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Lemon Tree Hotels Ltd
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Ladies and gentlemen, good day, and welcome to Lemon Tree Hotels Limited earnings conference call. [Operator Instructions]Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari of CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q2 FY '21 Earnings Conference Call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director; Mr. Rattan Keswani, Deputy Managing Director; Mr. Kapil Sharma, Chief Financial Officer; and Mr. Vikramjit Singh, President of the company. We would like to deal the call with brief opening remarks from the management, following which, we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation that was shared with you earlier. I will now request Mr. Patanjali Keswani to make his opening remarks.
Thank you, Anoop. Good afternoon, and thank you, everybody, for joining us on this call. Currently, there seems to be some good news in that the number of new cases reported daily have come down significantly from close to about 1 lakh per day 2 months ago to under 50,000 per day now. But there is still uncertainty around the peak number of cases in India, what this will be and whether, we'll be seeing a second wave in India like in many European countries at present. In the quarter gone by, our revenue from operations stood at INR 47.6 crores versus INR 152.8 crores during the same period last year. Our revenue in Q2 was 17% higher than in Q1 FY '21. Our operating expenses included -- including corporate expenses came down by about 62% to about INR 39.3 crores in this quarter as compared to INR 104.3 crores in quarter 2 FY '20. However, there was an 8% increase in our operating expenses in Q2 against Q1 on account of higher inventory being operational in Q2 as compared to Q1. Out of about 5,200 owned room, about 4,500 were operational in Q2, which is 21% higher than the number of rooms operational in Q1. We recorded a positive net EBITDA of INR 14.3 crores in Q2 FY '21, which was 71% lower than the INR 49.4 crores in Q2 FY '20. But our EBITDA in Q2 was about 92% higher than the INR 7.5 crores in Q1 FY '21. Our EBITDA margin also showed a significant improvement in Q2 over Q1 by expanding 960 bps to 26.7% in Q2 from 17.1% in Q1. However, the EBITDA margin in Q2 FY '21 was lower by 540 bps as compared to the 32.1% in Q2 FY '20. We continue to be very tightly focused on our expenses, by virtue of which we were able to expand our EBITDA margins quarter-on-quarter, even while operating at much higher inventory in this quarter. We were able to identify areas of further cost rationalization over and above what we implemented in Q1. In fact, as I have said earlier as well, let me reemphasize that many of our cost optimization measures will be permanent in nature, which will lead to an EBITDA margin expansion -- a net EBITDA margin expansion of between 500 bps to 700 bps when things get back to normal. While we continue to explore and experiment with leaner operational practices, we are also very committed to uphold best-in-class service and safety standards. The occupancy in operational hotels was 37.3% in Q2 versus 74.8% during the same quarter last year, and our ADR has dropped by 35.8% versus Q1 FY '20. There is a noticeable shift, however, in our business mix in Q2 from Q1. We saw a gradual pickup in demand from our traditional segments like corporate travel trade and especially retail. Contribution of our traditional segment [indiscernible] increased from 19% in Q1 to 43% in Q2. Incidentally, this share has now gone up to about 85% in October. From the liquidity perspective, we have already received our first INR 175 crores through the issuance of CCPS to APG. There is an additional commitment of INR 125 crores, which we may call for if the need arises. We plan to raise up to INR 150 crores in Lemon Tree when approved by the Board is also underway. Excluding this additional INR 275 crores, we currently have sufficient cash in the company to meet our total expenses, including our debt obligations for the next 3 quarters, assuming the worst case basis of current levels of occupancy and ADRs, current means Q2. We continue to be absolutely vigilant in ensuring the safety of our guests and employees. The SOPs covering all aspects involving our guests, employees and vendor partners, which we implemented in Q1 continue to be in place. In all hotels, where our rooms were being offered for institutional quarantine, all our housekeeping employees are provided with PPEs suits to attend and engage with guests. Our health and hygiene program Rest Assured, which we launched in Q1, in collaboration with Diversey of the U.S. has been very appreciated by our guests. And as we anticipated, such initiatives by us will instill confidence and trust in the minds of our stakeholders. Overall, the hospitality industry is now seeing green shoots of demand recovery from certain segments. Retail demand for leisure destination has picked up very sharply since the lifting of lockdown. We are witnessing great interest for locations like Udaipur, Goa, Rishikesh, et cetera. We've also witnessed demand pick up from airline crews as airline operations have resumed partially. Our revenue team is monitoring the evolving business dynamics on a daily basis to respond to corporate demand from small pockets currently. To summarize, we are positive about what lies ahead. We are hoping that H2 will be much better for the hospitality industry and for us than H1. We are also confident that our business model, significant liquidity and our established brand will help us successfully weather these trends. On that note, I come to the end of our opening remarks. I would now like to ask the moderator to open the line for Q&A.
