Ladies and gentlemen, please stay connected. The conference will begin shortly. Thank you. Ladies and gentlemen, good day and welcome to Lemon Tree Hotels Limited Earnings Conference Call. As a reminder, all participant lines will be in the 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 touchstone 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, Mr. Pujari.
Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q2 FY2026 earnings conference call. We have with us Mr. Patanjali Keswani, Executive Chairman, Mr. Kapil Sharma, Executive Director and CFO, and Mr. Nilendra Singh, Managing Director and CEO of the company. We would like to begin the call with opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation that was shared with you earlier. I would now request Mr. Keswani to make his opening remarks.
Thank you, Anup. Good afternoon, everyone, and thank you for joining us on this call. I will be covering the business highlights and financial performance for Q2, post which we will open the forum for your questions and suggestions. During the first half of the year, the industry faced multiple headwinds, including geopolitical tensions, floods, airplane accidents, tariff wars, and GST revisions, which resulted in some muted demand. Despite these headwinds, in Q2, Lemon Tree reached and recorded its highest-ever Q2 revenue at INR 308 crore, which grew 8% compared to Q2 last year. Net EBITDA grew 1% to INR 132.4 crore, translating to a net EBITDA margin of 43%, which decreased by 306 basis points year-on-year, primarily due to increased investments in renovation technology and a one-time ex gratia payment to employees due to salary cuts during COVID.
While these expenses/investments accounted for 8% of revenue in this quarter, we expect all these three expense heads to reduce to 5% of revenue in the next year before stabilizing at 2% of revenue by FY2028 onwards. We expect this will lead to a corresponding expansion in EBITDA margins. We have completed significant renovations in H1 this year, with major upgrades being completed in the Delhi, Bangalore, and Hyderabad markets and the Keys portfolio. Post these upgradations, for example, the Red Fox AeroCity Hotel has been rebranded as Lemon Tree Hotel AeroCity, which will now allow us to reprice the hotel from this quarter onwards and capture significantly higher revenue. Similar upgrades have occurred in our two hotels in High Tech City, Hyderabad, and in Whitefield and Electronic City in Bangalore, as well as, as I said, the Keys portfolio.
As an example, we have seen a significantly improved performance in the first fully renovated Keys hotel in Pune, which has now shown an increase of roughly 47% in RevPAR year-on-year. Q2 FY2026 recorded a gross ARR of INR 6,247, which increased 6% year-on-year. The occupancy for the quarter stood at 69.8%, an increase of 139 basis points year-on-year. This translated into a RevPAR of INR 4,358, which increased 8% year-on-year. The company's profit after tax stood at INR 41.9 crore in Q2 FY2026, an increase of 20% year-on-year. Cash profit for the company stood at INR 76.3 crore in this quarter, an increase of 9.2% year-on-year. The debt for the company stood at INR 1,610 crore as of 30 September, a fall of INR 212 crore vis-à-vis the INR 1,822 crore on 30 September last year.
Lemon Tree has also improved its credit rating to A-plus from A, which has significantly reduced the cost of borrowings over the year to INR 7.72% in Q2 this year as compared to INR 8.68% in Q2 last year. On the asset-light side, in Q2, we signed 15 new management and franchise contracts, adding 1,138 new rooms to our pipeline, and operationalized five hotels, adding 272 rooms to the operational portfolio. Lemon Tree also won the Letter of Award through an auction for 2.25 acres of land in Nehru Place, New Delhi. The proposed hotel on this site will be a 500-550 room Aurika Hotel, and the initial approvals and design of the hotel are currently underway. This will give Lemon Tree a long-term strategic advantage with a very large, high-revenue-generating hotel in a prime location with minimal anticipated supply growth in the foreseeable future.
As of September 30, 2025, the total inventory for the group stands at 242 hotels and 20,074 rooms, with 10,956 rooms and 121 hotels being operational and the rest in pipeline. In keeping with the muted demand environment in H1, specifically in Q2, fees from management and franchise contracts from third-party-owned hotels stood at INR 14.3 crore in Q2 this year, an increase of 7% year-on-year. Fees from Flio hotels stood at INR 19.9 crore in Q2, an increase of 8% year-on-year. Total management fees for Lemon Tree stood at INR 34.3 crore in Q2 FY2026. Although there have been a few delays in the scheduled openings of managed and franchise hotels, we are very confident of accelerated growth in our management fees going forward.
While Q2 posed headwinds, our outlook for H2 remains extremely positive, with our continued investments in renovation and technology showing material increase in occupancy and ARR across the portfolio in Q3 and onwards. With this, I come to the end of my opening remarks and would ask the moderator to open the forum for any questions you may have. Thank you.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchstone 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Karan Karna with Ambit Capital. Please go ahead.
Yeah, thanks for the opportunity. Patanjali, my first question is on Aurika Nehru Place. If you can help us understand, because it appears that the total lease payments are at about INR 10,000 crore over a 55-year tenure. What kind of margins are you expecting in this project in the next five to seven years? More importantly, what kind of ARRs have you penciled in while finalizing this project? As a follow-up, are there any other non-negotiable parameters that you maintain when considering a greenfield development on your own balance sheet?
Firstly, this is on the balance sheet of Leon, as you know, we are looking at listing it. The IRR that we expect is north of 15%, but let me explain how this works. This is the headline number you are reading. Our fees are going to be INR 24 crore, and it will escalate at 5% a year over a 55-year period. If you look at, now we are talking inflation. Basically, this will escalate at the rate of inflation, and on a cycle basis with the repricing of this asset and its specific location. You see, if they had sold this plot, our best guess is it would have gone for INR 600 crore. Really, we are paying something like a 6% rate on the value of the land, and that value of the land will be captured in the ARR.
Let me give you an example. Lemon Tree Premier Delhi nowadays is now going north of INR 10,000. We have done an IRR, assuming this hotel is ready four years later, based on a INR 12,500 ARR, which is therefore an IRR on a very conservative basis. Our best guess is that this hotel, once it's stable, like many of our existing hotels, like Lemon Tree Premier Delhi, for example, currently does about INR 2.4 million-INR 2.3 million EBITDA per room. Okay, if you take this at a 550-room hotel and the current EBITDA of Lemon Tree Premier Delhi, and this is an Aurika, not a Lemon Tree Premier, then we are talking of INR 1.5 billion, of which we will give roughly one-sixth to Delhi Development Authority. I would not worry about the headline number. That was to make it sound sexy. For us, it's a very, very good project.
Sure. Just as a follow-up on this, if you look at your pipeline of projects, you have about two, three hotels that are currently on the pipeline of your own balance sheet. Essentially, if you look at most of the pipeline, this is largely in the Aurika brand. Is it a consistent strategy to position upcoming owned rooms under the luxury segment while expanding via the asset-light route for the mid-scale segment?
No, actually, and frankly, Karan, we are quite sorry, what were you saying? Continue.
