Lemon Tree Hotels Limited ($LEMONTREE)

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, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q4 and FY '26 Earnings Conference Call. We have with us Mr. Patanjali Keswani, Executive Chairman of the company; Mr. Neelendra Singh, Managing Director; Mr. Kapil Sharma, Executive Director and CFO; Mr. Saurabh Shatdal, Managing Director and CEO of Fleur Hotels; and Mr. Mayank Sharma, CFO of Fleur Hotels. We'd like to 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 would now request Mr. Keswani to make his opening remarks.

Thank you very much. Good afternoon, everyone, and thank you for joining us today. Neel, the new Managing Director of Lemon Tree Hotels will be covering the business highlights and financial performance for Q4 and full year '26. Post which, Saurabh, the Managing Director of Fleur Hotels, who will share an update on Fleur's business development. And lastly, I will then share an update on the demerger scheme, which we have also included in the earnings presentation this time. Post which, of course, we will open the forum for your questions and suggestions. Over to you, Neel.

Thanks, Patu. So despite intermittent global headwinds, including renewed geopolitical tensions in the Middle East, aviation disruptions and GST changes during the year, FY '26 was the best year in Lemon Tree's history across occupancy, ARR, revenue, EBITDA, PBT, PAT, cash profit. And Q4 FY '26 was the best ever fourth quarter on the same parameters. For the full year -- full year FY '26, the total revenue stood at INR 1,452.7 crores, up 13% year-on-year. Net EBITDA stood at INR 699.3 crores, up 10%. PAT grew at 19% to INR 288.3 crores and cash profit grew 16% to INR 443.1 crores. Our gross ARR stood at INR 6,875 for the full year, and occupancy was 73.5%, both the highest we have ever reported for a full financial year. For Q4 specifically, revenue stood at INR 419.5 crores, up 11% year-on-year. Net EBITDA was INR 218.3 crores, up 7%. PAT was INR 116.5 crores, up 8%. And occupancy for the quarter was at 78.5%. Our net EBITDA margins for FY '26 was 48.1% compared to 49.4% in FY '25, a contraction of about 126 bps. For Q4 specifically, margin was at 52%, down 198 basis points from Q4 FY '25. In FY '26, our margins were impacted by 588 -- sorry, 580 basis points due to significant step-up in renovation expenditure as we invest in upgrading our owned hotel portfolio investments in technology and the GST-related change that came into effect during the year, which only had a half year impact in FY '26 and will have a full year impact going forward. The GST impact will decrease year-on-year as the numbers of customers paying a rate below INR 7,500 keeps reducing in the medium term with our price hikes and ARR growth. Additionally, all our current future supply is being planned under the upper scale -- upper upscale Aurika brand, which remains largely unaffected by the change. We expect all 3 expense heads to reduce to approximately 3.7% of revenue by FY '28 and onwards, leading to a corresponding expansion in EBITDA margins. On debt, we have brought our total borrowings down to INR 1,500 crores from INR 1,699 crores versus a year ago, and our cost of debt has fallen to 7.42%, down 115 basis points versus a year ago. Our combined operational and signed pipeline inventory now stands at 22,581 rooms across 268 hotels, of which 131 hotels and 11,811 rooms are already operational. For FY '26, on the asset-light side, we opened 20 managed and franchised hotels with 1,523 rooms and signed 55 managed and franchised hotels with 4,912roomes. Fee from management and franchised contracts for third-party owned hotels stood at INR 73.9 crores in FY '26, an increase of 23% year-on-year. Fees from Fleur Hotels stood at INR 95.8 crores in FY '26, an increase of 8% year-on-year, which partially subdued due to -- which is partially subdued due to the impact of GST change and accelerated renovation in the Fleur portfolio. Total management fees for Lemon Tree stood at INR 169.7 crores in FY '26, an increase of 14% year-on-year. Lastly, the Indian hospitality market continues to be in favorable structural position, demand is consistently outpacing supply in the mid-market segment and which is where exactly we operate. Now I will hand over to Saurabh to give an update on Fleur.

Thank you, Neel. Thank you, everyone, for joining us on the call. I want to spend a few minutes on Fleur's business and pipeline. Post scheme, Fleur will be India's largest hotel platform by inventory with 5,600 rooms and 39 operational hotels. While we operate Pan-India, our economics are concentrated in top 6 cities that have structurally high barriers to entry and growing demand. We currently have 4 hotels with 875 rooms in our confirmed pipeline of which 572 rooms at Nehru Place, which is going to be the North India's largest hotel are under the final approval stage before we commence construction. We have finalized the design for Aurika, Nehru Place, a glimpse of which you can see in the Annexure section of the investor presentation. Secondly, we plan to open 2 out of 3 blocks of Aurika Naldehra, Shimla by Q2 this year to capture the increased demand during the summer season. Thirdly, in January this year, we have signed a license deal for a 47 room heritage, Aurika Hotel at Varanasi located right on the heart adjoining the River Ganges. This hotel has the potential to do extremely high rates owing to both the strategic location and the deep demand of the Varanasi market throughout the year. I also want to highlight that Aurika is the highest ARR and margin product and the growing portfolio of Aurika elevates the group's overall profile and improves financial metrics and the growing network further strengthening the brand. Combined with Warburg Pincus primary investment commitment and strong internal accruals, we now have the capital structure and the institutional backing to expand our top line even further. We are focused on urban markets with structurally deep demand, leisure markets, and international destinations that Indian travelers visit frequently. On the pipeline, I can tell you that we were evaluating a healthy and growing number of opportunities. We work across the lights whether that's acquired -- whether that's acquiring an asset, existing assets or development of the new hotel, Fleur's peer-leading margins and in-house development capabilities are key differentiators that compress the time and risk in underwriting opportunities. We are not very regional structures, but we are very disciplined on returns. There are only a few players in the market that can build hotels at the scale and efficiency as Fleur. This is a genuine competitive advantage in the market, where good assets don't always come packaged neatly. Now I hand over the forum to Patu to give an update on composite scheme of demerger.