[Operator Instructions]The first question is from the line of Nihal Jham from Edelweiss.
Sir, a couple of questions from my side. First is, if I look at our performance to what you had mentioned in June in terms of our occupancy and ARR, they have more or less stayed constant for the entire quarter. So just wanted to get a sense. I would assume that a lot of the quarantine, business and all may not be repeating so possibly that explains the occupancy not going up. But in case there is -- we've seen a higher share of retail, so would -- should that have driven our ARR higher, just your thoughts on that first?
Okay. So see, the current level of -- keep in mind, the current level of occupancies across India are low. So retail, while the demand is picking up, the fact is that hotels are not going full. Therefore, retail pricing is still very subdued. So our -- for example, people coming for staycations and so on and so forth, so while you -- if you look at outstation pricing, it is maybe 70% of last year. But if we look at staycation, it is significantly lower than what it was last year. And that is nearly pricing and what is leading to this demand pickup. So till there is a sustained pickup in demand across all segments, retail pricing in and of itself will not pickup. So let me give you, since you raised a point on how we -- how our occupancy fared, Nihal, if you look at Q1, we did 1,500 rooms a day. This was roughly 29% on our full inventory, but we had only opened about 70% of our rooms. Of this 1,500 rooms, 81%, 1,215 rooms were COVID-related; and traditional business, which used to be 4000, 3,500 rooms had dropped to 285. So in Q1, out of 1,500, 1,215 were COVID-related, 285 were traditional, and that added up to 1,500. But in Q2, the COVID-related business started reducing, especially after the government said that we don't need to quarantine for 14 days. So the length of stay of quarantining reduced. Also in certain cities, they were committed to quarantine at home and self isolate. So in Q2, that 1,200 -- we did 1,680 rooms, with 1,215 COVID-related rooms dropped to 958. And the traditional room, which was 285 in Q1, increased to 722. So now the mix changed from 81% COVID-related to 57% COVID and 43% traditional. Now just to give you a flavor. In October, we did 1,900-odd rooms, of which only 280 rooms were COVID. It is 15%. So it has exactly reversed. COVID was over 80% in Q1 and is now under 20%. And traditional, which was 285 rooms is now close to 5.5x, it's like 1,600 plus rooms. Of these 1,600 rooms, which is current traditional business, the retail alone is 1,200, 75%. And this is a remarkable number because last year, our total retail was 1,500. And therefore, the first segment that seems to be catching up is retail. Large corporates, which were about 30% of our business is still very, very low. It's the SME sector, MSME sector and the retail sector, which is currently driving occupancies. And large corporates have all announced that [Technical Difficulty] open offices and pickup will start in travel. So Q4 will be, in my opinion, we will see the start of the traditional segment of corporates. Q3, you're seeing a very large pickup in retail, but not at the price we would like obviously, but it is what it is.
Sir, just a related question to that was that ideally, this used to be the period where I think you used to start negotiating with SMEs for the rooms ahead. I know these are exceptional circumstances, but just wanted to get a sense that, are those discussions happening at this point in time? Or those are discussions that we take about ?
Maybe in 10% of the cases. Otherwise, in most cases, it is the old rates, which are continuing. And in some cases, there are block bookings and there are ad hoc discussions. That bookings will be basically 3, 4 rooms for 20 nights and so on and so forth. But I mean, to give you better flavor, just look at it this way. Typically, the average bookings that we pick up a day gives us an idea of forward occupancy. So while in October, we've been doing about 1,900 rooms. Forward occupancy pickup, at least the forward bookings that we are getting is over 2,200 rooms a day. And retail alone of that is 1,700. Now of course, there will be some wash because there will be some cancellations and so on and so forth. But this is encouraging that on a daily basis for the last -- if I look at last week, we've been averaging more than 2,200 rooms a day being booked with us.
And generally, what is the rate like for these retail bookings? Are they at significant discount to last year or they're getting closer?
Yes, significant discount to last year. So typically, you can assume the rate. See, COVID-related businesses was at INR 2,000, INR 2,500. Retail will be a little high, a little.
That's helpful. Just last question from my side. Was there any hotel which closed down in September because of which are operational hotels joined in?
