Lemon Tree Hotels Limited (LEMONTREE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Lemon Tree Hotels Limited Earnings Conference Call. [Operator Instructions] Please note that, this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and thank you for joining us on Lemon Tree Hotels Q3 and 9M FY '25 Earnings Conference Call. We have with us Mr. Patanjali Keswani, Chairman and Managing Director; and Mr. Kapil Sharma, Chief Financial Officer of the company. We'll begin the call with opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation that was shared with you earlier. I will now request Mr. Keswani to make his opening remarks.

Thank you. Good afternoon, everyone, and thank you for joining us on this call. I'll be covering the business highlights and financial performance for Q3 '25 and 9 months of FY '25, after which we'll open the forum for your questions and suggestions. Due to high seasonality in the hotel industry, please consider year-on-year performance rather than quarter-on-quarter. So Lemon Tree recorded its highest ever third quarter revenue this year at INR 355.8 crores, our revenue grew 22% compared to Q3 last year, while net EBITDA grew 30% year-on-year to INR 184.8 crores, translating into a net EBITDA margin of 51.9%, which increased by 316 bps year-on-year. Q3 FY '25 recorded a gross ARR of INR 6,763, which increased 7% year-on-year. The occupancy for the quarter stood at 74.2%, an increase of 826 bps year-on-year. This translated into a RevPAR of INR 5,018 which increased 21% year-on-year. Fees from third-party owned hotels for management and franchise contract stood at INR 18.4 crores in Q3 '25, an increase of 24% year-on-year. Fees from Fleur Hotels stood at INR 25.3 crores in Q3 '25, an increase of 45% year-on-year. Total management fees for Lemon Tree stood at INR 43.7 crores in Q3, an increase of 35% year-on-year. The company's profit after tax stood at INR 79.9 crores in Q3, an increase of 82% year-on-year. Cash profit for the company stood at INR 114.9 crores, an increase of 49% year-on-year. On the business development front, this quarter, Lemon Tree received a letter of award from the Director of Tourism Government of Meghalaya for the redevelopment, operation and maintenance of the existing Orchid Hotel in Shillong under the design, build, finance, operate and transfer mode on a PPP basis. This will be redeveloped at Aurika Shillong and will be operational within the next 2.5 to 3 years. It will feature 120 rooms, with all the additional facilities our Aurika offer. This hotel is situated in the prime location of Polo Market opposite the Chief Minister's bungalow and is the first PPP undertaken by us. Interestingly, this project qualifies for significant capital subsidy and incentives, including full GST reimbursement and interest subvention by 5% under the Meghalaya Industrial and Investment Promotion Policy '24 and various other policies. On the asset-light side, we signed 13 new management and franchise contracts, adding 766 new rooms to our pipeline and operationalized 1 hotel adding 38 rooms to the portfolio. As of December 31, 2024, the total inventory of the group, for those of you who like cricket as I do, it was a double century. The total inventory stood at 200 hotels and 16,385 rooms broken into 112 operational hotels with 10,317 rooms and a pipeline of 88 more hotels with 6,068 rooms. Going forward, we are confident in the company's ability to sustain this growth in the coming quarters by focusing on certain growth levers, which is obviously an accelerated growth in our management and franchise portfolio, the timely completion of renovation activities in the owned portfolio to further improve gross ARR and occupancy. Please note that, the increased investment in renovation expenses will continue into FY '26, and a little bit into FY '27, until the entire portfolio of our owned hotels of about 6,000 rooms has been fully renovated and refurbished. Post this, renovation expenses will close at 1.5% to 1.7% of revenue on an ongoing basis. With demand growth expected to outpace supply and an expected significant increase in discretionary spending on branded mid-market hotels in India, we think, this increased investment in renovation will allow us to position Lemon Tree as the largest and preferred brand in the mid-market segment. With this, I come to the end of my opening remarks, and would ask the moderator to open the forum for any questions you may have.

[Operator Instructions] The first question comes from the line of Karan Khanna from AMBIT Capital.

Congrats on a great quarter. My first question is on Aurika Mumbai. Congratulations on the ramp-up in terms of occupancies. You recently mentioned that, you expect this property to stabilize by FY '26. So what kind of RevPAR can we expect for FY '26? And what according to you should be a sustainable growth rate for this property? And as a follow-up, for the Aurika brand, you recently decided to shut down operations at Aurika Coorg. So can you talk a bit more about -- should we expect more Aurika branded hotels to be added to your own pipeline, given it's still a small part of your overall portfolio?