As a follow-up, given your balance sheet now supports you to perhaps take on more greenfield opportunities, what is the thought process for that now going forward, given that you have announced one project, which is Aurika Nehru Place? How should we look at future expansion in terms of greenfields going forward?
Okay, so let's go back for a minute. We are brand agnostic as to when we deploy capital. What we are interested in is what is the market segment we want to target, and where is it that there is sufficient demand? Obviously, higher price, the better, where we can compete in the market and look at a RoCE which meets our hurdle rates. Based on what we felt about Shimla, about Shillong, and obviously about Nehru Place, we said we would put up Aurikas. For example, if we looked at another location, which we are multiple locations, they may be Lemon Trees or Lemon Tree Premiers. There is no conscious decision to grow the upscale portfolio. It is simply based on the type of demand and how we can get a return, and our bid is based on that.
Even if we lose the project, we are quite okay because ultimately, it's all IRR.
My second question, if I look at the numbers for this quarter, it seems that Bengaluru grew just 6% while Gurgaon declined by almost 10%. When I look at this versus peers, it seems that this is a bit lower compared to the performance of some of your peers in these markets. Was there any specific reason why a portfolio here relatively underperformed this quarter?
Yes, two reasons. That is linked actually to the P&L. Let me just give you a number. In the last three years, two and a half years, really in the last two years, we have renovated 3,000 rooms. Now, out of a portfolio that needs renovation, excluding new hotels, of 4,600 rooms, we have spent a little under INR 300 crore in this renovation. A large part of this is OPEX, which is affecting the bottom line. The way we look at it is this is very limited short-term gain for significant long-term gain. I referred in my opening remarks briefly to Keys.
The first fully renovated Keys hotel, Pune, is showing 47% improvement in RevPAR, and you will start seeing it from Q3 because all these hotels were lots of rooms were shut in H1, and far fewer rooms will be shut in H2 where we see more demand. Our innovation is also based on demand-supply patterns. In Gurgaon, we had closed a large number of rooms. If I look at sold-out dates on the smaller inventory, we were sold out on many days, and we could not sell more rooms. It was very simple. This is part of the reason. Plus, during renovation, there was a lot of noise. When there was a lot of noise of banging, breaking, and drilling, and so on and so forth, your pricing also must reflect that. There was a double impact really for us.
Now that renovation is over, I suggest when you look at Q3, you will get a complete picture of what the renovation is starting to yield. I can assure you it will be a startling revelation.
Sure. My last question on Aurika Mumbai, if you can provide some color in terms of how the ARR and the occupancy trended during third quarter. More importantly, what's the expectation for second half for Aurika Mumbai and on the rest of the portfolio? October, November, what's been the RevPAR overall for the sector and perhaps for your portfolio as well?
I cannot comment on the sector, and I hesitate to give guidance. Let me tell you that I would be expecting mid-teens RevPAR growth this quarter, primarily because one of the reasons was October was very muted for the hotel industry because you had Dussehra, you had Diwali, and Chhatpooja this year in the entire month of October, which is a big deflator of business demand. In fact, often retail demand other than pure leisure. Dussehra, Diwali, and Chhatpooja last year were in October and November. In October, interestingly, we were 4% in occupancy lower than last year. ARR was up, but occupancy was lower. In the first 15 days of November, not only have we overtaken that, but on an overall basis, we are in the mid-teens in revenue growth.
If we continue on this trajectory, then mid-teens is the minimum expectation for revenue growth for Q3.
Sure. On Aurika Mumbai?
Aurika Mumbai did well last year, if I remember right. On an improved base effect, it will still be north of 15%.
Sure. This is helpful. Thank you. I'll come back in with you. Thank you and all the best.
Thank you. Next question comes from the line of Sandeep Sinha with Macquarie. Please go ahead.
Yes, Patu, thank you very much. In terms of renovation spend, if I'm doing the math correctly, it seems like you're 66% above last year, same time, first half last year. Can you tell us how many rooms are done? What are you thinking about second half and how much will be left over for fiscal 2027?
My question, yeah, go ahead.
Yeah, go on.
No, no, go ahead.
No, no, go on. Second question was around the GST rate cuts. Obviously, you get a double benefit, like lower room rates as well as higher disposable income for people to spend. Can you talk about that? Have you seen any sort of discernible change in the last few days since September 21? If there's any way to kind of isolate that specific change?
Very good point. Thank you for asking, Sandeep. As far as renovation goes, renovation is ongoing. What we really, the call we have to take is we have to renovate this entire portfolio by next year. We have renovated about 3,000 out of 4,600 rooms. Some more will be renovated in H2. Many, many more will be renovated in H1 next year because it is a question of demand-supply. This is a call we take based on what we see happening in each micro market. There is always this trade-off. For example, many, many days in H1 this year, the 80 rooms that were shut, 80 or 100 rooms that were shut of the Delhi hotels, we desperately needed. That trade-off was that we would take the hit now and reprice the new hotels when they came back to market.
It's, as I said, short-term loss, long-term gain. To summarize, this is ongoing. Right now, it's 3,000 rooms. We have 1,600 more rooms to renovate. The other interesting thing is the high-value renovations are INR 1,000,000-INR 1,200,000 a room. Then there is medium-value renovations at INR 600,000-INR 800,000 a room, and then there is low-value renovation at INR 300,000 a room. When I say I've renovated 3,000 rooms, some have been at INR 1,200,000, some have been at. We have tried to renovate the high-value hotels first, which is why we have spent about INR 300 million, the majority of which is OPEX over the last two, two and a half years. Is that correct, Kapil?
Yes, yes.
Just in renovating. That is why I think from an investor/analyst perspective, you've seen this decline in our EBITDA margins. This is a one-off decline because, as I mentioned, this entire investment which we are making, what we think is one-offs over three years, is really in technology. This year, of course, we also have ex gratia, which will be another INR 200,000,000, which is affecting our EBITDA. If you look at renovation OPEX, TFS OPEX, ex gratia, and so on, it put together is about 8% of revenue in this quarter versus 5% last year, which explains the 3% fall in our EBITDA margins in Q2 this year versus last year. This is a balancing act, Sandeep.
What I can tell you is, rather than give you month-by-month numbers, what I can tell you is that by the end of next year, calendar year, most of the portfolio, if not all, will have been fully renovated. That is the first point. Coming to GST effect, GST affected about, when we looked at the previous year, about 50% of our portfolio was under INR 7,500 in room rate and 50% of our revenue, I should say, sorry, not portfolio, was over INR 7,500. For us, the impact then assessed was 3-3.5% of revenue because that was the loss of input credit, and your expenses would go up that much.
Now, I think I mentioned in the last investor call that we were hoping that we would get to a 7-8% improvement in revenue to account for this 3.5% increase in cost in order to maintain our EBITDA margins. That is very evident now. Obviously, we do not like the increased expenses. We think looking at the rate at which, looking at the way our rates are growing, this 3.5% impact on EBITDA will probably come down to 2.5% when we finish this quarter. Going forward, as our rates keep going up and more and more rooms are priced over INR 7,500, we will have the double whammy benefit of higher ARR, higher GST input credit, and that should annul it in our best guess by next year. Does that answer? You are confused sufficiently.