I want to take this opportunity to continue the conversation on the demerger scheme. This time with the results we have shared pro forma financials for both Lemon Tree Hotels Limited and Fleur Hotels Limited as they would appear upon the demerger scheme becoming effective. The transaction itself is very simple. Warburg has completed the purchase of APG's stake in Fleur. Next, Lemon Tree will transfer 17 hotels and development capabilities in exchange for which Lemon Tree shareholders will get Fleur shares, leading to Fleur's listing as a separate entity. This scheme will result in 2 distinct financially sound businesses. Lemon Tree Hotels as a pure-play, asset-light company focused on offering hotel management, brand loyalty distribution and digital services. Fleur Hotels will operate as a large-scale growth-oriented hotel ownership/leasing platform with end-to-end in-house development capabilities and potentially, as Saurabh mentioned, a very large pipeline with a significant pool of available capital. Each entity will have its own management team, capital structure and growth priorities while continuing to benefit from long-term operating agreements and arrangements and strategic alignment. Post the reorganization, Lemon Tree will emerge as a debt-free, high-margin, high ROCE company generating strong free cash flows from fees and brand-related income. Fleur Hotels will consolidate ownership of our group's existing hotels, all of which will be fully renovated by the time of the demerger. From a shareholder perspective, the scheme is designed to unlock value while preserving continuity. Post [ demerger ] Lemon Tree shareholders will effectively own close to 74% of Fleur Hotels, 33% directly and about 41% indirectly through Lemon Tree. This is, of course, before any primary infusion by Warburg Pincus, and this is versus the 59%, which Lemon Tree definitely owns in Fleur today. Post scheme Lemon Tree and Fleur will continue to enjoy synergistic benefits. Long-term management contracts the Lemon Tree stable and growing fee income from Fleur. And Fleur can also underwrite new opportunities with certainty and speed with Lemon Tree as the management partner, while retaining strategic flexibility where the opportunity warrants for the other brands. Today, as Executive Chairman, I continue to chair both companies with direct ownership in each. My primary focus will be on delivering the Fleur pipeline and growth as its Executive Chair. In Lemon Tree I will cease to hold an executive role, March '27 onwards and transition to non-executive Chair. Our core values, including our commitment to being an employer of choice and first stream an inclusive diverse culture will remain central to how both platforms operate as we enter this next phase of accelerated growth. With this, we come to the end of our opening remarks, and I would like to ask the moderator to open the forum for any questions that you may have.

[Operator Instructions] The first question is from the line of Achal Kumar with HSBC.

I have 2 simple questions actually. So first of all, tomorrow after demerger, if Fleur believes that its inventory can be managed by some other auditor and not Lemon Tree, how would that happen? So, is it goes beyond arm length basis or like, so can you please give a bit of color on that?

Okay. First point, Anchal, is that even our management contracts -- when Warburg came in, one of the things they did was check the quality and the economics of our management contracts and compare it to other similar operators. And I think they were quite happy with the fact that we were very much in sync with that. Now the point is that if a new asset comes under development or acquisition, and it makes more sense for some other brand to operate it, then I can assure you as the Fleur Chairman, that we will make sure that happens. However, having said that, there is a long relationship between Fleur and Lemon Tree. And if we continue to deliver the results that we do in the mid-market segment, especially in the upscale segment, then there is also no reason why Lemon Tree will also be considered. And if the economics make sense, then Fleur will go with Lemon Tree. So short answer, brand agnostic. But with 1 caveat that obviously Lemon Tree should have -- should not be discriminated against when opportunities arise.

But then, isn't that the loss of a management fees for Lemon Tree?

Yes. But Lemon Tree must be able to deliver best results in order to get it just because Lemon Tree has skin in the game with Fleur does not mean that it has an automatic right to any asset that Fleur develops. So let me give you an example. It will, I think, answer your question. We bid recently for a 5-star hotel. The economics were compelling. It was through NCLT. Unfortunately, we did not get it. It was run by another international brand and run very successfully by that international brand. The reason it was under NCLT was some -- it was a, basically a financial structuring problem and the owner had obviously gone bust. We did what would be a fair price for Fleur by it, assuming the same management contract. Unfortunately, it did not happen because we had an ultra-high net worth individual who outbid us. But my point being here being that if we had bought it, we would have kept the contract with the existing operator.

Okay. Understood. And then my second question within your brands, you have such a huge divergence in terms of RevPAR growth. So Aurika was only 3% while Keys was 16%. So what's going on there? And how do you see going ahead? I mean, do you think what kind of growth you're -- I mean, the kind of growth you're reporting at Keys is the similar kind of growth is possible at Aurika also? Or is it the sort of a high-end brand, so you don't see that kind of growth and the growth ARR or RevPAR growth will be in low single digit range?

So I want to clarify one thing. RevPAR growth is very subject to micro market, okay? Now Keys operates in certain micro markets and Aurika Hotels operates in actually different micro markets. Aurika is only 2 hotels, 1 is Bombay and 1 is Udaipur. Keys is from Ludhiana to Visakhapatnam to Bangalore and 2 markets to Trivandrum to Cochin to Puna, and micro markets within those cities. So I would urge you not to look at -- I would urge you to look at micro market growth. So I'll give you an example. In Bombay, a very interesting thing has occurred. What happened was that in the last, I think, 1 year, about 5 hotels have opened in the micro market where Aurika operates. I think it includes the Fairmont, Accor Fairmont at the top end to Ginger and then in between at the lower end, at up mid-scale and there is something called Iconica, then there is some Novotel, some Radisson, visible hotels opened. And temporarily -- this is about 2,000 Keys. Temporarily, there was a supply glut. But Bombay always absorbs supply glut. So this is, I think, also a timing issue. One would -- I would urge you to really look at full year performance and then look at how this grows over time. Udaipur is, of course, a very seasonal market, so -- and the wedding market. So I think I'm quite pleased with the way our Aurika, Udaipur is also performing. But the growth was muted. And I think 1 very big reason, which I don't know if any other hotel company has talked about is the impact of the Indigo shutdown in December, which had an impact, December, spilling over to January and then, of course, the war, where the impact started marginally in early March, but by mid-March had become very significant and has, in fact, continued into April too. So these uncertainties also affect, because we are at the front end of discretionary consumption. And that affects some markets even more than others, especially airport markets. So one has to take all this into account. Now we look at the full year performance, whereas -- do you have the full year EBITDA, the RevPAR growth?

I can take that.

So, I will tell you, we are looking at a quarter with some exceptional things. But if I look at RevPAR growth for Aurika, FY '26 to [ FY '27 ] full year, it is 19%. And for Keys, it is 20%. And let me tell you an amusing thing. Keys is only reflecting the first 2 fully renovated hotels. When we finish the entire renovation, which is still ongoing, then Keys will show a much more -- I mean, this 20% will continue for another year, another 2 years till the entire portfolio is stable with those new fully renovated hotels. And I think I've mentioned this earlier to some past earnings call that Keys is going to be a very positive addition to our brand. As far as the other portfolio goes, as I said, it's subject to local micro markets and overall, we look at RevPAR as a group, then obviously, we do disaggregate and see where we could do better and so on.

Our next question is from the line of Karan Khanna with Ambit Capital.

