Lemon Tree Hotels Ltd
NSE:LEMONTREE
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
106.9
157.25
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
Abbvie Inc
NYSE:ABBV
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Realty Income Corp
NYSE:O
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Lemon Tree Hotels Ltd
You don't have any saved screeners yet
Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q1 FY '21 Earnings Conference Call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director of the Company; Mr. Rattan Keswani, Deputy Managing Director; Mr. Kapil Sharma, Chief Financial Officer; and Mr. Vikramjit Singh, President of the company. Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature, and a detailed statement in this regard is available in the results presentation that was shared with you earlier. I would now like to invite Mr. Keswani to make his opening remarks.
Thank you, Anoop. Good afternoon, everybody, and thank you for joining us on this call. I hope all of you and your families are safe and healthy. Since our last interaction with you, the number of COVID-infected cases in India has increased over 10x and about 35,000 more Indians have lost their lives. Unfortunately, there is still no definitive understanding of what the peak number of infections in India will be nor when will that be reached? Besides irrecoverable losses of so many lives the pandemic has wreaked havoc on broad swaths of our economy and has caused a severe impact on the livelihood of a very large number of people. Multiple global financial institutions and agencies have forecasted contraction in India's GDP. With hospitality and tourism among the worst affected, COVID-19 has brought our sector to almost a standstill. Sealed international and state borders, ongoing lockdowns across various parts of the country, corporate travel restrictions and the very real fear of getting infected has led to a temporary shutdown of about 70% of the branded hotel inventory in India in -- during Q1. The industry occupancy, which was about 65% to 68% during Q1 last year, fell to a low of 15% this year. The sudden crash in demand led to a steep correction in average rates as well, with the average industry ADR for the quarter dropping to about 60% of last year's level. This combined impact resulted in massive losses for the hospitality industry as operating expenses remained mostly fixed due to the nature of the business. The absence of any major relief as yet from the government unlike in most other countries to a sector which provides about 8% of the employment in India, has made survival even tougher. As a result of all this, short-term demand destruction and consequent rate reductions, absence of meaningful support, et cetera, Lemon Tree's planned focus in Q1 was to variablize the fixed expenses as much as possible and defer all discretionary and nonessential expenditure. So I'm glad to share with you that we succeeded in ensuring our aggregate operating expenses were brought below our operating revenues in Q1. In the quarter gone by, our revenue from operations stood at INR 40.7 crores versus INR 140.9 crores during the same period last year. Our operating expenses, including corporate expenses came down by about 62% to INR 36.3 crores in this quarter as compared to INR 96.2 crores in Q1 FY '20. Hence, we were able to record a positive net EBITDA of INR 7.5 crores in Q1 FY '21, which was 83.8% lower than the INR 46 crores we had achieved in Q1 FY '20. Our EBITDA margin stood at 17.1% in this quarter versus 32.7% in Q1 last year. More importantly, we achieved this control over expenses while ensuring that about 71% of our owned/leased inventory was kept operational. I'd like to point out that once you shut a hotel, it is very difficult to open it. You lose staff, the hotel deteriorates. So the intention of keeping inventory open was very, very important, and we kept 71% open. Our occupancy in our operating hotels was 40% -- 40.4% versus 77.5% during the same quarter last year, whereas our ADR has dropped by 34.4% to INR 2,625 from INR 4,000 in Q1 last year. The key source of our business during Q1 FY '20 were Indians opting for institutional quarantine, business continuity planning teams of global IT majors who occupied many of our rooms in Hyderabad, Bangalore and Pune and non-duty doctors and paramedical staff who were advised to isolate themselves from their families. We've also tied up with 2 leading health care chains to increase their operational capacity by converting 2 of our hotels into health care facilities for asymptomatic patients. From June onwards, we have also been very encouraged to see a significant pickup in online bookings, primarily from the SME sector and staycations. I'm very pleased with the efforts of our teams who've not only born a huge personal risk by continuing to work on the frontline but also remain tightly focused on controlling costs without compromising on quality. We implemented multiple cost rationalizing exercises across our hotels and corporate office, which resulted in a 62% reduction in our total operating expenses. In fact, on a same-hotels basis, our operating expenses reduced by 71% versus Q1 last year. We achieved a 47% reduction in our manpower expenses without laying off any employees from our payroll. Our leadership teams took pay-cuts ranging from 50% from managers going up to 100% at the CEO level. We have continued to pay all our permanent employees below manager level, which constitute over 80% of our workforce based salaries. We were also able to achieve a 57% reduction in power and fuel expenses and reduced our food cost in Q1 this year to 24.5% of food and beverage sales from 38.9% in Q1 last year. Similar efforts have also gone into all other expense heads. Going forward, we plan to stay focused on our operating cost to ensure we stay positive at the net EBITDA level. In fact, invoking the law of unintended consequences, many of our cost optimization measures will be permanent in nature, which we expect will lead to a minimum net EBITDA margin expansion of 500 to 700 bps, when