No, no, that was good. Just one final kind of follow-on to that is, so for this year, looking at your aggressive renovation schedule and obviously take the hits now for gains later, do you think you expect EBITDA margins to be up year over year, flat, down? Any commentary there?
I think in FY 2026, our EBITDA margin will be the same as FY 2025, which means effectively that the increase in spend we will make up with a double increase in revenue. If our spend goes up by X, our revenue will go up by 2X on that basis, and we will maintain our EBITDA margins. Going forward, our forward thinking is that we would be very disappointed if by FY 2028, our net EBITDA without extraordinary expenses is less than 59%.
Okay. Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Abhay Ketan with Access Capital. Please go ahead.
Hi. Thank you for the opportunity. My first question is on Aurika Mumbai. Firstly, on this 71% occupancy that has been reported in the quarter, just wanted to understand how much of it has come from the negotiated one, that is the crews or operators, and how much of it is transient? Have we seen this trend change over the quarters? The second part to that, the same question would be that so far we have also seen ARRs declining year over year. Now that the occupancy has more or less stabilized in the last three or four quarters, we are seeing 70% plus occupancy. When can we see the ARR growth pick up from here? What is the sort of ARR, realized ARR that we are looking at for the property?
We have kind of, I think I had said this in earlier calls also, where we had our first plan was to fill the hotel and then do the shifting of low-value business and as we could gradually replace it with high-value business. This is the largest hotel in India. It has an enormous inventory. Obviously, our focus was not on ARR, rather the total revenue we could generate from this hotel. When we talk that we have achieved 75% in Q4 last year, that was within a year or so of operationalizing this hotel, in my opinion, our team in Bombay, our revenue team, did a phenomenal job. It had a very large amount of crew and not enough corporate and negotiated and not enough retail business.
When I look at retail today for Aurika Bombay, the corporate now has stabilized at about 130-140 rooms. I'm talking Q2. The airline business is at 150 versus 95 last year. The travel trade business is about doubled from 20 to 40. Really, the negotiated business has gone up from 256 to 320 rooms. The retail business has gone from 80 rooms to 180 rooms. Typically, it takes a little more time. We do not advertise Aurika in the papers or on TVs and so on. I'm reasonably happy with the pickup in retail. I expect that this non-negotiated part of the business will continue to grow over the next one year. Once that happens, let me put it this way. The gross ARR of the negotiated business is only at sub INR 8,000. The retail business is north of INR 10,000.
Because of this mix, the overall ARR we are showing at INR 8,500. My expectation is from Q3 onwards, it will cross INR 9,500. In Q4, it will probably be north of INR 10,000. Next summer, we will then move towards, say, INR 9,000-INR 9,500. In winter, we will hit our target, which will be INR 11,000-INR 12,000. Actually, I expect we will hit INR 12,000.
I'm sure. Thank you. That is very helpful. My second question is that if you have any updates on this Flio demerger, any updates that you can provide on what is the process and what is the timeline that we are working with right now on this?
It is in process. There is a subcommittee of the board and the full board, which is in discussions, both boards, Lemon Tree and Flio. I think we will have some information to—we will have a bunch of interesting things to tell the markets, I think, in the next three months. Would that be right, Kapil?
Yes, yes.
It is not only the demerger of Flio, but some other even more exciting stuff. We will talk about it when the time is right.
Got it. Thanks a lot. I'll get back to the queue.
Thank you. Next question comes from the line of Pratik Kumar with Jefferies. Please go ahead.
Yeah, I'm waving here, a couple of questions. You talked about renovation of rooms, 3,000 rooms followed by 1,600 more. Just wanted to understand the schedule of renovation. Is this the first time we are renovating post-COVID, or has it been a constant renovation where you're trying to upgrade the pricing for your folio over in past five years?
See, we took a call that we think that there are going to be structural shifts in consumption in India based on the current level of GDP per household and the expected move of different cohorts of customers who will treat mid-market branded hotels as non-discretionary rather than discretionary. Now, looking from that perspective, we took the call that, as I said, we would take some short-term pain. This was not only strategic, it was also, in my opinion, essential because we stopped renovation pre-COVID. We planned, obviously, a routine renovation. For three years during and post-COVID, we had to repair our balance sheet because, obviously, we were skeletal at the end of that. Really, renovation started in summer of 2023. Okay. That too, we did not have so much cash flow. We did a few hundred rooms. In 2024, we accelerated.
In 2025, for example, this year, I think we are going to spend about INR 130 crore-INR 140 crore, including CAPEX, in the renovation of our hotels. As I have repeatedly said, these are one-offs because once we finish this complete reimagination of our rooms, and these are lovely new rooms, which you will see we are capturing in pricing, by the way, in the fully renovated hotels we have, our renovation spend will drop to 1.5% of revenue. While we are going through this pain, we are going to see it as probably 6% of revenue. Therefore, our EBITDA margins are going to take a hit of 4%-4.5%. I urge you to look at how it will be once the renovation is over because it will have a double whammy. You will have new rooms, very little future investment for the next three years.
In fact, that 1.5% is an average. I expect that in FY 2028, 2029, 2030, we'll probably spend 0.5% of our revenue in renovations or upkeep. With it, our pricing will also go through the roof. As an example, besides the Keys Hotel that we've renovated, we have now renovated two-thirds of the Keys Whitefield. If I remember right, the ARR is 30% or 40%. Sorry. I'm talking, obviously, this quarter because last quarter was very muted. Pricing hikes were also muted. If you look at Lemon Tree Premier Delhi, it is going through the roof. You look at Lemon Tree Premier Hyderabad, I was amazed to see that our ARR is north of INR 12,000 when it used to be INR 6,000 three years ago. This is going to be visible to you from Q3, Q4 as more and more renovated high-value hotels come for sale.
Our plan is very simple. I want to just mention to everybody, we will spend another INR 130 crore-INR 140 crore next year in total so that we finish this entire portfolio once and for all. The fruits of that, of the current renovation, the fruits will be visible in this H2. The fruits of the complete portfolio will be visible from H2 next year. Even this year, it is very encouraging what we are seeing.
Sure. Thank you. I have a related question. You mentioned about, I think, tech upgrades also. What specific digital initiatives are being implemented, and how does that impact the guest experience and cost efficiency?
That is a work in progress. We have not yet focused on the cost towers that we want to implement, which is an automated way of managing costs because we feel our control over costs and our management of costs is a key moat for us. It is actually a moat which is difficult to climb, to overcome for any other hotel company as far as I know in India. The focus was initially in creating, using AI, deep learning, our own revenue management system. This has been self-learning for the last one and a half years. I think it is at MVP 2 stage. I think it will be fully operational maybe by next winter because the data we had during COVID was obviously irrelevant.
