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

Ladies and gentlemen, good day, and welcome to 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, Mr. Poojari.

Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q2 FY '26 Earnings Conference Call. We have with us: Mr. Patanjali Keswani, Executive Chairman; Mr. Kapil Sharma, Executive Director and CFO; and Mr. Neelendra Singh, Managing Director and CEO of the company. We would like to begin the call with opening remarks from the management, following which we will 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 would now request Mr. Keswani to make his opening remarks.

Thank you, Anoop. Good afternoon, everyone, and thank you for joining us on this call. I will be covering the business highlights and financial performance for Q2, post which we will open the forum for your questions and suggestions. During the first half of the year, the industry faced multiple headwinds, including geopolitical tensions, floods, airplane accident, tariff wars and GST revisions, which resulted in some muted demand. Despite these headwinds, in Q2, Lemon Tree reached and recorded its highest ever Q2 revenue at INR 308 crores, which grew 8% compared to Q2 last year. Net EBITDA grew 1% to INR 132.4 crores, translating to a net EBITDA margin of 43%, which decreased by 306 bps year-on-year, primarily due to increased investments in renovation technology and a onetime ex-gratia payment to employees due to salary cuts during COVID. While these expenses/investments accounted for 8% of revenue in this quarter, we expect all these 3 expense heads to reduce to 5% of revenue in the next year, before stabilizing at 2% of revenue by FY '28 onwards. So we expect this will lead to a corresponding expansion in EBITDA margin. We have completed significant renovations in H1 this year with major upgrades being completed in the Delhi, Bangalore and Hyderabad markets and the Keys portfolio. Post these upgradations, for example, the Red Fox Aerocity Hotel has been rebranded as Lemon Tree Hotel Aerocity, which will now allow us to reprice the hotel from this quarter onwards and capture significantly higher revenue. Similar upgrades have occurred in our 2 hotels in HITEC City, Hyderabad and in Whitefield and Electronic City in Bangalore as well as, as I said, the Keys portfolio. As an example, we have seen a significantly improved performance in the first fully renovated Keys hotel in Pune, which has now shown an increase of roughly 47% in RevPAR year-on-year. Q2 FY '26 recorded a gross ARR of INR 6,247, which increased 6% year-on-year. The occupancy for the quarter stood at 69.8%, an increase of 139 bps year-on-year. This translated into a RevPAR of INR 4,358, which increased 8% year-on-year. The company's profit after tax stood at INR 41.9 crores in Q2 FY '26, an increase of 20% year-on-year. Cash profit for the company stood at INR 76.3 crores in this quarter, an increase of 9.2% year-on-year. The debt for the company stood at INR 1,610 crores as of 30th September, a fall of INR 212 crores vis-a-vis the INR 1,822 crores on 30th September last year. Lemon Tree has also improved its credit rating to A+ from A, which has significantly reduced our cost of borrowings over the year to 7.72% in Q2 this year as compared to 8.68% in Q2 last year. On the asset-light side, in Q2, we signed 15 new management and franchise contracts, adding 1,138 new rooms to our pipeline and operationalized 5 hotels, adding 272 rooms to the operational portfolio. Lemon Tree also won the Letter of Award through an auction for 2.25 acres of land in Nehru Place, New Delhi. The proposed hotel on this site will be a 500- to 550-room Aurika hotel and the initial approvals and design of the hotel are currently underway. This will give Lemon Tree a long-term strategic advantage with a very large, high revenue-generating hotel in a prime location with minimal anticipated supply growth in the foreseeable future. As of September 30, '25, the total inventory for the group stands at 242 hotels and 20,074 rooms with 10,956 rooms and 121 hotels being operational and the rest in pipeline. In keeping with the muted demand environment, in H1, specifically in Q2, fees from management and franchise contracts from third-party owned hotels stood at INR 14.3 crores in Q2 this year, an increase of 7% year-on-year. Fees from Fleur Hotels stood at INR 19.9 crores in Q2, an increase of 8% year-on-year. Total management fees for Lemon Tree stood at INR 34.3 crores in Q2 FY '26. Although there have been a few delays in the scheduled openings of managed and franchise hotels, we are very confident of accelerated growth in our management fees going forward. While Q2 posed headwinds, our outlook for H2 remains extremely positive with our continued investments in renovation and technology, showing material increase in occupancy and ARR across the portfolio in Q3 and onwards. 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. Thank you.