things get back to normal. From the liquidity perspective, we have already received the first tranche of INR 175 crores, with the issuance of CCPS to APG. There is an additional commitment of INR 125 crores, which we will call for if and when the need arises. The plan to raise INR 150 crores in Lemon Tree, which was already been approved by the Board, is also underway. Excluding this additional INR 275 crores, we currently have sufficient cash in the company about INR 225 crores to meet our total expenses, including debt obligations for the next 4 quarters, assuming the worst-case basis of current levels of occupancies in ADRs with lockdowns, travel restrictions, et cetera continuing until the end of Q1 FY '22. As the hospitality industry prepares for this new normal, the safety of our guests and employees remains of utmost importance to us. Since the beginning of the lockdown, we have implemented a very large number of SOPs covering all aspects, including our guests, employees and vendor partners. In all hotels where our rooms are being offered for institutional quarantine, all our housekeeping employees are provided with personal protective equipment suits to attend and engage with guests. We've also launched a health and hygiene program named Rest Assured in collaboration with Diversey, a global leader in providing smart, sustainable cleaning and hygiene solutions. They provide us with U.S. approved EPA safe chemicals, operating checklists and training material for our staff at the hotels. They've also launched contactless dining in some of our hotels on a pilot basis. Going forward, we believe that these initiatives will ensure confidence and trust in the mind of our stakeholders. Since June there has been a gradual lifting of curbs on hotel operations under Unlock 3, hotels are now allowed to operate in almost all the states. We're hopeful that the hospitality industry will begin to see the green shoots of demand recovery from H2 FY '21 onwards. As I've mentioned earlier, there has already been a visible pickup in retail demand from online channels. By the way, this is about 300 rooms a day, it was 75 in April. We have also witnessed demand pickup from airline crews as airline operations have also resumed partially. Our sales team have launched a variety of staycation programs for families who want to spend weekends in our hotel. We also plan to tie up with more health care chains to let our rooms be used as health care facilities. To summarize, we are looking at the future optimistically, while we are currently operating at suboptimal levels. In the near term, there should be a gradual bounce back as travel restrictions get eased and broader consumer sentiment gets restored. We are confident that our fundamentally strong business model, significant liquidity and our established brand in the hospitality industry will help us successfully weather these challenging trends. On that note, I come to the end of our opening remarks. And would like to now ask the moderator to open the line for question-and-answers.
[Operator Instructions] We take the first question from the line of Nihal Jham from Edelweiss.
Sir, I have 3 questions from my side. The first one was specifically on our cost control, which is definitely commendable where we managed to be EBITDA and cash flow positive in this challenging quarter. In our last interaction, you did mention that the focus was, I think, to bring your fixed cost to, say, around 20% of revenues and even to bring down the variable cost to around 8% to 9% of revenues for this year. I just wanted to check again that after a quarter of implementing these initiatives, is that the target that we are still working it? Or there is an increase or a change in that?
So if you typically look at our hotels, includes after corporate expenses and lease rentals, our EBITDA margins are normally in the mid-30s. Depending if it is peak season, it could be 40%, 42%. In summer, when it's lower occupancies and ARRs, it could be early 30s. So really, the cost -- let's assume illustratively that the cost for INR 100 of revenue in, say, 1 year ago, our costs were, say, INR 65, about 75% of the INR 65, is fixed, which is about INR 50. So assume when you are normally doing a revenue of INR 100, your cost -- your fixed cost is INR 50, your variable cost is INR 15. What we really did was we looked at variabilizing these fixed costs to the maximum extent possible. I'll give you an actually amazing example. We had 5,000 -- over 5,000 staff, about 1 staff per room for our 5,200 rooms. Currently, it is being run with 2,600 staff. And I admit that some services have reduced, but our reckoning is that when things come back to normal, we will not need more than 4,200 staff, which means 1,000 staff, and there, we have attrition. Our business has plenty of attrition. We will save a minimum of INR 1,000 x 4.5 lakhs, that is INR 45 crores when things come back to normal. I'm just giving you an instance. Similarly, air conditioning, our pumps using heat exchanges, we've massively reduced our power and fuel expense, which is the next large one. And therefore, from that 50%, we have brought our fixed costs down by roughly 70%, which is why it is now the fixed costs are about 15%.
If I just proceed on my second question. As I noticed, our CapEx cost guidance was around INR 850 crores in Q4. And in this update, we're saying that it will be INR 1,000 crores for the same 3 properties. I just you wanted to understand that, the reason for that increase?
Well, Kapil, can you explain that because I think he has put it. What is the reason? Hello? Hello?
It is -- yes, Kapil, this side. Am I audible?
Yes, sir, I can hear you.
Yes, yes, yes. So this is primarily for our Mumbai international hotels, where, as you know, there is some disruption in between and there is some revision in this capital cost. And that's how this number is there. And now this also incorporates the increased number of rooms as well, which is now, as we were earlier discussing that earlier number was 577 rooms, and now it is 669 rooms. So that is the difference over there.