Firstly, Pato, given the macro environment, especially with both the largest domestic carriers now announcing capacity cuts for the next 3 months, even in the domestic rooms. How should one think about the occupancy and RevPAR growth environment for specifically the next 2 to 3 months? And if this were to continue, then for full year FY '27 as well, especially given most of this capacity reduction is in the metro rooms.

So Karan, we took a call about I think in mid-March that we would start focusing on occupancy growth rather than price growth because in an environment like this, you are constrained with demand shrinking. And therefore, you have to look at innovative ways to grow demand. Therefore, our strategy in April, where the slowdown continued from March going on into me was very clear that we would adjust pricing so that our occupancy would still continue at a premium to the market. Having said that, obviously, our strategy was not to drop prices ridiculously and therefore, we would at least maintain year-on-year price levels. But do intervention -- tactical interventions in markets like the ones you mentioned in order to maintain an occupancy premium. What I can report to you is that has worked very successfully. It is obviously -- normally, we would like to revert both occupancy and ARR growth still occupancy ceiling. I can tell you that in this quarter, amazingly, our occupancy has hit some form of a ceiling. We've never seen this before. But our average rate growth has not been significant, has been actually more or less flat. And we are going to continue with this strategy as long as this uncertainty of work continues.

Sure. And then secondly, on the signings to openings conversion, while you signed 55 hotels during FY '26, openings stood at just 20 hotels with only 1 hotel opened in 4Q. So how should one read this? And more importantly, in FY '27 and 28, where you have about 4,500 Keys to be opened, what are the confidence levels here and risks of slippages if any? And as a follow-up, what should the total managed management fee look like for FY '27 and '28 if the 4,500 Keys opening is on track?

So the way to look at that, and I'm going to give you Neel, the comments for the following year. But I just want to say one thing, that the way to look at openings and the way to look at signings is as follows: openings typically take -- because most of our contract -- our management contracts are signed for hotel -- is not conversions, but hotels under construction. So the best way to look at growth of openings is look at what we signed, say, 3 years ago and use that as a rough benchmark as to what we will open this year. Very rough. So what did we sign 3 years ago? Can you tell me? So, the good news is that while we opened about 1,500 rooms, 1500, 1,600 rooms, we signed 5,000 rooms. So technically, 3 years later, we should open 5,000 rooms, but we may in that year, signed 10,000 rooms. So going back 3 years, we, I think, signed a little under 2,000 rooms. And we opened a little under about 1,500, 1,600 rooms this year. So we just follow that, by and large, you will be -- by and large, you will be in the right trajectory. So if I'm signing 5,000 rooms, assume 3 years later, I will be opening them. Plus/minus, it might -- some might get delayed. None will open earlier that I can assure you, unfortunately. But all will open that time or maybe 6 months slippage or sometimes even a greater slippage if the person runs -- the owner runs out of finance.

And the numbers for total management fee that you are mentioning?

For what?

FY '27/'28, how should we think about that, more like a 15...

No. I don't want to give guidance. What you can do is look back, okay, let's give a number, how many hotel rooms do you -- look, this becomes guidance. And if there is a slippage tomorrow, you will correctly ask why did you say this. But we expect broadly to open, how many rooms this year?

We will [indiscernible] same click as last year. So about 2,000 rooms.

Yes. Correct.

Sure. And then lastly on just Aurika, Mumbai, if you can provide some color in terms of how the ADR occupancy and customer mix trended in FY '26? And expectations for FY '27, especially given capacity ramp-up at Navi Mumbai. And as a follow-up with 2 large airports becoming operational at Navi Mumbi and they were -- how are you thinking about expansion near these airports?

See, these airports are opening up not to shift demand but to actually cater to increasing demand. So what really affects us, say, in a micro market is the growth of supply. The growth of demand continues. Because all these hotels -- all these airports, I mean, it is -- the new airports are basically catering to growing demand. So -- what affected -- as I mentioned earlier, what affected us in Bombay was the growth of those. It was the supply growth of those, as I mentioned. We took a call this year that we would also now start focusing on non-airline sector because we had kind of stabilized our crew levels. But the crew levels themselves in quite dramatically because this year, we didn't get the wet lease crew of last year. Because that shifted to a lower rate hotel. So these are, I mean, cost of doing business or I'm not too great about it. Our strategy was, can we grow the -- either the ARR or the occupancy based on opportunity in this. And as I said, the RevPAR of Aurika as a brand grew by about 16% this year.

Yes. About 19% for the year.

19% for the year. So FY '26 to [ FY '27, ] it grew 19%, disproportionately more than the other banks. I mean top 2 performers were the top end and bottom end, Keys and Aurika.

And can I just give a little bit color, Karan, to your question around, let's say, expansion. See, these are -- most of our expansion is relatively recent. So clip off about opening, let's say, signing 55 hotels are opening about 20-odd hotels will safely continue in the future. If you see a density of our hotels on one of our slide -- first slide in the deck, you will see that a large majority of our hotels are populated in the North and West. If you start now looking at the southern region or the Eastern Coast of India or the Eastern -- far East, Bengal and beyond, there's a fair amount of expansion available at this point in time still, as we go deeper into India. So purely from a general direction perspective, opening about 55 hotels plus every year and opening about 25-ish, plus signing about 55 hotels plus every year and opening about 25 hotels for the next few years is...

No, no. You will catch up. So you will not open 25 hotels 3 years later.

Sorry. We will certainly catch up because the pipeline starts building up.

So that starts get some operational.

Sorry. So yes, so the hotels that we signed a couple of years ago, we'll pick up that.

I think, the right way to look at it is, how many did you sign this year and 3 years later, you should open approximately those.

Our next question comes from the line of Abhay Khaitan with Axis Capital.

So my first question is, again, on the near-term demand trends. So I know that Lemon Tree as a portfolio is not very much dependent on foreign travel. However, based on the conversation that we had with your peers, now -- some of them are now getting more aggressive to capture the domestic demand. And if that continues throughout FY '27, do you see that as a risk for the portfolio? And is there any particular strategy that you can do maintain the occupancy level that you have right now?