We need to build history and data and demand in order to be more and more accurate in automated pricing, dynamic pricing, literally every two hours. As far as the second part goes, it was the cleanup of our data lake. We had, I think, 10 million customer profiles. Keeping in mind privacy laws, so on and so forth, we were wanting to reimagine and reinvent our loyalty program and our website. That too is work in progress. Elements of it will be visible now from this quarter. We have about 2.1 million members, but there is a fair amount of duplication. We are trying to use basically technology to drive our loyalty/website. Third element is on sales. We use Salesforce. We have integrated it into our system.
We have put a middleware in place where we think we will be significantly able to improve the efficacy of sales. Now, why am I talking about efficacy of sales? It is also linked to the, as a strategy and as an industry, we have rehydration. We were looking at automating as much as we can on the front-facing, relatively low engagement jobs, front office, housekeeping, so on and so forth, even engineering now. Our intent is very simple. How do we use technology to improve guest service and experience? How do we use it to improve revenue? How do we use it to outreach to more and more customers using third-party data sources? How do we price it better so that we can maximize our yield? Of course, how do we improve our repeat guests, which is already, I think, north of 40%?
How do we keep increasing each of these? Because put together, they lead to a completely virtuous cycle. I'm pretty confident that by next year, we will have achieved at least 70-80% of what we hope to achieve over the long term.
Sure. Thank you. I may ask one more question. Recently, IHS's recent acquisition of Clark Hotels significantly strengthened its presence in the luxe and mid-scale segments under the Ginger brand. Given Lemon Tree's leadership in this space historically, how do you view this consolidation impacting your growth strategy or otherwise?
I do not see any change, actually, because it was a branded portfolio earlier. It is still a branded portfolio. Ginger really is positioned versus Keys, the two lower-key brands, and maybe Red Fox. We were competing with Clarks, and now we will compete with Ginger. I just see it is good that more and more consolidation will happen. Ultimately, the consolidation of the very fragmented hospitality landscape in India will lead to, I think, better standards, better outreach, and will help this structural shift towards branded hotels. I see it more as collaboration, no competition. Just a minute, Pratik, I think somebody just advised me. I should also mention a very large part of our technology investment is geared towards managing scale. While we have not accelerated, I was talking to my new colleague, Nilendra, who I hope will be talking to you going forward.
We want to focus extensively on the asset-light part of our business because of this very fragmented landscape. While we have 240 hotels in our portfolio now, including the pipeline, we want to use technology to not only drive the business development but to also drive customer outreach to these new locations we are getting into so that we really juice the network effect of our system. That is an unstated outcome we want to get from the technology investments we are making.
Sure. Thank you. These are my questions.
Thank you. Next question comes from the line of Sumant Kumar with Motilal Oswal Financial Services Limited. Please go ahead.
Yeah, hi sir. My question is for technology investment, what we have done. Is it our in-house team, or are we having a third-party vendor where they are working on it?
We started with Boston Consulting Group laying out a strategic roadmap, which was scanning best practices worldwide in technology and in our industry. When that assignment got over, we in the process also recruited a couple of BCG consultants. We have our own leader of the team, and this is a 100% subsidiary of Lemon Tree called Totally Fox Solutions. It is a tech company. It is currently doing all its piloting with our own hotels, and now we are going to move into the managed portfolio. The team is, I think, about 20 people, Kapil?
30 now.
There are 30 people in this team, which is why you're seeing this investment in technology. We are working with various vendors. We also have some implementation support technology staff, like from Ernst & Young right now. We have also various other platforms that we are using or using and putting a middleware in place. Our intention is ultimately to be self-sufficient other than in those modules in our technology stack where the architecture accepts commodity products, like for example, property management systems. We simply put a middleware in order to get that data in the right place and then do the right set of analysis and so on and so forth.
Okay. These 30-member teams we have created, their main work, whatever module we are getting from the supplier software, or maybe they are integrating that module to our system, right? They are maintaining that.
Correct. They're using APIs, middleware, and then creating our own AI/ML, our LLMs on top. As I said, because our data is limited post-COVID, this is a work in progress. We really started this about a year and two years ago. We think some early results are visible, but many of them are at MVP 2 stage. We think they'll be fully, let's put it this way, debugged and piloted out and checked at scale and then rolled out in the next 12 to, I would expect, 18 months.
Yes.
Yeah.
Okay. Now coming to Aurika Mumbai, how is the MICE activity or the business segment there? What are we trying to increase, more MICE in our hotel?
MICE versus last year doubled from 19 rooms to 41 rooms in Q2. Q2 is a very bad example because it was really the worst quarter. In Q3 and Q4, we will be able to give you more color. Suffice to say that the change in Nixi, somebody asked me earlier about Aurika too, Sumant. If you look at last year, in Q2, we did 337 rooms per day, which is about 50% occupancy. This year, we did about 504 rooms a day, which is 75% occupancy. This increase of about 170 rooms per day from last year to this year in Q2 in a very muted demand environment came not due to a growth in corporate because corporate did not grow. It was due to a little bit of growth in airline and a massive growth in retail.
Really, this 170-room growth, if I summarize, 100 rooms came from non-negotiated, and 60 rooms came from airline. Therefore, airline was a deflator because the rate of airline is INR 8,000, whereas negotiated was an inflator. It is a mix. It varies. What do we pick up at what price? What is MICE at? And so on. For example, the doubling of the MICE business dropped our rate by about INR 1,500 because in Q2, there was not such significant MICE. Last year, we did INR 9,000 for 19 rooms. This year, we did INR 7,500 for 41 rooms. What I am trying to say is I am pretty pleased with the way it is progressing based on my experience of opening big box hotels. By next year, I think whatever we said as our target, about INR 12,000 ARR and so on, you will start seeing that definitely play out.
Okay. Okay, Patanjali. Thank you.
Thank you. Next question comes from the line of Vikram Shah from Vikram Securities. Please go ahead.
Good evening. Congratulations on a good set of numbers again. I have one question to start. I didn't get the opening statement. What was the main reason for the muted quarter industry-wide? Do you still expect to do 100% of your internal expectation at the beginning of the financial year?
Yes. To answer, yes. Now, why was Q2 muted? Perspective. Last year, Q1 was muted because of elections, and pent-up demand moved to Q2. Last year, Q1 base was low; Q2 base was high. Traditionally, most hotel companies report Q2 is the worst quarter, traditionally. Last year, for example, Q2 was much better for us than Q1, precisely because of this reason I just enumerated. Now, Q1 this year, because of the low base of last year, was a 17-18% growth in our revenue. Q2, on the other hand, because of high base last year, was muted and further affected partly by base effect and partly by there were these massive rains which really affected us in multiple locations. There was this airline crash which affected airline traffic and also demand for us for about two weeks. There was this war or this war effect.