Yes. So you see there were some hotels which were given purely for quarantine and that demand dried up like the Keys, Whitefield in Bangalore or the Lemon Tree Premier in Gurgaon in Sector 29. These hotels, once that demand segment dried up, and we had additional inventory in those markets, like we have the Lemon Tree Whitefield, very close to the Keys, Whitefield. Or in Gurgaon, we had 3 hotels of 220 rooms, and one of them for 80 rooms was quarantine. So when that quarantine business dried up, we've shut that hotel and continue to service guests' needs from the other.
The next question is from the line of Archana Gude from IDBI Capital.
I have 2 questions from my side. Sir, firstly, on the employee cost. Despite 17% sales growth in this quarter, the employee costs have come down almost 20% Q-o-Q. How we should read these numbers?
Sorry, what cost? I'm so sorry.
Employee costs, sir?
I can't hear you. I'm sorry, the line is not clear.
Hello, is better now?
Yes, this is better. Which cost?
Sir, my question was that despite almost 17% sales growth Q-o-Q, our employee cost is down almost 20% over last quarter. So what led to this fall and how we should read the numbers?
I think that cost -- as I mentioned, I think, in my opening remarks, cost optimization is an ongoing process. So what we have tried to do is we have tried to -- when we shut hotels, obviously, the reason we shut it is that we feel that the revenue we get is less than the operating cost of that hotel, if we operate the hotel. So while shutting down those 2 hotels I spoke about, effectively, we increased our profit because the cost of shutting it down was much less than the cost of keeping it open. Overall, on a cost optimization basis, we, I think, have now reached -- being able to operationalize significant learnings in some hotels across the entire base. And I think that's what you're seeing play out, that the cost structure is getting tighter and tighter, and it's a learning process for us. And which is why I said that all the costs that we have cut will obviously not be permanent in nature, but at least 5% to 7% of our revenue -- cost represented there will permanently disappear.
Sure, sir. Sir, secondly, if you can just give some more color on the retail performance of the key cities for us?
Okay. Vikram, would you like to answer that?
Definitely. So to answer your question, retail primarily is driven by 2 sources today. One is staycation business where people in the same city want a break. These could be young executives who are working in shared accommodation and want to take a break, want some privacy to step out and spend some time in a hotel. The SME movement has also started. So these are the 2 segments which are moving in the retail for the retail business primarily. And they are primarily, I'll tell you, in the key metro cities and Tier 1 cities. So there's a lot of demand in a hotel in Aerocity, for example, Gurgaon sees a lot of retail demand, Bangalore, Hyderabad sees a lot of retail demand. So they are more in the Tier A cities where we have significant inventory, and Mumbai too.
But I would like to add to that, Archana, that in certain Tier 2 and Tier 3 cities, I'm also amazed to see that the occupancies have hit pre-COVID levels. So where there is very high fear of pandemic or whatever, which is more urban-related, it drives staycation business because people are so locked in that they want to go, young couples want to go, young couple with kids want to go and just go to a hotel for a weekend or even weekday because there is now no difference. In the Tier 2 and Tier 3 cities, we are seeing significant pickup not only in retail, but in SMEs. The SME sector is actually helping us, like I'm amazed to see in Chandigarh, both our hotels are at 100% occupancy. We have 180 rooms, and they are doing 100%. So it's interesting. We are just -- this is an evolving situation, but it is very, very positive trending.
Sure, sir. And sir, thirdly, if I can squeeze 1 more question. Sir, how Aurika, Udaipur is doing for us considering that the wedding season is around the corner? And has the ticket size down there drastically as the no-show guests should be come down?
So 2 things. Aurika, you see when there was this Farmer Bill, there was a lot of advocation on the highway. And Aurika key markets are Rajasthan itself and Gujarat. So a lot of people from Gujarat dried down, it is only a 3, 4-hour drive from Ahmedabad and other major cities. And Aurika was doing quite well till that farmers agitation. October for Udaipur has been less than what it was earlier. November is looking very positive. In fact, we have booked a few, what I call, takeouts. So the whole hotel has been bought by a party for a wedding. What we see happening in Udaipur is that post-Diwali, there is very high booking levels. Pricing is unfortunately not where we would like it. We were doing roughly INR 15,000 last year, now we are doing about 60% of that. So the ARR in Udaipur, would be between INR 8,000 to INR 10,000, not INR 15,000. Occupancy levels are trending up significantly.
