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Lemon Tree Hotels Ltd
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Ladies and gentlemen, good day, and welcome to the 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 from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q4 and FY '22 Earnings Conference Call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director; Mr. Kapil Sharma, Chief Financial Officer; Mr. Vikramjit Singh, President; and Mr. Inder Pal Batra, senior Vice President of the company.
We would like to begin the call with brief opening remarks from the management, after which we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation that was shared with you earlier.
I would now request Mr. Keswani to make his opening remarks.
Thank you, Anoop. Good afternoon, everyone, and thank you for joining us on the call. I will be covering the quarterly business highlights and performance for the year ending 31st March '22, after which we'll open the forum for questions and suggestions. Our investor presentation is already uploaded on the exchanges for your reference.
Starting with Slide 3. We are happy to announce that Lemon Tree has been included in the MSCI India Small Cap Index effective 1st June '22. This will hopefully lead to new investments and may also enhance volumes and liquidity.
Moving on to the fifth slide. In the past 2 years, the company has had a sequential focus on cost optimization and on ERR recovery, which has led to EBITDA margin expansion. On a like-to-like basis, EBITDA margin percentage has expanded by approximately 1,200 bps, which is 44.9% in Q3 '22 versus 32.4% in Q1 FY '20. Going forward, in FY '23, net EBITDA margins will stabilize on an ongoing basis at greater than 50%.
On the next slide, you can also see that the company's gross ARR in Q4 FY '22 was 90% of Q4 FY '20. And during FY '22, Lemon Tree's ARR versus the all India ARR has improved from 62% in April '22 to 77% in March '22. During FY '22, the company showed resilience. After the third wave of COVID, the occupancy recovered in 6 weeks from 34% in January '22 to 60% in March, whereas after the second wave in Q1 '22, recovery took approximately 6 months. This recovery has translated into improved operational efficiency for the company where growth in revenues has outpaced the expenses.
Now speaking of the Q4 operational metrics on Slide 13 onwards. Managed inventory increased by 6% to about 3,300 rooms and total inventory by 2% to 8,490 rooms. This is on a year-on-year basis. Occupancy percentage on full inventory decreased 967 bps from 56% to 46% on a year-on-year basis and by 1,146 bps from 58% to 46% on a quarter-on-quarter basis. Average room rates went up by 54% from INR 2,654 to INR 4,093 on a year-on-year basis and by 5% from INR 3,901 to INR 4,093 on a quarter-on-quarter basis.
Revenue from operations increased 26% from INR 95.1 crore to INR 119.5 crores on a year-on-year and decreased 17% from INR 143.7 crores on a quarter-on-quarter basis. EBITDA increased by 46% from INR 30.4 crores to INR 44.5 crores year-on-year and decreased by 32% from 65.62% on a quarter-on-quarter basis. EBITDA margins increased by 360 bps from 21.4 to 35 on year-on-year and decreased by 10 percentage points from 45% on a quarter-on-quarter basis.
Our key priority continues to be towards strengthening our financial position. In FY '22, our cash loss reduced to INR 17.8 crores from INR 20.8 crores in FY '21. Gross debt stood at INR 1,699 crores. And after adjusting for INR 60 crores of cash, our net debt is INR 1,638 crores. We've also lowered our average cost of borrowings by 28 bps from 8.28 to 8 during the year.
Moving on to expansion plans on Slide 22. Over the last 5 years, we've signed approximately 3,000 rooms and opened 2,856 rooms. As of 31st March '22, we have 20 management contracts in the pipeline, that is 1,441 rooms, and the opening dates of these 20 hotels can be seen on the next slide. When I refer to pipeline, I'm referring to definite hotel openings. Further in Q4 FY '22, we have signed term sheets for another 8 hotels that is 777 rooms and are currently in active discussions for another 81 hotels, totaling 5,947 rooms.
Our operational inventory as of 31st March comprised of 87 hotels and 8,489 rooms, out of which 4,517 are owned, 675 are leased and 3,297 are management contracts. When the current pipeline becomes operational by FY '25, Lemon Tree will operate approximately 10,700 rooms in 109 hotels across 65 destinations.
