Ladies and gentlemen, good day. Welcome to the Lemon Tree Hotels Limited Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Pujari from CDR India. Thank you. Over to you, sir.
Thank you. Good afternoon, everyone, thank you for joining us on Lemon Tree Hotels Q3 and 9M FY 2023 earnings conference call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director, Mr. Kapil Sharma, Chief Financial Officer, and Mr. Vikramjit Singh, President of the company. We would like to begin the call with brief 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 results presentation that was shared with you earlier. I will now request Mr. Keswani to make his opening remarks.
Thank you. Good afternoon, everyone, and thank you for joining us on the call. I will be covering the business highlights and the financial performance for Q3 and for 9 months FY2023, post which we'll open the forum for your questions and suggestions. Q3 FY2023 occupancy increased by 133 bps and gross ARR increased by 17% over Q2 FY2023. The total revenue for the quarter stood at INR 234.1 crores, which is 19% over Q2 FY2023 and 15% up versus Q3 FY2020. The net EBITDA margin for the company in Q3 FY2023 was industry-leading at 54.3%, which is 6.48 bps above Q2 FY2023 and 1,265 bps above Q3 FY2020.
The PAT for Q3 FY23 stands for INR 48.6 crores, which is 151% over Q2 FY23 and 338% up versus Q3 FY20. Q3 FY23 has been the best ever quarter for the company with more key metrics such as gross ARR, total revenue, EBITDA margin %, PBT, and PAT growing significantly. We are confident in the company's ability to sustain this growth even more in the coming quarters by focusing on the following growth levers: opening of Aurika Mumbai in Q3 next year, accelerated growth in our management and franchise portfolio with proportionate increase in fee-based income, further improvement in gross ARRs and occupancy for the LTS portfolio, and a significant increase in ARR and occupancy in the Keys portfolio post-renovations.
We are pleased to share that we have expanded our presence with the signing of seven new hotels in the cities of Thekkady, Haridwar, Jamshedpur, Dehradun, Chandausi, Banswara, and Tezpur
Moving on, our focus on cost optimization has translated into an expansion of EBITDA margin percentage by 648 bps versus Q2 FY23 and 1,265 bps versus Q3 FY20. Cash profit for Q3 FY23 stood at INR 72.1 crores, which is 63% up versus Q2 FY23 and 114% up versus Q3 FY20. We are optimistic that we will generate more cash in the coming quarters, allowing us to fund the Aurika Mumbai project through internal accruals. I would like to reiterate that the construction of our largest hotel, Aurika Mumbai, is on track and should open by October this year. Compared to the industry, Lemon Tree's same store hotels RevPAR is 18% up versus Q3 FY20, while the industry is 2% up.
The company has outperformed in the markets of Mumbai, Hyderabad, Delhi, Bangalore, Pune, Gurgaon, and Chandigarh, while Chennai and Goa have not performed to the expected level. Lastly, diversity of team and gender inclusion is one of the key pillars of our corporate mission. We have been actively engaging with differently abled or economically, educationally, socially, or geographically challenged individuals over the years, which we classify as opportunity-deprived individuals. As we look forward, we aim to have around 30% of opportunity-deprived individuals in our team by FY 2026. Thank you once again for your interest and support. I'll now hand it over to CDR.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets for asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nihal Jham from Nuvama. Please go ahead.
Thank you so much. Good afternoon to the management. My first question was that we've seen a strong improvement in RevPAR versus pre-COVID, and there is also a mix in terms of the corporate segment, going lower and the website segment growing higher. Is there a mixed element that is there, if you just wanna highlight that?
No. Well, if you look at our our segment mix, if you compare it to Q3 2022 and Q3 FY 2023 in terms of room nights, actually we did the same in room nights. Since the inventory has gone up, therefore our percentage is a little down. When we say that, you know, this year we have done in the portfolio 68%, actually Lemon Tree did 71.4% and Keys did 50.6%.
Yes.
-in this quarter. If you look at it from that perspective, then, actually we did the same number of room nights in Q3 FY2020 as we did in Q3 FY2023. What changed was that corporates were a little less and the retail segment was more. From, you know, 61-39 in Q3 FY2021, 61% and 39%, it is now 55% and 45%.
Got that. The second question was that generally this is a period where the corporate rate negotiations happen. There are certain other players who are looking at flexi rates. I just wanted to get a sense if we have seen a renegotiation, if we get a sense of the rates or if there are change in contract terms that you wanna highlight?
There is, but we haven't increased rates as significantly this year. We do have fixed rates. From next October, that is this coming October, we are going to move into a little more dynamic pricing. Let me explain how this works. In Q3, what we did is whenever we were high occupancy, the lower category rooms and the lower category rates were not offered. Therefore, automatically it was the higher category rate, room and rate that was offered even to corporates. That instead led to some ARR increase. When we say that our ARR increase is 17%-18%, it really means corporates were 13 and the others were, say, 20, you know, on a weighted average kind of basis.
Yes.
When I look at it from October, what we will do is we will take our top 20 key accounts who we treat as pillar accounts. Maybe those rates will go up 8%-10%, and these accounts will account for about 20% of our total room nights. The other 15% of corporates or 15%, 19% will really be more dynamic. We will give them You know, we will say you look at the website and our rate for you for the full year will be, say, 10% discount on the website or 15% or 20%, depending on the size of the account and how rarely you use us. Therefore it'll become automatically dynamic.