The next question is from the line of Sumant Kumar from Motilal Oswal.
So my question is regarding -- Hello?
Please go on.
Yes, yes. So you said demand is going to be really good compared to H1, in H2, and around 2,200 room demand is you are getting, so it is around 50% of the operational inventory. So what I'm getting since staycation is there, your SME is also driving demand and you've just talked about the wedding is also driving demand. Apart from that, any other segment you are seeing the demand is going to pick up?
No. As I mentioned earlier, one of the key segments for hotels in India, especially business hotels, so our leisure hotels are doing well. Goa is doing very well. As I said, Udaipur is looking to do very well though October was soft. Rishikesh is doing well. We just opened one of our managed properties in Corbett is starting to show good traction. So resort destinations are doing well in Q3. My estimation is that in Q4, we will start seeing a similar pickup in corporate travel. Now many of our hotels are business hotels, while they get staycation business, the mainstay of these hotels is business. So we are expecting that impact to come in Q3, which is why I said that in H2, I expect it to be much better than H1, primarily because corporate travel is expected to open in Q4. And traditionally, Q4 is the best quarter for the hotel sector. That is the January to March quarter. So Q3 is trending well. Q4, I expect will do significantly better.
So the large corporate you're expecting is likely to travel in Q4?
Yes. Because if you read what I'm reading, Sumant, most large corporates have said, we will open our office in the first week of January.
Okay. So COVID fear is behind us and we start traveling corporate side also, what we are seeing in the bigger sight?
Yes. Now I must put a disclaimer here. This is forward. So it's -- I'm not giving any guidance, but I want to say just one thing, which is that the number of cases in India are reducing on a day-by-day basis. We do not -- we have not reached the levels we were fearful of. That is during Diwali, there would be a spike and so on and so forth. If this continues and the number of cases continues to reduce then I expect Q4 will be -- well, compared to Q1, Q2, Q3 will be a bit of a mop-up.
Okay. So whatever we had expectation during Q1, the demand recovery, that is ahead of our expectation or it is still where -- do not have a clarity on the demand side?
See, we did worst-case planning where we said Q1, Q2, Q3 would be washouts. And Q4, that is 9 months after the lockdown would start showing some demand recovery. Now that has been preponed by say a quarter. So I'm seeing positive signs. But again, as I've said, so much is linked to sentiment, whether there is a fear factor, whether there is a second wave, a vaccine is announced, which is safe and efficacious. So it is still uncertain, but broad trending shows that Q4 will be good. Good means relatively. Not as good as we would like, but relatively.
Okay. One observation from the PPT, the September revenue increased by INR 0.41 crore, while operating expense increased by INR 0.53 crore? What is the reason for that?
Yes, that is because we're opening hotels. So see, it's an ongoing thing what's happening really, Sumant, is that as we see demand starting to pick up and we open in a hotel. Very simple that the first month or 2, now we see demand, say, in a hotel, which is shut in Q1. And we say, okay, we think it is going to cover its costs, but it will take 2 months. So what happens then is when you open a new hotel. Initially, the cost is more than the revenue, the operating costs. But you are obviously opening it on the assumption that the revenue will overtake that. So you will see these blips when we open new -- when we open our existing inventory. So right now, in Q2, we had opened, I think, we were 4,500 rooms, about 86%, 87%. Right now, we are operating with 4,800 rooms, which is 93%. So those new hotels that we have open has now started catching up in terms of revenue. So we're taking its cost.
Okay. As an observation from the PPT only, the ARR in September has been...
Can you refer to the slide, please? Can you refer to the slide number so I can see it?
Yes, one moment. So it's ARR of -- in the September month, has declined over August?
No, which slide you're referring to, can you just tell me?
It is in...
Slide 8?
Yes.
Yes. So that means we opened some lower value hotel, lower-rated hotel, but there was demand coming. And we also, perhaps, as I said, Aurika did well in August. Did not so well in -- no, sorry, this is September. Yes. So basically, this is new hotels we've opened, where there has been a lower ARR, but we are hoping to catch up as it stabilizes.
Okay. And also, what we have seen, the management room, the operational inventory compared to your own and lease has increased at a higher pace occasionally...