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

Patu, my first question is on Aurika, Nehru Place. If you can help us understand because it appears that the total lease payments are at about INR 10,000 crores over a 55-year tenure. So what kind of margins are you expecting in this project in the next 5 to 7 years? And more importantly, what kind of IRRs have you penciled in while finalizing this project? And as a follow-up, are there any other nonnegotiable parameters that you maintain when considering a greenfield development on your own balance sheet?

So firstly, this is on the balance sheet of Fleur. And as you know, we are looking at listing it. The IRR that we expect is north of 15%, but let me explain how this works. This is a headline number you're reading. Our fees are going to be INR 24 crores, and it will escalate at 5% a year over a 55-year period. So if you look at -- now we are talking inflation. So basically, this will escalate at a rate of inflation. And on a cycle basis with the repricing of this asset and its specific location. You see if they had sold this plot, our best guess is it would have gone for INR 600 crores. So really, they have -- we are paying something like a 6% rate on the value of the land and that value of the land will be captured in the ARR. So let me give you an example. Lemon Tree Premier, Delhi nowadays is now doing north of INR 10,000. We have done an IRR, assuming this hotel is ready 4 years later based on INR 12,500 ARR. which is therefore, an IRR on a very conservative basis. Our best guess is that this hotel, once it's stable, like many of our existing hotels like Lemon Tree Premier, Delhi, for example, currently does about INR 24 lakhs to INR 23 lakhs EBITDA per room, okay? So if you take this at a 550-room hotel and the current EBITDA of Lemon Tree Premier, Delhi, and this is a Aurika, not a Lemon Tree Premier, then we are talking of INR 150 crores, of which we will give roughly 1/6 to DDA. So I would not worry about my headline number. That was to make it sound sexy. For us, it's a very, very good project.

Sure. This is helpful. Just as a follow-up on this, if you look at your pipeline of projects, so you have about 2, 3 hotels that are currently on the pipeline on your own balance sheet. But essentially, if you look at most of the pipeline, this is largely in the Aurika brand. So is it a conscious strategy to position upcoming own rooms under the luxury segment while expanding via the asset-light route for the mid-scale segment?

No, actually. And frankly Karan, we are quite -- yeah, sorry, what were you saying continue.

As a follow-up, given your balance sheet now supports you to perhaps take on more greenfield opportunities. So what's the thought process for that now going forward, given that while you've announced one project, which is Aurika, Nehru Place, how should we look at future expansion in terms of greenfields going forward?

Okay. So let's go back for a minute. We do not -- we are brand agnostic as to when we deploy capital. What we are interested in is what is the market segment we want to target and what is -- where is it that there is sufficient demand. Obviously, higher price, the better, where we can compete in the market and look at a ROCE, which meets our hurdle rates. So based on what we felt about Shimla, about Shillong and obviously about Nehru Place, we said we would put up Aurikas. But for example, if we looked at another location, which we are multiple locations, they may be Lemon Trees or Lemon Tree Premiers. So there is no conscious decision to grow the upscale portfolio. It is simply based on the type of demand and how we can get a return and our bid is based on that. So even if we lose the project, we are quite okay because ultimately, it's all IRR.

Sure. My second question, if I look at the numbers for this quarter, it seems that Bengaluru grew just 6%, while Gurgaon declined by almost 10%. When I look at this versus peers, it seems that this is a bit lower compared to the performance of some of your peers in these markets. So was there any specific reason why the portfolio here relatively underperformed this quarter?