Got that. Just to clarify then, in this last October, what is the kind of price hike rate of versus pre-COVID, in October 2022?
See, when you, when you look at our pre-COVID, I think we were about... Let's look at that, one moment. We were INR 4,644 in Q3 FY20, and now we were INR 5,738, so there was a 24% hike. Now, the corporate rates were lower than this ARR that I have just given you. In that sense, we did take the corporate rates up by 25%, and we took the non-corporate rates also up so that the overall average was 24%. Individual segments went differently. For example, the airline segment remained flat. The travel trade segment went up 30%. OTAs and retail went up 22%. It's a weighted average kind of thing because the rate anyway of the retail segment was 15% higher than the corporate segment.
When I say I took both up by, say, you know, 20%-25%, the average rate of the corporate still is below the ARR of this declared ARR, which is INR 5,738.
Got that. One last question was on the buyback from APG. If you could just highlight that, what are the terms ahead? I think when they made the investment in May, June 2020, maybe the thought was of transferring hotel assets to keep our stake, at around the 58%-59% that we have in Fleur.
Correct. I'll ask Kapil to answer this, but fundamentally, if they put in INR 100, we had to put in INR 150 to equalize, and that means we had to put INR 150 worth of assets. slump sales are no longer tax effective. To put INR 150 worth of assets, the tax was an extremely high component. It was better for us in that sense to value the company and since this is like an equity instrument and buy 60% from them. Kapil, if you, there's anything you want to add, please do so.
No, that is correct, Nihal. Because of the high transfer cost, we evaluated the transfer of asset does not make sense at this point of time. It's better to get a buyback of the CCPS, which is an equity instrument. It is generally bought back at the current valuation of the company, which is generally done by the merchant banker. As for the normal payment regulations. That is what we have planned to do now to ensure that our shareholding, Lemon Tree shareholding in Fleur, remains the same as it was earlier before the issuance of CCPS.
Does this take the stake to the ideal 58% that we are targeting or there is still some more buyback that will be required?
There would be some more, but major part is already happening now.
There could be more. Yeah.
Yeah.
Okay. I'll come back in the queue for my further questions. Thank you.
Yeah, sure.
Thank you. The next question is from the line of Archana Gude from IDBI Capital. Please go ahead.
Hi, sir. Congrats on very strong set of numbers. I have two, three questions. Firstly, on the follow-up on what you discussed earlier, which is 24%-25% increase in the gross ARR, compared to, you know, the pre-COVID quarters. When the occupancy are still subdued, is it fair to assume that the next leg of growth in sales would be from incremental occupancy rather than ARR? How we should look at it from the midterm perspective?
In H1, just when COVID got over, we decided to take our rates up, and we took them up about 20%. When H1 got over in H2, we took a further hike of 17%-18%. Really, customers have seen two hikes within the space of 6 months. We tried to equalize it. Now, the broad thought was that in October first we reprice. We repriced, and the focus was on getting the price up. That's why the occupancy was still a little muted. That's why I said if you look at the occupancy of the two hotel divisions, so to speak, Lemon Tree did an occupancy of 71.4% at INR 6,100 in Q3. Okay.
It was Keys which did an occupancy of 3,500 at about 61%, which is why we did a weighted average of 57, 38 at 67.6%.
Right.
The focus was get the price hike done, so it automatically led to some churning of some low rate customers. If you now move to Q4, our focus is now to increase the occupancy because we've done the price hike. What you will find is in Q4, broadly, I expect that we will do over 75% in our in the group occupancy, which means Lemon Tree will be at 80%. The ARR will also be above what it was in Q3. What you are seeing is a series of steps. First was a 20% price hike for H1, then a nearly 20% price hike for Q3, and a further small price hike in Q4, and a significant hike in occupancy.
It's an ongoing process because this is one year after COVID, so obviously there are different things we have to do. What I can tell you is in Q4, Lemon Tree will do its best ever occupancy at the highest ever ARR.
Sure.
Keys will also probably do much better.
Sure. My second question is like when I look at our mix of inventory in terms of owned and managed, currently stands at close to 60%, 40% check-in.
Yeah.
Going forward, what number will be at comfort level and any guidance of incremental EBITDA margin due to this change in mix?
Keep one thing in mind. Anything we do is managed. It's 100% close loop. Okay? To give you a number, this year we have so far signed 20 hotels and about 1,100 rooms. We've also opened 5 hotels and about 220 rooms. The hotels that we have signed will open next year and the following year. By the end of Q4, we are very confident that in this financial year we will sign a total of 26 hotels with 1,400 rooms. What do we expect in FY 2024? We will sign another 35 hotels with about 2,000 rooms. We will open 23 managed hotels with about 1,500 rooms, plus we will open Mumbai International Airport. From the current, you know, we have 87 hotels.
They will grow by 24 more hotels to 111 hotels by the end of next year. We have 8,350 rooms. They will cross 11,500 rooms by the end of next year operating. We operate in 53 cities. We will operate in 71 cities by the end of next year. We will have another 2,000 odd rooms which we will have signed, which will open in the next year or two, the following year or two. The guidance is 111 hotels, 11,500 rooms, 71 cities, and the mix will be 50/50 owned to managed.
Sure, sir. Lastly, if you can give some color on the Bangalore and Goa markets.