So Abhay, I'll just say one thing. Every player in the market competes to maximize their outcomes. We are one of the players. What we do find is that our B2C business which is direct customers booking us, whether through our own direct channels or through OTAs has gone through the roof. It is the corporate travel that has slowed down. The other travels with a friend of mine who is the CEO of a large company in India, and they have 100,000 employees, and they typically give 100,000 room nights a year to the hotel sector. And he told me this is late March, that they have given instructions that all travel must reduce to the maximum extent possible, partly because of the rising air fares and partly because they themselves are worried about what's happening with the war. So corporate travel is the first that kind of dries up when war happens. Because it is under the enroll normally of the CEO or an equivalent CXO and it is a 1% decision. What is encouraging, however, is that the retail segment or what I would say, the non-corporate segment has continued growing, and we have got more than our share than last year. So as I alluded to earlier, our occupancy is much better than last year, same period. And of course, if you recollect last year, I think there was Sindoor, roughly here. So we are in a peculiar situation where last year, we had a short war in our or engagement, whatever in this Q1. And this year, there is a war right next door to us. But we are coming out, I think, quite well. We are more concerned personally not about the fact that -- you see revenue is not in our hands, in a certain way, it is a function of how the economy is performing. What we are bothered about is how do we look at our cost structure, which we consider our moat. And our cost structure has been adversely affected because of certain hard calls we took to do a catch-up renovation. And I think if I look at the jatkas that we got this year, I mean, simply from innovation and from ex gratia and from labor code impact and from GST impact and so on, that has affected us to tune -- to a significant level. And our intent now is how do we manage to bring that under control? And how do we increase our EBITDA margins to the levels they were earlier? And we have alluded to that in our investor presentation. And I think that's our current focus. And I'm pretty confident that we will do reasonably well in the cost side from this year on. So that even with a high single digit to early mid -- double-digit growth quarter-on-quarter, we still manage to maintain high operating leverage.

That is very helpful. My second question is on Fleur. So regarding the expansion to the 2,500 extra rooms that is supposed to be added. So I just wanted to understand the thought, are we going to more Aurikas, more Premiers within that? Or is it going to be more evenly spread between Lemon Tree, Lemon Tree business as well? And even across markets, are we looking at more metros, are we looking at non-leisure markets? So any particular thought process? And also, if it will be going to be greenfield investments or are you also looking at expansion strategies? And what will be the time line for that? Just a broad thought on that would be very helpful.

I'll ask Saurabh, as the CEO of Fleur to answer that.

So the rooms which we are talking about 2,500, they are under various stages of discussions. And we are very sure that the capital coming in from Warburg Pincus and the strength of the balance sheet as well as our entire project teams sitting on the Fleur side. So it's a combination which I would say, none of the any peers have. Given that, we are fairly confident that we'll be able to add that many rooms from a strategy of investment locations, we are, like we said, around a large amount of Fleur's revenue comes from the top 6 cities in India. And this remains a core city and...

I think the question, Saurabh, is a different one. He's saying where are you meant to invest.

That's what I was coming to.

Yes. So where would be in extent, basically in upscale and upper upscale?

So upscale and upper upscale, which is between Aurika and Lemon Tree Premium. And from a location perspective, we would like to be more in the top 6 cities. And from the kind of investment, we are looking at greenfield, we are looking at operating hotels, we are looking at brownfields all kind of assets. We are looking at. However, it has to be core micro market within those 6, 7 cities and some international destinations where Indians are traveling. And very selective leisure markets.

Understood. But the time line would be then close to 5 to 6 years for the entire 2,500 rooms? Is that a like a fair assumption?

Well, I can say that it is not 5 to 6 years. Those which we acquire is immediate, those which we acquire, but need renovation will be a 1-year period or 2-year period, those which are greenfields will be 4 years. It will never take 5 years. We take -- unless there is a force majeure, we normally take 3.5 -- 3 to 4 years to build a hotel. So it is a competition of all. But whatever I think Saurabh was mentioning, it's also covered in the presentation. We are focused on deep markets which are structurally deep demand. In India, we are focused on international destinations where Indians travel, we are focused on major markets. But as far as destinations go, as far as brands go, when we invest our own money for greenfields, we are focused more on Lemon Tree Premier and Aurika. So that is investment in greenfields. But this is the broad strategy. There may be opportunities for us to acquire mid-market hotels, which makes sense in their micro market, and we would very happily look at those 2.

Our next question comes from the line of Sameet with Macquarie Capital.

So, a couple of questions here. So if you can talk about GST and the headwind that's creating, obviously, it's been significant. And yes, we'll see it go down, but it will go down only marginally in fiscal '28. What are your plans there? How are you trying to achieve that offset? That's my first question. Second question is, it seems like in terms of renovations, we are seeing that slipping into fiscal '28 as well. Can you comment on that? Is that -- how should we think about it? Are those final handful of rooms? Or is the major rooms being shifted?

No. So what's happening, Sameet, is I think 2, 3 quarters ago, I said the total spend we will do in FY '27 and renovation will be a shade under 4%. I think, I've forgotten, I said 3.6% or 3.8%. Typically, 50% is OpEx, 50% is CapEx. A bunch of it is also replacement of air conditioning systems, pumps, DG set so on and so forth for the Keys portfolio. and some of the very old hotels that we have in our own Lemon Tree. So if you notice, if you go to -- which slide is it? -- Slide 29 in our presentation, we tried to give color on the impact of these things and how we see them playing out with our revenue in terms of how it will affect our cost structure. So in FY '26, we spent 5.8% of our revenue on GST tech and renovation. In FY '27, we have said the impact of GST will go from 1% of revenue to 2% of revenue because it's full year. We will continue our tech investment at a higher level, because it will be 0.9% of our higher income rather than higher revenue rather than 0.6% of lower revenue in FY '26. But renovation will come down to 1.9%. At that point, more or less the entire portfolio is done. Then we will revert to our normal renovation. And I think, I have mentioned this time and again that our normal renovation is 1.3% to -- 1.2% to 1.4% kind of percent, okay? So we are just showing -- we are assuming that we are doing that 1.3%. It may be less, by the way, but it will certainly not be more. In some ways, this will compensate for the cost of the GST. But even GST, if we continue with a 7%, 8% price hike every year as we normally achieve, then the GST impact will come down to 1.7%, and technology will then stabilize at about 0.6%, 0.7% of our revenue. And that's why we've seen that from 5.8% of these 3 cost heads, it will drop to 4.8% in this financial year and then 3.7% in the next financial year, about 1% a year. What will -- what besides this, what will change is that roughly INR 25 crores to INR 30 crores that we spent this year, incrementally one-offs on ex-Croatia on the property tax at Delhi, the new labor code impact that will disappear from the P&L from FY '27, which is another 2% of income. So to synopsis, we expect to save 1% of revenue every year from the GST, tech and renovation. And also another INR 25 crores, INR 30 crores from that one-off impact, which will be a permanent saving.

Our next question is from the line of Vaibhav Muley with Haitong.

My first question was on our Fleur demerger time line. Earlier, we had mentioned that merger will be completed 12 months in Jan. So now the slide mentions that it will take another 12 to 15 months for SEBI and other approvals. So can you just highlight the new time line for the demerger?

