution Risk: Construction delays and cost overruns possible in Lazimpat. Use experienced contractors and modular techniques.

8. Conclusion

OHL’s Radisson Hotel Kathmandu offers a stable but overvalued investment at NPR 947/share (P/E 114.78, market cap NPR 1,195.52 crore), with risks from earnings decline (-46% YoY) and competition. Investors should hold or sell, awaiting better entry points. Building a new 260-room 5-star hotel in Lazimpat costs NPR 399.88 crore, takes 3.5–4 years, and is valued at NPR 539.83 crore upon completion. Operating at full phase (60–70% occupancy) requires 4.5–7 years and NPR 321.58 crore over 3 years, achieving NPR 400 crore revenue and NPR 800 crore valuation. The new hotel is a high-risk, high-reward opportunity for long-term investors, driven by Nepal’s tourism growth but challenged by competition and economic risks.

Article By: Manju Giri Puri

MA Economics Researcher