Yeah. Bangalore is, you know, we have a lot of hotels in the very IT-dependent markets, which is Electronic City and Whitefield. Those have been a little subdued, both the Keys and the Lemon Tree Hotels. Gurgaon, as you noticed, has picked up, and it has picked up fully now in this quarter. You will find now all the nine key markets we are outperforming vis-a-vis our Q3 performance in Q4. I've given you a guidance. I said we'll do 75% in Q4. We will do a slightly better ARR, so you know, you can work backwards.
Sure, sir. Thank you so much. That was very helpful.
Thank you. The next question is from the line of Karan Khanna from Ambit Capital. Please go ahead.
Hi, thanks for the opportunity and congrats on a good set of results. Firstly, regarding the transaction with APG Group, I'm just curious to understand how the 50% premium valuations were arrived at. If you would comment on, you know, the rationale as to how these numbers arrived at. Secondly, how are you planning to fund this acquisition?
Kapil?
Yeah. Karan, this is as we, as I just mentioned that, this is as per the current valuation of Fleur Hotels, which is done by the merchant banker. Based on that, whatever changes have happened. Because, you know, the valuation as of June 2020 of the company, even if you look at from the industry perspective, was much lower at that point of time. Now industry has come back very much on the business side. The kind of performance you have seen, especially this is the first quarter post-COVID, which is a season quarter, Q3, which performance you have just seen.
Based on this and further projections, which generally done by the merchant banker, they have evaluated, and the, transaction is happening for purchase of the CCPS from APG at the valuation of Fleur Hotels. That's how you are seeing the change in the value, which is FY 2021 versus 2023-2024, basically.
Regarding funding for the acquisition, will this add debt on the parents' books, given most of the OCF will be used towards investing in the Mial project?
Not really, because as you have seen that in this quarter only, in Q3 we have a gross cash profit of 72 crores. This kind of performance is likely to, looking at from the market perspective, is likely to continue. There are a robust internal accrual in the company which can take care of this acquisition as well as the CapEx which is required for the Aurika Mumbai property. If so that is not a much difference from the debt level which would happen. There could be small change, but it's not a significant change which would happen from here onwards.
Sure. My second question is.
Actually, Karan, if I can add something. You should look at our cash profit in Q4. You'll get an understanding of what Kapil is saying. Number two, the stamp, the transfer cost of an asset. Firstly, the assets were not getting valued right. We would have transferred it at a lower price than we felt was fair. On top of it, there was a very high stamp duty cost. Very high. It did not make sense for us to transfer assets. Rather, it made sense for us to simply buy 58%.
Sure. This is helpful. Thanks for the clarification. My second question is on the occupancy front. According to slide 9, while the ARRs are up across the board, occupancy is up in Lemon Tree Premier while down 5-6% in Lemon Tree and Red Fox.
Just refer to the slide.
Yeah. What I wanted to understand is if you're seeing any structural shift in demand towards more premium products like Lemon Tree Premier or. If that's the case, how does one think about occupancies and, you know, the outlook for Red Fox and Keys hotels?
Red Fox, if you look at the occupancy change in Q3 FY2023, the point is that the ARR went up 20% and it is a relatively price-sensitive market. Even though the occupancy came down by 5 percentage points versus Q3 FY2020, the RevPAR went up 11%. That's the key number because we did not want very low rate business there. Red Fox was operating in a low rate business. When you take the ARR up to INR 4,300, you are really touching parts of Lemon Tree. I would not suggest you look at it like that. It is an ongoing process. As I said, obviously, when we started hiking prices at the upper end of the band there is less price sensitivity.
At the lower end, of the product, like a Red Fox, there is more sensitivity. You will, what I'm saying is wait for Q4. You will get a complete picture because this is an ongoing process. Q4 will tell you the results of what we did in the previous nine months, what we stabilized at.
Sure. Third question on the sustainability of the operating efficiencies. Do you feel that the reductions that you've achieved post-COVID, especially on the employee front, is sustainable given the high attrition rate that we are seeing in the industry?
It is completely sustainable because for the last 3 quarters, every quarter we increased it to the full occupancy level. If you notice in a certain slide in our presentation, we have shown that in December we were doing 77% occupancy. October was a crash because there was Diwali and Dussehra. In November picked up to about 72, and December was 77, and we did not increase our staffing significantly. If you just look at it from the P&L perspective, we have kind of stabilized at. I think all in our costs are roughly, I would say about INR 105-110 crores a quarter, and the balances are a bit down.
Sure.
In increase in occupancy, there is a increase in variable cost of about 10-12%. If there is an increase in food sales, there is an increase in variable cost of 30%. The company average is about 23%.
Sure. Sure. That's helpful. My last question is on Aurika, Mumbai. Mumbai is one of the most hotly contested markets with premium names like JW Marriott, ITC Maratha, and Grand Hyatt being in the market with another 600 on Fairmont that's opening up closer to the date of Aurika launch. How should one think about the demand offtake in terms of the ARR as in occupancies for Aurika in the first year of launch?
Okay. I don't want to give you a statement on this quarter. I suggest you look at how Lemon Tree Premier Bombay did in Q4. It will completely answer your question. Remember, it is operating in the same market. It opened a couple, a few months before COVID hit, so it had no chance to stabilize. The hotel really started operating in a normal market only from April, and within six months, nine months, from April to December, have a look at its performance in Q4. If you look at slide 11, we have said that in Bombay, our occupancy in Q3 was only 79% at INR 8,500. Have a look at it in Q4 and then ask yourself what Aurika Mumbai would do.