Thank you, Karan. That's many questions. So, let me start with the first one. Aurika Bombay has not really stabilized in Q3. I think, the occupancy was in the early 70s and the ARR was a little over INR 9,000. My expect -- well, in Q4, it is doing much, much, much better. In fact, I think our occupancy is north of 85% and average rate is north of INR 9,500. So -- but for me, that is still stabilization because as I had mentioned, I think, maybe a couple of con calls before, we would like this hotel to be at around INR 11,500 to INR 12,000 ARR at about 85% occupancy. So in order to do it, first, we have to build demand such that, we can then churn the demand and keep the higher price demand with us in this hotel. So to answer your question, although, we are doing 85% in Q4, and we are doing INR 9,500 ARR to me, that is not stabilized. Stabilized to me would probably be in H2 next year when on a sustained basis, we will be north of 85% at INR 11,000-plus ARR. So that is the first one. As far as Aurika as a brand goes, we have, as you know, signed Shillong, we have amicably parted ways with the Coorg hotel, due to some reasons, I'm really not at liberty to disclose. But Aurika is very much in our strategy. We are very close to signing on long lease an outstanding Aurika in Varanasi, which, as you know, is a INR 50,000 a night market. So it is a little odd for a mid-market hotel company talking about an Aurika brand, which will be north of 5x of the current Aurikas. We are also looking at a few other Aurika for management contracts, which we -- as and when they firm up, we will obviously inform the markets and you folks. But Aurika in short is a part of our capturing lifetime value of our customers' strategy.

Just a follow-up on Aurika Mumbai and in particular, we are seeing a lot more hotels opening in the entire Mumbai Airport micro market. So with the new Navi Mumbai Airport, and new supply coming in that market, do you see that as a risk to, let's say, growth beyond the INR 12,500 price point that you're seeing? Or you are still quite confident that this market will continue growing at, let's say, low double-digit RevPAR or possibly a high single-digit ARR growth?

Karan, I'm ashamed to tell you that, on and off, Lemon Tree Premier Mumbai does a higher ARR than Aurika. This is because of a very large base of fixed business Aurika has, which is what I had referred to earlier to build a base of demand, so that we could reprice it, once it was sustainable. My view is the same as I had 10 years -- 12 years ago when India was at a far different place. And a lot of people told me that, why are you buying and investing in a hotel in Delhi Aerocity. When the airport in various other places like Greater Noida will open, 6,000 rooms will come up in Delhi Aerocity. The whole of Delhi has only 8,000 rooms, isn't it highly risky? And I said, based on my experience about airport hotels in the major metros of any large economy worldwide, they have never ever not absorbed supply. Delhi is the highest performing market, Delhi Aerocity, although, something like 3% of India's branded supply came up here in 1 year or 2 years. It is absolutely not to be worried about. There may be a temporary blip of 3 months, 6 months, 12 months, but I don't think it will significantly affect the RevPAR of the micro market. What will happen is certain hotels that are not customers' preferred choices, but customers go to it, because of demand being more than supply, those -- that type of demand will disappear, and there will be more availability in the branded hotels. I don't know, if I'm making sense to you, but I don't see based on my experience in airport markets, I don't see that really affecting Bombay, especially Bombay, I should say.

My second question, given your ambitious goal of expanding portfolio to about 20,000 rooms by 2027, do you foresee any operational or other challenges that you may encounter in executing your growth pipeline?

No. So I said, we would be 20,000 rooms in our '26, '27 vision. But we are already at over 16,000, and I'm pretty confident we'll hit 20,000 in the next 12 to 15 months, signed and operational. Where I see possible slippages is, that we have in this pipeline of signed converting to operational, there have been slippages when owners have not been able to fund/finish their hotels on time. So that is the only concern I have. But as far as our growth goes, we have -- actually, we are very gung ho on the kind of demand we are seeing from asset owners in our space. There are something like 3 to 4 inquiries every single day. So 20,000 is actually a bit of an understatement. I think, we'll do far better than that.

Sure. And the last question, if you can highlight the benefits of renovation that you saw this quarter in terms of better pricing or occupancy, especially for Keys portfolio, where perhaps the delta for pricing should be a little higher?

So, I'll give you an example. If you look at Pune, the portfolio and look at the occupancy and occupancy rate and price, Pune went up by 20%. The reason -- a significant part of the reason is that we have a 101-room keys in Pune. That was the first hotel fully renovated. See, it is still in all the other hotels, there is still a lot of work still going on because we are renovating nonstop. It's 936 rooms. But this hotel, which has got fully renovated, the ARR is 24% over what it was pre renovation. And now because the rooms are back, it is doing 90% occupancy, 80%, 90%. I'm talking also now about Q4 because that's when the last bid happened. So I said earlier that, we will definitely target a INR 60 crore EBITDA from Keys, which means really INR 6.5 lakhs a Key. Currently, if you look at our EBITDA for the Keys portfolio, it is INR 1 lakh a quarter or I think INR 3.5 lakhs a year. We will double that.

The next question comes from the line of Jinesh Joshi from PL Capital.

Sir, with respect to the new partnership at Shillong, can you highlight how will the accounting happen as the hotel might be in an SPV with some kind of a JV structure? Also, if you can share what can be our prospective share in that JV? And will the benefit be limited to the capital subsidy and the GST reimbursement that we have highlighted in the PPT? Or is the state government also expected to contribute towards the CapEx outgo? I know, we have not shared the indicative CapEx number, but can you share similar hotels in that region, what kind of CapEx per Key do they command?

Well, in Shillong, there are 2 hotels. There is Taj and there is Marriott...

Courtyard.