From a demand perspective, we are seeing an uptick in consumer sentiment. Leisure travel continues to maintain its momentum. We're also noting improved traction in corporate travel with the reopening of offices, resumption of international flights, and the pickup in in-person events and conferences. We are reasonably sure that resumption will reach pre-COVID levels by H1 this year.
Overall, we are very optimistic about growth in FY '23. 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] Our first question is from the line of Adhidev Chattopadhyay from ICICI Securities.
My first question is on the revenues in terms of the April and May numbers. If you could give us some idea, as compared to pre-COVID levels, how these are running? Have they recovered or have they crossed pre-COVID levels? And for the figure of this year, assuming all things remain good, what sort of revenue growth can we look at on a like-to-like basis and on a combined basis, along with the new hotel openings versus pre-COVID levels? That is the first question.
See, I don't want to give specific numbers. Let me put it this way, that in this financial year, that is FY '23, we will 100% cross -- we will at least grow 100% in revenue versus FY '22, and we will have a minimum net EBITDA margin of 50%.
Okay. Okay. So I'm just saying, sir, are you seeing these already in the April and May numbers, these sort of trends being there, or is it still some time to go till we fully get there?
No, we are already there.
Okay. Sir, you would help us...
Actually, from the last week of March. You see the key was corporate traction. So while it is catching up, you have to keep in mind that unlike the other listed players, we have massive inventory. 86% of our inventory is business hotels of the whole inventory and only 14% is leisure. That's the first point. So when leisure picks up and business does not pick up, then we are at a disadvantage. Now when you reverse that, conversely when business picks up, then we are at an advantage. So what we found was that -- I'll give you a simple instance.
Only -- if you look at Bombay, Bangalore and Hyderabad and Gurgaon -- sorry, Gurgaon, Hyderabad and Bangalore, 40% of our owned inventory is just from these 3 cities and our hotels are all located in large business concentrated areas. And a lot of it is IT business. So these were completely affected for both January and February in this quarter that went by. All of them opened in -- the offices opened in late March. And now we found that for this quarter, that is Q1, they are the [indiscernible] markets for us.
I mean, Bangalore is doing -- what used to do 30%, 40%, it's doing 80%. The ARR has doubled in Bangalore. Similarly, Hyderabad, which was also a relatively underperforming market, it's now at 80%. So it has been like reverse -- like leisure benefited other chains. The business side is benefiting us. And you will see it actually after our Q1 results. You will see what I'm saying.
As a result of this, since our costs are more or less now constant, in Q4, we reached full cost levels. So what you see in Q4, which is something like INR 90 lakhs, INR 95 lakhs per day expense is on 100% inventory and at assumed full occupancy levels. So we did not do significant cost cuts of any transient nature in Q4. And we, instead, in fact, spent money renovating many of our hotels. We spent a few crores on that.
And I think you will see that we will reap those benefits from Q1 this year. So a massive increase in ARR, massive increase in occupancy in specific markets, overall increase in occupancy for the company. And that's why I'm saying with complete confidence that we will do at least 100% growth in revenue this year versus the INR 402 crores of whatever we did last year and over 50% net EBITDA.
Okay. Sir, that's helpful. And just secondly, sir, I heard earlier in your remarks that you want to bring the debt down significantly over the next 3, 4 years. Could you give us some roadmap on how we intend to get there. How much would be -- what are the plans to deleverage through organic and inorganic things?
See Adhidev, so let me not talk inorganic because what will happen most likely is, if you will see our performance, say for Bombay, in this quarter, this quarter, where we are in the middle of, and the next few quarters, you will see something which I've been saying for a number of times, that Bombay is one of the best markets in India. So our expectation is that once we open Bombay, which is end of next year, which itself should, and I'm making a forward-looking statement here, contribute a minimum of INR 150 crores to INR 200 crores of EBITDA. We will probably be in a position to raise capital in our joint venture with KPG, which is Fleur Hotels, at a good premium.
So that will be one opportunity for us to get a third party, and which will typically be a sovereign or a pension fund, into the joint venture where 75% of our debt resides. And we would, if that happens, be able to write off the debt immediately. However, we do not assume that. So we are looking at our internal cash flows and debt is about, as I just said, a little under INR 1,700 crores. Our total requirement to open Bombay and Shimla is another INR 600-odd crores, because we have already invested about INR 450 crores.
