Ladies and gentlemen, good day and welcome to the Lemon Tree Hotels Limited earnings conference call. As a reminder, all participant lines will be in a 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 and then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anup Pujari 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 FY22 earnings conference call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director, Mr. Kapil Sharma, Chief Financial Officer, Mr. Vikramjit Singh, President, and Mr. Inder Pal Singh Batra , Senior Vice 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 would now request Mr. Keswani to make his opening remarks.
Thank you, Anup. Good afternoon, everyone, and thank you for joining us on the call. I will be covering the quarterly business highlights and performance for the year ending 31 March 2022. After which we'll open the forum for questions and suggestions. Our investor presentation is already uploaded on the exchanges for your reference. Starting with slide 3. We're happy to announce that Lemon Tree has been included in the MSCI India Small Cap Index effective 1 June 2022. This will hopefully lead to new investments and may also enhance volumes and liquidity. Moving on to slide 5. In the past 2 years, the company has had a sequential focus on cost optimization and on ARR recovery, which has led to EBITDA margin expansion. On a like-for-like basis, EBITDA margin expansion.
On a like-to-like basis, EBITDA margin percentage has expanded by approximately 1,200 basis points, which is 44.9% in Q3 2022 versus 32.4% in Q1 FY 2020. Going forward in FY 2023, net EBITDA margins will stabilize on an ongoing basis at greater than 50%. On the next slide, you can also see that the company's gross ARR in Q4 FY 2022 was 90% of Q4 FY 2020. During FY 2022, Lemon Tree's ARR versus the All India ARR has improved from 62% in April 2022 to 77% in March 2022. During FY 2022, the company showed resilience. After the third wave of COVID, the occupancy recovered in six weeks from 34% in January 2022 to 60% in March 2022. Whereas after the second wave in Q1 2022, recovery took approximately six months.
This recovery has translated into improved operational efficiency for the company, where growth in revenues has outpaced expenses. Now speaking of the Q4 operational metrics on slide 13 onwards. Managed inventory increased by 6% to about 3,300 rooms, and total inventory by 2% to 8,490 rooms. This is on a year-on-year basis. Occupancy percentage on full inventory decreased 967 basis points from 56%-46% on a year-on-year basis, and by 1,146 basis points from 58%-46% on a quarter-on-quarter basis. Average room rates went up by 52% from INR 2,654-INR 4,093 on a year-on-year basis, and by 5% from INR 3,901-INR 4,093 on a quarter-on-quarter basis.
Revenue from operations increased 26% from INR 95.1 crore to INR 119.5 crore on a year-on-year basis and decreased 17% from INR 143.7 crore on a quarter-on-quarter basis. EBITDA increased by 46% from INR 30.4 crore to INR 44.5 crore year-on-year and decreased by 32% from INR 65.62 crore on a quarter-on-quarter basis. EBITDA margins increased by 360 basis points from 21.4% to 35% year-on-year and decreased by 10 percentage points from 45% on a quarter-on-quarter basis. Our key priority continues to be towards strengthening our financial position. In FY 2022 our cash loss reduced to INR 17.8 crore from INR 20.8 crore in FY 2021. Gross debt stood at INR 1,699 crore, and after adjusting for INR 16 crore of cash, our net debt is INR 1,638 crore.
We've also lowered our average cost of borrowings by 28 basis points from 8.28 to 8 during the year. Moving on to expansion plans on slide 22. Over the last five years, we've signed approximately 3,000 rooms and opened 2,856 rooms. As of March 31, 2022, we have 20 management contracts in the pipeline, that is 1,441 rooms, and the opening dates of these 20 hotels can be seen in the next slide. When I refer to pipeline, I'm referring to definite hotel openings. Further in Q4 FY 2022, we have signed term sheets for another 8 hotels, that is 777 rooms, and are currently in active discussions for another 81 hotels, totaling 5,947 rooms.
Our operational inventory as of March 31 comprises of 87 hotels and 8,489 rooms, out of which 4,517 are owned, 675 are leased, and 3,297 are management contracts. When the current pipeline becomes operational by FY25, Lemon Tree will operate approximately 10,700 rooms in 109 hotels across 65 destinations. From a demand perspective, we are seeing an uptick in consumer sentiments. Leisure travel continues to maintain its momentum. We're also noting improved traction in corporate travel with the reopening of offices, resumption of international flights, and a pickup in in-person events and conferences. We are reasonably sure that consumption will reach pre-COVID levels by H1 this year. Overall, we are very optimistic about growth in FY23.
On that note, I come to the end of my opening remarks, and would now like to ask the moderator to open the line for Q&A.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may enter 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 while asking a question. Anyone who has a question may enter star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Adhidev Chattopadhyay from ICICI Securities. Please go ahead.
Good afternoon, everyone. My first question is on the revenues in terms of the April and May numbers. If you could give us some idea compared to pre-COVID levels, how these are trending? Have they recovered or have they crossed pre-COVID levels? For the full year of this year, assuming all things remain good, what sort of revenue growth can we look at on a like-for-like basis and on a combined basis along with the new hotel openings on versus pre-COVID levels? That is the first question.