Okay. So the CCI approval came in April. We are still awaiting. Kapil, can you give some flavor on this? You and Mayank?

Yes. So we are current at the stage of shareholders and the SEBI approval. So that is the normal process before we file with the NCLT.

No, but he says, did it get delayed and why? I think there's a 2-month...

Yes. So there is not 2 months rather, I would say, 1 month only from that perspective. Generally, it takes 3 months for stock exchange. So I would say 1 month. But we are -- this estimate, which has been given a little conservative estimate. And because there are certain things which are procedural and especially, I would talk about the NCLT, which is a process depends on many factors, actually. So it could be shorter also, we will try our best to how fast it could be done. But looking at the procedural of first motion order, second motion, in between, there would be shareholder approval and creditors approval as well. So that's why we are taking that much, but it doesn't mean that it would go into end of CY '27. That's not the case. So we would not be far away from what we said earlier.

Actually, the real issue is NCLT. Will it take 6 months? Will it take 9 months? Will it take 12 months? We have been given multiple possible time lines by experts in this. So if that happens earlier, then it will be 12 months from now. If it happens later, then it will be 18 months. So I'm giving you an outer limit.

Understood, sir. My second question was on the pro forma financials for the Lemon Tree stand-alone entity. We have reported 60% margins. My impression was that since the flow-through for the management fee income would be near 75% to 80% with 300-odd Keys that will be under the lease model. Overall margin should be somewhere in the range of 70%. So can you just highlight why the margins are slightly at a lower end despite the asset-light portfolio? And where do you think this margin trajectory could go towards?

Good question, because that's something we were discussing ourselves. Our expectation is that our -- what we have said as guidance is that our steady state flow-through will be 70% plus. We are currently at 60% for a very simple reason. One is that, a bunch of our operating expenses in the corporate side of Lemon Tree have gone up. One of them being our tech investments and one of them being our hiring of new people. So we've got a whole bunch of new people in, which actually Neel has brought in terms of operations, in terms of marketing, in terms of revenue, in terms of digital, in terms of, whatever I missed out, and sales. So these top level -- this is top-level talent, and it will contribute to the growth of the -- the revenue of the company, but has a lag effect to that, but has immediately come on the P&L. Second is, this is not steady state, what you are seeing. This is pro forma as we do better, this 60% will become 70% and [Foreign Language] maybe one day it will be 75% to 80%. But that is when all the hotels that we are signing start giving us fee income. But it is very much true that we expect also north of 70% steady state, hopefully, 75%.

Understood, sir. Can I squeeze in last question?

Please do.

On the renovations bit, can you highlight the current status of the renovation in terms of how much inventory is already renovated? And in the current quarter in Q4 and Q1 how much part of the inventory is shut for the renovations? That's it from myself.

In the current quarter, it would be maybe 400 rooms. Now -- right now, it would be more. Sorry. It would be -- sorry, I was thinking, are you talking Q4 or Q1 is current, right? Now it would may be -- Yes, fourth quarter. Fourth quarter would be 400, 500 rooms because we normally maximize renovation in summer and minimize it in winter. But certain rooms like Keys, Whitefield is not complete. I think it will be complete in the next 4 months. Certain parts of Lemon Tree Premier, Bangalore are under renovation. Keys Hosur Road is under renovation. Keys Pimpri Puna is completely renovated. Red Fox Hotel, Delhi, which has now been rebranded to Lemon Tree Hotel, Delhi, has I think about 40 rooms to be renovated in this H1. But broadly, we -- of the Key -- I mean, if I look at our portfolio, we have about -- the non-renovated rooms were about 70 -- the rooms we did not have to renovate were about 1,700 rooms, which is Aurika Bombay, Lemon Tree Premier, Bombay Lemon Tree Premier, Pune Lemon Tree Premier, Calcutta and Aurika, Udaipur. So if I take those out and say that the amount -- the ones we wanted to renovate are 5,000 of which heavy renovation is in 4,000. The 4,000, I would say about 85% is done. Okay? But renovation does not only include renovating rooms and public areas. It was also a catch-up in major repairs and maintenance and in replacement of equipment. That too is continuing. That is why in this year, our CapEx is as high as our renovation spend, in fact, a little higher. But from next year onwards, while we are showing, I think, -- what are we showing 1.8%, 1.9%?

1.9% FY '27, 1.3% in FY '28.

Yes. So next onwards, it will be 1.3 or more likely, I think that's quite aggressive it'd probably be 1.2%, 1.1% from next year. In fact, actually, I think it will be 1%. But we have given you an outer limit because there is always some stuff that happened, some equipment that needs replacement and so on.

Our next question comes from the line of Sumant Kumar with Motilal Oswal.

So in Aurika, the occupancy has declined by 2%. So can we assume this decline is majorly due to Udaipur?

No. This is because of very large wet lease in Aurika Bombay went away. And one can assume that actually that was a one-off. So it has affected us. We were happy to take it when we needed it. But you will notice that has been commensurately compensated by the rate change because the segment change, therefore. So occupancy dropped by 2%, but wet lease was about 8% of occupancy. It means really the wet lease went, but we replaced it with 6% of other demand, and that's how it flowed at better rates. And I think, Sumant, also keep in mind that we had a big impact due to this Indigo. And we also had a big impact due to the war. And I would urge you to look at the full year figures, which is what were you saying, Neel? Why didn't you say it?

Yes. Sumant, I think the best way to look at Aurika, because -- or any hotel business in this case because of last year, every quarter had some extraneous event. So especially to your question, the Q4 performance in Aurika is essentially a March performance. In fact, January was, let's say, reasonably good. February was excellent. It's only March when the war happened and the traffic or the air traffic decline and that we had challenges in filling the hotel up. But if you look at the full year, Aurika picture, the Aurika -- at both the brands move from occupancy of 62% to 74%, as an aggregate. And therefore, 19% RevPAR growth. So very, very healthy as a brand portfolio for the full year.

And price ARR increase of 5% is all because of a change in product mix in Aurika Mumbai?

You're talking about Q4?

Yes. Q4. I'm talking about this quarter.

So in Q4, March, the price went down, retail price, because demand dropped. In February, it went up. First 2 weeks of January went down because demand dropped. But second 2 weeks of January, it went up. So it's a question of these expert circumstances Neel was referring to that determine our retail pricing. Corporate pricing does not change, but even corporate demand came down in March.

So 5% increase is because of Aurika Mumbai or Udaipur? ARR.

I think Aurika Mumbai would -- Aurika same. Yes, it would both be -- Aurika Udaipur was a little higher.

So majorly driven by Aurika, Udaipur?

It would not be material. Let me put it this way. Because if Aurika Bombay grows by 4% and Aurika Udaipur, which has 1 quarter the inventory and similar occupancy grows by 15%, the average is still 5%.