Yes, because they have many resorts. There are many resorts there. So we are very sensitive to the fact that the owners of the hotels, which have been entrusted to us, should minimize their losses. So we were advising owner that it is now not worth opening this hotel or it is worth opening this hotel. So this is an ongoing process. And as and when we see demand in micro markets, we start operationalizing hotels, which were otherwise shut. So keep in mind that Q1, a lot of hotels were shut. Even our own inventory, 30% nearly was shut. So we gradually started opening it in Q2. And in Q3, I think again, over 80% of our -- or more than 80%, maybe 90% of our managed hotel inventory is also open.
The next question is from the line of Kunal Lakhan from CLSA.
My first question was on what's the breakup of business and leisure travel, if I can have in terms of customer base of pre-COVID and maybe currently also?
See now the peculiar thing, Kunal, is that business hotels are getting neglecter. So I'm actually not trying to look at it from that perspective. Let me say broadly, our leisure hotels are doing over 60% occupancy. But our leisure inventory of the -- in the old context is not large. It's not significant. But a lot of leisure business is now coming to our business hotels, which is the staycation business. So I don't have those numbers, unfortunately. So if you drop me an email later, I'll try and give those to you. But broadly, you can assume that of the retail segment that we are getting, which is -- we are doing 1,200 rooms a day now. You can assume that 80% or 75% is staycation or equivalent.
That's very helpful. What I was trying to understand also was pre-COVID situation, what would that mix had been? Because I think that time, we wouldn't have this kind of a demand where your leisure was driven by staycation?
No. We were getting staycation business pre-COVID. It was an interesting new segment that had opened up roughly in 2013, where people were coming for breaks, but those were all weekend bookings. What is amazing is: a, the large number of people who are looking for staycations; and two is, that it is they are indifferent whether it is weekday or weekend because I guess we're staying at home. So think of it from this perspective. There are multiple families living in a 2-bedroom apartment, they're doing work there maybe. They are sharing this with their parents. They have young kids and they're just feeling trapped because they're not going out. So for them, this is a welcome break, but the important thing is it must be affordable. So value for money, same city, lot of business hotels, and I presume this is true for the industry. Our letting business, which was earlier only weekend, and this is now operating across the week. So the interesting thing, let me tell you, is if you look at Lemon Tree or the hotel sector in, say, 2 years ago, you would find for Lemon Tree, for example, our weekly occupancies was north of 50%, and our weekend occupancies were 60%, of which half was staycation, even then. Today, our occupancy is flat light. So we are doing -- say we are doing 40% occupancy, then that 40% will be Monday through to Sunday. And that is largely driven, as I said, by retail and a significant segment of that is staycation. Will it stay going forward? Yes. But my view is that the minute corporate demand picks up and stabilizes, which, as I said, is still about 3 to 4 quarters away, pricing comes back to normal. Then a lot of this business will drop away and will come back only on weekends when we drop prices to meet there wallet needs.
That's very helpful, sir. Actually, the context of my question was with respect to what you just said earlier that you expect the corporate travel to pick up from Q4 onwards. I just wanted to understand what is the risk to this assumption, considering the fact that the focus of corporates or India Inc will shift towards cost savings and especially with the new normal becoming that you conducting meetings via online platforms like Microsoft, Zoom and Cisco. How do you see this trend evolving? And I will check to...
So typically, about 30% of our business -- say, about 4 years ago, 50% of our business was with large organized corporates. Today, it is -- last year, it was 30%. Now our workspace trending is that 20% of this 30% will disappear on a covenant basis, that could be a structural shift. So 6% demand will disappear. We don't see that as a big deal because typically demand on an aggregate basis in the last 10 years has grown for branded hotels by 12% a year. So this blip will play out this year. There is no question in my mind, Kunal, that there will be a sub-10% drop structural shift in demand. But what I am betting on is that this will be substituted significantly by SME because there, I don't see any drop in demand. In fact, I see a pick up in demand as it revises that sector. And second is that there will be a structural impairment in supply. We are starting to see it play out. My reckoning is in the next 1 year, maybe 15% of branded supply in India will disappear, maybe 20%. So while demand may come down by sub-10%, supply will definitely come down by a larger number. And the third is that when corporates start picking up, this is in Q4, it will not be instant. It will be small. It will start catching up and that is why I always -- I maintain that it will be 3 quarters when the demand should come back to some level of pre-COVID, and pricing will start showing significant increase.
The next question is from the line of Amit Agarwal from Nirmal Bang.
My first question actually relates to the occupancy levels which you've seen in the second quarter. A competitor, larger competitor Indian hotels, in fact, talked about Ginger having occupancy around about 51%. And of course, what he said was basically because recovery in the MSME sector. I would have expected the Lemon Tree occupancy to be higher than comparatively where it has been. Any particular reasons on that? Maybe it's the hotel mix or where the hotel is? What's...