Sure, sir. That's helpful. But, sir, last question from my side. Just on a longer term, assuming the recovery, as you said, is 18 to 24 months away. So is our thought that you want to focus on cost control and wait it out until things normalize? Or do we want to try opening up certain meaningful alternative revenue streams in these 24 months? How do you see yourself approaching this?
So here is how we -- see, we did -- well, we have what we expect to do and then we have a worst-case scenario. So on a worst-case scenario, we are assuming that current levels of occupancy will continue for at least another 6 months. Once the cure comes, domestic travel will start, meaningfully. And as you know, over 85% of our business is domestic travel, fortunately because we are in the big market, domestic segment. I reckon that it will -- until a vaccine comes or some level of herd immunity, international travel will be very, very muted. That's my estimate. International travel is about 8%, 9% when correlated. Meetings, incentives, conferences, which is another 5-odd percent in my opinion, will be again muted, it will not be 0, but it will be maybe half of what it should be. So really, I'm saying -- what I'm trying to explain is that I am seeing a gradual recovery. I am assuming that the next 3 months will be [Technical Difficulty] of our rooms now. We had opened about, say, 25% or roughly that number in Q1. Now we have opened 90% of our rooms, 33 out of 41 hotels. We are now [Technical Difficulty]
I'm sorry to interrupt you, but your audio is breaking up sir.
My audio? I'm sorry. Okay. So we are now already doing 1,700 rooms a day, when we closed Q1 at about 1,500. My expectation is that this will gradually pick up. And from a cash flow perspective, we will plan for current performance. However -- so everything is upside after that. Do you get me? My expectation is that domestic travel will definitely bounce in the next 6 to 9 months. International travel will take a minimum of 1 year, 1.5 years. And meetings, incentives, conferences will take a year. So on that basis, then, of course, the numbers are very, very different. But for our planning, we are just being extra cautious and prudent. That's all.
We take the next question from the line of Deepika Mundra from JPMorgan.
I hope you're doing well. Just wanted to check on the deal with APG. I think you mentioned -- last time you mentioned that you will transfer some assets to APG at the end of 2022. Have you identified which are those assets that are expected to be transferred? I just wanted to get an update on your debt position? So what would be the current debt outstanding? And do you have any more ways to raise further debt?
We are not planning to raise any further debt because we are -- we've raised capital in APG -- see, let me explain something. Our gross debt still remains the same, roughly. Our net -- it may have gone up a little bit because of this moratorium. But our intent is that within the next 6 months, we will have about -- we have currently about INR 225-odd crores of cash. We have INR 125 crores with APG and INR 150 crores on our rights issue, brings us to INR 500 crores. So when that happens, obviously, our net debt will drop substantially. The way we look at it is that 70% of the debt resides -- or, I think, 75% resides in the joint venture with APG. So when we talk to APG, anyway, we were earlier also telling them that we wanted to move more assets of our balance sheet and transfer it to the asset co. The reason then was that in some cities, we have hotels, which are mostly by the joint venture [Technical Difficulty] owned by Lemon Tree. So for synergies and cost distribution, it becomes difficult if there are 2 different companies. So for example, Hyderabad, Bangalore, Pune, Delhi, these are cities where we would like to look at transferring our assets anyway to go asset light. Plus APG is a very large pension fund, would obviously look at a yield. So the reason we are doing this after 2 years is, we will be in a better position with our assets and value with the joint venture when we transfer these assets.
Right, sir, that's very clear. I just wanted to understand as to, if there are any specific hotels that you had already identified? Or will this be decided at a later date?
No, it will be from these cities, basically, where there the joint venture owns, say, 4 hotels and we own 1 like Bangalore. For example, in Bangalore, we own 5 hotels, where the joint venture owns 4 and the Lemon Tree Premiere in the City Center is owned by Lemon Tree. Similarly, in Delhi, there is Red Fox Hotel. Similarly, in Pune, there is Lemon Tree Hinjawadi. So there are multiple -- in Hyderabad, there is Red Fox High-Tech City. So these are owned by Lemon Tree, but the -- all the other hotels are owned by the joint venture. So for us to distribute even administrative expenses and so on, it would make sense to put it all together in one entity.
Okay. And sir, if I may just ask one more question. Given that you have opted for the moratorium, can you just outline your debt repayment schedule for FY '21/'22?
It would be the same. Kapil, will you answer that?
Yes. So because of the moratorium, actually, what has happened is that since the payment -- the repayment, which were due in the first 6 months that have gone ahead and the tenure has been extended to that extent. So for FY '21, our repayment, which was earlier, roughly INR 100 crores has now gone -- has reduced to INR 50 CR for the remaining period.
Sir, FY '22?
FY '22 is roughly INR 105 crores.