Okay. Got it. Got it. Okay. And see, we have seen a significant growth in Keys and what we were talking about post renovation, the ARR is going to increase. And currently, the Keys' ARR is 2,900 plus and the commentary -- and you were talking about 16% kind of growth every quarter and a couple of years. So can we assume this is Keys' ARR, RevPAR? RevPAR can reach to 4,000 level.

The Keys' ARR currently.

No, no. I'm talking about RevPAR.

Let me -- 2 years ago, I think I said that Keys was in 3,000 something. And Red Fox was 4,000 something ARR. As I said, Keys should move towards Red Fox's ARR. I think this was on an earnings call maybe 18 months ago. And I was referring to post renovation. So let me give you one, because you have one fully renovated hotel. If you go to the investor presentation -- which slide is it, where we show what happens? The case study. Go to Slide 56. This is the first fully renovated hotel from last year. So we've been able to focus both on occupancy and on ARR, because the others, when you -- when you kind of either rebrand or you renovate fully, then you can you start with the price change and build up the occupancy because now you are targeting a different segment, okay? Are you on that Slide 56, Sumant?

Yes, sir.

You will see, what I mean. So this is a 100-room hotel. And today, the EBITDA is INR 11 lakhs a room. Now obviously, all Keys Hotels won't have INR 11 lakhs a room. I have actually been conservative and said we want INR 60 crores EBITDA which means over 930 rooms. We want less than INR 6 lakhs a room EBITDA from Keys.

I got it. I got it. So my question was what you were talking about the ARR is going to reach at the Red Fox level. Okay. So next 2 years, overall, currently, we have ARR of INR 4,700 in Q4. and average might be maybe in the range of, say, INR 4,200 to INR 4,300. So is there a potential to reach this ARR -- hotel ARR to INR 6,000 in the next 2 years?

That is market driven. I can't comment on it. But what I can tell you is Keys ARR is today close to Red Fox's ARR. But when I say we did an occupancy rate of 64% in Q -- what is called, Q4, it is -- there were rooms also shut about -- I don't know the exact number, but a few hundred rooms of Keys were shut, because those were the ones that we were renovating around the year. So I do not see it as ambitious to say that we would like Keys occupancy to be like Red Fox's occupancy, which is about mid-70s. And in ARR, obviously, we will -- even if you assume that it is not INR 6,000, but INR 5,400, INR 5,500, you should get to your INR 60 crore EBITDA number, which is our target for this portfolio at present.

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

Yes. Just one small observation. Our management fee income from third party was up by about 29%, which was a very healthy growth. But the same from Fleur was up by only 3%. So does it imply that the managed portfolio was relatively less insulated from the Middle East crisis as compared to Fleur? Or is there something more to read into this?

No. What we -- you see a large part of our fees comes from incentive fee, which is delivery of EBITDA at different slabs. So our incentive fees can go from 1% of revenue to 5% of revenue based on which slab of GOP or hotel level EBITDA we are at. Now what happened was that during this year, we aggressively renovated a lot of the owned portfolio, with a lot of, obviously, Fleur hotels in that portfolio. So GST impact and the elevated renovation impact dropped the EBITDA margins. As a result, our incentive fees were significantly affected. So that is, again, linked to our delivery of EBITDA. Now if it picks up, as I'm hoping it will then obviously, our fee will pick up proportionately.

Plus Jinesh, the only other thing to add apart from what Patu was saying is that when you look at the management of third franchise hotels, the full year, I'll give you the full year picture now. The full year fee growth was 23% in the third-party hotels and Fleur was 8%. 8% broadly because the same reason as Patu had. And the reason is 23% is, because it's both same-store and scale revenue. There were net additions in the third-party owner, let's say, base of hotels. And therefore, it's a 23% increase on a base-to-base. For Fleur hotels, the 8% full year number is based on a same-store basis, because there was no additional rooms added in that base. Made sense?

Sure. And sir, secondly, if I look at our presentation, I think in one slide, we have given the ratio of negotiated nights. So I think that figure in this quarter was about 55% versus 59% in the base quarter. So just wanted to get some understanding. I mean, have you lost some corporate contracts? Or is it that due to fall in occupancy due to the Middle East crisis? Some of these nights got reallocated to the retail category since temporarily the mix has changed. And from a long-term perspective, I mean how to think about this mix between negotiated and non-negotiated room nights? Because I think there's a differential in rates in both these categories as well.

So negotiated room nights have a lower rate than non-negotiated generally. However, March was the key differentiator for Q4. As I said, corporate business dropped in March. So we tried to build it -- build some occupancy up through retail at lower prices. So what you see really is what was 59% of sale -- what was the occupancy previous year? And this year? So you think of it as 59% or 77% last year was corporate. And this year, 55% of 78% was corporate. So the corporate came down by about 2%, but it was replaced by 3% of the total occupancy by retail. But in order to get that occupancy in a downtime, we had to offer obviously slightly lower rates in order to pick business up.

And I'll just, again, Jinesh, that what you're looking at is the Q4 picture. It is not as material when you start looking under a full year picture. In the full year picture, our negotiated ratio is 55.4%, which has come down from 56.1%. So 50 basis points. So it's not material in that sense. Whatever happened, actually, this difference is largely driven by Q3 and Q4, which is where exactly to what Patu said, when the corporate demand dropped the retail demand also picked up or we at least strive hard to compensate that to retail demand and hence, this slight change in the pie chart.

Sure. Can you just share what is the...

So our long-term strategy is to focus on building more and more -- see, what insulates a company. Dependence on large aggregators or large concentrated demand or distributed demand. We are very clear, as we grow our portfolio and network, we want distributed demand. We have a joke within our company that it is better to have 100 individuals booking you than 1 company giving you 100 room nights because that 1 company can disappear tomorrow, but the 100 won't. So we are very clear that as we grow to 20,000, 25,000 rooms, operating, we won 65% of our business, to be retail, which is direct to us direct to -- so it is really a C2B business, customers coming to us directly, sometimes through OTAs who are our partners in this endeavor. And sometimes and more and more directly through our website, our loyalty program and our direct to hotel or call center.

Our next question is from the line of Anuj Upadhyay with Investec.

Just one question from my side. Have we set aside any total CapEx or capital outlay, specifically for this proposed addition of 2,500 Keys across Fleur going ahead, which I believe is over the next 2 to 3 years' time period?