If a 300-room hotel can do, you know, nearly 90% occupancy at INR 9,000 plus in Q4, then surely Aurika can do much better than that.
Great.
In fact you should have a look at how Aurika did in Q4.
Sure.
Because I had said earlier that I'm not dropping prices in summer because I wanted to set a standard for this hotel. We did only 53% in Q3, at about INR 17,000. Now have a look at how we do in Q4. You will be astounded at how that hotel has done and will you be astounded at how the Bombay hotel has done. It will give you an idea of how we can price Aurika and be the kind of occupancies Bombay gets even for a Lemon Tree Premier.
Great. That's it from my side. Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah, hi sir. My question is, except Mumbai and Pune, where we have seen a better than pre-pandemic occupancy, the other key market like Delhi, Gurugram and Hyderabad and Bengaluru, we are still lower than pre-pandemic occupancy rates. Can we expect in the coming quarter, the occupancy will reach the pre-pandemic level? What are the key reasons for that, the occupancy going to the pre-pandemic level?
I told you. In Q3 FY20 we did 71%. In Q3 FY23, Sumant, we did 68%. 3.5% down. Nearly 4% down. We took the ARR up by 24%. What I have told you is that this was a work in progress. Please wait to see a stable performance because we've taken prices up by nearly 40% in the space of nine months. First in April and then again in October, and then marginally in January also. If, let me assume, we get to 75% occupancy in Q4 at a higher ARR than Q3 FY23, I think that will answer your question.
Now what about Keys, sir? We are, we have seen it is still struggling.
Sumant, your voice is not very clear. Please just.
Yeah. What about the, what about the Keys Hotel? The occupancy is still at the lower side.
Keys, what you are seeing in slide 11 is the partial quarter. We acquired Keys in the middle of Q3 and we are very clear that it has to be redone, renovated. What we are selling today is a, frankly, a very mediocre product. In certain markets it is very low demand even today, like Kerala or Ludhiana. It is only Bangalore and Pune where we are able to take prices up somewhat, though we are not able to really hike the occupancy because that market, Bangalore is quite low, the 2 IT districts. You are right. The occupancy came down 15% versus Q3 FY 20, we did reprice the hotel up by 18%.
Now you are seeing a 10% fall in RevPAR in Q3 FY23, you will see me catch up in Q4 because it's an ongoing thing. Really, one of the key levers for our future growth in revenue is post renovating these hotels. I think I mentioned earlier that we have now designed the new rooms for the Keys portfolio. It's actually in Pune. It's been designed and done. All the designs are ready for all the hotels. We are putting in a fair amount of money in the Bangalore and Pune hotels in order to reprice it by at least INR 1,000. We are putting in the bare minimum in the other hotels to bring it up to what we consider are the minimum brand standards.
The total investment in Keys over the next two years will be INR 5 lakhs for half the portfolio per room. That is about INR 25 crores and INR 1 lakh per room for the other half. We will spend INR 30 crores. We have spent a little bit already, but we will spend INR 30 crores over the next 2 years, and we are pretty confident that we will take the ARR north of INR 4,500, and we'll take the occupancy above pre-COVID, which was 66%.
going around 1,000 in Keys, I think, Keys hotel, ARR is likely to be, near to Red Fox, room rates.
Red Fox will go up even further, as you will see in Q4. Really the way to look at it is that Keys one year from now, or, you know, at least half the portfolio, will move to the Red Fox levels today, which is about INR 4,300 in Q3. Keys did about INR 3,500 in Q3. What I'm saying is that we will take it up by INR 700-800, but when it's fully renovated, then I think you will see it even higher.
Next two years, all the Keys hotel will be renovated and the product quality will be improved.
Correct. In all aspects, because Keys is a very tired product. You see, when we bought it, our intention was to renovate it the following summer. We had actually got approvals, et cetera. COVID hit, so it was put in a... For two years, these hotels were practically shut.
We can expect.
That was the problem.
We can expect the occupancy will improve, post renovation.
What I am saying is that we will exceed 66%, which is what it did in Q3 FY20, and we will increase the price by at least 20%.
Thank you so much.
Thank you.
Thank you. The next question is from the line of Sanjaya Satapathy from Ampersand Capital. Please go ahead.
Yeah. just wanted to confirm, that, the 75% occupancy you were talking about in Q4, that is against the 68% in Q3, right, sir?
That is right. I'm talking group.
Sorry?
I'm talking about the group, including Keys, overall occupancy.
Overall ex-occupancy, which you reported as 67.5% in Q3, will be going to 75% in Q4.
Yes, about 75.
Yeah. You are also talking about increasing ARR in almost all your the last 3 categories that is Keys as well as Red Fox et cetera. That is where you are also talking about the price sensitivity. Why and the fact that the prices are already up 20%, 30% in last 3 years, why are you taking such an aggressive stance in terms of pricing?
Because we think we can get that price. We think the products are capable of that price. If the segment RevPARs are going 20%, then we will naturally also go up 20%.