See, I don't want to give specific numbers. Let me put it this way, that in this financial year, that is FY 2023, we will 100% cross. We will at least grow 100% in revenue versus FY 2022, and we will have a minimum net EBITDA margin of 50%.
Okay. I'm just saying, sir, are you seeing these already in this, in the April and May numbers, these sort of trends being there, or is it still some time to go till we fully get there?
No, we are already there.
Okay.
Uh-
Help us under-
Actually from the last week of March. You see the key was corporate traction. While it is catching up, you have to keep in mind that unlike the other listed players, we have massive inventory. We have, you know, 86% of our inventory is business hotels and of the whole inventory, and only 14% is leisure. That's the first point. When leisure picks up and business does not pick up, then we are at a disadvantage. Now, when you reverse that, conversely, when business picks up, then we are at an advantage. What we found was that. I'll give you a simple instance. If you look at Mumbai, Bengaluru and Hyderabad, and Gurugram. Mumbai.
Sorry, Gurgaon, Hyderabad and Bangalore, 40% of our owned inventory is just from these three cities, and our hotels are all located in large, business concentrated areas. Now these were a lot of it is IT business. These were completely affected for both January and February in this quarter that went by. All of them the offices opened in you know late March, and now we found that for this quarter, that is Q1, they are the markets for us. I mean, Bangalore is doing what used to do 30%, 40% is doing 80%. The ARR has doubled in Bangalore. Similarly, Hyderabad, which was you know also an underperformed, relatively underperforming market, is now at 80%.
It has been, you know, like reverse, like leisure benefited other chains. The business side is benefiting us, and you will see it actually after our Q1 results. You will see what I'm saying. And the result of this is since our costs are more or less now constant, in Q4 we reached full cost levels. What you see in Q4 which is, you know, something like INR 95 lakhs G&A expense is on 100% inventory, and at assumed full occupancy levels. We did not do significant cost cuts of any transient nature in Q4. And we instead in fact spent money renovating many of our hotels.
We spent INR a few crores on that, and I think you will see that we will reap those benefits from Q1 this year. Massive increase in ARR, massive increase in occupancy, in specific markets, overall increase in occupancy for the company, and that's why I'm saying with complete confidence that we will do at least 100% growth in revenue this year versus the INR 402 crores of whatever we did last year, and over 50% net EBITDA.
Okay. That's helpful. Just technically you've alluded earlier in your remarks that you want to bring the debt down significantly over the next 3-4 years. Could you give us some roadmap on how we intend to get there? How much would we choose? What are the plans to de-leverage through organic and inorganic means?
See, I mean, now, let me not talk inorganic because what will happen most likely is, if you will see our performance, say for Bombay in this quarter, this quarter, which is just where we are in the middle of, and the next few quarters, you will see something which I have been saying for a number of times that Bombay is one of the best markets in India. Our expectation is that, once we open Bombay, which is end of next year, which itself should, and I'm making a forward-looking statement here, contribute a minimum of INR 150 crore-INR 200 crore of EBITDA. We'll probably be in a position to raise capital in our joint venture with APG, which is Fleur Hotels, at a good premium.
That will be one opportunity for us to get a third party, and which will typically be a sovereign or a pension fund, into the joint venture where 80% or 75% of our debt resides. We would, if that happens, be able to write off the debt immediately. However, we do not assume that. We are looking at our internal cash flows and debt is about, as I just said, a little under INR 1,700 crores. Our total requirement to open Bombay and Shimla is another 600-odd crores because we have already invested about INR 450 crores. The total requirement of cash to be debt-free and to fund Bombay, because as I have also said earlier, we are not going to increase our gross debt.
We are going to fund Bombay and Shimla through internal cash accruals. Our estimate is for this INR 2,250 odd crores that we require, somewhere between three and a half to five years is, say four and a half years, is when we will have paid this off with our cash flows. If you do some simple math, I've already given you some kind of informal guidance. Add on what we think will happen in the next two years, as I have said, there is not significant supply coming in, and I don't see any major obstacles. I'm assuming monkeypox does not become the next pandemic. Then we will definitely generate about north of INR 2,000 crores of cash in the next four years or four and a half years.
Okay. Fine. That was very helpful. I'll come back in the queue with more questions. Thank you.
Some people have asked me why I'm not raising, you know, once our performance improves, why I shouldn't raise equity. For me, raising equity to pay debt down, while it of course reduces risk, is really replacing. I'm getting a return of 8% on equity there because I'm replacing debt, which is at 8% cost with equity. I think we are now finally in a position where we don't have to worry about it. Really most of our debt is in a joint venture where the partner has always been ready to invest more capital, you know, when we have had a requirement. In that sense, we have tried to risk mitigate.
Fine, sir. That's pretty helpful and pretty clear. I'll come back in the queue. Yeah. Thank you.
Thank you. Our next question is from the line of Baidik Sarkar from Unifi Capital. Please go ahead.
Uh,
Mr. Sarkar, I'm sorry. If you're on a speaker mode or hands-free, please switch it to handset. We can't hear you clearly.