But keep in mind, Deepika, what we are looking at very clearly is every month you will find -- and every quarter that our EBITDA keeps improving. So what you have seen in the lockdown month, which was the worst quarter, was a positive EBITDA. Now Q2 will also be a positive EBITDA though not significantly better than Q1 because we still have this fear in crisis. But in Q3 and Q4, you will find the EBITDA numbers will constantly improve. And so we worked that out. And that's why we feel INR 500 crores is enough for basically the next 2.5 years, 3 years.
Sir, essentially, I guess, is this -- I mean, on an operating basis, there is no cash burn right now. Is this that you need to be take -- your interest cost needs to be taken care of, correct?
Yes. But our EBITDA is improving every month. That's the broad point. If you've seen our investor presentation, you will find that in April, we made no money; May, we made some; June, we made more; and July, we'll make more and so on and so forth. So it's an improving trend broadly.
The next question is from the line of Archana Gude from IDBI Capital.
I have 3 questions. Sir, from April to June, we ported a healthy pickup in the occupancy, how the ADR has been stagnant. I do understand because the services are for quarantine and medical staff, but sir, when do you expect some meaningful improvement on that front?
Very quickly, I'll tell you why. First reason why our ADR -- actually, our ADR dropped by about 30%, 31%. But because we added the Keys Hotel, where Keys Hotels ARR is significantly lower than Lemon Tree's. On a consolidated basis, our ARR came down 34.4%, if I remember, right? But actually, the ARR was -- for same hotels and so on was down about 30%, 31%, number one. Now it these hotels that are not getting the regular customers that we normally get. So I would reckon that 80% of our customers or 85% of our customers are not what we would normally call our customers. These are quarantines. Yes, these are health care workers where we give very, very good rates to doctors and paramedical staff. The rates even for the staycation is low. So you will find that when this -- in the next 6 months, when we start substituting these customers with our regular customers, the ARR will very rapidly climb back. For example, we had not opened Udaipur in Q1. We had shut it down. We opened it about 2 weeks ago. And it is now doing -- while it's doing very few rooms, 8, 10 rooms a day, it is still doing INR 14,000 ARR, okay? So this will happen gradually. You will see it in Q2, not so much; Q3 definitely; and Q4, very clearly, it will be visible.
Sure, sir. Sir, which are the cities which are showing early sense of recovery? And like how the rest of the markets are behaving?
So if you go to our Slide 13 of our presentation. You will find that Delhi, which was doing 39% in Q1, is now doing, I don't know offhand, but about 55% to 60%. Okay. Gurugram is still muted. Hyderabad is about the same. Bangalore is doing better. So the main cities where we have most of our hotels are doing -- occupancy is north of 40%, which is why I told you, we are now doing 1,700 rooms instead of 1,500. We are doing 200 more rooms a day.
Okay. And sir, lastly, in the presentation, it is mentioned that we would be adding 20 hotels by FY'22. So should we pencil in some kind of delay in the inventory actually given the current scenario?
Certainly. So what we [Technical Difficulty] You see our intention was to open it in calendar -- end of calendar '21, which is end of -- middle to end of Q3 FY '22. However, for the last 5 months, basically, hardly any work has been done. We are now spending, we've talked to Shapoorji Pallonji, and we are doing -- we have said since the expenditure today is still not significant to build this project because we are building the shell, we are spending INR 2 crores a month -- every month to continue building the Mumbai International Airport, and we that reckon that the delay will be -- we will take a call in December -- or November, December based on what we see because our current hotel, our new hotel in Bombay, the Lemon Tree Premiere is already doing 60% occupancy. And not so bad in ARR, it's close to INR 4,000. So the whole point is that if we see Bombay is recovering, and it normally recovers first after this -- now it's a hot zone, we will accelerate it. So we have kept the project on with an expectation that it will be delayed by 6 to 9 months. But the call we'll take will be in November, December.
Sure, sir. And sir, lastly, if I can squeeze in one more question. Sir, given the weak business environment, what is the outlook on the corporate rates for next year when it will come for the renewals?
So here is what I think will happen. Speaking on behalf of the hotel industry, my big concern is that about 50% of hotels in India are in danger of getting sick in the next 6 months because of leverage and liquidity. So my real concern is that this short-term demand destruction over the next 6 to 12 months without an extension of the moratorium will certainly lead to permanent supply disruption in the next few years. So what does that mean? It means that I expect, and I'm speaking based on the little that I know, that there will be a 10% to 25% reduction in supply in India in the branded hotel space by next year. If that happens, I reckon that the hotels that remain, I don't see a big drop in prices. So this October, maybe the pricing will remain the same or may go down marginally compared to last year, the corporates. But next October, certainly, it will bounce, and it will bounce quite significantly.
We take the next question from the line of Vinod Bansal from Franklin Templeton.
Just on the debt side only. Sorry, I missed the early part of the call, so I might be repeating the question. You have INR 100 crores total repayment due, out of which, the first 6 months would be moratorium. Sir, INR 50 crores will be payable this near in cash repayment of the debt broadly. What interest is payable? Is interest also a part of moratorium? Or that is fully stable?
