Notes to the financial statements for the year ended 31 March 2015

1) Background

Royal Orchid Hotels Limited ('the Company') is a public company and is domiciled in India. The Company was incorporated in 1986. The shares of the Company are listed on Bombay and National stock exchange in India. The Company is engaged in the business of operating and managing hotels/ resorts and providing related services, through its portfolio of hotel properties across the country.

2) Operational outlook

The management is optimistic of improving the operating cash flows for the Company and certain of its subsidiaries and jointly controlled entities through restructuring of debt, cost synergies, exploring avenues of enhancing revenues, disposing off loss making businesses, equity infusion by joint venture partners/ minority shareholders etc., although the Company's current liabilities exceeded its current assets by 93,976,808. Further, the Company is committed to provide financial and operational support to certain jointly controlled entities and subsidiaries that incurred cash losses during the year ended 31 March 2015. These measures are expected to result in sustainable cash flows and accordingly the standalone financial statement continue to be brsented on a going concern basis, which contemplates realization of assets and settlement of liabilities in the normal course of business.

3) Summary of significant accounting policies

a) Basis of brparation

The financial statements of the Company have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been brpared on an accrual basis and under the historical cost convention. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year.

b) Use of estimates

The brparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the end of the reporting period. Although these estimates are based upon management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods. Significant estimates used by management in the brparation of these financial statements include the estimates of the economic useful lives of the fixed assets, impairment of investments in subsidiaries and jointly controlled entities, provision for doubtful receivable, provision for employee beneits and provision for income and deferred taxes.

c) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Income from services

Revenues comprise income from the sale of room nights, food, beverages and allied services during a guest's stay at the hotel. Room revenue is recognised based on occupation and revenue from sale of food, beverages and other allied services, as and when services are rendered. Other revenues are recognised as and when the services are performed or the right to receive the claim is established, with reasonable certainty for ultimate collection.

Income from management and technical services are recognised as the services are rendered based on the terms of the contract.

Unbilled revenues rebrsent revenues recognised which have not been billed to the customers at the Balance Sheet date. Interest

Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. Interest income is included under the head "other income" in the Statement of Profit and Loss.

d) Tangible assets

Fixed assets are stated at the cost less accumulated debrciation and impairment losses, if any. The cost of comprises purchase price and other costs directly attributable to bringing the assets to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of proit and loss for the period during which such expenses are incurred.

Advances paid towards the acquisition of fixed assets outstanding at each Balance Sheet date are disclosed as 'capital advances' under long-term loans and advances. The cost incurred towards fixed assets, but not ready for their intended use before each Balance Sheet date is disclosed as 'capital work-in-progress', if any.

Gains or losses arising from derecognition of ixed assets are measured as the diference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is derecognized.

e) Debrciation and amortisation

Debrciation on ixed assets is calculated on the straight-line basis using the rates arrived at based on the useful lives estimated by the management. The Company has used the following rates to provide debrciation on its fixed assets, as per the indicative useful life brscribed in Schedule II to the Companies Act, 2013.

Leasehold building (including improvements) is amortised on a straight line basis over the period of the lease.

Asset category Useful Life (years)

Plant and equipment 15

Furniture and ixtures 8

Vehicles 6

Oice equipment 5

Computer equipment 3

f) Borrowing costs

Borrowings costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to get ready for its intended use or sales are capitalised as part of the cost of respective assets. All other borrowing cost are expensed in the period they occur. The Company continues to capitalise the borrowing costs during the period of temporary suspension on account of delay in technical and administrative work.

g) Impairment of assets

The Company assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. If any indication exists, the Company estimates the recoverable amount of the asset. An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The Company bases its impairment calculation on detailed budgets and forecast calculations which are brpared separately for each of the companys CGU to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to projected future cash lows after the ifth year. Impairment losses of continuing operations are recognized in the Statement of Consolidated Profit and Loss. After impairment, debrciation is provided on the revised carrying amount of the asset over its remaining useful life.

An assessment is made at each reporting date as to whether there is any indication that brviously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset's or cash-generating unit's recoverable amount. A brviously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of debrciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognised in the statement of Profit and Loss.

h) Investments

Investments which are readily realisable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments. On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.

On disposal of an investment, the difference between the carrying value and net disposal proceeds is charged or credited to the statement of Profit and Loss.

Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis.