I hope this is better. I was saying, Mr. Keswani, a key assumption in imagining this year's RevPARs of INR 800 crores+ is that we will hold current ARR. In fact, we've indicated publicly a while back that by the end of this calendar year, you actually expect ARR to significantly accelerate. Could you perhaps flesh out the lead indicators you're seeing at your end that give you credence to this assumption? Secondly, a timeline of the resort coming by. I reckon you have about 18 months to pre-open. How are we doing on timelines here? Thank you very much.
Our ARR is already INR 5,000.
I didn't mean-
Yeah. In April it was a little lower because in the first week of April it was a little slow. Our ARR is therefore up 20%, and our occupancy is also up enormously from Q4. In fact, also up from, I think, Q3. When I talk about for you to, you know, understand how revenue works, typically Q1 and Q2 are the slowest quarters of the year. If you look at historically, say last 10, 15, 20 years, typically H2 is 1.2-1.4 times the revenue of H1. Okay. Costs do not change. In fact, sometimes costs come down because the energy cost of summer is higher than winter.
If you do some simple math, say I do INR 100 in summer in H1, say INR 100 in Q1, then a very simple number is INR 100 in Q1 should be at least INR 100 in Q2, should be at least INR 120 in Q3 and Q4. Your revenue should be typically INR 240 in that example with INR 440, with INR 200 coming in summer and INR 240 in winter. However, in good years, this, it's not 240, it is 260-280. Depending on how the market trends, in the worst case, your winter revenue is 1.2x of summer, and in the best case, it could be as 1.5x.
I mean, there have been years when the winter revenue has been 60% of the full year revenue. It, you can therefore do the math. I don't want to give guidance in that sense. I am giving you a perspective.
Okay.
Number 2, the point I have made is that our costs are fixed now, have stabilized at INR 95 lakh per day. This is our full operational expense. If I add on renovation expense, it is INR 5 lakh a day to INR 7 lakh a day, so that comes to INR 1 crore. Corporate expenses would be another INR 12 lakh a day. About INR 1 crore to INR 1.5 crore is our fixed expense. Fixed means it is fixed and variable. Variable based on up to 75% occupancy. That is the cost economics. This will lead to a margin expansion of 12 percentage points on a revenue basis in our company from this year onwards, as you will see.
Now, the assumption I have made is, I have given you a number for revenue, which is based on conservative assumptions. What we could do, I don't want to, you know, make statements on. What I have said is what we are 100% sure of, which is we will do 100% more revenue minimum compared to FY 2022. As far as Aurika goes, we have accelerated the development of Aurika. As I said, without, if there are no unforeseen jhatkas in between, we should open it by the end of next year. In fact, we will soft open maybe 300-500 rooms by October.
Well, that's interesting. If I may squeeze in one last question here. On the margin front, obviously there's been unprecedented inflation with CPI food basket and, you know, fuel costs are what they are. You know, just to cross-check our assumption of 50% EBITDA is discounting the price drivers we have to tackle all of this, right?
I am talking current price levels. Which means post-inflation.
Very well. No better information. Thank you.
Thank you. A reminder to our participants, if you wish to ask a question, you may enter star and 1. We'll take our next question from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah, hi, sir. One, regarding the occupancy rates, I have seen a couple of hotels, the listed player has shown an improvement in occupancy as well as in ARR. Our occupancy YOY has declined. Yes, ARR improvement was higher than other players. Continuing the same dynamics and nature of the business, is there any, the high, occupancy in Q4 2021 was, we got some bulk order or group, booking. Compared to other players, our occupancy is down YOY.
You know, I, as I explained to you, I don't want to now talk about competitors and so on. Let's talk about the other players in general have a very large, more than 2x, in some cases 4x our inventory percentage in leisure destinations and in Mumbai. These were the two best performing markets. As I mentioned to you, the Bangalore, Hyderabad, Gurgaon markets where we have 40% of our inventory, I don't know about the others, but we have disproportionately large inventory, were very big underperformers in January and February. Because as you may imagine, large corporates and specifically large IT companies, when Omicron hit, they did not open their offices, travel did not occur.
As a proxy, you can perhaps look at how airline travel changed into Bangalore, Hyderabad or out of Bangalore, Hyderabad and, Gurgaon you wouldn't know, it's out of Delhi. It would be a clear indicator. It's really a mix. You see, if you have five hotels and I have five hotels, and two of my five are in places where the market has absolutely not picked up, then obviously I will not match the same occupancy you do across five. Conversely, when those two markets pick up, then I will get disproportionate benefit. The point I have made is that from Q1 that benefit will play out.
Okay. There might be the Q4 2021 occupancy was 50% plus was all because of maybe staycation and that segment we have a higher chunk of market share compared to other player. Now the overall that segment has gone down. Yes, as you know, Q1 is going to be weak, but there might be a reason for lower occupancy this quarter compared to previous year's quarter.
No, no. This year I have said the occupancy will also be much higher than previous year-over-year quarter.
Yes. Okay. Yeah, I'm talking about the YOY Q4 2022 compared to Q4 2021.