So the total requirement of cash to be debt free and to fund Bombay, because as I have also said earlier, we are not going to increase our gross debt, we are going to fund Bombay and Shimla through internal cash accruals, our estimate is for this INR 2,250-odd crores that we require, somewhere between 3.5 to 5 years, say, 4, 4.5 years is when we will have paid this off with our cash flows. So if you do some simple math, I've already given you some kind of informal guidance, and add on what we think will happen in the next 2 years. As I have said, there is not significant supply coming in, and I don't see any major obstacles. I'm assuming monkeypox does not become the next pandemic. Then we will definitely generate about north of INR 2,000 crores of cash in the next 4, 4.5 years.
Okay. Fine sir, that was very helpful. I'll come back with more questions.
Some people have asked me why I'm not raising -- once our performance improves, why I shouldn't raise equity. But for me, raising equity to pay debt down, while it, of course, reduces risk, is really replacing -- I'm getting a return of 8% in equity there, because I'm replacing debt, which is at 8% cost, with equity. So I think we are now finally in a position where we don't have to worry about it. And really, most of our debt is in a joint venture where the partner has always been ready to invest more capital when we have had a requirement. So in that sense, we have tried to risk mitigate.
Fine, fine. That's pretty helpful and pretty clear. I'll come back in the queue.
Our next question is from the line of Baidik Sarkar from Unifi Capital.
So I was saying, Mr. Keswani, a key assumption in imagining this year's revenues of INR 800 crores plus is that we will hold current ARRs. And in fact, you indicated publicly a while back that by the end of this calendar year '22, you actually expect ARR to significantly accelerate. Could you perhaps flesh out the lead indicators you are seeing at your end that gives you credence to this assumption? And secondly, a timeline update on Aurika, Mumbai. I reckon you have a [indiscernible] demand to reopen. So how are we doing on timelines here?
So our ARR is already INR 5,000. In April, it was a little lower because in the first week of April, it was a little slow. But our ARR is, therefore, up 20%, and our occupancy is also up enormously from Q4. In fact, also up from, I think, Q3. So for you to understand how revenue works, typically, Q1 and Q2 are the slowest quarters of the year. And if you look at historically, say, last 10, 15, 20 years, typically, H2 is 1.2x to 1.4x the revenue of H1. Okay? Costs do not change. In fact, sometimes costs come down because the energy cost of summer is higher than winter.
So if you do some simple math, say I do INR 100 in Q1. Then a very simple number is, INR 100 in Q1 should be at least INR 100 in Q2, should be at least INR 120 in Q3 and Q4. So your revenue should be typically INR 240 in that example with -- INR 440, with INR 200 coming in summer and INR 240 in winter. However, in good years, it's not INR 240, it is INR 260 to INR 280. So depending on how the market trends, in the worst case, your winter revenue is 1.2x of summer, and in the best case, it could be as high as 1.5x. I mean, there have been years when the winter revenue has been 60% of the full year revenue. So you can therefore do the math. I don't want to give guidance in that sense. I'm giving you a perspective.
Number two, the point I have made is that our costs are fixed now, have stabilized at INR 95 lakh per day. This is our full operational expense. If I add on renovation expense, it is INR 5 lakhs a day to INR 7 lakhs a day. So that comes to INR 1 crore. And corporate expenses would be another INR 12 lakhs a day. So about INR 1 crores to INR 1.5 crores is our fixed expense. Fixed means that is fixed and variable, variable based on up to 75% occupancy. So that is the cost economics. This will lead to a margin expansion of 12 percentage points on a revenue basis in our company from this year onwards, as you will see. Now the assumption I have made is, I have given you a number for revenue, which is based on conservative assumptions. What we could do, I don't want to make statements on, what I have said is what we are 100% sure of, which is, we will do 100% more revenue minimum compared to FY '22.
As far as MIAL goes, we have accelerated the development of MIAL. And as I said, if there are no unforeseen [Foreign Language] in between, we should open it by the end of next year. In fact, we will soft open maybe 300, 400, 500 rooms by October.