Courtyard by Marriott. So it's doing, I think, about INR 10,000 and is doing INR 12,000. We think we will INR 12,000, INR 13,000 because it has the best location. The land is being given to us for 1% of the revenue share at INR 1 crores or INR 2 crores a year. We don't think we will invest more than INR 120 crores for 120 rooms, because we get a 5% interest subvention. So instead of borrowing money at 8%, 8.5%, we will effectively get debt at 3%, 3.5%. Our estimate is this hotel will make about INR 15 crores EBITDA a year to begin with. It is a joint venture between Lemon Tree and another company. It is not announced yet, but I can tell you it is Ravi Jaipuria, RJ Corporation. We will be the majority owners. They will be the minority. The total equity requirement will be sub INR 40 crores or INR 35 crores. We will take a debt of about INR 70 crores or INR 80 crores. We will get INR 15 crores back as capital subsidy on the day this hotel opens. So really, our equity investment will be probably INR 20 crores. We get 100% GST back, one for 7 years. I think that's State -- Central.

Central.

And State is, I think, for 10 years.

Yes.

So that means that, if I add that to the EBITDA margins, the EBITDA margins will be about 55%. And we think, we will have our equity payback, both partners within 1.5 years. So really, it is a fantastic opportunity. And it is maybe INR 10 crores or more for Lemon Tree every year for the next 45 years.

Fairly elaborative, sir. Just one observation from my side. If I look at our stand-alone performance, I think the revenues were up by just about 2%, while the PAT was down by about 16% Y-o-Y. So apparently, it seems like the stand-alone business wherein we have, if I'm not mistaken, about 1,800 rooms faced some kind of challenges in this quarter. So if you can just talk a bit about that.

No, there is no challenge. You see Lemon Tree has an agreement to charge a fair amount of money from Fleur for what is called development fees, okay? And we got a very large sum when we developed Aurika. So if I remove that, actually, we did better -- significantly better this year than last year. So that was part of -- you can say, it was part of the project management fees that Lemon Tree charged, and it is our agreement with Fleur that every time we put up assets there, we take about 10% to 12% of the investment as our fees.

One last bookkeeping question from my side. Can you share, what is the operating cash flow generated so far in 9 months after interest? And what is your debt repayment target for the next couple of years given no major CapEx is lined up?

So, our cash profit for the 9 months is INR 240 crores. And this is -- how much did we pay back of...

INR 150 crores.

So we paid back INR 150-odd crores of...

Debt.

Debt...

Debt repayment. Yes.

Which is reflecting in our gross debt fall, and we had another INR 40-odd crores of cash.

For the next 2 years, I mean, just in case if you have any number in mind in terms of repayment?

See, what I said is that, we'll be debt-free now that all this is over in 3 years. Now, the point I'm trying to make is that we will be probably debt-free earlier the minute we list Fleur. That is very much on the -- and we are unable to right now brief the market in detail about it. But I can say with certainty it will happen in the next 1.5 years or 2 years max. If that happens, automatically, we go debt free. In the absence of that, when we look at the cash flow generation -- let me give you an example. The most profitable quarter is Q4 from every perspective. So typically, what is the cash profit for the full year of '24? Can you tell me? So -- just let me know that. So we think our EBITDA will increase significantly next year to this year, very significantly. And our debt-to-EBITDA will be under 1.7 by the end of next year. And if that continues, then obviously, interest savings plus improvement in -- further improvement in performance. So somewhere in the next 2 to 3 years, we will be debt-free on that basis too. So, if you look at FY '24, we did nearly INR 300 crores of cash profit, but we got only -- INR 240 crores -- sorry INR 176 crores in the first 9 months. Are you getting me? Last year, INR 176 crores was cash profit in the first 9 months and nearly INR 300 crores. So basically, 40% of the cash profit came in Q4, and it will be no different this year.

[Operator Instructions] The next question comes from the line of Abhay Khaitan from Axis Capital.

So my question is on the ARR growth of other brands, particularly Lemon Tree, which has seen 5% growth Y-o-Y in the third quarter. And particularly for hotels outside metro cities, we have seen only a 1% growth. So is this an evidence to check that metro cities or business cities are doing significantly better than the tier 2 cities or tourism cities? And do you see this trend changing in the coming quarters? And a follow-up on that would similarly for premium hotels versus mid-market hotels. Would you see premium hotels continue to outgrow mid-market hotels in terms of ARR growth? And when will it switch?