See, Q4 2021 had no disruption. You've got to keep in mind, sir, that quarter 4 this year had 1.5 months of complete Omicron wave. You're comparing it to Q1. The Delta variant, if you remember, only started towards end March, and it was predominantly in April and May. That disruption has generally brought down the weighted average of occupancy across the board. That's if you're comparing Q4 2021 to. No, but what specifically are you comparing, Sumant? Q4 this year versus Q4 last year. FY 2022 to?
Q, yeah, Q4 2021.
Q4 2021?
Yes.
I think there's a slide. Can you show your slide?
Yes.
Q4 2021 did not have any Omicron.
Disruption.
disruption. No, which is why if you see Q4 2021, its occupancy was marginally under Q3 FY 2022, where again there was, these were all post-wave.
It's because of the higher leisure demand. Might be other tiers have got benefited and we have more business hotels. That was the key reason for that.
Yeah, because when I see leisure, at least I know that, I think Taj and Oberoi have doubled. In their portfolio they have about 30% leisure. We have 14%.
Okay. Now talking about the current demand scenario, can you talk about the corporate demand and the foreign customer mix, how things are panning out currently?
Yeah. Since we have focused on increasing our prices. You know, as I said, our ARR is now 20% over the year. In fact, more than 20% over the ARR of Q4. That means that certain types of customers have stopped using us because of price. We have looked at actual substitution, and that substitution has come more from corporates. Therefore, if I gave you a broad example, since not many meetings and incentives happen normally in these hot months, 45% of our business today would be retail, 45% would be corporate and large and small, and 10% would be others.
Of course, this does not include, though foreigners actually have started using our hotels now. This should typically be more than 10%. It should be 15%, but at present it is 45%, 45% and 10%.
Thank you so much.
Thank you.
Thank you. A reminder to our participants, if you wish to ask a question, you may enter star and 1. Ladies and gentlemen, if you wish to ask a question, you may enter star and one on your touchtone telephone. Our next question is from the line of Hitesh Arora from Unifi Capital. Please go ahead.
Yeah. I was looking if you have guidance on or some indication, maybe not guidance on the tax, given that we have a lot of subsidies. It is a little difficult to sort of project. If you could give some on the tax outflow for FY 2023.
You know, we are lazy creatures. When we do our P&L, what we look at is really simple math. We just assume 22.5% tax because that is the maximum tax you can pay. One of the reasons where we spent—we haven't spent, I mean we have accounted for INR 15 crore OpEx on stamp duty in the last quarter. The reason for this is we have merged the Lemon Tree Premier in Mumbai, the Lemon Tree Hotel in Gachibowli, and the Lemon Tree Amarante Beach Resort, Goa, which together account for about over 550 rooms into Fleur Hotels in order to get tax benefits.
This 15 crore that you see as stamp duty in the last quarter is we expect to recover within 4 and a half years, I think, in tax savings. Okay. Now, Kapil, would you like to answer this breakdown of how tax operates or Inder, one of you?
As you rightly mentioned, there would be certain subsidiaries where the tax would be coming, but others like the holding company, Lemon Tree Hotels Limited and Fleur Hotels would have some advantage in terms of the adjustment of certain previous carry forward losses. The liability of the holding company would be lower, but in certain SPVs where we are having profitable single hotel, there we would have to pay some tax. Looking at some sort of planning further going forward so that we can have a lower liability on this front. This is for the future.
Through mergers.
Through mergers and other
Transfer expenses.
Yeah. Rearrangements.
Just to get a sense, these two hotels which were merged into Fleur, they were potentially, you know, tax.
Positive.
Tax positive.
All three of them.
Yeah.
Bombay is going to be super profitable. I mean, enormously profitable. Gachibowli has become super profitable now, and Goa has always been very profitable. If you take these three, it will hopefully help offset against other losses.
Yeah.
See the critical thing, Hitesh, is that we have over INR 100 crore of depreciation every year.
Right.
Right? Sometimes it makes sense also from a new hotel perspective, because historically we've had, you know, many subsidiaries which we are gradually now trying to clean up from a tax-effective perspective. On an aggregate basis, what would our tax be, Kapil?
Instead of 22.5%, if you have a best guess, it'll be closer to 12%-14% now.
Correct.
Because of the offsets.
Yeah, at the max we can take 15. You want to play safe for modeling, you can assume tax on a consolidated basis at 15% of PBT.
Fair enough, sir. Okay. Thank you, sir. Thank you.
She should work out the exact number.
Thank you. Our next question is from the line of Kalpit Narvekar from Allianz Global Investors. Please go ahead.
Hello, sir. Thanks for taking my question. My first question was on the micro markets. I can see your numbers for fourth quarter, but maybe on the exit trend what was the April or say April month. Could you share some color on how the occupancies and ARR are trending for the markets in let's say NCR, Bangalore and Mumbai?