That's interesting. If I can just squeeze in one last question here. On the margin front, obviously, there's been unprecedented inflation in food basket and the fuel cost of what they are. So just to cross check, our assumption of 50% EBITDA is discounting the price levers we have to tackle all of this, right?
I'm talking current price levels, which means post inflation.
[Operator Instructions] We'll take our next question from the line of Sumant Kumar from Motilal Oswal.
One, regarding the occupancy rate, have seen a couple of hotels, the listed players shown an improvement in occupancy as well as in ARR. But our occupancy Y-o-Y has declined, but yet, the ARR improvement was higher than other players. So considering the same dynamics and the nature of the business, is there any -- the high occupancy in Q4 '21 was, we got some bulk order or group bookings. So compared to other players, our occupancy is down Y-o-Y.
So as I explained to you -- so I don't want to now talk about competitors and so on. Let's talk about -- the other players, in general, have a very large, more than 2x, in some cases 4x our inventory percentage in leisure destinations and in Bombay. So these were the 2 best performing markets. As I mentioned to you, the Bangalore, Hyderabad, Gurgaon markets, where we have 40% of our inventory, I don't know about the others, but we have disproportionately large inventory, were very big underperformers in January and February because, as you may imagine, large corporates and specifically large IT companies, when Omicron hit, they did not open their offices, travel did not occur.
And as a proxy, you can perhaps look at how airline travel changed into Bangalore, Hyderabad -- or out of Bangalore, Hyderabad, when Gurgaon, you wouldn't know, it's out of Delhi. And it would be a clear indicator. So it's really a mix. You see you have 5 hotels and I have 5 hotels. And 2 of my 5 are in places where the market has absolutely not picked up. Then obviously, I will not match the same occupancy you do across 5. Conversely, when those 2 markets pick up, then I will get disproportionate benefit. So the point I have made is that from Q1, that benefit will play out.
Okay. So there might be, in Q4 '21, [indiscernible] 50-plus, is all because of maybe staycation, and that segment we have a higher chunk of market share compared to other players and now overall that segment has gone down. Yes, as we know, Q1 is going to be great, but there might be a reason for lower occupancy this quarter compared to previous year quarter.
No, no. This year, I have said the occupancy will also be much higher than previous year, year-on-year quarter.
Okay. I'm talking about the Y-o-Y Q4 '22 compared to Q4 '21.
It will be -- see, quarter 4 '21 had no disruption. You've got to keep in mind, sir, that quarter 4 this year had 1.5 months of complete Omicron wave. You're comparing it to quarter 1. The Delta variant, if you remember, only started towards end of March, and it was predominantly in April and May. So that disruption has generally brought down the weighted average of occupancy across the board. If you're comparing quarter 4 '21 to -- no, but what specifically are you comparing, Sumant? Q4 this year FY '22 to?
Q4 '21.
Q4 '21. I think there's a slide. Yes. So Q4 '21 did not have any Omicron, did not have any disruption, which is why if you see Q4 '21, its occupancy was marginally under Q3 FY '22, where again, there was -- you know, these were all post wave.
Okay. Okay. Got it. Because of the higher leisure demand, might be other players have got benefited and we have a more business hotels. That was the key reason for that.
Yes. Because when I see leisure, at least I know that -- I think Taj and Oberoi have double their -- in their portfolio, they have about 30% leisure. We have 14%.
Okay. Okay. And now talking about the current demand scenario, can you talk about the corporate demand and the foreign customer mix, how things are panning out currently?
Yes. So since we are -- you see, we are focused on increasing our prices. So as I said, our ARR is now 20% over the ARR of -- in fact, more than 20% over the ARR of Q4. So that means that certain types of customers have stopped using us because of price. So we have looked at actually substitution and that substitution has come more from corporates. Therefore, if I give you a broad example, so not many meetings and incentives happen normally in these hot months. 45% of our business today would be retail; 45% would be corporate, large and small; and 10% would be others. But of course, this does not include -- though foreigners actually have started using our hotels now, this should typically be more than 10%, it should be 15%, but at present, it is 45%, 45% and 10%.
[Operator Instructions] Our next question is from the line of Hitesh Arora from Unifi Capital.