So if you look at the last 3 markets that went through jaystick or hockey stick growth in demand at similar levels of household income, the most obvious example being China in 2006 to 2012, the first couple of years, luxury took off. Then with the shift in median income and those -- the number of households that earned more than $34,000 per -- $35,000 per capita per household, started consuming mid-market -- branded mid-market supply. So it linked partly to age, partly to aspiration, partly to urbanization and so on. Now, if I look at India, it's very simple to me. I don't like to draw comparisons with China, but 50% of India plus/minus, depends on agriculture, which is only 1/7 of our GDP. So really, to me, India has 2 parts. One is the 50% agricultural and the 50% population, which is non-agricultural, of which 70% lives in urban areas in the 160, 170 cities of 0.5 million plus population. So this is where consumption resides in India, in my opinion. Hotel consumption, well, truth be told, only about 2% of Indian households, about 6 million households consume branded hotel rooms. If the GDP of India grows by 6%, 7% in real terms for the next 6, 7 years, what will happen is the number of households who consume luxury items will grow from 1 million, 1.5 million to 6 million, 7 million and the number of mid-market households who will consume branded hotel rooms will grow from 3.5 million, 4 million to 30 million. Put together, it is still a small number. It is roughly 10% of Indian households, which is about 320 million. So looking at these other markets, the first 2 years, the growth is in luxury because of base effect, because it's such a small base. The next 4, 5 years growth is in upscale and mid-scale. So we are waiting for our turn. Obviously, this is a more price-sensitive market than luxury. And I think, India is going to follow something similar. In fact, somebody asked me in an interview once that, how do you tell this? I said the first indication is sale of SUVs, intent to travel and connectivity by 4-lane highways. It's very visible in India, very visible that, the number of aircraft on offer or on order are 2.5x of current supply. Airports, 138 are becoming 240, runways are growing by double. It's all evident. It's all out there. So we are betting on that, which is why we are so aggressively going after Tier 2 and Tier 3 cities. Now, coming to ARR growth, it is pyramidical or reverse pyramidcal. The highest growth is in the deepest markets, but -- and this is precisely because of the reasons I just told you. So if will say, Allahabad price change as significantly, whether it's a 5-star or a 2-star hotel as in, say, Pune and will Pune change as significantly as Bombay? Absolutely not. But they all catch up over time. And the reflection is very simple. If the input cost or the cost to build a hotel room, including land is lower in Pune, then obviously -- and because that is partly because the earnings also per room is lower in Pune. Otherwise, all capital would flow there. So this is an automatic thing, so to speak, self-regulating.

So just as a quick follow-up on this as well. So is that the reason why in the current pipeline that we can see, we see mostly either Lemon Tree Hotels or Keys Hotels, but we hardly see any Aurika or Lemon Tree Premier for that matter. So do we expect this trend? Or do we see some sort of pipeline coming in? You mentioned Aurika Shillong play, but apart from that, anything in Lemon Tree Premier that we can expect in the coming quarters?

No, there is a fair amount of Lemon Tree Premiers even in the portfolio. But let me put it this way. The way Lemon Tree strategy goes is network. What I'm most interested in is future demand. If I say there are 160, 170 cities in India with 0.5 million plus population. And technically, I can put 1 hotel up in each of these cities strategically. The demand I capture out of these cities into other cities where we have Lemon Tree Hotels or other branded hotels of ours gives us what I call is a competitive moat, which is a network effect, which is very, very, very difficult to overcome. So I'm just interested in creating a moat, building our brand and having a network presence, which is in every single city where there is a consumer or branded mid-market hotels in India in the next 5 years. So that is our strategy. We are looking at multiple data sets. One is where which 4-lane highways connect from which city to which city. As I think many of you know, the numbers, there are 153,000 kilometers of highways in India, 50,000 are 4-lanes. And just FYI, this doubled in the last 5 years. Hats off to Mr. Gadkari. He has said, he will double it in the next 4 years. Where are these highways coming? Where are the next airports coming? Which airports are going to have twice the number of runways? Where is the next set of commercial activity happening in India? It's visible through international property consultants talking about rented buildings, commercial buildings. Where are announcements of projects? We are looking at all kinds of data sets. We've created proprietary algorithms, and we are saying we want to go to these 20 cities next strategically and opportunistically to any of these 170 cities. So that's the way we are looking at it, and it's all asset light. But the minute Fleur lists, the question will then arise because Fleur will be an independent company. And we think it will have a really solid listing, because we think its EBITDA will be $100 million when it lists. Here's the thought. Where will Fleur deploy its capital, especially with its debt free? So we will have certain principles, a hurdle rate of expectation. We will have principles of what is the ideal optimum debt structure, which may be at no point should the debt for new hotels be more than 2x of the EBITDA of old hotels. So it's a waterfall process. And beyond that, so how will we allocate capital? Where will we distribute this cash flow that we generate? So these are many, many moving parts. But I am very sanguine, in fact, confident that in the next 2 years, the stock market in India will start seeing how this whole -- all these balls in the air start playing together.

The next question comes from the line of Raghav Malik from Jefferies.

Yes. So I just want to understand, like get a bit more color maybe on city-wise. So if I see like our performance for Bangalore specifically, there has been a significant jump, but of course, that's on a slightly lower base of occupancy. So is that like more a reflection of how the market is doing? And could you provide some color just comparing it to other markets like how they are shaping up at this point of time?