Mumbai, we are trending because it's the IPL two months, so it's obviously fantastic. Mumbai is at a little under INR 8,000 and at about 80%+ occupancy. Now Delhi NCR comprises of three distinct areas, which is the two hotels near the airport, which is 500 rooms. That does 75%-80%. Red Fox does over INR 4,000 now, and Delhi Airport will be doing a little under INR 6,000. Occupancies would be about 80%. Then you get to East Delhi, where we have a small inventory of 150 rooms. We have a Red Fox of 100 rooms and a small banquet hotel of 50 rooms. There, the occupancies would be about 65%.
The ARR would be, well, I would say INR 4,000 for the Lemon Tree and INR 3,000 for the Red Fox. Gurugram, we have over 500 rooms. There are within Gurugram three markets. We have one in Udyog Vihar, which is a small hotel. We have over 200 rooms in Sector 29, where we are doing about INR 6,000 ARR and about 65% currently. We have in Sector 60, 250 rooms. 150 is Red Fox, where we are doing about INR 3,000. 100 rooms is Lemon Tree, which is I think at four and a half thousand. Those are also doing 65% occupancy. You get to Hyderabad.
Hyderabad, we are north of 75%, probably north of 80%, so now. The ARRs are the Lemon Tree Premier is at about INR 6,000. Gachibowli would be at about INR 5,000. Banjara Hills would be also over INR 5,000, maybe INR 6,555. Red Fox is at a little under INR 5,000. Bangalore, the Lemon Tree Premier, that 200-room hotel, which is in the city center, would be at about 75-80% at about INR 6,000. Electronic City, the Lemon Tree would be at about 80% at 80%?
80, yes.
80% at about INR 5,000. Whitefield, a 130-room hotel there would be at maybe 90% at also INR 5,000. The 2 Keys Hotels are also doing phenomenally well. They are at about 80%, and they are at about INR 3,500. We get to. Have I forgotten something? I think I've covered it all.
Yeah, that's really helpful. I had a follow-up on this. Could you share some thoughts on why Keys occupancy has been lagging? It's 32% occupancy for Red Fox, right? What is your strategy in terms of bringing that occupancy up in the Keys hotels?
See, the real reason we bought Keys is actually we bought the two Bangalore hotels, the Pune hotel and the Visakhapatnam hotel, which account for about 600 rooms. The replacement cost was about INR 550 crore. From our perspective, these were the three key markets we were bullish on. Unfortunately, we bought it three months before COVID hit. Then after that, of course, there was a nonstop underperformance for the next two years. We are now putting a fair amount of investment into the Keys portfolio, specifically these four hotels I have spoken about.
The 250 rooms that we have in Kerala continue to underperform, and in fact are responsible for deflating the overall performance of the Keys portfolio as well as the 100-room hotel in Ludhiana. 350 rooms out of the 950 that we bought, in our minds, frankly, we did not really value them in the acquisition of the Keys portfolio. As I said, we bought Keys for INR 600 crores, but what we really looked at were these four hotels as the generators of EBITDA going forward. As it turns out already this month and the previous month, they have now started coming back to the levels we wanted them to operate at pre-COVID.
It is, when you look at Keys, you are seeing the weighted average, which includes unfortunately the 350 rooms in Kerala and Ludhiana. We are now upgrading those two, so I guess over the next six months when we renovate them, you will start seeing a fairly decent improvement in performance. The real generation of EBITDA will be in the four hotels I spoke about. I hope that answers the question.
Yeah, yeah, that's helpful. I mean, why invest money in Keys more than your own hotels? Like, let's say you could just sell out these 350 rooms, right? I'm just trying to understand your thought process behind investing in Keys because operationally your own portfolio is much better than Keys anyway, right? In terms of margin.
Not these four. These 600 rooms have the potential to generate at least INR 60 crores of EBITDA. I think you will start seeing that run rate within the next 3 quarters. Think of it this way, the way we looked at it, we bought the rest of the hotels for INR 50 crores, and bought those 350 rooms, and we bought these 600 rooms for INR 550 crores. These were hotels we may have liked to build or buy ourselves individually too. That was the perspective. You're right, we could look at selling them, but if you can find buyers, I'll be grateful. We will not sell the four I spoke about, because we think that they will give us very nice returns.
As far as renovation goes, we are going to spend, when I talked about net EBITDA, it was post a renovation expense of INR 25 crores this year. We have incurred a few crores in Q4. This year we intend to spend 25 odd crores, and we are upgrading some of our Lemon Tree and also upgrading these, specifically the three Keys Hotels in Bangalore and Pune. But it is, I think, totally only about 7 or 8 crores we are spending in Keys Hotels and 17 crores in Lemon Tree. That is all expense. When I said, I repeat net EBITDA, it is post this 25 crores.
Great. That's helpful. If I may ask one last question. How do you so on the retail piece you mentioned that some you're seeing some segments sort of backing out of the bookings or something. Could you share some color on how you see these like macro air response segments, 25%. How does that affect retail bookings say, you know, a quarter out or something? Any sort of trends? Are you seeing any drops in bookings, you know, a quarter out or something like that because of the ARR hikes?