Yes, 2 reasons. So -- and that is linked actually to the P&L. So let me just give you a number. In the last 3 years, about 2.5 years, really in the last 2 years, we have renovated 3,000 rooms. Now how do we renovate -- out of a portfolio that needs renovation, excluding new hotels of 4,600 rooms. We have spent a little under INR 300 crores in this renovation. A large part of this is OpEx, which is affecting the bottom line. But the way we look at it is, this is very limited short-term pain for significant long-term gain. I had referred in my opening remarks briefly to Keys, the first fully renovated Keys hotel, Pune has been showing 47% improvement in RevPAR. And you will start seeing it from Q3 because it was -- all these hotels were -- lots of rooms were shut in H1 and far fewer rooms will be shut in H2 where we see more demand. So our renovation is also based on demand/supply patterns. In Gurgaon, we had closed a large number of rooms. And if I look at sold-out dates on the smaller inventory, we were sold out on many days and we could not sell more rooms. It was very simple. So this is part of the reason. Plus during renovation, there was a lot of noise. And when there was a lot of noise of banging, breaking and drilling and so on and so forth, your pricing also must reflect that. So there was a double impact really for us. And now that renovation is over. So I suggest when you look at Q3, you will get a complete picture of what the renovation is starting to yield. And I can assure you it will be a startling [ revelation. ]

Sure. And then my last question on Aurika, Mumbai, if you can provide some color in terms of how the ADR and the occupancies trended during third quarter? And more importantly, what's the expectation for second half for Aurika, Mumbai and the rest of the portfolio, October, November, what's been the RevPAR overall for the sector and perhaps for your portfolio as well?

So I cannot comment on the sector, and I hesitate to give guidance. So let me tell you that I would be expecting mid-teens RevPAR growth this quarter, primarily because one of the reasons was -- October was very muted for the hotel industry because you had Dussehra, you had Diwali and Chhath Puja this year in the entire month of October, which is a big deflator of business demand and in fact, often retail demand other than pure leisure. Dussehra, Diwali and Chhath Puja last year were in October and November. So in October, interestingly, we were 4% in occupancy lower than last year. ARR was up, but the occupancy was lower. But in the first 15 days of November, not only have we overtaken that, but on an overall basis, we are in the mid-teens in RevPAR, in revenue growth. So if we continue on this trajectory, then mid-teens is the minimum expectation for revenue growth for Q3.

Sure. And on Aurika, Mumbai, if you can give some color on this, yes.

Aurika, Mumbai did well last year, if I remember right. So on an improved base effect, it will still be north of 15%.

Next question comes from the line of Sandeep Sinha (sic) [ Sameet Sinha ] with Macquarie.

Yes. So Patu, in terms of renovation spend, if I'm doing the math correctly, it seems like you're 66% above last year, same time first half last year. So can you tell us how many rooms are done? What are you thinking about second half and how much will be left over for fiscal '27? Second question, yes, go ahead.

No, no, go ahead.

Second question was around the GST rate cuts. Obviously, you get a double benefit, right, lower room rates as well as higher disposable income for people to spend. Can you talk about that? Have you seen any sort of discernible change in the last few days since September 21? And if there's any way to kind of isolate that specific change?

Very good point. Thank you for asking Sandeep. (sic) [ Sameet ] So as far as renovation goes, renovation is ongoing. What we really -- the call we have to take is, we have to renovate this entire portfolio by next year. We have renovated about 3,000 out of 4,600 rooms. Some more will be renovated in H1 -- in H2. Some will be -- many, many more will be renovated in H1 next year, because it's a question of demand/supply. So this is a call we take based on what we see happening in each micro market. And then there is always this trade-off. For example, many, many days in H1 this year, the 80 rooms that were shut, 80 to 100 rooms that were shut of the Delhi hotel, we definitely needed. But that trade-off was that we would take the hit now and reprice the new hotels when the market -- when they came back to market. So it's, as I said, short-term loss, long-term gain. To summarize, this is ongoing. So right now, it's 3,000 rooms. We have 1,600 more rooms to renovate. Now the other interesting thing is the high-value renovations are INR 10 lakhs, INR 12 lakhs a room. Then there is medium value renovation at INR 6 lakhs, INR 7 lakhs, INR 8 lakhs a room and there is low-value renovation at INR 3 lakhs a room. So when I say I renovated 3,000 rooms, some have been at INR 12 lakhs, some have been at -- but we have tried to renovate the high-value hotels first, which is why we have spent about INR 300 crores, the majority of which is OpEx over the last 2, 2.5 years. Is that correct, Kapil?

Yes.