Well, it's not how markets are doing, Raghav, it's how: a, micro markets are doing and what is the supply we have in each of these micro markets. So to give you an example, if -- let's assume we are operating in Delhi. If I say Delhi, it includes Aerocity and it includes East Delhi. East Delhi is a poor market. 5-star hotels average price in an East Delhi location is 1/3 what it is in Central Delhi or 50% of what it is in, say, airport hotels. So we have some hotels in different micro markets in each of these cities. Bangalore, for example, out of these 874 rooms, 370 rooms or 380 rooms are Keys Hotels. Half of them are -- at any time, 30%, 40% of those rooms are shut. I'm reflecting the full inventory and occupancy on full inventory. But the reality is they are all undergoing significant renovation. So what you are seeing in Bangalore is actually performance on an aggregate basis and not specific hotel-wise. Now, the minute Keys Whitefield is fully renovated, which is 222 rooms, this number and this ARR will change also quite significantly because right now, the ARR is only, I think, INR 5,000. But Keys Whitefield, ARR is INR 3,000. The minute it is renovated and parts of it we have renovated, that's at INR 5,500 alone. So you'll have to wait for the renovation to get done. I would guide you specifically towards Bangalore, Pune, which is where the Keys Hotels are and the rest of India because that is where there is some degree of, I don't know how to describe it, warp. Until those hotels start producing fully, it is still going to reflect -- it may appear an underperformance, but it is not so.

Okay. And so, just a follow-up on that itself like this ARR or the kind of growth you've seen in occupancies is much stronger. So that's -- is that like a conscious sort of effort? Or is it based on the phenomenon you mentioned of once you're renting and then getting the inventory back on it just reflects that bit and obviously the strong performance. And that's what you can use to capitalize on RevPAR tailwind, so to speak?

See, now that we intend to list Fleur, we are looking very specifically at return per square foot and our investment per square foot. And the way to maximize return per square foot is to maximize revenue per square foot, which is RevPAR, which is what you will see on the 3 columns on the extreme left. We are agnostic about occupancy and ARR. What is the best combo of RevPAR that we can achieve? And that is actually neither the maximum occupancy nor the maximum ARR. It is some intermediate combination that maximizes. The other thing we are very cognizant of is we want to look at the GOP per square foot. So obviously, if the rate of growth of revenue is through utilization of rooms, then what flows through to the bottom line is contribution because you have to account for variable cost. But if you increase the rate, then what flows through to the bottom line, depending on which channel is used, can be a higher or a lower number. For example, if your occupancy goes up due to OTAs, then you are paying some form of commission in the mid-teens. If your occupancy goes up, because of another source, which is 5% lower in price, but does not pay any commission, that gives you a higher profit margin. So it's a combination of so many variables based on so many different sources of demand, which you are trying to get to, which flow into your funnel that -- I would say, broadly, we look at only one thing, which is how do we maximize RevPAR in order to maximize our GOPPAR or our GOP per available room?

And if I can just squeeze in one last quick question. Just on pan-India kind of RevPAR, is there any sort of color or guidance that you could give us? Like is the strong double-digit trend kind of continuing?

Yes. But I want you to keep one thing in mind that Aurika became more or less fully performing hotel in Q3 last year. So there is still some base effect in Q3. In Q4 last year, Aurika, if I remember right, did occupancies in the mid-60s. So you will really see same-store performance in Q4. And I think you will -- I think I am very satisfied with how we are doing there.

And you mentioned that we've stabilized in the early 70s already. So that's a great sign of this quarter.

No, it is now in the 80s. But I'm saying still you will see same-store performance to a large extent in Q4.

[Operator Instructions] The next question comes from the line of [ Vikram ] from [ Vikram Securities ].

Congratulations on a great set of numbers, sir. Forgive me for asking you this, but I struggle to understand the exact structure of Fleur. If you could just simplify it for me what it looks like right now and what will look like post listing in terms of your holding structure and what part of your EBITDA and what part of your assets go into Fleur and by the time it lists?

So in some form or the other, in the most tax-friendly form, we would like all assets that we own to be in Fleur, #1. #2, Fleur will then become a pure asset co. Fleur post listing will raise -- well, during and post listing will raise some form of capital, and it will deploy that capital for the objectives as defined by the Board of Fleur. We will continue to be very significant shareholders of Fleur. There are a few conversations within our company as to: a, how should Fleur be listed? Should it be through a scheme of arrangement? Should it be through a direct listing? Two, what should the shareholding of Lemon Tree be in Fleur? Three, how do we ensure for the satisfaction of all shareholders that there is a Chinese firewall between how Fleur runs and how Lemon Tree operates. So Lemon Tree ideally should be an asset -- as an operating company, and it runs hotels in the Fleur portfolio. But how do we ensure Fleur is independent and if and when required, can also go for other operators? So that is broadly where we are. I'm summarizing it, but obviously, our discussions are very, very advanced. And I reckon that in the next 3 months to 4 months, you will have a very, very clear defined picture as to what is happening with Fleur, what is Lemon Tree shareholding likely to be in Fleur and when is Fleur going to list?

So will shareholders enjoy a -- will they have something in Fleur before? Like, I don't understand how to ask you this, but what I'm going to say is...

You're saying, will it be like ITC hotels. It could be. Yes, it could be like ITC hotels. It could be like Reliance Jio. It could be like a simple listing. So let's keep the suspense on for a moment.

That's what I was worried about you have a holding company discount. That's all.