There were multiple little, little, little reasons affecting large swaths of India or, in fact, all India. It was muted. I think when I look at the results which have been given by the larger players like Taj or ITC and so on, if I take out consolidation and I take out other income, they are all in 7-8%, so on. We grew; they grew roughly the same. Obviously, some may have grown better. They were concentrated in markets which were less affected, which are the smaller players, but I do not want to comment on that. What affected our EBITDA margins is very simple, and I keep repeating it, which is we are making massive investments in technology and in renovation. When we finish the renovation, we will have invested INR 4.5 billion across the portfolio. This is a catch-up and a reimagination.
When we finish our technology, our technology spend will typically stabilize at about 0.7% of revenue, but much increased revenue. There was another impact this year, which was the repayment, or I should say the ex gratia we gave to those staff members who took a big hit during COVID on their payroll, on their salaries, and roughly INR 200,000,000 will be paid back to them this year. That INR 200,000,000 will have an impact on our EBITDA for this year, but that is an absolute one-off. The increase in renovation expense will continue to next year. If I look at the total expense on these one-offs and this increase in renovation, it accounted for 8% of our revenue, vis-à-vis 5% last year, where we also did a lot of renovation. There was a 3% hit on our EBITDA.
Last year, we did 46; this year, we did 43. It's very simple math.
Got it. May I quote you, sir, on an interview you gave on YouTube recently with Insight Scoop, where we spoke about a INR 1,000 crore EBITDA target next year, I suspect? There is a roadmap towards gaining a lot of market share and hitting a INR 1 lakh crore valuation at some point. Is this possible due to after the delisting or the relisting of Flio versus Lemon Tree, where Lemon Tree continues to capture a lot of the franchisee and managed hotels, and Flio continues to capture market share in larger cities?
Yes, we do want to target INR 1,000 crore, but I want to be very specific. This is for both Lemon Tree and Flio put together. Okay? I was talking of us as a group. What is the vision? It's very simple. At some point in time, any company has to take a view on the future. When Lemon Tree started, it was totally asset-heavy. Roughly 10 years ago, we started focusing on the asset-light side when we felt we should start looking at monetizing our brand and expanding our network. We are a young company. We are really from the first hotel to today, that first 50 rooms to the 11,000 rooms we have. It has happened in the last 20 years. Now that our brand is monetizable and very widely recognized, our view is very simple. In the mid-market space, we do think we are dominant.
Ultimately, there will be one or two or three players in this space. It is traditionally, worldwide, the single largest space in the hospitality sector and the one where you have maximum scale. I joke with a couple of my friends in the hotel industry that all the large hotel companies started in the mid-market, and they acquired five-star brands. In India, for whatever reason, we have been more five-star-driven and less mid-market-driven. Like in China between 2006, where we are today in household income and so on, and 2013, this grew 6-7x. I expect the same thing will happen in India, and we have to take a view on it with appropriate risk adjustment. What's our view? Our view is we list Flio as a pure asset core. It will have its own set of investors. It will raise capital.
It will build hotels. We will support it. Obviously, it may have other brands, but we hope with our performance that we will be the preferred provider of management and brand services. Lemon Tree will continue growing with third-party hotels and will now start focusing on franchise. Now, one very important element of the Indian market is that individuals who own small hotels do not want us to manage their hotels because it's like a family business or some nephew or niece or daughter runs it. We want to provide them technology/distribution support. That is the traditional model globally when the market has expanded from where we think it is today to where we think it will go in 2033. That's our view. It's very simple. We are trying to make it sexy. We are trying to say we will help you with ESG.
We will show you how to use renewable energy. We will lower your costs. We will demonstrate to you that every buck you pay us in fees, we will improve your revenue/EBITDA by 4x. We want to be an attractive provider of these services and basically monetize our brand and management capability and use Flio to grow in those markets where we think they will generate the hurdle rates of IRR we look at because that is a massive opportunity for Flio too.
Noted, sir. Noted. Thank you so much. After INR 1,000 crore expectation, my last question is, normalized after a year, will you expect what % to be Flio and what % to be Lemon Tree?
Yar, I can't give you so much guidance, Vikram. One day, when you're in Delhi, come over for a coffee, and without it being UPSI, I'll try and show you how we are looking at it as a vision.
I definitely will. Who should I get in touch with to get in touch with you?
Me? Bathu.keswani@lemontreehotels.com.
I'll write to you, sir. Thank you so much. Thank you. Thank you.
Thank you. Next question comes from the line of Webb Mulli with Yes Securities. Please go ahead.
Thanks for the opportunity and congratulations on good set of numbers. Sir, my first question was regarding our management portfolio. We have continuously seen strong traction in terms of signings, but openings have been lagging. I understand the actual timelines are beyond our control, and it's more dependent on the developers. For our growth to sustain going forward, openings of management contracts is going to be critical. Just wanted to understand when do you see this pace of openings to pick up going forward for managed portfolio?
Typically, at least with my experience and conversations with other players in the managed/franchise space, openings are always behind the curve. Because if you are a growing company, you will always be adding more pipeline. The pipeline that you open is three years ago. Just think of it very simply. If I signed 800 hotels or 1,000 hotel rooms in 2023, I will open them in 2026. In 2024, I'll sign 1,500 rooms. I'll open it in 2027. In 2026, I'll sign 4,000 rooms. I'll open it in 2029 or 2028. There is a time lag. This is a positive sign that we are signing more than we are opening because what we are opening is what we signed three years ago. As long as the signings are more than the openings, it means that there is positive net addition.
Am I making sense to you?
Yes, sir. If you can just provide broad guidance in terms of possible number of keys that could be added over the next three years, I mean the operational keys on the managed portfolio.
We are now going at the rate of what will get us 4,000 rooms. Yeah. I think we should do 5,000 next year, maybe 7,000 the following year. We would also look at some acquisitions, which is unstated, but I kind of implied it. We think that we should be closer to 35,000-40,000 rooms as a pipeline that is double the pipeline in the next two and a half years, including operational.
Okay. Second question on Aurika Mumbai. Last year, for Q3 and Q4, Aurika performance had notably improved, right, sequentially. For Q3 and Q4, occupancy as well as ARR are relatively higher. Do you think the higher base for Aurika, which was actually a benefit for first half, where Aurika did lower occupancy last year, that will be a challenge in terms of posting a double-digit growth?
No, not really. Look, it's also, I think, one very important part of a business is not only cyclicality due to demand-supply over a seven-year cycle, but also seasonality. See, if you talk to a hotelier in America, he knows exactly when Christmas is, when Good Friday is, when Thanksgiving is, and so on, because it's a fixed date. In India, the important festivals are not a fixed date. They vary. As I mentioned in passing earlier, last year in October, there was really Dussehra and the beginning of Diwali, and Chhatpujha was in November, whereas this year, all three were in October. In October, we were flat vis-à-vis last year, but in November, we are very far ahead of last year.