Sir, could you just give us a guidance -- some indication, maybe not guidance, on the tax. Given that we have a lot of subsidiaries, it's a little difficult to sort of project. If you could give some sense on the tax outgo for FY '23?
So we are lazy creatures. So when we do our P&L, what we look at is really a simple math, and we just assume 22.5% tax, because that is the maximum tax you can pay. But one of the reasons where we spent -- we haven't spent, I mean we have accounted for a INR 15 crore OpEx, is on stamp duty in the last quarter. The reason for this is we have merged the Lemon Tree Premier in Bombay, the Lemon Tree Hotel in Gachibowli, and the Lemon Tree Beach resort in Goa, which together account for about over 550 rooms, into Fleur in order to get tax benefit. So this INR 15 crores that you see as stamp duty in the last quarter is we expect to recover within 4, 4.5 years, I think, in tax savings, okay? Now Kapil, would you like to answer this breakdown of how tax operates, or Inder, one of you?
Yes. So as you rightly mentioned, there would be certain subsidiaries where the tax would be coming, but other -- like the holding company, Lemon Tree Hotels Limited and Fleur Hotels would have some advantage in terms of the adjustment of certain previous carryforward losses. So the liability of the holding company would be lower, but in certain SPVs, where we are having profitable single hotel, there we would have to pay some tax. But looking at some sort of planning further, going forward, so that we can have a lower liability on this front. But this is for the future. Through mergers and other transfer expenses, rearrangements.
Just to get a sense, these two hotels, which were merged in Fleur, potentially they were PAT positive?
All 3 of them. Bombay is going to be super profitable -- I mean, enormously profitable. Gachibowli has become super profitable now, and Goa has always been very profitable. So if you take these 3, it will hopefully help offset against other losses. See the critical thing, Hitesh, is that we have over INR 100 crores of depreciation every year, right? So sometimes it makes sense also from a new hotel perspective. Because historically, we've had many subsidiaries, which we are gradually now trying to clean up from a tax effective perspective.
So on an aggregate basis, what would our tax be, Kapil? Instead of 22.5%, if you have a best guess? It will be closer to 12%, 14%, right, because of the offset?
Yes. At the max, we can take 15%.
So you want to play safe, for modeling, you can assume tax on a consolidated basis at 15% of PBT.
Our next question is from the line of Kalpit Narvekar from Allianz Global Investors.
So my first question was on the micro markets. Could you share some color on -- so I can see your numbers for fourth quarter. But maybe on the exit run rate or say, April month, could you share some color on how the occupancies and ARRs are trending for the markets in, let's say, NCR, Bangalore and Mumbai?
So Bombay, we are trending because it's the IPL 2 months, so it's obviously fantastic. Bombay is at a little under INR 8,000 and at about 80-plus percent occupancy. Now Delhi NCR comprises of 3 distinct areas, which is the 2 hotels near the airport, which is 500 rooms. That does 75% to 80%, Red Fox does over INR 4,000 now, and Delhi Airport will be doing a little under INR 6,000. Occupancies would be about 80%. Then you get to East Delhi, where we have a small inventory of 150 rooms. We have a Red Fox of 100 rooms and a small banquet hotel of 50 rooms. There, the occupancies would be about 65% and the ARR would be, I would say, 4,000 for the Lemon Tree and INR 3,000 for the Red Fox.
Gurgaon, we have over 500 rooms. There are, within Gurgaon, 3 markets. So we have 1 in Udyog Vihar, which is a small hotel. Then we have over 200 rooms in Sector 29, where we are doing about INR 6,000 ARR and about 60%, 65% currently. Then we have in Sector 60, 250 rooms, 150 is Red Fox where we are doing about INR 3,000 and 100 rooms is Lemon Tree, which is, I think, at INR 4,000, INR 4,500, and those are also doing 60%, 65% occupancy.
Then you get to Hyderabad. Hyderabad, we are north of 75%, probably north of 80%. And the ARRs are, the Lemon Tree Premier is at about INR 6,000; Gachibowli would be at about INR 5,000, Banjara Hills would be also over INR 5,000, maybe INR 6,000, 55%, and Red Fox is at a little under INR 5,000.