No, I think it's pricing. It's pricing. Look, if I drop my price to Ginger level, which is roughly half of ours, I will do 70%. But the point is, it's always a trade-off. So we try to maximize RevPar. So keep in mind, that Ginger's average rate last year was INR 2,000. We were INR 4,500. So it's a very different market. You get me. I suspect Ginger is doing better because: a, it's a branded product, though it's a lean economy product. Number two 2 is, it has, of course, the guarantee of the Tata. So you know it's quality. And third is, I think a lot of people who wanted a staycation at, I don't know, INR 1,000, INR 1,200, didn't want to go to guest houses because guest houses are highly suspect because there is no assurance of safety. So I think Ginger benefited with movement from guest houses to a branded player like Ginger. I'm just guessing. I don't really know. But that would benefit them. And I don't know if this 50% is on the entire inventory or the operating inventory. Because...
Operating.
That's the other question. I have unfortunately not found out, but I would reckon it's a mix of these. And what's going to happen is there will be a structural shift from guest houses to economy products. I am seeing it in our Red Fox. So Red Fox -- we have 10 Red Fox. We are being over 50% occupancy. So Red Fox is INR 1,500, INR 1,800 -- INR 1,500 product today, in today's market. So obviously, it will attract price, it will attract a lot of people who would otherwise have gone to guest houses: SME, staycations, and so on. Not all Red Fox, I want to be clear. Some Red Fox are doing very high occupancy.
Right. And my second question pertains to your mix of leisure. Like you were just talking in the previous question also. If you can give some color on the differential, which you've seen in terms of rates and occupancies, between a business hotel, let's say, in Bombay, Delhi, Bangalore, wherever you have it? And in a leisure destination, how is the -- this is on a comparative basis, so last year, let's say, in a leisure destination, pick anything, how is the occupancy that time? Today, how much is it? Or, let's say, in October, how much was it? Or November, how much? And rates also? Can you give some kind of color on that kind of a thing, comparison leisure versus the business?
See, business is not significant. It is only SME today, which would the 3 to 100 rooms. I would reckon those -- you see a lot of them have started booking online because in a bid to expand our base, we have obviously started giving online rates, which are price competitive. So smart buyers of hotel products go check online rates and if the online is lower than the corporate rate, which is the case in most hotels in India today, then they will ship and use the online, whether it's the OTA or the website, our own website. So broadly, I would say that the corporate business that we are getting today is being driven by online. And the pricing would not be significantly higher than the retail price, the leisure pricing because the online segment, the customer who comes here would be -- whether it's coming for business or leisure, he will book that segment because it is a price competitive. He'll book that channel because it is price competitive. So typically, what happens is in winter, online rates are higher, significantly higher than corporate rates. But this winter, it is not going to be the case. So it is difficult now for me to split it because we don't ask reason for stay when a person comes from an online booking. And as I told you that in retail, where we are doing 2,200 rooms, so 1,800 rooms are being booked by -- through the -- what's it called, online travel agents and our website.
Right, right, right. Sure. And any particular -- what's the time line for the completion of the hotel in Bombay, sir, Aurika hotel in Bombay? Any changes on that particular time line?
Well, our original plan was to open it next year in Q3. My best guess is since we are continuing to build it. And the investment is not heavy because it is still shell, right now, we have a tentative time line for Q3 '20 -- FY '23, that means the calendar -- last quarter of calendar '22.
The next question is from the line of Karan Khanna from AMBIT Capital.
I had 2 questions. Firstly, can you help me understand what's this staff to room ratio in second quarter? And how does that compare with first quarter in FY '20 and what's your targeted ratio for that?
So broadly, our -- well, if you go back in time, in 2018, when Smith Travel Research and HTL did a study of India, they found that in the mid-market segment, as an aggregate, the staff per room ratio across all branded hotels in India was 1.6 staff to room. At that point, we were focused on being 1 per room, so before COVID, our staffing was for our 5,200 owned rooms, we had about 5,200 staff. And for our 3,000 managed ones, we had about 3,000 staff. So our aggregate staff to room ratio was 1:1. This included staffing for all the restaurants, for banquets, for salons, bars, and so on and so forth. In Q1, we dropped this significantly, and it came to about 0.5 staff per room. Our ratio is still roughly the same. This is -- so what we will reckon will happen is that when things stabilize, I think, we have been working hard towards looking at optimization of the way we work. And -- and I can say...[Technical Difficulty]
Sorry, ladies and gentleman, it seems the line for the speakers is on hold. I request you all to stay connected while we reconnect him. Ladies and gentlemen, we have the line for the speaker reconnected.