Just in renovating. And that is why I think from an investor/analyst perspective, you've seen this decline in our EBITDA margin. But this is a one-off decline because, as I mentioned, this entire investment which we are making, what we think is one-off over 3 years is really in technology. This year, of course, we also have ex-gratia, which will be another INR 20 crores, which we are -- which is affecting our EBITDA. But if you look at renovation OpEx, TFS OpEx, ex-gratia and so on, it put together is about 8% of revenue in this quarter versus 5% last year, which explains the 3% fall in our EBITDA margins in Q2 this year versus last year. So this is a balancing act, Sandeep. (sic) [ Sameet ] What I can tell you is rather than give you month-by-month numbers -- what I can tell you is that by the end of next year, calendar year, most of the portfolio, if not all, will have been fully renovated. So Sameet, that is the first point. Coming to GST effect. So GST affected about -- when we looked at the previous year, about 50% of our portfolio was under INR 7,500 in room rate and 50% of our revenue, I should say, sorry, not portfolio was over INR 7,500. For us, the impact then assessed was 3%, 3.5% of revenue because that was the loss of input credit and your expenses would go up that much. Now I think I mentioned in the last investor call that we were hoping that we would get to a 7% to 8% improvement in revenue to account for this 3.5% increase in cost in order to maintain our EBITDA margins. That is very evident now. But obviously, we don't like the increased expenses. We think looking at the rate at which -- looking at the way our rates are growing, this 3.5% impact on EBITDA will probably come down to 2.5% when we finish this quarter. And going forward, as our rates keep going up and more and more rooms are priced over INR 7,500, then we will have the double whammy benefit of higher ARR, higher GST income input credit, and that should [ analyte ] in our best guess by next year. Does that answer you or confused you sufficiently?

No, no, that was good. Just one final kind of follow-on to that is. So for this year, looking at your aggressive renovation schedule and obviously take the hit now for gains later, you'll be -- do you think we expect to be EBITDA margin -- you expect EBITDA margins to be up year-over-year, flat, down? Any commentary there?

I think in FY '26, our EBITDA margin will be the same as FY '25, which means effectively that the increase in spend, we will make up with a double increase in revenue. So if our spend goes up by X, our revenue will go up by 2X on that basis, and we will maintain our EBITDA margins. But going forward, our forward thinking is that we would be very disappointed if by FY '28, our net EBITDA without extraordinary expenses is less than 59%.

[Operator Instructions] Next question comes from the line of Abhay Khaitan, Axis Capital.

So my first question is on Aurika, Mumbai. So firstly, on the 71% occupancy that has been reported in the quarter, just wanted to understand how much of it has come from the negotiated one that is the crews or operators and how much of it is transient? And have we seen -- are we seeing this trend change over the quarters? And the second part to that, the same question would be that so far, we have also seen ARRs declining Y-o-Y. And now that the occupancy has more or less stabilized in the last 3, 4 quarters, we are seeing 70% plus occupancy. When can we see the ARR growth pick up from here? And what is the sort of ARR -- stabilized ARR that we are looking at for the property?

So we have kind of -- I think I had said this in earlier calls also, where we had first -- our first plan was to fill the hotel and then do the shifting of low-value business and as we could gradually replace it with high-value business. This is the largest hotel in India. It has an enormous inventory. So obviously, our focus was not on ARR, rather the total revenue we could generate from this hotel. So when we talk that we have achieved 75%, say, in Q4 last year, that was within a year or so of operationalizing this hotel. In my opinion, our team in Bombay, (sic) [ Mumbai ] our revenue team did a phenomenal job. But it had a very large amount of crew and not enough corporate and negotiated and not enough retail business. When I look at retail today for Aurika, Bombay, the corporate now has stabilized at about 130, 140 rooms. I'm looking -- I'm talking Q2. The airline business is at 150 versus 95 last year. The travel trade business has about doubled from 20 to 40. So really, the negotiated business has gone up from 256 to 320 rooms. The retail business has gone from 80 rooms to 180 rooms. So typically, it takes a little more time. We don't advertise Aurika in the papers or on -- in TVs and so on. But I'm reasonably happy with the pickup in retail, and I expect that this non-negotiated part of the business will continue to grow over the next 1 year. So once that happens, let me put it this way, the gross ARR of the negotiated business is only at sub-INR 8,000, but the retail business is north of INR 10,000. But because of this mix, the overall ARR was showing at INR 8,500. But my expectation is like from Q3 onwards, it will cross INR 9,500; then in Q4, it will probably be north of INR 10,000; next quarter -- in the next summer, we will then move to INR 9,000, INR 9,500; and in winter, we will hit our target, which will be INR 11,000 to INR 12,000. Actually, I expect we will hit INR 12,000.