Yes. But we would want the shareholders of Lemon Tree to get a massive upside. And I mean, I'm using this word very clearly, massive upside when we list Fleur.

You just brought a big smile to us. And secondly, sir, is about your directional on ARPUs. I know, you give us some guidance, what is your trajectory given the pipeline you see in other -- the industry-wide? And how do you see that in the next 12 to 15 months, 18 months?

See, we went through -- so I would -- let me again come back to -- you're asking actually about revenue per room growth?

Correct. Yes.

I have always said we would like to grow at -- depending on which combination of we follow, whether it is a focus on occupancy or average rate in which market, we would like to have mid-teens growth at the least, #1. #2, we would like to ensure that you see our cost structure went through multiple, jatkas, if I may say that, in the last 2 years. One is I think we -- our wage bill went up somewhat significantly. #2, is our investment in renovation went up significantly, which I blame myself for not explaining to you folks that it is a 3-year one-off of a catch-up on the 3 years I missed out due to COVID. But what is the intake? Our expenses went up. Now going forward, what is the trend line for our expenses? Well, if I use the last year as a basis for the next year, I use this year for next year, it will be a far less increase in expenses than it was this year versus last year. And then the following year, it will be even less because our renovation will more or less be over. Therefore, my view is that, if this mid-teens of RevPAR continues plus/minus 15% and our expense increase is much less than that, then you will be -- have very clear visibility on operating leverage. So ultimately, we want to maximize EBITDA per room and EBITDA per square feet. And obviously, we would like to target north of 20%.

Yes. Just adding to that question. I think you're going a bit hard on yourself. You did explain to us very thoroughly about how your renovation plan was for Lemon Tree, was it Fox? What do you call it? But has that been done? And have you finished with your renovation of that portfolio? And if not, how much is left of it? Because I remember you saying that you would have finished it by the second quarter of this year, third quarter.

No, no, no. I said, a significant portion will have been completed by H1 of this coming year. That is by September, October of calendar '25 with a little bit left over for the following year. And that we are sticking to. And after that, we'll go back to routine renovation. Which is why when you spend money like this, there's double counting because you are seeing how much is our depreciation, INR 160 crores?

Yes.

You're seeing depreciation as an expense of INR 160 crores. But actually, depreciation is a replacement reserve. I'm already spending that money under a different heading, which is called renovation. So depreciation for us is pure cash profit. And that's how we look at it going forward too.

The next question comes from the line of Sumant Kumar from Motilal Oswal Financial Services Limited.

So can you talk about the Aurika ARR strategy from here, how we are going to grow next year? When we see the Mumbai hotel ARR, the Lemon Tree Premier and Aurika almost at the same level. So from here, how much increase we can see with the product mix -- customer mix changes? And how much is the pricing power?

So let's split this, Sumant, into 2 parts. Take out crew, then look at retail and look at corporate. So I'm not getting into which is break, but crew typically is less than $100 a room. So it's maybe INR 7,500, INR 8,000. If you look at corporate, depending on the corporate, it varies from, say, INR 9,000 to INR 11,000. If you look at retail, retail varies from depending on time of the year and day of the week, from anywhere from INR 9,000 to INR 16,000. The reason why Lemon Tree Premier Bombay has an ARR equal to Aurika is, because it has more of higher value and relatively and lower of lower value -- less of lower value. That is precisely where we will take Aurika Bombay too also. Now, if I look at Lemon Tree Premier Delhi as the other airport city, we had a similar situation here. We had a large amount of crew. We stabilized it post COVID, then we churned it. And today, the ARR of Lemon Tree Premier Delhi in many days is greater than Lemon Tree Premier Bombay and Aurika Bombay. So this is an ongoing process. Once you build demand and sustained demand, then you constantly churn the portfolio to constantly remove lower-priced business and replace it with higher-priced business. And that is what we will do. And obviously, if we get more of retail INR 15,000, INR 16,000, more corporate INR 10,000, INR 11,000, then the ARR target that we set for ourselves of INR 11,500, INR 12,000 is very doable.

And for Keys Hotel, you were talking about '25 the renovation and refurbishment is going to over, right, almost?

Keys is going -- ongoing. So unlike other hotels where we typically renovate in H1 and operate those hotels in H2, the Keys portfolio is ongoing because we needed to renovate entire 936 rooms. So the key components of the hotels which we want to reprice Lemon Tree -- sorry, Keys Pimpri, Pune, done. Keys Whitefield out of 220 rooms, I think about 120 rooms are renovated. And we hopefully will renovate the next 100 in the next 7 months. So wherever we see pricing power and demand, we are trying to accelerate that renovation first and then in the other cases, later. So right now, we have fully renovated Keys Pimpri, half renovated Keys Whitefield, 70% renovated Keys Ludhiana and Keys Visakhapatnam, and we have to start with Keys Trivandrum and Cochin. So this will continue trickle into FY '27 also, but will not have a big impact either way on either renovation expenses or on incremental revenue loss.

The next question comes from the line of Kunal Lakhan from CLSA.