Yes. So we have currently about 2,700 staff working across our hotels. We reckon that when things stabilize, we will require 0.75 to 0.8 staff per room. So what we have planned for is that we will not replace attrition until we achieve this 0.75. Since attrition in the hotel industry is fairly large, we think we will achieve this within -- when things get back to normal, our company will operate at 0.75 staff per room. Now typically, wage bill is about 18%, 20% of our revenue. So if we reduce our staff per room by 25%, then this 20% should also come down to 50%. So that's one reason why we are very sure that our EBITDA margins will expand by 500 bps, which will be the new staffing MOM's ratios that we apply.
Just a follow-up to this. And the reason I am asking this is because I wanted to understand in your quest to become more cost efficient, do you think that's impacting the quality of service at your hotels? Because I'll say from a personal example, when I say that Lemon Tree Premier 2 in Gurgaon, last week -- last weekend, rather. I had observed a few procedural lapses, including a piece of cloth near the luggage rack and tissue boxes without any tissues near the elevator, et cetera. Besides, this is the hotel's General Manager, that's Mr. Utsav Garg. So I'm trying to understand whether the quest to become more cost-efficient is actually impacting the quality of servicing, which possibly, once things get back to normal could actually impact the profitability of these hotels?
I don't agree with you for a simple reason, Karan. We track customer feedback. I'm sorry to hear you had not a good experience. But we track customer experience through 2 third party channels. One is Tripadvisor and one is MakeMyTrip. So since we have so much retail business, as you can imagine, we get a lot of feedback. And I can tell you our average scores in Q1 and Q2, and you can check this, this is a third-party source, is the same as it was earlier? Sure. They may be -- after all, even today and even earlier, they were, obviously, issues because there are so many moments of truth, so many customers and so on. But broadly, our score, our rating and our positioning in all the cities is broadly the same as it was earlier. And you can check this quite easily on Tripadvisor and MakeMyTrip. Just see the score of our TAMs.
And the second question is on -- when you say that your expecting the corporate travel to start picking up in fourth quarter, when we look at the competing rates, the ARRs for competing hotels in nearby vicinity of your hotel chains, do you feel that the way the rates have also corrected at other upscale and luxury hotels, once things actually start picking up, there might be certain challenges in terms of occupancy, et cetera, picking up when most of the other larger hotels are also selling at similar rates?
See, that is market driven. So here is my view, that typically, pricing picks up after demand picks. You don't pick up your pricing because pricing is a function of demand. So as long as demand doesn't pick up, on a sustained basis, pricing will not pick up. So typically, in any hotel, even if you open a new hotel, first, you drive demand, you build your demand base. And then you start increasing your pricing. So it's a lag effect. Now my reckoning is that pricing will not go up significantly in Q4. Once, demand on a sustained basis, the fear comes down and people are traveling, and it is sustained, then there is no fear of a third wave, fourth and so on and so forth, that's when you'll see pricing pick up. So again, I repeat, it is 3 to 6 months -- say, 3 to -- 3 quarters really before you will see that happen.
The next question is from the line of [ Sanket Goradia from VEC Investments. ]
Am I audible?
Yes, you are, Sanket.
Good to know the guidance things are coming through. Just wanted to get your view on sort of in terms of our debt, what's the position? What are the maturities that are coming about in FY '21? If you can throw some color on that? And two being, the split between -- what would be our F&B revenue in the total revenue?
F&B revenue today would be about 30%.
Okay. And are we moving towards even a model of using aggregators like Swiggy, Zomato to kind of increase sales there?
No. We are not -- if you are referring to a model like Taj has, the Qmin and so on, we are not focused on that. We have always, as I said, we are in the mid-market. We are focused on room sales. And other income, which is F&B and so on is a function of what we sell, we are not currently considering distributing food from our kitchens via Swiggy to independent customers. Because then we will be in a very cluttered space because we are in the mid-market, keep that in mind. Taj and equivalents are in the luxury fine dining space. Number two is, as far as debt goes, Kapil, would you like to answer that? What is happening with debt and so on?