When I look at Aurika, first 45 days, in spite of doing well last year, we are roughly 30% ahead of last year in Q3. Therefore, it will take our average up. When I say mid-teens, 15% of that growth of mid-teens, say 2%, is due to the Aurika impact. I'm starting to wonder, guys, when I listen to all of you, are you going to grill me the same way with Aurika Delhi? That's what I'm worried about. Anyway, Aurika is now performing the way we want it to, the journey we envisaged for it. I think you will also be quite happy with the outcomes for Q3 and Q4.
Great, sir. Just lastly, on the Lemon Tree Premier and Lemon Tree Hotels, the performance has been divergent across both the brands in Q2. While Lemon Tree Premier did see positive RevPAR growth with slight occupancy improvement, Lemon Tree Hotels actually posted a negative RevPAR with quite a bit of decline in occupancy. Any particular reason for this divergence?
Part of the reason, as I had explained earlier, a significant part is the renovation that we did because the renovation is not that we are renovating 20% of Lemon Tree Premier and 20% of Lemon Tree Hotels. It varies. If you look at it, Red Fox, for example, one-third of the Red Fox in Delhi was shut. That's why it was 0% growth. In fact, the occupancy was negative. Similarly, lots of Lemon Tree Hotels like in Ahmedabad, in Indore, in Aurangabad, in Chennai, which was a high-demand market, we had to shut large portions of it. This is a catch-up. I would urge you not to look at a quarter result. Please look at the full year result. It will tell you exactly what's happening because we are also being quite conservative and careful in the way we are renovating.
Ideally, I would have liked to shut down the entire portfolio and renovate it in six months, but then there would have been zero revenue for those six months.
Right. Okay, sir. Thank you so much for answering the questions. All the best.
Thank you.
Thank you. Next question comes from the line of Kostubh Bhavsar with ICICI Securities. Please go ahead.
Yeah. Thanks for bringing the opportunity, sir. I have a couple of questions. First, a clarification. You mentioned that renovation cost overall will be around INR 450 crore. And I guess in your earlier comment, you mentioned that out of that, we have spent around INR 200 crore. For next two years, will we assume renovation cost to be around INR 250 crore?
No. We have spent, take the weighted average of renovation cost at INR 1,000,000 a key. Okay? We have renovated 3,000 rooms and spent INR 3,000,000,000, of which the majority, I do not have the exact breakdown, is OPEX. We still have to renovate another 1,600 rooms. You assume another INR 1,600,000,000 at the same rate will go into renovating these, of which the majority will be OPEX. This will be reflected next year, and then it will more or less disappear after that.
Sure. Sure. Thanks. Somal, second question is on the demand front, especially in the mid-scale or mid-premium range of hotels where we are looking at large supply, which is coming up in most of the markets. Could you just comment on the demand front in this particular segment because supply is going to be there? Also, in terms of demand, how do you see demand shaping up in this particular space?
The best proxy for demand, Kostubh, is the rate of growth, which is the consolidated industry that is a proxy for hotel demand, is airlines. Unlike the hotel industry, where a lot of this assessment, frankly, is anecdotal or is just an assessment, I do not think it has much in data because data is all over the place. The airline industry has ordered 2x more aircraft or 2.5x more aircraft and number of seats than currently exist. I presume these will come over in the next five years. Even if we assume some old aircraft will be retired, what you do see is that a consolidated, forward-thinking, highly technology-driven industry like the airline sector is saying we will more than double our seats in the next five years. Number two, the number of airports in India are going to grow from 140 to 260. Improved connectivity.
I'm not talking Vande Bharat trains and roads and highways and SUVs. What does this tell you? That demand is going to grow at 15%-16%-18% a year. That is the hypothesis on the basis on which we are also doing whatever we are doing. I don't see supply growing at that rate. It is absolutely not correct. I mean, the few reports I have read talk about 5%-6%-7%-8% CAGR, but demand will be. It is not something to really worry about. It will work in our favor.
Right. Sir, a related question to this. Do you see its demand-supply gap to reduce depending on the markets? Like in tier one, the gap will be a little bit less. In tier three towns, where penetration of the overall sector is improving, the gap could be a little higher. Just your thoughts on that because a lot of reports suggest that supply, it might be coming up very high in the tier three towns, but the demand will be higher because that market is yet to penetrate. On the other hand, in tier one towns, the supply is less, but demand will continue to be there. Thoughts on that?
It is all economics. Unlike 10 years ago, when supply of hotels was partly irrational and partly driven by conversion of black to white, a lot of hotels were built on that basis. They had no basis on economic return. Fortunately, today, after demonetization, government keeping a track, I think a lot of hotels are built through institutional capital or listed players or equivalents, and they are built on the basis of economic rationale. Naturally, if it costs INR 1.7-1.8 crore a room to build a four-star hotel in Delhi, the only person who will build it will be somebody who's confident about an appropriate IRR. The future markets, you're very right, will be as they diffuse, as demand diffuses into tier two, tier three, tier four, where the cost of land is low. There will be more and more hotels coming up there.
On the base effect, there will be a much higher growth of supply because of also lower base in the tier two, tier three, tier four markets. The metros in tier one will see more measured supply growth because the base is already very large and the cost is also very high.
Okay. Thank you, sir. Thanks for the understanding and all the best for your work.
Thank you.
Thank you. Next question comes from the line of Pratheek Oza with Systematix. Please go ahead.
Yes, sir. Thanks for the opportunity. Just one question from my side. Which micro market are you most excited about, and where do you see a lot of potential? Additionally, why was Gurgaon soft this quarter in terms of occupancy and RevPAR?
See, one reason for Gurugram was a lot of rooms were shut for renovation. It was a catch-up. One reason was demand in Gurugram in one of our large micro markets, which is Sector 60, was muted because the previous year, we had two large groups which did not materialize this year. They were tech companies, and we did not get it because this year, the hiring stopped, basically. Again, as I say, this is a quarterly phenomenon and so on. This is not a long-term trend. I urge everybody, based on seasonality, to look at a full half year at the least or at least, and preferably a full year performance to get a better gauge of the market and performance. Now, when I look at which market I think is very sexy, frankly, this is a bit of an IP.
We have identified six or seven markets where we think airline traffic is going to go through the roof. Branded supply is very low. Unbranded supply is highly priced, which means that customers do not have choice, and customer feedback is not too great for those hotels. This is an ideal opportunity for us because we offer quality assurance, safety, hygiene, and a certain standard of product and service. Obviously, we would like to go to those markets, but I do not want to talk about it. It will be part of our strategic growth path.
Okay. Okay, fine.
I am very excited about our Nehru Place, our Shillong hotel, and I'm also looking very closely at Dubai because to me, Dubai, with 6 million Indians going there every year, is a phenomenal market for any hotel company in India with an Indian hotel brand. It is about time Indian hotel companies went international wherever Indian customers are going.
All good, sir. Thank you.
Thank you. Next question comes from the line of Deepak Sahar with Nimrod Bank Institutional Equities. Please go ahead.