Understood. That is very helpful. My second question is that if you have any updates on the Fleur demerger, any update that you can provide on what is the process and what is the time line that we are working with right now on this?

So it is in process. There are a subcommittee of the Board and the full Board, which is in discussions, both boards, Lemon Tree and Fleur. And I think we will have some information to -- we will have a bunch of interesting things to tell the market, I think, in the next 3 months. Would that be right, Kapil?

Yes.

So it is not only the demerger of Fleur, but some other even more exciting stuff, but we will talk about it when it is right, the time is right.

Next question comes from the line of Prateek Kumar with Jefferies.

Yes. I have a couple of questions. You talked about like renovation of rooms, 3,000 rooms followed by 1,600 more. So just wanted to understand the schedule of this renovation. So is it the first time we are renovating post COVID or like -- it has been like a constant renovation where you're trying to upgrade the pricing for your portfolio over like in the past 5 years?

So see, we took a call that we think that there are going to be structural shifts in consumption in India based on the current level of GDP per household and the expected move of different cohorts of customers who will treat mid-market branded hotels as nondiscretionary rather than discretionary. Now looking from that perspective, we took the call that, as I said, we would take some short-term pain. And this was not only strategic, it was also, in my opinion, essential because we stopped renovation pre-COVID. We planned obviously a routine renovation. But for those 3 years post -- during and post-COVID, we had to repair our balance sheet because obviously, we were skeletal at the end of that. So really, renovation started in summer of '23, okay? And that too, we didn't have so much cash flow. So we did a few hundred rooms. Then in '24, we accelerated. In '25, for example, this year, I think we are going to spend about INR 130 crores, INR 140 crores, including CapEx in the renovation of the -- our hotels. So as I have repeatedly said, these are one-offs because once we finish this complete reimagination of our rooms, and these are lovely new rooms, which you will see we are capturing in pricing, by the way, in the fully renovated hotels we have, then our renovation spend will drop to 1.5% of revenue. But while we are going through this pain, we are going to see it as a -- as probably 6% of revenue. And therefore, our EBITDA margins are going to take a hit of 4%, 4.5%. And I urge you to look at how it will be once the renovation is over because it will have a double whammy. You'll have new rooms, very little future investment for the next 3 years. In fact, that 1.5% is an average. I expect that in FY '28, '29, '30, we'll probably spend 0.5% of our revenue in renovations or upkeep. And with it, our pricing will also go through the roof. So as an example, besides the Keys hotel that we've renovated, we have now renovated 2/3 of the Keys, Whitefield. If I remember right, the ARR has gone up 30% -- or 40%, sorry. And I'm talking obviously this quarter because last quarter was very muted, pricing hikes were also muted. If you look at Lemon Tree Premier, Delhi, it is going through the roof. If you look at Lemon Tree Premier, Hyderabad, I was amazed see that our ARR is north of INR 12,000 when it used to be INR 6,000 3 years ago. So this is going to be visible to you from Q3, Q4 as more and more renovated high-value hotels come for sale. Our plan is very simple. I want to just mention to everybody, we will spend another INR 130 crores, INR 140 crores next year, in total, so that we finish this entire portfolio once and for all. And the fruits of that of the current renovation, the fruits will be visible in this H2 and the fruits of the complete portfolio will be visible from H2 next year. But even this year, it is very encouraging what we are seeing.

Sure. I have a related question. You mentioned about, I think, tech upgrades also, what specific digital initiatives are being implemented and how will that impact the guest experience and cost efficiency?