Understood. When you also talk about your Q4 and considering that you have already become so profitable in terms of EBITDA margin in the industry and probably with the kind of ARR and occupancy you're talking about in Q4, the profit margin probably will go up a lot higher. Is there some kind of sustainable number that which you can share with us?
Let me say one thing, Sanjay. No analyst believed us when we said that we will do double our income this year, and we will do minimum 50% net EBITDA. What I can tell you is that if you look at the nine months, we have already crossed 50% net EBITDA. This quarter, I have already indirectly told you, is much better than Q3, where we did nearly 53% net EBITDA. Therefore, we will be over 50% net EBITDA. In fact, significantly over 50% net EBITDA, and certainly well over double the income of the last year. Is it sustainable? Well, this is a business that operates on demand and supply. For the next four years, supply will not grow more than 5%.
Demand of the branded hotel room is growing at 12%-14% annually. That was the normal situation pre-COVID, and I presume it will continue now. A lot of hotels shut down during COVID and have not come back. Therefore, there has been a constraint in supply. There has been an improvement in occupancy. It is not linked to revenge travel. Revenge travel for leisure purposes may have occurred in the first six to nine months. I don't think it will be at that level now that international travel has opened. For Lemon Tree, where 85% of our inventory is business hotels, it is the business hotels that have bounced.
Unless there is, you know, some black swan event, this imbalance or, you know, demand being more than supply will definitely continue for the next four years. You are going to be surprised at the kind of pricing hikes you will see. I'll give you an example. Lemon Tree's ARR in 2006, when we had only 6 hotels, was INR 9,000. Those kind of prices are going to come back. You will see it yourself. In fact, I think you will start seeing it in Q4 itself, this Q4. Every quarter there will be an increase in prices.
The reason why we are asking that is because we are seeing quite a few consumer durables as well as other consumer companies who have taken massive price hike over the last 1 odd year, or the last three years in fact, are starting to see some kind of a consumer backlash against prices. Several segments are starting to see bit of a softness in demand. Almost most categories have stopped taking price hikes because of that. Of course, you have a compelling case for hotel industry. Now we'll appreciate your thoughts on this, if you can just help us. Also the demand have-
Let me let me answer that.
Okay.
Sanjay, no supply will come in at current prices. The replacement cost of building a hotel today with the kind of inflation we have seen and the high cost of debt, nobody will build a hotel at the current rates, ARRs, even at the current ARRs. It will make sense to build a hotel, say a Lemon Tree Premier equivalent, only at an INR 8,500 ARR. Okay? We are still 15%, 20% below that. Till there is a sustainable price at that level, supply will automatically be constrained. I would not worry about it because this is a situation where you have to see two or three years of sustained pricing before new supply is planned. It's a self-regulating kind of thing, like a commodity cycle.
Sure, some customers won't like it, they will move down. Some 5-star customers will come to a Lemon Tree Premier. Some Lemon Tree Premier customers will go to Lemon Tree. Some Lemon Tree customers will go to Red Fox and so on. We operate across the entire chain, right? We operate from, well, from Lemon Tree Premier, which is 4-star, to Red Fox, which is 2-star. If there is a movement, it will be within our system. What I want you to realize is, if you look at slide 11, Lemon Tree Premier's ARR in Q3 '20 was slightly higher than the Lemon Tree Hotel's ARR in Q3 '23. Similarly, Lemon Tree Hotel's ARR in Q3 '20 was just slightly higher than the Red Fox Hotel ARR this quarter.
Red Fox's ARR in Q3 2020 was equal to the Keys ARR today. Basically the customer, if he wants that price point, will go down. Lemon Tree. You know, you can see it in the diagonal if you just look at the slide. We are not losing any customers. They may go down at the ARR of the lower hotel, but we are getting enough customers at Lemon Tree Premier from the five-star.
Thanks a lot, sir, for your patience, and questions.
My pleasure.
Just throw some light about the summer season and subsequent period, that would be great. Thanks a lot.
Hello?
Yeah. Just wanted to hear that, I mean, you're fairly confident about Q4, but if you can just give a bit of a color about the demand for the subsequent period. Otherwise it is fine. Thanks. That's all from my side.
Typically what happens in H1 is there is a 5% fall in ARR and a 3%, 4%, 5% fall in occupancy because it is off-season. It is like, if you look at pricing in... Let me explain. If pricing in summer to this in one year is 100 bucks and in winter it goes to 120, then in summer it comes down to 100 and, say, 110 or 112. 100, 120, then it comes down to 112. Then it goes back to 130. It's a step up, step down, step up, step down, and each time the step down is higher than the previous summer.
That's the first point. As far as occupancy goes, if you do 65% in summer and say 72% in winter, then the next summer you will do 68%, 69%, if it's an upswing, and the following winter you will do 75%. Again, it's a step up, step down, step up, step down. If you look at, you know, our performance pre-COVID, it is very clearly reflected there.
Understood, sir. Thanks a lot.
My pleasure.
Thank you. The next question is from the line of Prateek from Jefferies. Please go ahead.
Hello. Yeah. Good afternoon, sir. My question, sorry...
Your voice is breaking. I request you to use the handset please or keep the mic closer.
Hello. Yeah. Can you hear me now?
Yes, better.
Yeah.