No. So -- no, the moratorium for interest, as far as I understand it -- and Kapil can correct me if I'm wrong. The moratorium for interest is only for 6 months. And on the -- in the 7 month, we had to pay it. In fact, of the end of the 6 months. Whereas the repayment of the principal, that INR 50 crores will be added to our loan tenure. So our loans are typically 11 to 13 years away. And this INR 50 crores will be paid after 11 years.
Okay. So the interest for the ...
So the interest for the principal will be added. Yes. So interest will be paid at the end of the moratorium, but the INR 50 crores principal will be paid after 10, 12 years, whatever.
So basically, for interest, we have 6 months relief, so to speak?
Currently, yes. But we are waiting what happens with the KV Kamath Committee and so on, what they recommend for the hotel sector.
And from what we understand today in the 7 month, you have to pay for the 7 month and also for the first 6 months, straight away -- in the 7 month directly?
That is correct. So what we are doing Vinod, as I explained earlier, we've done an assessment that assuming that we make this current level of EBITDA only, which is, say, INR 5 crores to INR 10 crores a quarter, then we need -- and this goes on for something like 20 quarters or something. I mean it's -- of course, it's an absurd situation. But on that basis, we have done our liquidity planning. And that's the thought behind what we are doing.
Makes sense. So sir, what will be the total interest payment for the year FY '21, cash interest payment?
I'm sorry?
What would be the total interest payment will be?
About INR 180 crores, Kapil?
No, which year you are talking? FY '21?
FY '21?
Yes. Yes, FY '21, now after moratorium, because part of the repayment has got extended. So the remaining part would be roughly INR 50 crores.
That's on the debt principal side.
Yes, that on the principal side.
Yes, interest will be INR 140 crores.
Yes, interest would be INR 140 crores.
And the CapEx will be about INR 30-odd crores CapEx broadly?
No, no, no. CapEx will be INR 10 crores, INR 6 crores to INR 10 crores from now.
Okay, okay, okay. So that's about INR 200 crores. And you have INR 225 crores of cash, including the INR 175 crores that came from APG?
Yes, we have INR 225 crores now. And we have INR 150 crores were planning some form of rights issue and INR 125 crores from APG. That's another INR 275 crores.
Yes, yes. Just the same numbers for FY '22, sir, debt repayment would be how much, what is due?
Debt repayment would be INR 105 crores for next financial year.
And the interest, cash payment due?
And interest would be at the similar level, roughly INR 140 crores.
No, it will be INR 10 crores less because we'll have paid off certain amount of principal.
Yes.
Okay. Fair enough. And the CapEx that year?
See, the real requirement of funding for MIAL will be in the last 9 months. So if we are going to open MIAL in, say, October 2000 or December 2022, then we will really require money. And right now, it is all equity, as you know. We will require money then. So then we will be in a position to assess whether we want -- how the market has transformed, and we can accelerate it and open it between October and December calendar '22.
Sure. So just trying to do some math broadly around what is the cash requirement next year fiscal '22?
No, see -- no, let me explain. Suppose our EBITDA. I'm not -- this is not guidance, but let's assume our EBITDA is x at the end of this year. Okay. That is not required -- I mean, that much less is required for funding the debt and the interest, the principal and the interest. So we have certain assumptions, which is how much EBITDA we will make this year, how much EBITDA we will make next year. And that EBITDA becomes effectively an add-on to that INR 500 crores. And on that basis, we see currently that we will be able to accelerate Bombay from end of H1 next year.
Okay. Okay. Also -- so between, you have this INR 125 crore could be taken from APG and the INR 150 crores right issue, is there a preference one over the other? Or you -- and time lines for the both?
We would look at -- see, we can take the money from APG any time in the next 24 months. So the point is, we don't want to just take money for the sake of it. So we want to see what happens by November, December. Rights issue, we will definitely do.
Any time lines do you have, for rights?
Not yet really. In fact, we have to take -- Board has in principle approved. We are going to get back to them in the -- call a Board meeting in the next month and take a call and then go ahead with that. It will take maybe, I think, how long would it take, Kapil, about 2 to 3 months?
Yes, roughly, roughly 2.5 to 3 months.
Yes.
But that we are doing, that is for sure, right?
Yes.
Okay. And sir, I'm sorry, this question was also asked. Any sense on trends we are seeing now in terms of -- you said 90% of the hotels you've opened up now in July, what occupancy we are seeing for the operational inventory? We were at 40-odd percent?
Yes. So we are still doing about 37%, 38% because we've added -- see, we operated 3,700 rooms in Q1. In Q2, we are operating 4,600 rooms. And while the rooms have gone up by 900, the occupancy has gone up by 200. But obviously, we expect this is kind of advanced preparation, so to speak. And the new rooms we have opened, the pickup is relatively lower, but we expect that it will pick up over the next 2 to 2.5 months.
And again, in July also I suppose 2Q, also most of it would be the same quarantine guests that you had in 1Q?