So that's a work in progress. It is not yet -- we have not yet focused on the cost towers that we want to implement, which is an automated way of managing costs because we feel our control over costs and our management of cost is a key moat for us, and it is actually a moat which is difficult to climb to overcome for any other hotel company as far as I know in India. The focus was initially in creating using AI, deep learning, our own revenue management system. This has been self-learning for the last 1.5 years? And I think it will be -- it is at MVP 2 stage. I think it will be fully operational maybe by next winter. Because the data we had during COVID was obviously irrelevant, so we need to build history and data and demand in order to be more and more accurate in automated pricing, dynamic pricing literally every 2 hours. As far as the second part goes, it was the cleanup of our data lake. We had, I think, 10 million customer profiles, keeping in mind privacy laws, so on and so forth, we were wanting to reimagine and reinvent our loyalty program and our website. That, too, is work in progress. Elements of it will be visible now from this quarter. We have about 2.1 million members, but there is a fair amount of duplication. So we are trying to use basically technology to drive our loyalty/website. Third element is on sales. So we have -- we use Salesforce. We have integrated it into our system. We have put a middleware in place where we think we will be significantly able to improve the efficacy of sales. Now why am I talking about efficacy of sales? It is also linked to the -- as a strategy and as an industry, we have very high attrition. So we were looking at automating as much as we can on the front-facing relatively low engagement jobs of front office, housekeeping, so on and so forth, even engineering now. So our intent is very simple. How do we use technology to improve guest service and experience? How do we use it to improve revenue? How do we use it to outreach to more and more customers using third-party data sources? And how do we price it better so that we can maximize our yield? And of course, how do we improve our repeat guests, which is already, I think, north of 40%. How do we keep increasing each of these? Because put together, they lead to a completely virtuous cycle. And I'm pretty confident that by next year, we will have achieved at least 70%, 80% of what we hope to achieve over the long term.

Sure. If I may ask one more question. So recently, IHCL's recent acquisition of Clarks Hotels significantly expand its presence in the lux and mid-scale segment under the Ginger brand. Given Lemon Tree's leadership in this space historically, how do you view this consolidation impacting your growth strategy or otherwise?

I don't see any change actually because it was a branded portfolio earlier, it is still a branded portfolio. Ginger really is positioned versus Keys, the 2 lower Keys brands and maybe Red Fox. And we were competing with Clarks and now we'll compete with Ginger. So I just see it's good that more and more consolidation will happen. And ultimately, the consolidation of the very fragmented hospitality landscape in India will lead to, I think, better standards, better outreach and will help this structural shift towards branded hotels. So I see it more as collaboration, no competition. And just a minute, Prateek, I think as somebody just advised me, I should also mention a very large part of our technology investment is geared towards managing scale. So while we have not accelerated -- I was talking to my new colleague, Neel, who I hope will be talking to you going forward. We want to focus extensively on the asset-light part of our business because of this very fragmented landscape. And while we have 240 hotels in our portfolio now, including the pipeline, we want to use technology to not only drive the business development, but to also drive customer outreach to these new locations we are getting into so that we really juice the network effect of our system. So that is an unstated outcome we want to get from the technology investments we are making.

Next question comes from the line of Sumant Kumar with Motilal Oswal Financial Services Limited.

So my question is for technology investment, what we have done. So is it our in-house team or we are having a third-party vendor where they are working on it?

So we started with BCG laying out -- Boston Consulting Group laying out a strategic road map, which was scanning best practices worldwide in technology and in our industry. And then we -- when that assignment got over, we, in the process, also recruited a couple of BCG consultants. We have our own leader of the team, and this is a -- it is in a 100% subsidiary of Lemon Tree called Totally Foxed Solutions. It is a tech company. It is currently doing all its piloting with our owned hotels, and now we are going to move into the managed portfolio. So the team is, I think, about 20 people, Kapil?

30.

Now, there are 30 people in this team, which is why you're seeing this investment in technology. And we are working with various vendors. We also have some implementation support technology staff like from Ernst & Young right now. We have also various other platforms that we are using or using and putting a middleware in place. But our intention is ultimately to be self-sufficient other than in those modules in our technology stack where the architecture [ accepts ] commodity products like, for example, property management systems, and we simply put a middleware in order to get that data in the right place and then do the right set of analysis and so on and so forth.

Okay. So -- and these 30 member teams, we have created their main work, whatever module we are getting from the supplier software or maybe they are integrating that module to our system, right? I'm maintaining that.

Correct. By using APIs, middleware and then creating our own AI/ML, our LLMs on top. So as I said, because our data is limited post COVID, this is a work in progress. We really started this about a year and 2 years ago. And we think the results -- some results -- early results are visible, but many of them are at MVP 2 stage. And we think they'll be fully -- well, let's put it this way, debugged and piloted out and checked at scale and then rolled out in the next 12 to, I would expect 18 months?