Hi. Thanks for the opportunity. Most of my questions are answered. Thanks, Swamishir, thanks for all the detail. I just have one last question. One is, I mean, this Navi Mumbai Airport coming closer to its operations, just your broad thoughts in terms of positives and adversaries, I mean, whatever negatives we can see from your point of view, how we can capitalize or any near-term impact. Some broad thought process on that. That's all, sir.
Deepak, sorry, I couldn't hear you clearly. It was a little—what was the specific question?
Yeah. Am I audible better now, sir?
Yeah. Just move your mouth a little away from the mic because I think it's getting a little—
Yeah. So my question is that with Navi Mumbai Airport coming closer to its operation, your broad thought process on the impact on the overall portfolio for Mumbai market?
I think it's a great thing because near the airport, the market is already doing very well. Aurika, 75% is probably because of its large inventory, the lowest performer in occupancy. There will be initially some shift in demand from Mumbai's current market airport to Navi Mumbai. We ourselves are looking at putting up supply there, either asset-heavy or asset-light. Actually, I think we have signed some asset-light. We are operating one hotel. How many rooms? About 100-room hotel we are already operating in Navi Mumbai, but we want something very close to the airport. We are discussing with one other owner another 150 rooms. That's Navi Mumbai, but we would like to put up 4,500 rooms there. Similarly, actually, at Jewar Airport, but our perspective is very simple. We don't want to buy land or invest capital unless we see sufficient demand there.
We are excited about competing for demand. We are not in the business of anticipating future demand because that can affect your hurdle rates. Any big airport in any major metro, new one, is something of great interest to us. Even Bangalore, for example, we are looking at how to get some more presence next to the airport. I have no doubt that in the next two, three years, we will have a similar perspective for this place, what is it called, Hyderabad and Kolkata. In fact, Kolkata, we are looking quite actively. This is ongoing. We think this is all linked to the overall theme that I spoke about earlier, and we would be interested in growing in these markets.
Got it, sir. One last question. I mean, Bendigo has already announced 18 flights operating on a daily basis from that particular airport. Now, given we have a meaningful chunk of business coming from crew business, anything you want to share from that point of view, or do you think it's going to be offset by incremental demand that we are seeing in the current portfolio?
I actually do not have a clear idea how this will play out. My broader thesis, or I think I should say our broader investment thesis is where it is opportunistic and there are hotels available to manage, obviously, where there is no capital deployed other than some effort by us, we are ready to go anywhere and build our network. When we talk about the flair perspective of deploying capital, then we want certainty of demand. The only risk we look at is, will we get our fair share or more than our fair share of the RevPAR in that market? That is a very simple way we look at it. It is no complicated way. It is simple. Is there demand? Can we get that? Capture our share of that demand? Can we give a return if we invest capital there? Will we meet our hurdle rates?
We go for it.
Got it. Got it. Thank you.
Thank you. Next question comes from the line of Ashok Shah with Iqlavia Invesco Family Office. Please go ahead.
Thanks for taking my question. Sir, we have already renovated 3,000 rooms and also a few more 1,500 approximate rooms will be renovated by next year. Can you give some rough idea how much maintenance CAPEX will be required next year onwards to maintain these 4,500 rooms?
There are three types of expenses in room or hotel maintenance. One is repairs and maintenance. Something gets spoiled, etc., etc. Typically, that's 1.5% of revenue. That is every year, irrespective, 1.5-2%, and that is captured in our regular OPEX. It is not incremental or not incremental. It is just regular. There are stores and supplies and housekeeping supplies, which is somebody, a curtain needs replacement, a carpet needs replacement, or some furniture needs polishing. That too is factored in our routine ongoing expenditure. The third element is refurbishment and renovation. That is when rooms get old. In my broad experience, typically, after a room has been used for 250-300 days for four, five years, it needs a freshening up or a refurb. Our normal expense there is 1.5-1.7% of revenue.
Roughly, it would be—
Because of this catch-up, because we did nothing during COVID for three years, then we did nothing for the next one year. We were really catching up for four-five years. Our strategy is normally we renovate one-sixth of our portfolio every year, assuming every six years we refresh the entire portfolio. This time, it was a huge catch-up, which is why I said we will spend INR 4.5 billion instead of normally spending INR 250 million-INR 300 million a year. Really, over two years, we are spending nearly INR 3 billion this year and next year instead of spending INR 250 million-INR 300 million a year, INR 500 million-INR 600 million. The incremental spend is INR 2.5 billion, the majority of which is OPEX, which is why you are seeing deflated EBITDA margins. Now, how does this play out?
I would urge you to look at our performance in the Hyderabad market, which is now 70% renovated. Look at our performance in Delhi. Look at our performance in Keys, Whitefield, and Keys, Pune. You will understand exactly what I mean. Our principle is that any investment we make like this, we want a payback in two years. If we spend INR 300 crore, what I am saying is we want INR 150 crore increase in EBITDA per year going forward.
So roughly, if I calculate, it would be INR 100 crore per year would be maintenance required for 4,500 rooms?
No. 1.5% take our revenue, INR 1,500 crore. See, I'm just taking a number. It's INR 25 crore.
INR 225 crore approximate maintenance will be required.
No, no. INR 250,000,000, Ashok.
Only INR 250,000,000.
Yes. That's why I'm crying that we spend INR 300 crore instead of INR 50 crore. The INR 250 crore is what you are punishing me for by saying the EBITDA margin is shrunk.
Okay. After five years, no renovation will be required?
No. Now it will not be required because this is a catch-up. So now we will do maintenance renovation or what is called refurbishment. Please assume after we finish next year, going forward for at least the next five-six years, it will be INR 20-25 crore a year.
Sir, we have spent so much, but our depreciation has reduced in a half-year basis. Can you explain?
Because the majority of the spend is OPEX. It is affecting our EBITDA margin. It is not coming in your gross block.
Okay, sir. Thank you. Thank you. Best wishes to you. Thank you, sir.
Thank you.
Thank you. Next question comes from the line of Shivam Singh, an individual investor. Please go ahead.
Am I audible?
Yes, you are.
Sir, regarding the declaration we made with the Arjay Corp Hotels in Ayodhya and Guwahati, do we have further details about it, about when it might open, and would it be an Aurika Hotel, or will it be a Lemon Tree Premier?
As you know, Ravi Jaikumar was a very early investor in Lemon Tree, and he counts it among his best investments in spite of doing so well in Varrur. Ravi, for a long time, has been talking to me about investing significant capital in hotels as his personal capital, not company capital, just as a belief. He is a believer in the same thesis that I have, which is that there will be a growth in, a structural growth in consumption of mid-market hotels. About a year ago, he told me that he would like to build a whole bunch of Lemon Tree Premiers in India in markets which we recommend, which would be designed, built, managed, and branded by us, and he would be the asset owner. Right now, he has committed in the first two hotels. There is a 300-room hotel in Ayodhya.