My first question was on -- of the 6,000 Keys that we plan to renovate, how many are already done in first half and how much will be done in '26 and if there will be any spillover in '27 also, if you can just lay out that plan?

See, of the 6,000 rooms, the 670 rooms of Aurika require no renovation nor the 140 in Udaipur. So that's 800. Then the 300 rooms of Lemon Tree Premier Bombay, 200 in Pune and 140 in Kolkata. That is -- how much is that? 640, requires no renovation. So, if you take this out, there are 4,500 rooms that need renovation. Of which, 900 are Keys and 3,600 are the rest of the portfolio. Now, if I look at it from the revenue-generating upside perspective of these 4,500, the most important hotels that we want to renovate to reprice is Lemon Tree Premier Delhi, Lemon Tree Premier Hyderabad, Lemon Tree Premier Bangalore, Lemon Tree Gachibowli and Lemon Tree Electronic City. We have renovated 70% of these hotels, including public areas. So we are renovating also on where we think we can extract juice earlier rather than later. Am I making sense to you, Kunal? Now, of these 4,500 rooms, this year, I think we renovated roughly 1,300 rooms. Last year, we renovated about I think...

1,000.

1,000. And we have another -- so of these 2,300 rooms we've already renovated, some will -- are still going on. So by the end of this financial year, it will be probably 2,600, 2,700. The high-value hotels will all be renovated by next year. A few hundred rooms will be left with a low value, I should say, refurbishment, which will basically be Keys in Cochin, Keys in Trivandrum and so on and so forth, which will continue into FY '27. Does it make sense, what I said?

Yes, Patanjali. Thanks so much for laying out that plan. Yes. Okay. So my second question is a related question on, in terms of -- yes, there will be an uptick on the ARR post this renovation and which will have a direct flow through to the margins. Where do you expect your margins to be post this renovation on an annualized basis?

60%.

60%?

Yes. Why not? Why are we doing it?

Sustainable basis. Yes. Okay.

The next question comes from the line of Prashant Kshirsagar from Unived Corporate Research Private Limited.

Congratulations on an excellent set of numbers. I just wanted to ask you a bookkeeping question. What is the gross debt on stand-alone and consolidated basis and the net debt on the..?

What is it?

So consol is INR 1,760 crores as of 31st December. And that's...

That's gross?

Yes, gross. I'm talking about gross only and stand-alone is INR 300 crores.

INR 300 crores. And net debt, if you can give us a figure?

Consolidated cash of INR 70 crores.

Yes. So INR 70 crores less in the consol.

Consol, yes.

Yes. Okay. My second question is on Aurika Mumbai. You said that, you expect in H2 the real stabilization, H2 of FY '26, real stabilization of Aurika. But there was a question asked on the Navi Mumbai Airport. Now, would Aurika be of the -- will come in the mid-market segment or comparing with the Navi Mumbai Airport? And what rates do you expect in the Navi Mumbai Airport region?

So we have nothing with Navi Mumbai Airport. Aurika is at the international airport in Andheri.

That I know, but when the Navi Mumbai Airport comes through, would there be a competition in the sense on the rates of Aurika by the way?

No, no. Listen, listen, Prashant, Navi Mumbai comes some airlines will have some flights from there, okay? So there will be demand near that airport for airline-related business. And over an extended period of time, normally, when an airport comes up, there is development around it, but that is many years over. The impact of Navi Mumbai on the Aerocity side, which is where our hotel is and multiple other hotels are, will be there temporarily as a blip. But it will get absorbed, because it's very simple. If the Indian economy grows at x%, there is a disproportionate growth in the main metros and an even more disproportionate growth near the airport. So I'm not a fortune teller, but I can tell you with my experience of what happened in Delhi. What I saw happening in Delhi was and even in Bangalore was, all any disruption in demand due to an alternate generation of supply or location and so on gets absorbed very fast. So it's not something I'm particularly concerned about. #2, Aurika is not in the mid-market. It is in the upscale segment. So it is somewhere between 5-star hotels and say, 3.5 star hotels.

But your mid-market, like Lemon Tree Premier or something like that affected by -- I'm asking you from the perspective that the rate...

No, I get it. So rate...

Of your hotels will not rise as much as the...

No, let me explain.

If I say...

No, no, rates in Delhi are over INR 10,000 today. Rates in Hyderabad now are starting to creep up to INR 9,000. Rates in Bangalore have not crept up at the same rate at the same level. Rates in Bombay are also very high. What happens when Navi Mumbai comes is there is a shift in flights. How it plays out in rates is only, if there is a significant shift in demand to Navi Mumbai, which normally will take a few years because Navi Mumbai already has some supply. And in that period, what happens is that shift of supply is more than compensated by shift -- by creation of new demand. That is the broad point I'm making. And this is temporary disruption, and it's not significant. Okay?

Yes. Understood. And second question about Aurika Mumbai is how much of the percentage of the traveler from foreign countries and from India, from domestic?

Foreign demand would be maybe 15%.

15%?

15%, 20%. Yes.

And would it be the same in Udaipur also or is it slightly different?