Yes.

Yes.

Okay. Now coming to Aurika, Mumbai, how is the MICE activity or the business segment there? And what are we trying to increase more MICE in our hotel?

So MICE versus last year doubled from 19 rooms to 41 rooms in Q2. But Q2 is a very bad example because it was really the worst quarter. So in Q3 and Q4, we will be able to give you more color. But suffice to say that the change in mix -- see, somebody asked me earlier about Aurika too, Sumant. If you look at last year, in Q2, we did 337 rooms per day, which is about 50% occupancy. And this year, we did about 504 rooms a day, which is 75% occupancy. So this increase of about 170 rooms per day from last year to this year in Q2 in a very muted demand environment came not due to a growth in corporate because corporate didn't grow. It was due to a growth in -- a little bit of growth in airline and a massive growth in retail. So really, this 170-room growth, if I summarize, 100 rooms came from non-negotiated and 60 rooms came from airline. And therefore, airline was a deflator because the rate of airline is INR 8,000 whereas negotiated was an inflator. So it's a mix. It varies. What do we pick up at what price, what is MICE at and so on. For example, the doubling of the MICE business dropped our rate by about INR 1,500 because in Q2, there wasn't that significant MICE. So last year, we did INR 9,000 for 19 rooms. This year, we did INR 7,500 for 41 rooms. But what I'm trying to say is I'm pretty pleased with the way it is progressing based on my experience of opening big box hotels. And by next year, I think whatever we said as our target about INR 12,000 ARR and so on, you will start seeing that definitely play out.

Next question comes from the line of Vikram Shah from Vikram Securities.

Congratulations on a good set of numbers again. I have one question to start is, again, I didn't get the opening statement. So what was the main reason for the muted quarter industry-wide? And do you still expect to do 100% of your internal expectation at the beginning of the financial year?

Yes. To answer, yes. Now why was Q2 muted? So perspective. Last year, Q1 was muted because of elections and pent-up demand moved to Q2. So last year, Q1 base was low, Q2 base was high. Traditionally, most hotel companies report Q2 is the worst quarter -- traditionally. But last year, for example, Q2 was much better for us than Q1, precisely because of this reason I just enumerated. Now Q1 this year, because of the low base of last year, was a 17%, 18% growth in our revenue. Q2, on the other hand, because of high base last year was muted and further affected partly by base effect and partly by -- there were these massive rains, which really affected us in multiple locations. There was this airline crash, which affected airline traffic and also demand for us for about 2 weeks. There was this war or this war effect -- so there were multiple little, little, little reasons affecting large swaths of India or, in fact, all India. So it was muted. And I think when I look at the results, which have been given by the larger players like Taj or ITC and so on, if I take out consolidation and I take out other income, they are all in 7%, 8% zone. So we grew, they grew roughly the same. Now obviously, some may have grown better. They were concentrated in markets which were less affected, which are the smaller players, but I don't want to comment on that. What affected our EBITDA margins is very simple, and I keep repeating it, which is we are making massive investments in technology and in renovation. But when we finished the renovation, we will have invested INR 450 crores across the portfolio. When we finish -- and this is a catch-up and a reimagination. And when we finish our technology, our technology spend will typically stabilize at about 0.7% of revenue, but much increased revenue. There was another impact this year, which was the repayment or I should say, the ex-gratia we gave to those staff members who took a big hit during COVID on their payroll, on their salaries and roughly INR 20 crores will be paid back to them in this year. So that INR 20 crores will have an impact on our EBITDA for this year, but that is an absolute one-off. The increase in renovation expense will continue to next year. And if I look at the total expense on these one-offs and this increase in renovation, it accounted for 8% of our revenue vis-a-vis 5% last year, where we also did a lot of renovation. So there was a 3% hit on our EBITDA. So last year, we did 46%. This year, we did 43%. It's very simple math.

May I quote you, sir, on an interview you gave on YouTube recently with the Innside Scoop and where we spoke about INR 1,000 crore EBITDA target next year, I suspect. And then there is a road map towards gaining a lot of market share and hitting a INR 1 lakh crore valuation at some point. Is this possible due to the -- after the delisting or the relisting of Fleur versus Lemon Tree, where Lemon Tree continues to capture a lot of the franchisees and managed hotels and Fleur continues to capture market share in larger cities?