There may be a small diagnostic center of Medanta on one floor there. This 300-room hotel will be built by us. We will be charging INR 15 crore to build this hotel, to design and build it. He will spend about INR 300 crore. This 300-room hotel will be branded Lemon Tree Premier, and we think it should be ready in the next three years. As you know, there is a very big development happening in Guwahati where they have acquired land from the government for roughly five acres to build a 600-room Medanta Hospital, 100-bed, if I'm right, childcare hospital, and a 300-room Lemon Tree Premier, and a 50-service apartment Lemon Tree Premier, which will connect with both the hospitals and will provide not only rooms for tourists and for business because it's a great location, but also for patients.
Once they finish their basic treatment, they will move there for after patient care and for the families of patients who can stay there in the service department. This is being built for us. We are charging Ravi another INR 150 crore to design and build this. We will charge fees, a normal fee, which is typically 9% of revenue for both these hotels. Ravi will invest another INR 300 million crore in this hotel and service department, actually INR 350 crore. He has also asked us to look for more opportunities for him. He is going to be a 50% shareholder in the Aurika Shillong. I think they have announced that, right? Yeah. Beyond that, he has said that if we ever find an interesting opportunity and if we want to do it, obviously, we will do it. Otherwise, he would be happy to do it.
There were some auctions in Andaman Islands other than Port Blair. Did we bid for that?
No, we didn't bid for it.
Okay. So.
See, there are many things we think will happen, Shivam, in the next three to four years. What I have is an assurance from Ravi as an ultra-high net worth individual that he would like to grow a portfolio of Lemon Tree-branded and managed hotels. It is a good thing because every project that comes to us, we do not necessarily want to invest our own capital.
Okay, sir. Sir, regarding the platforms we are listed on, a lot of platforms are charging more than twice of what we are charging on our own website. Is there a pricing model which we are getting wrong, or is it something else regarding that?
No. Look, we want to be the most attractive, we want to offer the most attractive price on our direct channels. The reason being, on these other channels, there is a commission. It could vary from 13%, 14%, 15%, 16%. If the guest books directly on our channel, it is 15%-16% cheaper than if they book, say, through MakeMyTrip or Booking.com and so on. Our perspective is very simple. We want to use loyalty on our website to drive direct non-negotiated traffic. Ultimately, we monetize it because in our new managed hotels, we also charge 12% of the revenue, incremental revenue, booked through our website and 4% through our loyalty program as additional fees to owners of hotels. Basically, we are saying we are like an in-house online travel agent.
We think it will be a large revenue earner for us as we start building this network out. That is part of our tech spend, as I had mentioned, I think, a little earlier. Right now, we earn only a few lakhs, maybe a couple of crores, but it will shoot up to INR 20 crore-INR 30 crore in the next two to three years.
Okay. Sir, are we lagging on the Shillong and Shimla hotel openings because the construction does not seem to be in pace with our timelines?
No. Shillong, we are very much in what's it called in our timeline. We will open it in 2027, mid. Shimla, we deliberately delayed for two reasons. We did not have much capital, frankly. It was a capital allocation decision since it resides in Lemon Tree and not in Flio. And COVID, we started it before COVID. During COVID, everything stopped, as you can imagine. Post-COVID, we were busy repairing the balance sheet first year. After that, second year, after that, we were deploying capital in the operating hotels for renovation. You will find we are so cash surplus now that we will start accelerating Shimla. I think we will open half the hotel by next year. We will do a soft opening next year. Basically, Shillong will open the following, I mean, 2027, and Shimla, half of it will open next year.
Okay, sir. Thank you. Sir, there's one small suggestion that I have. Sir, can we add the number of rooms under renovation in our investor presentation by any chance? Because every time back in the factory yes, that is a factor in calculating the quarterly analysis that we do.
Thank you for the suggestion. We will implement it. What I want is how many already renovated every year, how much did we spend, how much have we finished in H1, what are we doing in H2, and what are we planning in next year. So they have a clear idea.
Absolutely. That would be very nice, sir. Thank you so much, sir.
Thank you for the suggestion, Shivam.
Thank you.
Thank you. Next question comes from the line of Kushal Shah, an individual investor. Please go ahead.
Hi. Thanks for the opportunity. I was looking at the citywide RevPAR growth which you all have provided, looking at the major cities like Delhi, Gurgaon, Bangalore. I was seeing the growth on a CAGR basis from pre-COVID to now, from 2Q FY2020 to 2Q FY2026. It's in low to mid-single digits, which is broadly in line with the increase in replacement cost or the construction cost. Just want to understand, when will this demand-supply mismatch manifest into disproportionate RevPAR growth? What can we expect over the next three to four years?
First is that you are taking six years when you should take four because two years, there was no repair. It was all a and then building demand back up. My first recommendation is look at CAGR, at least some other investors I've spoken to who eliminate COVID as a black swan event. Now, to your other point, it is very valid what you are saying that replacement cost went up in spite of COVID because that was due to the time factor of inflation. Even today, by the way, in many markets, it does not make sense to put up a hotel at INR 1.7 crore a room. There is a certain element of risk. Really, the way to look at hotel return is your cash and non-cash return. It's like nominal GDP.
Nominal GDP is inflationary impact and the real rate of growth. Similarly, here, it is your rate of growth of EBITDA plus the replacement cost of the asset, and that is your real return. I would recommend that you look at it from that perspective, and it is an interesting return. Of course, in the second case, the assumption is when you look at capital asset appreciation, that you are able to reprice to get a certain return on it, or you sell the asset and you capture the capital upside. Why do you not show QH1? Go on. Sorry. Please go on, Kushal.
Can we get a range, ballpark? What type of RevPAR growth can we expect for the industry, not necessarily for Lemon Tree, for the next three to four years? Because in major cities, I'm talking of the metros and Hyderabad and all those, just because of the demand-supply mismatch. Because the last cycle, which we know, was 20 years old, and that time, the industry was more informal. We just want to get a range how it can be.
See, on an absolute basis, if I look at the average rates we charge today for the hotels that existed with us because our company was very new in the last cycle, it is 20% lower in INR than it was in 2007 and 2008. Okay. To give you an example, we had two, three hotels in Gurgaon. And if I remember right, our rates were INR 9,000 and INR 10,000. And today, it is INR 7,000-INR 8,000. It is still a catch-up, amazingly, that after 17 years and inflation, the rate has still not caught up to the pre-global financial crisis rate. My view is that if the thesis we are betting on plays out, then occupancy of the hotel sector, not individual hotel or even a micro-market, once it crosses 70%-72%, you see significant repricing.
When that happens, I cannot project, but my best guess case is in the next couple of years, you will see significant repricing. I cannot say whether it will be next year or the following year. It will obviously depend on market conditions. Number two, if the structural tailwinds, which I am betting on, occur, then pricing will go through the roof.
Okay. That answers my question. Thank you.
Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you once again for your interest and support. We'll continue to stay engaged. Please be in touch with our investor relations team for any further details or discussions. We look forward to interacting with you soon.
Thank you. On behalf of Lemon Tree Hotels Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line.