No, no. In July, surprisingly, quarantine reduced slightly and online picked up. So online, I think we did -- Vikram, how many rooms per day did we do online, about 300?
Yes, we are now crossing 300 regularly, yes. Absolutely.
Yes. In April, how many rooms did we do online?
It was 70-odd rooms, sir, 70-odd rooms per day, 70 RPD, 7-0.
Okay. So that, broadly Vinod, the point I'm making is that this is the business -- this is a change in sentiment, not the quarantine because quarantine is really a filler for us right now.
Right. And since you gave this number. What room rates are these 300 rooms, which is the usual normal demand coming at vis-à-vis quarantine room rates?
Yes. So these rates would be between INR 2,800 to INR 4,500, most would be INR 2,800 because they are staycation, these are people who want to stay in the hotel for the weekend, okay? They come with their wife and child and so on. So they just want a break. And so they are not [Technical Difficulty], but the MSME guys have started now. I think we get about 100, 150 rooms a day from them. Those are north of INR 3,500.
Sure. Just out of curiosity, from operational standpoint, when you have both businesses, let's say, going on quarantine as well as the normal demand, do you have to segregate the hotels? Or you can do in the same hotel like out of 100-room hotel, 60 rooms on quarantine, 40 are on normal guests? Is it allowed...
We'll segregate. No, it is allowed, but you see only in some hotels, like where we have 2 hotels together, joined together, like in Hyderabad. Then what you can do is effectively, when they are joined, you can take one large hotel like Lemon Tree Premiere, Hyderabad which has 260 rooms and keep 150 rooms for regular and 110 rooms for quarantine, which are serviced out of Red Fox. So basically, those 3 floors are sealed off from the -- so even the elevators in the Lemon Tree Premiere don't stop on the floors and all guests check in from Red Fox. So it's a peculiar thing which works for us. But we are completely segregating. And there are no hotels where there are both quarantine and what's it called, regular customer, because in most of these cities, we have multiple hotels. So we have this ability to give entire hotels for quarantine.
Sir, generally, how does it work? I mean, is there a government guideline that a hotel that has been used for quarantine cannot be used at the same time for regular business?
I don't think there are -- guidelines are different for different cities and states and so on. But as an abundant precaution, we separate it.
[Operator Instructions] Next question is from the line of Tushar Sarda from Athena Investment.
I think as management, first, I must congratulate you on really bringing expenses under control and planning out the cash flow. That gives us a lot of confidence. My question is, this crisis is going to continue maybe for another 2 years or at least 12 months, 12 to 24 months. So what is the plan on increasing the revenue? Because the business travel is not going to come back very fast. And some of the business travel may actually disappear completely. Just as you've said, your expenses reduction will be permanent. Some of the business travel reduction will also be permanent. So what are the other avenues to increase the revenue?
Okay. So let me just give you an interesting -- Tushar, is that right?
Yes, that's right.
So Tushar, there have been 3, well hotels have existed, there have been 1 pandemic and 2 epidemics. One was the Spanish Flu, one was the Asian and one was the Hong Kong, these are all flus, right? And they all killed over one million people. Spanish Flu, of course, killed 50 million. So what happened is amazing. In all 3 cases, there was total pandemonium in sales for 2 years. In the third year, in all cases, demand bounced back. And mind you, there was no vaccine discovered, no cure. In their case, it was herd immunity. The broad point I'm making is, there are crises and there are crises, all I feel is that any hotel company that has operating hotels 2, 2.5 years from now will be in a position where supply will have significantly reduced. Now the question is, will demand have reduced more or less? I cannot speculate there, but I know for sure that there will be an enormous reduction in supply of branded hotel rooms in India. Number two, whichever corporates I have spoken to, all their employees are saying that they cannot go to work. If you ask me, my expectation is that from October next year, you are going to see a very large amount of domestic travel. Fear has to go, cure has to come. Vaccine may or may not come, but it will start. There is no question in my mind. And it has always happened, all ways. Hotels occupancy has clashed to 10%, went back to 70% in 2 years. So we are operating on a, as I said, on a prudent basis of raising cash. Now the point is, if we can bring our expenses down by 70% or 65%, I don't see -- I think we can calibrate our expenses to the increase in demand and still make a fairly decent EBITDA. I don't want to comment on the amount. But I'm very confident that what we have achieved in the first 4.5 months from April, every month, we have reduced our expense. So you see a slide which we tried to show. I don't remember where it is exactly. But if you go to Page 8 of our presentation, you will find our expenses reduced every month. And this month, too, it is reduced further. So when revenue is on an uptick and expenses are flat or reducing, the difference is EBITDA for us. So our operating leverage is going to just increase enormously. And we are just waiting for demand to come back for the fear to get over.
We take the next question from the line of Sumant Kumar from Motilal Oswal.
So my question is regarding the online booking you have talked about. So can you discuss more about which the key market we are getting higher online booking and the key segment, customer key segment also?