I don't have the up-to-date figures of May, but I have of April. Now, April was, as I said, first week of April was slow, but I'm gonna give you a flavor. In Q4, our corporate demand was 820 rooms at about INR 3,750. In April, the corporate demand became 1,560 rooms at about INR 4,200. The ARR improved by about over 10% and the occupancy doubled more or less. Airline segment, which was only 120 rooms at INR 3,600 in Q4, which is the 10% I spoke about outside of corporate and retail. The airline segment was increased to 120 - 140, and the average rate went up 33% from 36 - 48.
The travel segment, the travel trade segment, you know, travel agents and conferences and so on. In Q4 only on average 150 rooms at INR 4,900, and that is now increased by 50% to a little over 220 rooms in April at about INR 5,500. Retail, which was INR 4,200, was 1,240 rooms in Q4. Now, it was much less in the first half of Q4 in all these cases, and much higher in the second half of Q4. You can say it was 1,000 or 900 rooms in the first half and 1,500 rooms in the second half of Q4. Retail averaged INR 4,200 in Q4 and went to INR 5,500 in April, but did 1,500 rooms.
You add it up, basically this is, you know, about 3,400-3,500 rooms we did at an ARR of, I forgot about. April was low. It was about INR 4,900.
Great. That's really insightful. Thank you so much. Thank you so much.
Thank you. A reminder to our participants, if you wish to ask a question, you may enter star and one. Our next question is a follow-up from the line of Adhidev Chattopadhyay from ICICI Securities. Please go ahead.
Yeah, thanks for the opportunity for the follow-up. The question is on the Aurika Udaipur. Could I think if I remember correctly, you had said earlier that the full year revenue potential was around INR 65 crore for this hotel. Does this number still stand or do you expect much higher numbers, if you are looking at the whatever bookings and demand you are seeing?
We will do at least this.
Okay. 65 crores. If I heard you correctly, you had said the Mumbai Airport hotel, whenever it is operational, you're expecting INR 150-200 crores of EBITDA. On a top-line basis, that would imply at least 300-350 crores of top line over there annually on a stabilized basis.
Not so because, Bombay, for example, our existing hotel, which is 300 rooms and an upper mid-scale, you know, upper mid-scale hotel, unlike Aurika, which is an upper upscale. The Bombay hotel does 60% GOP already currently. Okay. You can assume that Aurika—say an Aurika Udaipur—will do a 65% GOP. When I say I will do hypothetically INR 200 crore of EBITDA in Aurika, it really means the revenue I need is about INR 330 crore. Okay?
Okay. That is just secondly, sir, you alluded that you have consciously increased the rates now, right, to cater to more premium customers. Is it more a seasonal thing or is it something from a longer-term strategy to get more premiumization of customers?
Let me put it this way. You know, normally, Adhidev, you increase rates after demand firms up. We went counterintuitive this time, and we said even in Q4, we did not drop prices to pick up more retail business, which is obviously available at, say, INR 3,000. If you notice the retail ARR was even in Q4 was 4,200, okay? Just below the travel trade ARR.
Okay.
When you take a call like that, then you have to consciously accept that some business you will not get, which you may have gotten otherwise. That is a short-term loss because what you are doing is you are repositioning your hotels because during COVID, everybody's ARRs went so far south because the customers were not your real customers. Do you get me? A five-star hotel was taking customers who would normally, you know, stay in a four-star or a three-star, but they dropped their prices so much when the customer went up and stayed with that five-star. It happened to us between Red Fox, Lemon Tree and Lemon Tree Premier too. We found many of our Red Fox customers were in Lemon Tree and Lemon Tree customers were in Lemon Tree Premier.
Now when you reposition after a two-year gap, there is some initial but minor pain in repositioning in terms of repricing. As I said, we took our prices up very significantly. While in corporate it is kind of based on fixed contract, even there we went up by 10%. In airlines, we went up by over 30%. In travel trade, we went up by over 10%. In retail, we went up by 30%. When you do that, obviously some customers drop away. What I am very, very confident about is that the demand that has come back is such that we will be easily able to replace, and in fact, more than replace the demand that was there in Q4.
Okay. This is something which we evaluate from time to time going forward, I guess, depending on.
You will have to really look at our occupancy and our ARR this quarter besides the revenue for you to understand exactly what I'm saying, since I don't want to give you specific guidance.
Sure. Fine, sir. That is very helpful. Yeah. Thank you and all the best.
Thank you.
Thank you. Anyone who has a question may enter star and one. Our next question is from the line of Rajiv from DAM Capital. Please go ahead.
Good afternoon, sir. Thanks for the opportunity. My question is regarding slide 23, where you have given your active discussions regarding 81 hotels. To me, all of these are under Carnation, right?
As you know, Carnation has become a 100% subsidiary of Lemon Tree as of Q4. This is where the management fee income will go. If you look at this slide, you will see that in 2019, 2020, 2021, we only added 11 hotels. Now, this year, for example, we will open at least 1,000 rooms and at least 14 hotels to increase our inventory. We've also signed term sheets, as you will notice in Q4 of another 800 odd rooms and 8 hotels. We are pretty sure that this year if I, you know, spoke very broadly, I think we will sign at least another 2,000 rooms, which is say another, you know, 30 hotels in the next nine, ten months.