So if you look at acquisitions today, depending on sellers need and buyers' need, you can -- I mean, it is available anywhere from 8x of EBITDA to 16x EBITDA. In some trophy assets, we are not interested in, it could be even higher. So the capital we put aside is 2. One is if we are buying an existing asset, we obviously will get -- we'll have to pay a higher price for it, because it is an operating asset, it has EBITDA upfront and the maximum management we would make would be in renovation, if required, which obviously, we adjust in our acquisition price. If we build ourselves, then it is naturally much cheaper, but there is time to market in that case. If I look at the committed capital from Warburg, this is entirely contingent upon availability of the right deals and that 2,500 active discussions are many of them write deals. Then we have the potential, if I take Fleur and Warburg's investment into account, we have the potential to deploy up to INR 3,000 crores in the next 12 to 18 months. Now will we deploy it? If all the 2,500 come plus everything that we are doing, then yes, we will deploy it. If it doesn't happen, we will deploy less. That is one. Point number 2 is our current assets like Nehru Place. Nehru Place will, best guess, require INR 700 crores. As Saurabh had mentioned earlier, it is the single largest asset in North India. There is only -- the next largest is actually a neighbor of ours here called Andaaz, which is 525 rooms. This hotel, the cash flow will be over the next 3.5 years with 60% in the last 18 months, because that's when real money goes into finishing a hotel. So we feel that we can build through our internal accruals. So the cash that we have available, which is from Warburg and our own likely free cash flow in this financial year, plus debt should safely enable us to buy these 2,500 rooms, if all fructify and any other opportunistic acquisitions which align with the strategy of core markets, high leisure demand markets or international markets where millions of Indians travel.

Our next question is from the line of Nikhil with Kizuna Wealth.

So my first question is on margin side, like for the Lemon Tree Hotels and the Fleur Hotels. So when I look at our cost savings that we are estimating is going forward, so most of the cost savings coming from the renovation expense coming down. So all the flow through in the margins will go to Fleur Hotels. Is that understanding correct? And sir, how much steady-state margin in FY '27-'28 margin, how much are we thinking for the Fleur Hotels?

Margin? Well, pre-fees, these same stores should be in the late 50s, pre-fees.

And sir, my second question would be on the January when we did the demerger announcement. So we said that our PAT margins for the Lemon Tree Hotels would be somewhere between 60%. And what EBITDA margin...

What? Sorry?

During the January call for the demerger announcement, we said that Lemon Tree Hotels' PAT margin would be around 60% and EBITDA margins...

PAT margins? No, not PAT margin. I assume you're talking EBITDA margins.

In the January call, you stated that, sir. That's why -- I was just coming back.

No, I only talk EBITDA, PAT I never talk about. I think review what I said, it would be EBITDA. So anyway, let's assume it's EBITDA. What is the question please ask?

No sir. Then my question is answered, sir. So that is it sir, Thank you very much.

Our next question comes from the line of Vikram Shah with Vikram Securities.

Congratulations on a great set of numbers. My question was towards 2,500 room deals. And with or without it, what sort of peak debt number are you comfortable with?

So you look at our debt-to-EBITDA today it is about 2.1%, 2.2%. Is that correct? 2.25. So see, in a high-growth company with stable earnings, you can technically go 4x debt-to-EBITDA. But we are, I think, much more conservative. We would -- if we deploy INR 1,500 crores of capital, and we would probably borrow, our debt would go to mid INR 2,500 crores to INR 3,000 crores as a consolidated entity of Fleur. Which means that our debt-to-EBITDA would temporarily go up till the EBITDA started flowing in. Now this is, of course, also a question of how much of these 2,500 rooms have existing EBITDA and how many will give EBITDA after a year or 2 years. So it would be a mix and match. I can't comment. It depends on which of these 2,500 rooms we finalize. And I think this question you could perhaps ask us 12 months from now or earlier if possible.

Okay. And sir, regarding the Iran war, how has it been in the last 3 months? And if status quo is maintained for the next 6 months, how worried will you be?

So we are in the middle of the war. And as I said, we find that our occupancies have improved, not diminished. But I cannot comment because what happens is as uncertainty and volatility continues, then I am more concerned about the impact on the Indian economy. See oil, inflation, current account deficit, all this will start hitting our country very hardly. And by the way, it's not Iran war, it's the U.S. war against Iran, I would say, but anyway. So -- and the thing is that -- if there is a conclusion to the war, this question is irrelevant. But if there is no conclusion, then we have taken the necessary steps to mitigate our cost structure appropriately. And I think we will be fine. Fortunately, this war has not had actually an impact on us other than in the months of March and April. May has been surprisingly good. And I'm just hoping that if it doesn't deteriorate further, then we should do reasonably well. And if it repairs and the economy is not significantly hurt then we would do even better than that. So you're asking me a very difficult question. I can't really answer it.

It was just directionally, industry more than anything. But I'll just squeeze in a quick last one, if you don't mind. For the next 5 years, again, directionally, could you give us an understanding where you foresee like CAGR growth for Lemon Tree, the platform owner, the asset-light over the next 5 years now that you've freed up -- it's a very asset-like company, it's a lot of capital deployed and so much opportunity. How do you see the next 5 years?

See, let's go back for a minute. I don't want to give guidance, but I can give you a direction. We are signing 5,000 rooms a year. I think that will accelerate. One of the key resources we have hired or Neel has hired, is a top line business development head who is aggressively gone with his team to go and get more and more hotels. Remember, 2.5 million rooms in India unbranded. We have strong strengths to convert most of them because they are in our sweet spot, which is the mid-market to upper mid-scale segment. We have grown our fees at only 23%, and I'm using the word only. But if we -- and that is with about 6,000 branded rooms under the management contract side, keep Fleur aside for a moment. If Fleur -- now if Fleur adds that 2,500 plus the 1,000 rooms under construction or 800 rooms under construction, then Fleur site will increase 60% in the next 3 years, in terms of operating assets. Those fees will come directly to Lemon Tree. Hopefully, unless there are some hotels which go to some other brand. As far as the managed portfolio goes, we are talking about maybe 2,000 rooms opening in FY '27. In FY '23, I don't know the number, but certainly by FY another 2, 3 years from now, we'll be opening 5,000 rooms a year, because that's what we are signing now. So you can do the math then. You say FY '27, we'll open 2,000 rooms, and we have 11,000 rooms. In FY '28, Fleur will start contributing more. We will open maybe 3,000 rooms. In FY '29, maybe we'll open 4,000 homes. One can have a range. How many rooms we open and you have a simple number, which is the following. And this is where I would be very careful about assessment. In the first 1 or 2 years of opening a hotel, normally 1 year, the income is not stable. So our fees are subdued. The minute the hotel gets stable, then our fees start kicking in on a full basis. So really, the fees can increase by 50%, 60% on a stable hotel. So one has to compensate for that and say, okay, I'm opening 2,000 rooms this year. Mainly I'll earn INR 100 a room. But next year, these 2,000 rooms will give me INR 150 a room. And then it will be INR 150 going forward. And therefore, you have to do this adjustment also in the fee income for the first 12 to 18 months, depending of lower fees till stability. Okay. But if you look at '23 to '26, our fee income of the managed portfolio grew at 27% a year. I would obviously expect it to be larger, although the base has become larger, this fee income should also grow much faster. I mean, we have projections, but I'm not going to share it with you.