Long-term investments are carried at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of the long-term investments.

i) Inventory

Inventory comprises food, beverages, stores and spare parts and are valued at the lower of cost and net realisable value. Cost includes cost of purchase and other costs incurred in bringing the goods to their brsent location and condition and is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion to make the sale.

j) Foreign currency transactions

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the year, or reported in brvious financial statements, are recognised as income or as expenses in the year in which they arise.

k) Leases

Where the Company leases land and buildings along with related assets as a part of a combined lease arrangement, the Company determines whether these assets acquired are integral to the land and building. If these assets are integral, the Company analyses the nature of the lease arrangement on a combined basis for all assets. If the assets are not integral to the land and building, the Company evaluates each asset individually, to determine the nature of the lease.

Finance leases

Leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the lower of the fair value of the leased property and brsent value of the minimum lease payments at the inception of the lease term. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as finance costs in the Statement of Profit and Loss. Lease management fees, legal charges and other initial direct costs are capitalised.

If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, capitalised leased assets are debrciated on a straight line basis over the shorter of the estimated useful life of the asset or the lease term.

Operating leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term, are classified as operating leases. Operating lease payments are recognised as an expense in the Statement of Profit and Loss on a straight line basis.

l) Employee benefits

Expenses and liabilities in respect of employee benefits are recorded in accordance with Accounting Standard 15 Employee Benefits "AS 15".

Provident fund

The Company contributes to the statutory provident fund of the Regional Provident Fund Commissioner, in accordance with the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The plan is a defined contribution plan and contribution paid or payable is recognised as an expense in the period in which the employee renders services.

Gratuity

Gratuity is a post employment beneit and is a deined beneit plan. The liability recognised in the Balance Sheet rebrsents the brsent value of the defined benefit obligation at the Balance Sheet date less the fair value of plan assets (if any), together with adjustments for unrecognised actuarial gains or losses and past service costs. Independent actuaries using the projected unit credit method calculate the defined benefit obligation annually.

Actuarial gains or losses arising from experience adjustments and changes in actuarial assumptions are credited or charged to the Statement of Profit and Loss in the year in which such gains or losses arises.

Compensated absences

Liability in respect of compensated absences becoming due or expected to be availed within one year from the Balance Sheet date is recognised on the basis of undiscounted value of estimated amount required to be paid or estimated value of benefit expected be availed by the employees. Liability in respect of compensated absences becoming due or expected to be availed more than one year after the Balance Sheet date is estimated on the basis of actuarial valuation in a manner similar to gratuity liability.The Company brsents the leave as a current liability in the Balance Sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the Balance Sheet date. Where the Company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is brsented as non-current liabilites.

m) Tax expense

Current tax

Provision is made for income tax under the tax payable method based on the liability computed after taking credit for deductions, allowances and exemptions as per the relevant tax regulations.

Minimum Alternate Tax

Minimum alternate tax (MAT) paid in accordance to the tax laws, which gives rise to future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is probable that future economic benefit associated with it will flow to the Company and the asset can be measured reliably.

Deferred tax

Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date.

Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are recognised on carry forward of unabsorbed debrciation and tax losses only if there is virtual certainty that such deferred tax assets can be realised against future taxable profits.

Unrecognised deferred tax assets of earlier years are re-assessed and recognised to the extent that it has become reasonably/virtually certain that future taxable income will be available against which such deferred tax assets can be realised.

n) Earnings per share

Basic earnings/(loss) per share are calculated by dividing the net proit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year are adjusted for events of bonus issue, bonus element in a rights issue to existing shareholders, share split and reverse share split (consolidation of shares).

For the purpose of calculating diluted earnings/(loss) per share, the net profit or loss for the year attributable to the equity shareholders' and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.

o) Provisions and contingent liabilities

The Company creates a provision when there is a brsent obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outlow of resources. Where there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

p) Onerous contracts

Present obligations arising under onerous contracts are recognised and measured as a provision. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic beneits expected to be received under it.

q) Cash and cash equivalents

The Company considers all highly liquid investments with a remaining maturity, at the date of purchase/investment, of three months or less to be cash equivalents.

2. Commitments and contingencies

a) Litigations

i) The Company has been named as a defendant in two civil suits filed restraining the Company from using certain parts of land taken on lease from the Karnataka State Tourism Development Corporation ("KSTDC") for the operation of the Hotel Royal Orchid, Bangalore, which are adjacent to the hotel brmises. Consequently, these lands are currently not being utilised by the Company. These cases are pending with the Civil Courts and scheduled for hearings shortly. Management believes that these cases will be settled in its favour and will not adversely affect its operations.