Sure. Yeah. That's about it. Thanks a lot, sir.
Thank you.
Thank you. Our next question is from the line of Achal Kumar from HSBC. Please go ahead.
Hi. Thanks for the opportunity. I have 3, if I may. First of all, I'm referring to slide 17, if I remember it correctly, as your Q3 results. I mean, you reported strong recovery in your premium brands like Aurika and Lemon Tree Premier. The argument was that the customer behavior is changing, and they actually prefer hygiene, so they actually shifting a notch above, and hence the recovery is faster in the premium brands. Now of course the rates are high. The RevPAR is high, which means definitely people are ready to pay more, for the leisure. Your occupancy levels in Aurika seems to be slow or lower than in the other brands.
Do you think the customer behavior is coming back to normal, or how do you see whatever the behavior there was a shift due to COVID? That is my first question. Secondly, generally, the perception is that, you know, the demand would actually exceed the supply side. How do you see the supply demand balance for the industry over the next 2-3 years? That is my second question. The last question, sorry if I if you aren't answered it, and I've learned it a little bit. How is the recovery in the corporate demand you've seen? Those are my three questions, please.
Customer behavior during COVID was, I want to be very specific, I don't look at Lemon Tree as a general example. I look at the branded sector. There was a clear move from unbranded to branded because of a presumption that the branded hotel sector would offer better hygiene, better processes, better standards, cleanliness and so on and so forth. I do not see that those customers going back. See, the customers who may leave the branded sector and go back would be the very, very price-sensitive customers. I am not really able to disaggregate how many of these customers would be going back, how many would remain, and so on.
The broad point I'm trying to make, Achal, is that the customers who were normal customers were not there for most of the past two years, because like you are a customer, you must have hardly traveled. Nobody traveled. That is coming back, number one. Number two, I am seeing an interesting trend linked to PLI. There is this enormous increase in corporate travel from the manufacturing sector. In fact, it is something I'm watching closely for the last two months. I feel that that will be an upside for the branded hotel sector in the next two, three years. That, too, will be a subset. Overall, last 15 years, from 2005 to 2009-10, demand was more than supply, so that was an upcycle.
Once the global financial crisis occurred, from that time to 2019, 2018 actually, demand was very subdued. Occupancy was subdued because demand every year, while it was growing at 11, 12% a year, was less than rate of growth of supply in the branded sector, which was about 15%. Now, things were recovering in the one year before COVID, when, of course, COVID occurred. Now, what am I seeing? It's like, forget the last 2 years. Going forward, demand is going to get back to 11, 12% at least. That's my minimum expectation, because even in the middle of demonetization, in the middle of low growth, our demand was still growing at 12. Supply, on the other hand, will now not grow at north of 5% because you know supply for the next 5 years.
It's studied closely by HVS, by ANAROCK, by Hotelivate and so on. Supply is known because it takes 4-5 years to bring supply on the ground. The next 4-5 years, my expectation is demand annually will outpace supply. When that happens, typically the sensitivity to pricing is 5x of that. If occupancy grows, if demand-supply balance is 5%, you can safely assume that price will at least increase 25%. If you are a history buff, you can go back to 2000 to 2006 in the hotel sector and look at the listed players' reports. You will find price increases were 50%, 70%, 100% increase in average rates on a year-on-year basis for 2004, 2005 and 2006.
I suspect that is going to come back. Of course, that's a hope. I hope it materializes.
Right. How about the recovery in the corporate traffic looks like at the moment? Of course, you talked about the recovery coming from manufacturing sector. Overall, how do you see the recovery in the corporate demand?
I am seeing phenomenal recovery. As I said, it doubled between Q4 to Q1 in April. It is even better going forward. When this PLI manufacturing activity, et cetera, starts kicking in, I reckon it will be a further upside there. Difficult to project how much, but corporate demand is back fully to pre-COVID levels. Now, pre-COVID Q1, because remember, corporate demand is much higher in winter than in summer.
Right. Let me follow up on your demand versus supply equation. That clearly means the demand would actually outpace supply by miles because if the demand is supposed to grow at 11%-12%, the supply is north of 5%, that means.
South of 5%.
Right.
Supply is south of 5%. Different guys are estimating 3.5%-4.5%.
Right. Fair enough. That means the demand is going to outperform or outpace supply by miles. Actually two things here. First of all, that means the ARR should be strengthened significantly from here on if that equation proves out to be true. Secondly, I mean, how long do you think this upcycle could be? Which is actually kicking off now. How long do you think this upcycle could be? 10 years? Do you think 10 years? Do you think five years?
No, no, no. See, what happens is two years from now, my guess is, or three years from now, your ARRs will be double of what it is today. I'm not talking Lemon Tree, I'm talking branded hotel sector. I want to be very specific. Now, at that point, you will find all hotels on a replacement cost basis, the ROCE will cross 15-16%. On a book value basis, it could be 100%. I'm not going there. The minute your return on capital on a current value or a replacement cost basis is 16-18%, then fresh supply is back. My estimate is that by end of next year, there will be such an upswing in the hotel sector that the returns will then you know, kind of justify further investments.