Okay. Before I go forward, let me explain one thing. About 35% to 37% of our business pre-COVID was online another 35% was large corporates. And 30% -- well, I think about 10% was -- sorry, 30% was corporate -- large corporates, 30% was small corporates or MSMEs and 10% was others like meetings, incentives, conferences or small blocks. What I'm seeing take off, which is very, very encouraging for us is the high rate -- relatively high rate MSME sector. Contrary to what I have been reading that it's in complete distress. I find that, that -- the large corporates have not started travel other than the business continuity teams that are operating in our hotels in Pune, Bangalore and Hyderabad. But MSME, they have started. And to me, that is an early indication of something to look forward to. Vikram, could you answer this question as to which cities are getting the maximum pickups? I know -- go on.
Yes. So I think all major metros are showing a fair amount of traction on the online channels, whether it is Aero City, whether it is Gurugram. Surprisingly, even Chandigarh and Ahmedabad are showing good traction on the online channels. Bangalore, Hyderabad, needless to say, is also doing well. So we are seeing it across Tier 1 and Tier 2 cities, which is very encouraging. I think Tier 1 that pattern is more on the staycation side, Tier 2 is more of the SME that you mentioned. So that's the broad mix.
Okay. Any impact of the fresh lockdown implemented from -- to the business, slow down the recovery?
See, I'll give you an example. Bombay had shut down all its hotels. Our hotel was still operating. And in some cities, wherever the hotels were operating, then when the government doesn't shut those hotels, which is why it is so important for us to operate our hotels. So broadly, what we see is now that we have 90% of our inventory. Obviously, the reason we have opened it is we expect a pickup in those cities, where we have opened additional inventory. What I want to emphasize is that this quarter is going to be slightly better than the previous quarter. We would really know what's happening when the infection peaks and then starts reducing. I have no line of sight on that. But I reckon that in the next 2 months, maybe 3 months, it will start -- the decline will start and the recoveries will be more than the fresh infections. And then I think we will start seeing traction.
So that's -- my question is also you have already opened 90% inventory. The thought process -- your thought process is that going forward, maybe in the coming quarter, you have better demand. So in a particular city, you have a couple of hotels. So is it possible to operating 1 hotel and keeping that the hotel inventory -- hotel occupancy higher and then opening another hotel?
Precisely what we are doing.
Yes.
Okay. So that's -- but you are already -- 90% of inventory is already opened?
Yes. So basically, what happened is that some quarantine business reduced and the online business picked up. So we are doing 1,700 rooms today, of which over 300 rooms are non-quarantine/health/ADT it means that the other rooms are less than 1,400, which was 1,500 in the last quarter. So what we are seeing is a substitution of regular normal demand coming in place of the quarantine side. And the new hotels we open are basically geared towards when we see a pickup of that kind of demand, then if -- there was an earlier question of quarantine hotels and the other hotel will be for the non-quarantine, yes.
Okay. So do you think maybe 3, 4 months from here, if the quarantine time customer is not there, the other demand coming is going to replace that demand?
Firstly, I don't think this -- as you -- see, it's actually mutually exclusive. If things improve where quarantine is not required and things are coming under control, they will automatically be substituted by, because then the fear factor -- that means the disease is not going crazy. Fear factor comes down, normal demand starts picking up.
[Operator Instructions] Next question is from the line of Achal Kumar from HSBC.
Yes, I had a couple of questions. First of all, what I wanted to understand, on the supply side, so you said the supply will decline. Is that more of a natural slowdown in opening the new hotels? Or do you think there will be some consolidations and some hotels will go out of business and that's how the supply will decline. So -- so what is -- what are your thoughts around that? How the supply will decline? And then secondly, related to that, when -- now, of course, everybody is in a cash conservation mode. But then don't you think that this is a good time -- if you have cash, it's a good time to sort of go for conversions because you have properties which are sort of under tremendous pressure, and you'll get a property at a cheaper price. So what is -- what are your thoughts around that, if you could please talk about that?
See we are already -- we already own 5,200 rooms. And we are building another over 700. We're going to go to close to 6,000. I don't think we have appetite to acquire assets. It is true that there is a fund that has been talking to us that says that they will acquire the assets, but we will have to manage it. We are looking at that. And I'm hoping that in the next 2 months, we will be able to do a term sheet with them where we will manage their assets. So that will expand our management -- managed hotels. I think, Rattan, you also have a bunch of new owners who have reached out to you to manage hotels, is that right?
Yes. There are about 3, 4 locations that we are talking to. And in addition, 5, 6 hotels are supposed to open early in the year.
Sorry? We can't hear you.
Yes, there are 3, 4 interested locations looking for management contracts. And also about 5 projects that were held back, we were supposed to open them in the first quarter, in the second quarter. They start to kick in for opening in the second -- third and the fourth quarter.