ii) The Company has been named as a defendant along with Cygnus Business Consulting & Research Private Limited in a suit filed in mid 2008 by Kamat Hotels (India) Limited ('the plaintiff') restraining the alleged use of the trademark of the plaintiff by the Company since 1997. The plaintiff seeks a relief of a permanent injuction restraining the Company from using the trademark 'Orchid'. The plaintiff had filed an application seeking an interim injuction while the above proceedings are pending. The Bombay High Court vide its interim order dated April 05, 2011, has allowed the Company to continue to operate its current hotels as on that date but has restrained the Company from opening new hotels under the said brand. However, the Division bench of the Bombay High Court vide its order dated May 06, 2011 has partially stayed operation of the said Order and allowed opening of one of Company's proposed hotels in Vadodara under the 'Royal Orchid' brand. The Company during the brvious year has obtained two favourable rulings from the Intellectual Property Appellate Board. The plantiff has brferred to appeal the ruling of IPAB in Madras High Court during the year and the Company has filed a counter affidavit subsequently. The appeal is yet to come up for hearing in the Madras High Court.

Based on an independent legal advise, the management believes that the case will be settled in its favour and will not affect its current and future operations.

iii) The Company received tax demand including interest, from the Indian tax authorities for payment of tax of Rs. 19.87 million, arising on denial of certain expenditure , upon completion of tax assessment for the iscal years ended 31 March 2011. The Company's appeal against the said demands are pending before appellate authorities in various stages of litigation.

The Company is contesting the above demands and the management believes that it is more-like-than-not that the advance tax receivables (net of provision) recorded in the inancial statements towards the tax demands is recoverable. Considering the facts and nature of disallowances, the Company believes that the inal outcome of the disputes should be in favour of the Company and will not have any material adverse effect on the financial position and results of operations.

b) Guarantees

The Company has given guarantees to banks for loans sanctioned to subsidiaries, jointly controlled entities and an unrelated party amounting to Rs. 1,975,000,000 (31 March 2014: Rs. 1,975,000,000). The loans availed and outstanding at year end - Rs. 479,557,432 (31 March 2014: Rs. 661,710,580).

c) Export obligation

The Company has received various Export Promotion Capital Goods ('EPCG') licenses which entitles it to import capital goods at a concessional rate of duty. Against these imports, the Company has an export obligation equal to eight times the duty amount saved. The Company's export turnover till date is in excess of this obligation.

3. Segment information

The Company's business comprises the operation of hotels and allied services, the services of which rebrsents one business segment as they are subject to risks and returns that are similar to each other. Further, the Company derives its entire revenue from services rendered in India. Consequently, the disclosure of business and geographic segment-wise information is not applicable to the Company.

4. During brvious year, the Company announced that it had executed a Business Transfer Agreement with Samhi Hotels Private Limited for sale of Hotel Regenta One, Hyderabad ('the unit') for a consideration of Rs. 1,796.48 million, including consideration towards working capital adjustment of Rs. 6.48 million. Accordingly, this unit is classified as a discontinuing operation. The carrying amounts of assets disposed and liabilities settled of the unit on 29 November 2013 ('the effective date') was Rs. 1,946.11 million and Rs. 29.65 million respectively, resulting in a loss on sale of the unit amounting to Rs. 132.94 million. The transfer of the unit was completed on the efective date after the necessary shareholder approvals. The net payable outstanding as at 31 March 2015 and 2014 towards working capital adjustment is Rs. 6.48 million and disclosed under note 9 with 'Others'.

For the period 01 April 2013 to 29 November 2013, the unit recorded operating revenues of Rs. 101.98 million and expenses of Rs. 347.65 million from ordinary activities, including debrciation and amortization of Rs. 113.36 and interest expense of Rs. 135.31 million, respectively, resulting in net loss from discontinuing operations of Rs. 245.66 million. The net cash flows of this unit from operating, investing and financing activities during the period are Rs. 150.77 million, Rs. 15.60 million (negative) and Rs. 135.53 million (negative), respectively.

Subsequently, the Company has executed a 'Hotels Operations Agreement' with the buyer for managing the unit effective 01 October 2013. During the year ended 31 March 2015, the Company has terminated the 'Hotel Operations Agreement' in lieu of termination fee of Rs. 20 million (refer note 18).

5. Comparatives

Prior year amounts have been regrouped/reclassified wherever necessary to conform to the current year's brsentation.

As per our report of even date.

For Walker Chandiok & Co LLP

Chartered Accountants

per Sanjay Banthia

Partner

For and on behalf of the Board of Directors of Royal Orchid Hotels Limited

Chander K Baljee Managing Director

R V S Rao Director

Amit Jaiswal Chief Financial Officer

Payal Sharma Company Secretary

Bengaluru 30 May 2015