Yeah. Thanks for the opportunity, and thanks for very detailed response on pricing earlier. Sir, basically we'll exit this year probably on a high, in terms of pricing. Factoring in the seasonality which you've mentioned for Q1 and Q2 thereafter, for FY 2024 basis we should still be, like, higher or by like close to double-digit in terms of ARR year on year in FY 2024 versus FY 2023?
Let me put it this way. We will do better than 20% higher revenue in FY 2024 over FY 2023. Our net EBITDA margin will be above the net EBITDA margin of FY 2023.
Okay. The 20% higher revenues and margins higher than this year. Okay.
Yeah.
Just small question on,
Basically, I'm saying our PAT will be 40%-50% higher.
Right. Right. On occupancies and demand, one small question. Basically, besides the IT sector, there's some impact on micro markets related to IT sector. Is there any other segment which is showing any signs of softness except for the step downing of some of the customers from one segment to another, is there any specific slowdown from any segment which is witnessed till now?
Not really. In fact, the IT sector is also showing signs of picking up, by the way. Typically they take a lot of our rooms in Electronic City and in Whitefield for new joinees. We seem to have been given an indication that there will be a lot of hiring this summer, number one. Number two is that the sectors that we give us a lot of business, which is financial services, pharma and so on, we find those sectors are growing very fast. On an overall basis, the retail segment is growing super fast and a large part of the corporate segment is growing super fast. In fact, IT only accounts for about 5%, 6% of our total business.
Even if it drops by 20% or 25%, it will be 3%, 2% drop.
Right. Which will be like top five segments from like the way you mentioned 5% for IT?
IT is a very important segment because it gives us a lot of business in our IT heavy markets like Ejipadi in Pune or Electronic City or in Whitefield.
Right. No, I was asking which would be other like, top five segments for us, like pharma you mentioned.
Pharma, financial services, auto, retail.
Right. Okay. Okay. My last question.
Any of the large, any of the large services sectors. When the Indian economy is growing at 6%, 7%, the services sector is growing at 10%. Manufacturing may be at four now, maybe higher because of PLI, and agriculture is, you know, anywhere from 1%-3%. We are 85%-90% dependent on the services sector. If it grows at 10%, then our demand normally grows at 1.2, 1.3 times that. That is why when I say the demand for branded hotels is growing 12%, 13%, in fact, my guess is it'll be even more now. It is just for this reason. Retail sector growing and these segments of the... Now, what is not come back fully is the foreigners.
Typically, foreigners account for 10% of our revenue, and that is, you know, I know, that, the tourism minister recently said a lot of foreign travel has started. I think he was referring to the domestic, the Indians, the NRIs coming back. Actual foreign travel is still. Foreigners' foreign travel is still, I think, 40% down. That will come from this coming year.
Sure. These are my questions. Thank you.
Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead.
Hi. Good afternoon, Mr. Keswani, and team. My first question was on Keys. You mentioned we are doing some renovation to get this portfolio going. Just help me understand if the issue is with the markets there, and the demand in those markets, or if the issue is with the kind of product that we have, which needs some-
It is three problems. In certain markets the issue is that the market itself is down, but we are not even able to get a fair share in that market because the product is even more down. We feel that if we spend, say, INR 1 lakh a room in those markets, we'll be able to bring the product back. It may not take the ARR up, but it'll take the occupancy up. In those hotels, it's an occupancy strategy. Like Kerala, two hotels in Kerala and a hotel in Ludhiana, which is 350 rooms put together, and partly in Visakhapatnam, where we have another 100 rooms. In the other two markets, which is Pune and Bangalore, where we have, you know, another 450 rooms, there, if we upgrade the product, we will be able to reprice.
Mm-hmm.
It's occupancy and pricing strategy for Bangalore and Pune. In the others it is merely an occupancy strategy.
Sure, sure.
The capital allocation is done on that basis, the return on the incremental capital. Let me tell you an interesting thing. We feel that by spending INR 30 crores, we will get a more than 100% return in EBITDA per year from Keys.
Oh, that's great. That's very helpful, sir. My second question was on on our Fleur transaction. you know, we're buying INR 22 lakh CCPS this before 31st March. That would still leave about INR 31 lakh CCPS to be bought. What will be the timeline for this? I'll assume that that will entail, again, based on current valuation spend of INR 150 crore plus, and how will we fund that?
Kapil, will you answer?
Which number you are referring to, I think you are, you are looking at entire CCPS block. We need not buy actually entire CCPS which were issued to the APG. Second thing is that as you already know that the conversion date was extended till 30th June 2023. That would happen in June. What we are doing is we have to make sure that we acquire enough CCPS to ensure our existing shareholding before conversion remains the same. If you look at the current quantum which we have declared and which has been approved by the board, which is 22 lakh CCPS out of roughly 54 lakh CCPS.
That brings Lemon Tree shareholding in Fleur to roughly 58%, which is close to the current one only. That is the situation after this conversion happens for the current acquired share, CCPS of 22 lakhs. Am I?
Incrementally Yeah, so incrementally we may not buy any further CCPS shares. Is that what you're saying?
We'll have to see. We will have to look at that. As I mentioned earlier, that major part is already being done now.
Sure. That's helpful. Just two follow-ups on that. Did we pay any preference dividend to APG in the last three years on these CCPS?
No. These were 0.01% CCPS, but no dividend has been paid.
Sure. If you can share some numbers on Fleur, you know, in the nine months, you know, like what kind of revenue growth and what kind of margins we are doing there, if you can?