See, we are -- Prashant, we are very focused on capturing the Indian demand, because that's where we see real growth. And demand, let me tell you, is only 11 million guys coming to India as foreign tourist arrivals and total international tourist arrivals, if I add Indians, the diaspora is 18 million. That's it. But in that same period, 26 million Indians flew out of India. And I have no doubt this year, it will be a larger number. So there are more Indians who are consuming than foreigners in India and going out of India. And we are very focused. We want to be the preferred brand for Indian consumers, full stop, not in the luxury, but in every other space. And I think we are. So maybe I'm incorrect. But we are -- on that assumption, we are going forward to basically try and control that mid-market space in India.

My other question was on the margins front, which you said that may increase after -- but would you say that, the input costs would also be -- will rise sharper than the revenue increases?

Okay. So let's look at our margin for Lemon Tree, say, in Q4. If I add back extraordinary renovation, et cetera, then basically in Q -- in this year, we should be north of 50%, right? So we are north of 50% already. Now, when you -- what is below the line after hotel level EBITDA? When you look at this hotel level EBITDA to get to EBITDA, the only expenses below the line are -- yes, the only expenses below the line for EBITDA is corporate expenses. Nothing else. Our corporate expenses will get more than adjusted with the rate of increase of our management fee income. So what am I saying? I'm saying that, if I expect that our rate of growth of RevPAR will be in the mid-teens, the rate of growth of our cost structure will be in the mid-single digits. That is one level of flow-through. And this is no rocket science. You can -- I mean, if you do the flow-through, it's very visible if you look at the last -- our last 8 quarters. What I'm saying is the revenue grows INR 15 per room, expenses grow INR 5 per room when everything stabilizes after 1 year more of renovation, INR 10 will flow. So therefore, your revenue will be INR 115, your cost will be INR 55 because that's gone up INR 5 and that's gone up INR 15. Then your management fee income, we expect will double in the next 2 years. And management fee income will take care of your corporate expenses completely plus with something. So if you just add these numbers, I think we'll be 60%.

But would you foresee a very sharp increase in the wage cost, employee costs for that matter? Because there is a -- as the demand picks up, there will be a shortage of talent for the...

No, not at all. In our case, we have a very clear -- we don't compete for talent with the hotel industry. Let me start by telling you that. Only about 15% of our talent is talent which would be fungible across 5-star hotels and us. #2, we have a very different way of looking at our wage bill. If you look at our wage bill, it has gone down by 1% as a percentage of revenue, if you go to Slide 15. As our revenue grows, the rate of growth of wage bill reduces. I mean, it is well below the rate of growth of revenue. Lastly, why it is only in the legacy hotel companies that wage bills grow, because you are paying for -- basically, you are paying more and more for the same role. So a semiskilled role, the guy is getting overpaid, because of time spent rather than because of reskilling. Our principle is we are growing so fast in the managed portfolio that any time there's a good guy in our system, we transfer him on promotion to a newly opened hotel typically at a lower cost than a similar role would be filled at, and we replace that guy at a much lower rate. Am I making sense to you? I'm paying a guy INR 30,000. He gets transferred to another hotel, which is not enough -- not owned by us at INR 40,000 instead of hiring a new guy at INR 50,000. So the new -- that hotel saves INR 10,000. The guy we transfer who is paid at INR 30,000, the entry-level salary there is INR 20,000. So we replaced him with INR 20,000. So we saved INR 10,000 and the managed hotel portfolio also saves INR 10,000. And by the way, this has been a successful strategy for us for 15 years, since this company more or less started running hotels. And our average wage bill inflation in 15 years is about 1.2%. You can also see those numbers.

Yes. The last question is, as you grow faster, that's the right way. But as we grow faster, would you be able to maintain the service quality across the -- especially in the tier 2, tier 3 cities?

You're talking about one of the most important things we just have to deliver, Prashant. We are not interested in reckless growth. When I -- I'm quoting some CEOs of very large travel agents, online travel agents who tell us that whenever you open a hotel, immediately 20% of your business comes -- of the entire demand of that hotel comes, because of your brand. Now that is the most monetizable and valuable part of our company. We are very, very, very clear. We will not accept -- just to show growth, we are not going to accept poor hotels or badly run hotels. So while as long as we manage hotels, we are very careful about the Net Promoter Score. We track it very, very, very frequently. But when we grow through the franchise route, this will be the single most important thing we keep an eye on. And please rest assured, it will be a #1 priority of the management to ensure that growth does not come at the cost of the brand.

Last question on the brand. In the new structure, which you are envisaging, where would the brand be placed, in Lemon Tree, original Lemon Tree Hotel or...

Yes. All brands are in Lemon Tree. All tech and all brands and all distribution platforms will be in Lemon Tree because over time, that becomes the single most important monetization opportunity.

Ladies and gentlemen, that concludes the question-and-answer session. I now hand the conference over to the management for their closing remarks.

So thank you, everybody, once again for your interest and support and questions. We will continue to stay engaged. Please be in touch with our Investor Relations team for any further details or discussions, and we look forward to interacting with you soon.

Thank you. On behalf of Lemon Tree Hotels Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.