Our next question comes from the line of Rahul with ER.

Yes. So I just wanted to ask about this loyalty program of yours. So a lot of your international peers have very successful loyalty programs and tie-up with banks and card issuers. I'm very surprised to see that as an asset-light company Lemon Tree, which is becoming now, why don't we have a very exhaustive application, a mobile app and loyalty program because that will really drive consumers towards you, more particularly on the retail side, which will be booked directly through you rather than through OTS. That's my question.

Fair point, Rahul. That's -- that needs, of course, significant technology investment. So if you -- and I'll answer this in a broader way before I come to the key points. So far, let's say, our technology investments have been focused on essentially the -- making the operations seamless, getting our data aligned, making sure we have fit-for-purpose for scale. And therefore, we've invested in our revenue management system. We've invested in a market tool. We've invested in, let's say, sales force automation, what remains now going forward is when we should be able to direct our technology investments in some legacy systems transformation like a PMS system and working on our loyalty engine, which means essentially working on our website, our booking engine and the loyalty program. So you -- so the benchmark that you're talking about through international hotels is a very, let's say, of -- let's say, executive playbook. It helps us, of course, in rebalancing our segments more towards the direct business. And that's the -- and that's what you could expect from us in the next couple of years. With currently at the early stages of driving investment on the loyalty side. Though the loyalty program was rehashed a couple of years ago, we have about 24 lakh guests there, 48% of them are, let's say, of the room nights that we sell in a year, 48%, almost 50% of them are driven by our guests from a loyalty guests, if we execute or sorry -- if I eliminate sorry, the first time sign-up of the loyalty guests, 25% of our room nights, so the volume that we deliver every year is driven by a loyalty program. So it shows all good signs. The benchmarks versus international chains are also pretty solid at this point of time. And therefore, the next stage is what you just alluded to.

That will be all I think. I just look forward to a really great app being a Lemon Tree customer myself.

One question, sorry, is Nishant of Kizuna Capital still on the line? Can I talk to him?

One moment, please, sir, will just check. So the line for Nikhil from Kizuna Wealth has been unmuted.

Nikhil, are you on the line? Nikhil, you're there?

Yes, sir.

Okay. My apologies, we just referred to the transcript. You were talking about what I said about Lemon Tree steady state that when it becomes a pure what is it called pure-play brand and asset owner on a steady state when our EBITDA hits 75%, 80% and taxes 22%, 25%, then you are absolutely right. There is no depreciation. There is no interest. And our PAT will be 60% of the revenue. So thank you. You said something correct, and I was incorrect.

So sir, let's say, now my second follow-up question would be on that only. So now coming to the PAT margins, in our recent quarter that we have reported, our PAT margins are coming out to be 40%. And for the FY '25, it was 45%. So how are we planning to increase those to 60%? And because most of the margin flow-through is going to go to slower rather than Lemon Tree. Because of technological expenses are going to be staying at 0.79% of the revenue. So can you help us understand a bit more on how the margins will increase and because all the technical expense will go to Lemon Tree, if I'm not wrong.

You're absolutely right. So let's put it this way. The Lemon Tree's current investment in technology, you must consider, although it is in the P&L, must be considered as an investment, which we have to monetize, okay? So on a steady-state basis, we are not going to significantly increase our main expense, which are 2, in Lemon Tree as a brand, which is corporate expenses and technology expenses. So as our revenue grows in terms of management fee income, and we've been discussing this, if you do some rough modeling, then on a steady-state basis, hopefully, earlier rather than later, the growth of management fee income will translate to a flow-through of about 75%, 80%, okay, on a steady state basis. And that is what you should track over the next 2 years, 2.5 years. How is this happening? And of that, this is including technology, by the way. Then 75% flow-through means that if you take tax at 22%, 23%, then you have a 60% PAT. This is broad, okay? Obviously, if the fee income grows much faster than the fixed cost of Lemon Tree, then what will happen is that we will then hopefully assume -- achieve that 80% EBITDA, take out 25% tax and you have 60% PAT. Does that make sense?

Our next question is from the line of Sriram R, an individual investor.

Post restructuring, Lemon Tree is expected to generate substantial free cash flow over the coming years, right? So how are you thinking about capital allocation? Like would the priority be to reinvest in adjacent growth opportunities or return the excess capital to shareholders through buybacks or dividends?

So Lemon Tree will not need any significant capital other than potentially investments in technology or in marketing and so on. So it will be essentially a 0 debt cash accretive company. And what we will do is, I think we will sit down as a board and decide what our dividend distribution or give back to shareholder policy yet. So Lemon Tree will effectively move into distribution of profit to shareholders. As far as Fleur goes, Fleur is not currently seen as a dividend distributing company, at least, currently, we would like to deploy capital because we see we can really add to shareholder value by growing the business. And so it will be more focused towards capital growth or share capital growth and share value growth rather than distribution to shareholders because we think we can give a better return to shareholders simply by growing the business.

So basically, we are thinking about shareholder buybacks or dividend for the Lemon Tree stand-alone. So that means we are ruling out any investments into adjacent growth areas, let's say, F&B or some other areas, right? So we won't be investing in those lines. Am I right?

Currently, we don't see growth in F&B, because F&B has specialized, they have -- it's not our core competence, frankly. What we might -- look, it's not obviously not on the top of my mind or even our Board at present. But there are interesting opportunities to acquire asset-light platforms at the right value, which add value to our entire portfolio of brands or to our customers or to our technology platform, then it is possible we would invest there. But frankly, we would have a very high hurdle rate there. Because our view is that if we are not sure we can adequately reward the shareholders by not giving the level of dividend we should, then there should be a compelling reason to then do this acquisition, whatever that is.

Next question comes from the line of Vaibhav Muley with Haitong.

Just small bookkeeping question. Can you share the room revenue and F&B revenue for full year as well as Q4 if it's possible?

Okay. Nipun, our Head of Strategy, will call you and explain that to you.

Thank you. Ladies and gentlemen, as there are no further questions, we have reached the end of question-and-answer session. I now hand the conference over to the management for closing comments.

Thank you once again, everybody, for your interest and support. We'll 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, and have a good weekend.

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