I think we'll share with you offline about this because we do not, in our earnings presentation bifurcate in that manner because it's, by brand, by markets and, on a group level.
Sure. Sure. I'll take it offline. Thanks so much and all the best.
Thank you.
Thank you. The next question is from the line of Rajiv from DAM Capital . Please go ahead.
Good afternoon, sir. Thanks for the opportunity. On the CCPS thing, so another 18%, 19% needs to be bought, so the valuation will be recalibrated from here onwards or the current valuation will hold for that?
No. As per regulation, as per SEBI regulation, whenever you do a transaction, you have to get a current valuation done, at the time of the transaction. It would depend on the what valuation comes at if there is any further transaction.
Is it possible to provide what is the, let's say, ARR assumption for Aurika Mumbai you have taken, I mean, the banker considered in the.
I had said twelve and a half thousand in the first stable year, which will be obviously FY 2025. We are pretty confident we'll stabilize it in... If we open it in October and November will be very low months because of Diwali now moving into November in this year and Dussehra being in October. During that period, people generally don't travel, whether it's definitely not for business reasons. That is why you will see this year in this last 9 months, in October we only did 54%, which was actually low because we had also repriced. Our thought is that Aurika, I had earlier given a guidance, would do twelve and a half thousand rupees. Let me give you a range. It will do anywhere from INR 13,000-INR 15,000.
Sure. Sure. And, on the, from Q2 to Q3, if we do, let's say.
Incremental EBITDA margin, it looks like you are actually doing better EBITDA, I mean, even higher than the revenue growth sequentially. In a sense, the incremental EBITDA margin for some of the assets are over 100%. How is that happening? For example, for Lemon Tree, Lemon Tree Premier, Lemon Tree Hotels, your incremental EBITDA is actually higher than the revenue growth.
Yeah, because we are expensing renovation in some hotels. What I have always told you gentlemen is that, and ladies, is that for us, we spend significant amounts of money every year in renovation. Therefore, for us, the depreciation is just cash because it is effectively double-dipping. Because I'm already showing it pre-EBITDA as an operating expense with a little bit of CapEx later. Typically of my renovation, 75% is OpEx. Depreciation, therefore, which is about INR 110 crores a year, is pure cash profit because I've already spent the money in renovating and upgrading the hotel. It depends sometimes on the hotel. If you spend a lot of money in renovating it, then obviously the EBITDA comes down. If we stop the next year, then the EBITDA goes up.
I don't know which hotel you are specifically referring to, but what I can tell you is that I see that there was a certain amount of skepticism about us saying that, you know, this is our cost structure, and now you will see it over four quarters. I think you will find that any increase in our expenses is linked to the net increase in the room revenue and the other income. If the room revenue goes up mostly and not the food, then the contribution is 90%. If the F&B revenue goes up, then the contribution is 70%. If some other revenue goes up, which is like spa and so on, then the contribution is 40%. It's a question of which part of the mix went up.
broadly, since we are driving room sales first, the EBITDA margins will keep going up.
So let me specify. On your, page, 10 of your slide.
Mm-hmm.
If you look at, for example, Lemon Tree Premier, your revenue, I back calculated your revenue for the quarter must be close to INR 942 crores. For the last quarter, in the sense of Q2 FY23 must be INR 843 crores. There is INR 99 million swing in terms of your revenue. The EBITDA swing is INR 157 million. EBITDA swing, sorry.
There may have been some renovation that did occur. I don't know exactly. Let me put it this way. We are the lowest cost operators. That is why we can talk at our level of ARR and occupancy, we can talk at, you know, north of 50% EBITDA. Some of the EBITDA gets reduced because there was renovation and so on. If we can talk offline and you can give me specific figures, I'll answer them.
Sure. In terms of let's say, because other hoteliers have been talking about renovation, which was due from COVID period onwards. Do we have a similar quantum which is, for example, lined up in this year or the subsequent year?
Yeah. We normally spend INR 30, INR 35. This year we spent INR 50.
This will continue in the next fiscal year, a similar quantum?
Yeah, yeah. 100%. When I report to you my EBITDA, it will not come from the cash flow post. It will be pre the net EBITDA. If I say I'm going to spend INR 50 crores, you can assume INR 35 crores is going pre-EBITDA and INR 15 crores is going post-EBITDA as CapEx.
Sure. Sure. Just one clarification. On the revenue side, the revenue growth for FY 2024, you said it's a 20% revenue growth or 20% RevPAR?
I said revenue growth, I don't want to give specifics. It'll be a 20% revenue growth. Our net EBITDA margin will be higher than this year. Therefore, PAT will be at least 40% higher than this year.
Sure. Lastly, some counterparts, for example, Hilton during their recent con call had kind of subdued or given a slightly weak subdued commentary in terms of flat occupancy for the current calendar year and less than 5% ARR growth. I mean, the main reason they cited was inflation. I mean, the participant asked a similar question. I was just wondering whether are we seeing any risk of that playing out in Indian context as well?
You're talking about Hilton's global con call?
Yes. Yes.
Yeah. I'm sorry, I'm not familiar with it. I can talk about India. In India, I don't see that as an issue. Because you see, what happens is when demand grows... See it this way, four days in a week, I'm sold out. I mean, there is unconstrained demand which is greater than my supply. Obviously I charge, I keep increasing the prices 'til I do a 98, nine, 100% occupancy. I let go the bottom 10-15%, which is the lowest rate and which is how my retail segment ARR keeps growing. I'm not seeing any slowdown in that in spite of inflation.