So yes, we do want to target INR 1,000 crores, but I want to be very specific. This is for both Lemon Tree and Fleur put together, okay? So I was talking of us as a group. What is the vision? It's very simple. At some point in time, any company has to take a view on the future. When Lemon Tree started, it was totally asset heavy. Roughly 10 years ago, we started focusing on the asset-light side when we felt we should start looking at monetizing our brand and expanding our network. So we are a young company. We are really from the first hotel to today, that first 50 rooms to the 11,000 rooms we have. It has happened in the last 20 years. Now that our brand is monetizable and very widely recognized, our view is very simple. In the mid-market space, we do think we are dominant. And ultimately, there will be 1, 2 or 3 players in this space. And it is traditionally worldwide, the single largest space in the hospitality sector and the one where you have maximum scale. I joke with a couple of my friends in the hotel industry that all the large hotel companies started in the mid-market and they acquired 5-star brands. So in India, for whatever reason, we have been more 5-star driven and less mid-market driven. But like in China between 2006, where we are today in household income and so on and 2013, this grew 6x, 7x. And I expect the same thing will happen in India, and we have to take a view on it with appropriate risk adjustment. So what's our view? Our view is we list Fleur as a pure asset corp. It will have its own set of investors. It will raise capital. It will build hotels. We will support it. Obviously, it may have other brands, but we hope with our performance that we will be the preferred provider of management and brand services. Lemon Tree will continue growing with third-party hotels and will now start focusing on franchise. Now one very important element of the Indian market is that individuals who own small hotels do not want us to manage their hotels because it's like a family business or some nephew or niece or daughter runs it. So we want to provide them technology/distribution support. And that is the traditional model globally when the market has expanded from where we think it is today to where we think it will go in 2033. So that's our view. It's very simple. We are trying to make it sexy. We are trying to say we will help you with ESG. We will show you how to use renewable energy. We will lower your cost. We will demonstrate to you that every buck you pay us in fees, we will improve your revenue/EBITDA by 4x. So we want to be an attractive provider of these services and basically monetize our brand and management capability and use Fleur to grow in those markets where we think they will generate the hurdle rates of IRR we look at because that is a massive opportunity for Fleur too.

Noted, sir. Noted. Of this INR 1,000 crore expectation, my last question is which normalized after a year, will you expect what percentage to be Fleur and what percentage to be Lemon Tree?

[Foreign Language], I can't give you so much guidance, Vikram. One day when you are in Delhi come over for a coffee, and I'll -- without it being UPS, I'll show you how we are looking at it as a vision.

I definitely will. Who should I get in touch with to get in touch with you?

Me, patu.keswani@lemontreehotels.com.

I'll write to you, sir.

Next question comes from the line of Vaibhav Muley with YES Securities.

Congratulations on a good set of numbers. Sir, my first question was regarding our management portfolio. We have continuously seen strong traction in terms of signings, but openings have been lagging. And I understand the actual time lines are beyond our control and it's more dependent on the developers. But for our growth to sustain going forward, openings of management contracts is going to be critical. So just wanted to understand when do you see this pace of openings to pick up going forward for managed portfolio?

So typically, when -- at least with my experience and conversations with other players in the managed/franchise space, there is -- we -- openings are always behind the curve because if you are a growing company, you will be always adding more pipeline, but the pipeline that you open is 3 years ago. So just think of it very simply. If I signed 800 hotels in -- or 1,000 hotel rooms in 2023, I will open them in 2026. In '24, I'll sign 1,500 rooms, I'll open it in '27. In '26, I'll sign 4,000 rooms, I'll open it in '29 or '28. So really, there is a time lag. It is not -- this is a positive sign that we are signing more than we are opening because what we are opening is what we signed 3 years ago. So as long as the signings are more than the openings, it means that there is positive net addition. Am I making sense to you?

Yes, sir. But if you can just provide broad guidance in terms of possible number of Keys that could be added over the next 3 years? I mean the operational Keys on the managed part.

So we are now going at the rate of what -- we'll have 4,000 rooms.