Okay. So although it is obviously very difficult to meet people when there is a lockdown and so on, we are still sticking away going forward. And we are not going to put capital to acquire assets. I think I have said this before, and we want to now grow through management contracts. And also lightening our own balance sheet and moving assets into pure possible listing in the next few years. The way we look at it is that the distress -- you asked me about supply. The distress, I know for sure. This assessment has been done by people like HTL, which is Horwath travel and leisure, which owns Smith Travel Research, and their estimate is that a very, very large number of hotels are going to get into very severe stress once the moratorium ends. So when I said -- I think I mentioned earlier, anywhere from 10% to 25% of the hotel -- branded hotel rooms in India will shut down, I have no doubt about it. Some may come back. New supply will be very, very, very marginal for the next few years. Nobody is -- as far as I know, very, very few people, if at all, are building hotels or continuing to build hotels. And in fact, there are cases of hotels being converted to offices. I have read that too. So what will supply be? Right now, there are 160,000, 165,000 rooms. My reckoning is that 2 years from now, there will be anywhere from 130,000 to 140,000 rooms operating.
Right, sir. The other thing, what I wanted to understand about the kind of customers' profile. I mean, of course, you just said that SME's have started traveling and so I was reading that the people are actually preferring staycation over flying somewhere out and probably -- and then taking hotels, so looks like the traffic for the flight -- demand for the flights will still remain low, but then the people wants to drive down to the nearby places and then those kind of traffic can come and then staycation demand, as you rightly pointed out. So what kind of profile are you looking at? So what I mean by that, is that -- do you expect more people preferring a Lemon Tree Premiere over the Lemon Tree hotels and Red Fox Hotels. So what kind of profile are you looking at? I mean, because people have probably -- if they are saving on the flight, they will spend more on the hotels. So that is something which I want to understand, if you could please share your thoughts.
Well, I would say it is mostly upper middle class and above. Like, I was very pleasantly surprised that when we opened Udaipur on the first day, I think about 10 couples came down from Ahmedabad and they had a couple of drinks and hung out and enjoyed themselves. And I think the rate was also about INR 13,000, INR 14,000, and one of them took the Presidential Suite at INR 40,000. So that kind of demand will come. We are seeing it in one of our managed hotels, which is in Manesar, for example, which is our -- which is a golf resort we operate with 70 studios. And on weekends, it does 30, 40 rooms a day and at INR 5,000. So people drive from Delhi and go there. So we are seeing that happen. Staycation don't necessarily mean it's only within the city, as you said very rightly, it's also within driving distance. And I see that happening gradually. You see right now, the fear is cases are rising, no peaking, maybe community transmission across India. When this comes under control, and it's -- normally, I think it will take another 3 to 4 months, there will be a fairly significant pickup in demand.
So basically, you are looking at -- you're expecting that the bookings will happen at the sort of higher-end of the properties, right? Is that correct?
Yes, nobody goes for a staycation normally to a Red Fox.
Right. Okay. Fair enough. Finally, what I wanted to understand is in terms of room rates, I mean, I think you already spoke. And then -- and so the corporate demand is going to be sort of very slow, recovering corporate demand is going to be very slow. And then international travel is also not happening anytime soon. So do you think due to this kind of profiling, do you think as ARR would still remain under pressure for the next 12 to 24 months?
Difficult to say because ARR is a function of which segment you target and what is their ability to negotiate with you. So if you ask me, MSMEs as a segment, which is large for us, have the lease negotiating power. It is typically people who belong to the gig economy, self-employed professionals, people who come to meet some clients, so on and so forth. And there, the rate is normally higher than with the large corporates, so it depends on how this plays out. As I said, we are planning for the worst, but we have a certain expectation, which is obviously significantly better than the worth. And that's why earlier questions on how much cash are you raising, why are you raising it, so on and so forth, this is the plan for the worst-case, let's assume that this will go on for 24 months. I don't expect at all that it will be the case, but I'm being extra cautious. That's all. And my expectation is there will be recovery in domestic demand within 6 months.
Right, right. Okay, sir. Last question from my side, if I can please. Now with -- today, Bangalore Airport has removed the institutional quarantine policy. So there's no institutional quarantine now in Bangalore. So similarly, with those kind of things going away, don't you think that the quarantine business will reduce, and that will actually reduce your overall occupancy levels?
It has already happened. That is why -- but in spite of that, we hit 1,700 rooms as I said. The institutional quarantine business is going to gradually reduce. But if there is another -- this -- this increase in things -- increase in cases keeps going on, there will be a minimum number, which we expect we will continue to get. And a bunch of companies also, just for your information, irrespective of what the government says, insists on putting their employees under quarantine in our hotels. And a very large number of those quarantine bookings we do get. And it has nothing to do with what the government is saying, and interestingly, it is also at a much higher rate.
Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Sir, you may please go ahead with your closing comments.
Well, thank you, everybody, for listening in very patiently and for the many questions. I know this is a very rough time. And there is a lot of doubt but broadly what I would like to say is that I expect that within 9 to 15 months you will see that there will be a fairly significant recovery for the hotel sector. And I look forward to interacting with you again in the next quarter. Thank you.
Thank you.