Yes, sure. As you know that in this financial year, you asked that what is the repayment in FY '21? So in FY '21, as you know, that the period from April to August, though it was from March 1, but period from April to August is falling in this financial year. The repayment was in the moratorium. So that has got extended by 6 months and the tenure has been increased. So as far as our current repayments are there after August that we have already done for September and October. And for the remaining period, which is from current month onwards till March, we have roughly a liability of INR 45 crores as far as FY '21 is concerned.
Okay. So if I have to understand it, say, from the INR 1,600 odd crores of gross debt, what is debt or due for repayment this year is INR 45 crores?
Yes, Sanket, see this way, that 75% roughly of this debt is payable after over 5 years. Okay? Because all our debt, most of our debt, the reason our debt equity went up was that last year, we opened 5 hotels with a total investment north of INR 1,000 crores, which is Udaipur, Bombay, Puna and what's it called Calcutta. Yes? So that's our debt really picked up from calendar '18 and '19. And these were brand-new hotels. So typically, in our debt, if you look at our debt equity before the IPO, it was 0.5:1. Our loan-to-value was 33%. Now it is roughly 1:1. So this was the operationalization of this bunch of hotels. For example, the Mumbai hotel, which we are building is being built currently, 100% with our own money. We have not borrowed anything on it. We have invested over INR 320 crores in it already. Now our view is, any debt we take, we take balloon term. So typical debt is 3-year moratorium. Then the first -- next 4 years, is only 15% or so of repayment of principal, the next 4 years is another 25%, 30%. And the last 4 years, that is 11 years after taking it, we -- 11 to 15 years, we pay the balance 50%. Logically, that hotels are appreciating assets and pricing ultimately reflects in that value. And if we are paying for the rupees -- for the debt, 11 years later, we are paying it with -- effectively due to inflation, it is less. So that's the whole logic. Most of our debt, I repeat, is payable at least 5 years away. So we are more concerned from liquidity and looking at our interest and our net EBITDA covering our interest.
Understood. Fair enough. So I presume there we must be -- and particularly last 3 months as well at the net -- at the total consol level, we must be having cash burn, right?
Of course.
So that right now, we are using -- I mean, are we planning to do some kind of further raising to sustain that? Or we're in a good position with the cash burn as well?
See, the point is that currently, we are sitting on cash. I don't know the number, maybe about INR 185 crores, INR 190 crores, currently. And we have about INR 125 crores on call from APG. Now a majority, I think 70%, 75% of our debt lies in our joint venture with APG, where this -- majority of this money lies, okay, this cash that we have. So we have cash north of INR 300 crores. And we are, as I said, we are considering a rights issue. The Board has approved it, but we are looking because we are seeing certain trends, which may require us -- may not need us to actually go for a rights issue, think of it from that perspective. So it's an uncertain time. We will take a call in the next month or 2. But based on trending we will take this call before the end of this quarter. Earlier, we were saying if the trend was so bad that we will do a rights issue. Now we are kind of -- the trend is looking a little different. And this is not forward guidance, I'm just telling you the thought process. So if we have enough cash and we are seeing that the cash burn is reducing on an ongoing basis, plus our interest costs have come down. So if you look at the presentation that we made, we have -- the interest costs have come down by 40 bps from -- 45 bps from H1 FY '20 to H1 FY '21. And we are confident of further reducing this. Then not only is the interest down, and if we expect our net cash to keep improving, then free cash, then obviously, we will not need money then.
Understood. So the way to look at this would be that in the last 3, 4 months, we've seen a very significant improvement in the free cash flow. And that's...
No, no, no. Firstly, it's not free cash flow because it's net cash from operations, but we are seeing a certain trend. And we have enough cash even currently, that the next 2.5, 3 quarters, we don't need any money, assuming Q2 levels of performance. But we are seeing a change in Q3, and we are trying to understand it, and this change may be improving further in Q4. So we'll take a call. We are in no hurry, let's put it this way.
Sure. Sure. No. Completely understand. Just one last question from me. If you can just explain the jump in other income, what is that attributed to?
So other income is really the lease waivers. So we have hotels under -- so when they -- so this will now start actually reducing because most of our lease waivers we got in Q1, Q2, it is continuing in Q3 and Q4, but it will reduce. So the other income will come down proportionately.
[Operator Instructions]Ladies and gentleman, that was the last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.
Okay. So thank you, everybody. Thank you for listening in so patiently. And if you have any questions, as I've said, we'll be very happy. You can e-mail us directly. And I look forward to talking to you again next quarter.
Ladies and gentlemen, on behalf of Lemon Tree Hotels Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.