Sure. Thanks a lot, and all the best.
Thank you.
Thank you. The next question is from the line of Niket Agrawal from VT Capital. Please go ahead.
good evening, sir, thank you for your opportunity. I wanted to know what was the retail and corporate contribution in Q3.
If possible. What retail and corporate contribution is there in certain slides?
Slide 16.
Okay. I am... Yeah, just hold on. Retail gave us 1,532 rooms. Corporate gave us 1,300 rooms. Airlines gave us 290, and travel trade, which is the leisure side, gave us 370, totaling to 3,440 rooms, which is 67.6%.
Okay, great. That means retail is still a significant portion of your demand portfolio. I wanted to know that, like, the ghost towns and ghost hills of the world that is coming up, like, in all these tourist places. Are you seeing that as a threat to your to your demand for demand for your hotels in any way?
I don't have any leisure in the owned portfolio, I have very little leisure. It is Aurika.
Mm-hmm.
plus 100 rooms in Goa and,
Mm-hmm.
A few rooms in Alleppey and a few rooms in Bandhavgarh. We are in markets where there is leisure and business like Aurangabad, Jaipur, and so on, where I'm not, where we are doing quite fine.
Mm-hmm.
In fact, Chandigarh, I think we do over 80%, 80% or something like that. Jaipur, we are doing 75% with 183 rooms. It's not really affected us. You see, what you're talking about is I... Not these guys. It is more the villas which are on offer in Goa and so on, and these are affecting more the 5-star hotels than us because they are quite highly priced.
Yeah.
The demand in Goa is such that in spite of a lot of villa accommodation, hotels still continue to do well.
Okay. Got it. Great. Sir, any guidance on the management fee? You've talked INR 25 crores in the nine months this year.
I said we do INR 35, 36 crores this year. We should do 50% more next year. Our broad intent is that we will increase our management fee, you know, by, we will hit INR 100 crores hopefully by next to next year.
Great, sir. Thank you so much. That's it from me.
Thank you. The next question is from the line of Aditya Zamani Azan Investment Managers
Good afternoon, sir. Congratulations all around. You've answered most of my questions, but I have a question on. I recently read a news report where you were quoted in a business today forum where you said in 18 months you would expect ARRs to go up 100% almost. Is that base case, best case, or where do you see that stabilizing, maybe worst case?
If things continue like this, and I'm making two assumptions, that, inflation will come under control, and number two is that this war will go and that there will be regular foreign travel, which I'm hoping will happen from this October. It may take, you know, go to the next October. Yes, if that happens, prices will hit that level.
Wow. Okay. Is it fair to assume that logically that if you're hitting low fifties in EBITDA, we could easily surpass 50% maybe?
We did surpass it in 2005, 2006 and 2007.
Excellent, sir. Okay. That's it, sir. Second, question is, you know, in with all these wellness stays like yoga and the like, we have a dearth in the country. We have your Anandas and Vana in the north. We have your Windflower, for example, in the south. These are. I mean, there is a massive shortage. You know, there aren't really good spaces to go to. Is that under active consideration?
Not for me because, I think we are very, very focused on the two to four-star and now the upscale segment, and we want to saturate the Indian market. We want to go to 100 cities, which we hope we will reach, and we want to hit 25,000 rooms in the next four years.
Right. In continuation to that question, When you say foreign travel comes in, a lot of that goes towards a lot of wellness stays. Wouldn't that be a low-hanging fruit?
That's true, but I am not focused on that.
Right.
I am focused on the domestic Indian consumer.
Fair enough. Fair enough.
I want to be focused because if I go, I don't want to go all over the place. Plus, I don't have spa expertise. I outsource spa.
Right.
I am quite happy with the results as they are because we want to, as I said, saturate the mid-market in India.
Absolutely, sir. Okay. Lastly, you know, where are we in terms of largest rooms in terms of ranking? I'd say maybe put Marriott, Taj, or if I say OYO, and that's inbred. Where do we rank? You know, because, and the reason I ask-
I don't think you should bring OYO into this.
Exactly. No, I get it.
We are the third-largest owners of hotel rooms in India, and currently the sixth-largest in terms of total managed, you know, managed and owned. There are others, like the international guys are number one and so on because they only manage. They don't have capital deployed in asset ownership.
Mm-hmm.
I can't.
The reason I ask about OYO was simply because of the IPO coming in and the kind of crazy valuation they're gonna get.
Well, I wish them the best. They are not really competitors with us.
Yeah, fair enough. Fair enough. No, I was only referring to the valuation that OYO is gonna get, that's all. you know, That could increase our, you know, our values absolutely, and valuation directly. If that makes sense.
Well, I hope you are right. Let us see.
Okay. Right, sir. I think I'm fine for now. Thank you very much.
Thank you.
That's it.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing comments. Thank you, and over to you, sir.
Thank you everybody for your interest and support and the questions. We'll continue to stay engaged. Please be in touch with our investor relations team or CDR India for any further details or discussions, and I look forward to interacting with you soon.
Thank you very much. Ladies and gentlemen, on behalf of Lemon Tree Hotels Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.