The minimum that will take is three, four years more. The next five years should be very good for the hotel sector. As in any cyclical business, supply will come, and supply will then depress pricing because the rate of growth of supply will be such that it will overtake demand for a year or two in a typical cycle. There will be a drop in pricing, and then again, the cycle will reverse because supply will then dry up till demand and the pricing justifies further investment. Just a typical cyclical business.
Right. That means most of supply should come from brownfield projects, not the greenfield. Because greenfield, if it is greenfield, then anyway it must be visible, right? It must be brownfield projects or conversion, right?
There's not so much brownfield yet. If you look at all the supply in India, put together, I would be surprised if it is more than 15%-20% of current supply. That will take the next 2-3 years to come. Or maybe 4 years. The next round of supply will not be conversions. There will be no brownfield. It will all have to be greenfield. In fact, many of the owners, potential owners we are talking to are talking greenfield. They are talking to us now about building hotels which could take 4 years to come up.
Oh, that. Okay. That's interesting. Thank you so much. Thank you. Go ahead and wish you good luck.
Thank you.
Thank you. Our next question is from the line of Nehal Shah from Edelweiss. Please go ahead.
Yes, thank you so much. Good evening, Mr. Keswani. I just had one question. Sorry if this had been asked earlier, I dropped off. When we are guiding for the 50% EBITDA margin, could you just discuss on the levers of the same? Because in Q3, which is a seasonally strong quarter and where the benefits of cost benefits will fade, we are at around 45% margin. What is gonna be the incremental driver other than rate or revenue which will take up there? Also considering that your cost will come back as things open up.
My costs are fully back. Let me just summarize.
What was the revenue in Q3? 1:45 -
Q3 revenue was INR 145.
Yes.
Divide by 90, that is INR 1.6 crores a day.
Yes.
Right? At INR 1.6 crores a day, we did 45% net EBITDA.
Yes.
Now, that really means that my expenses were 55% on INR 90 lakhs a day. Is that correct?
Yes, that's fine.
Okay. Let me summarize. Q3 revenue per day, INR 1.6 crores. All-in expenses till net EBITDA, INR 0.9 crores. Seventy lakhs profit, 63 crores EBITDA for the quarter. Ninety into ninety, seventy into ninety. What I am saying now is that our all-in costs for Lemon Tree are on a fully operational, full inventory basis, assuming 75% occupancy is INR 0.95 lakhs per day.
Okay.
Corporate expenses of INR 12 lakhs a day. Renovation expenses of INR 8 lakhs a day. That becomes 1.15. Expenses have increased from INR 90 lakhs a day to 1.15. This is taking into account renovation, and all staff, hotels fully operational. I am saying that we will do north of 50% net EBITDA. You can do your math then.
Sorry. Basically it's the expenses.
By the way, I said minimum 50%. I didn't say 50%.
No. Understood. I think this should help in giving us clarity. Yeah. That's it from my side, Shah.
Thank you.
Thank you. Our next question is from the line of Tanay Shah from Dolat Capital. Please go ahead.
Yeah, good afternoon. Thank you for the opportunity. Just one question on my side. Regarding the other income, I see that it has gone up to say around INR 7.6 crore this quarter, which is around 3 times the previous 2-3 quarters. Any specific one-off item, or is it sustainable?
It is not. It's a one-off item. If you might have seen that we have deflagged one of our hotel, which is Red Fox Chandigarh. This was a lease property. As per the accounting standard, when you basically make lease ineffective. Whatever you have accounted for earlier in terms of your interest on the lease liability and the depreciation on the right to use assets, that is to be reversed. That has been done due to this transaction, which has resulted in remaining of roughly INR 7 crore, out of which we have made some provision, which is roughly INR 4 crore above the recoverable. That's the INR 3.25 crore you are seeing in the other income, which is one-off item.
Understood. Thank you so much. Thank you.
Thank you. Our next question is a follow-up from the line of Satish Arora from Unifi Capital. Please go ahead.
Just want to do the management fee income number available in the revenue from operations?
I'm sorry.
Sir, what is the management fee income in the overall, I think INR 100 crore revenue from operations? INR 17.5 crore for the-
How much?
INR 17.5 crore for the year, last year.
It's about INR 17.5 crores for the year. See, management fee income for us is roughly 7% of revenue. The revenue last year was INR 250 crores of the managed hotels.
Yes.
We got INR 17.5 crore. This year, we think revenue will be INR 600 crore, INR 500 crore-INR 600 crore, of managed hotels. With the current portfolio, not new hotels. You can take 7% of that as our management fee income.
Okay. A significant number.
Well, in two years it will be super significant, but we'll see.
Yeah. Okay. Okay. Best wishes. Thank you.
Thank you. That was the last question. I would now like to hand the conference back to the management for closing comments.
Thank you everybody for your patience, for your questions. I'm actually now looking forward to talking to you after Q1, because then you can see what I'm saying generally play out. Take care till then. Thank you.
Thank you, members of the management. On behalf of Lemon Tree Hotels Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.