Then Bangalore, the Lemon Tree Premier, that 200-room hotel, which is in the City Center, would be at about 75%, 80%, at about INR 6,000. Electronic City, the Lemon Tree would be at about 80% at about INR 5,000. Whitefield, our 130-room hotel there would be at maybe 90% at also INR 5,000. The 2 Keys Hotels are also doing phenomenally well. They are at about 80%, and they are at about INR 3,500. Then we get to -- have I forgotten something? I think I've covered it all yes.
Yes, that's really helpful. So I had a follow-up on this. So could you share some thoughts on why Keys' occupancy has been lagging? So this 32% occupancy for FY '22, right? So what is your strategy in terms of bringing that occupancy up in the Keys Hotels?
See, the real reason we bought Keys is -- actually, we bought the 2 Bangalore hotels, the Puna hotel and the Visakhapatnam hotel, which account for about 600 rooms, where the replacement cost was about INR 550 crores. So from our perspective, these were the 3 key markets we were bullish on. And unfortunately, we bought it 3 months before COVID hit. And then after that, of course, there was a nonstop underperformance for the next 2 years. We are now putting a fair amount of investment into the Keys portfolio. Specifically, these 4 hotels I've spoken about.
The 250 rooms that we have in Kerala continue to underperform and, in fact, are responsible for deflating the overall performance of the Keys portfolio as well as the 100-room hotel in Ludhiana. So 350 rooms out of the 950 that we bought. In our minds, frankly, we did not really value them in the acquisition of the Keys portfolio. As I said, we bought Keys for INR 600 crores. But what we really looked at were these 4 hotels as the generators of EBITDA going forward.
And as it turns out, already, this month and the previous month, they have now started coming back to the levels we wanted them to operate at pre-COVID. When you look at Keys, you are seeing the weighted average, which includes, unfortunately, the 350 rooms in Kerala and Ludhiana. We are now upgrading those 2. So I guess, over the next -- it's difficult for me to answer this offhand, but I reckon, over the next 6 months, when we renovate them, you will start seeing a fairly decent improvement in performance. But the real generation of EBITDA will be in the 4 hotels I spoke about. I hope that answers the question.
Yes. Yes. That's helpful. So I mean, why invest money in Keys more than your own hotels? Like let's say, you could just sell off these 350 rooms, right? I'm just trying to understand your thought process behind investing in Keys, because operationally, your own portfolio is much better than Keys anyway, right, in terms of margin...
Not these 4. These 4 have the potential to -- these 600 rooms have the potential to generate at least INR 60 crores of EBITDA. And I think you will start seeing that run rate within the next 3 quarters. So think of it this way, the way we looked at it, we bought the rest of the hotels for INR 50 crores, those 350 rooms, and we bought these 600 rooms for INR 550 crores. And these were hotels we may have liked to build or buy ourselves individually, too. So that was the perspective. You're right, we could look at selling them, but if you can find buyers, I'll be grateful. But we will not sell the 4 I spoke about, because we think that they will give us very nice returns.
As far as renovation goes, we are going to spend -- when I talked about net EBITDA, it was post renovation expense of INR 25 crores this year. We have incurred a few crores in Q4. This year, we intend to spend INR 25-odd crores, and we are upgrading some of our Lemon Trees and also upgrading specifically the 3 Keys hotels in Bangalore and Puna. But it is, I think, totally only about INR 7 crores or INR 8 crores we are spending in Keys and INR 17 crores in Lemon Tree. And that is all expensed. So when I said, I repeat, net EBITDA, it is post this INR 25 crores.
Great. That's helpful. If I may ask one last question. So on the retail piece, you mentioned that you're seeing some segments sort of backing out of the bookings or something. So could you share some color on how you see these like [indiscernible]? How does that affect retail booking, say, a quarter out or something? Any sort of trends? Are you seeing any drops in bookings quarter out or something like that, because of the ARR hikes?
So I don't have the up-to-date figures of May, but I have of April. Now April was -- as I said, first week of April was slow, but I'm going to give you a flavor. In Q4, our corporate demand was 820 rooms at about INR 3,750. In April, the corporate demand became 1,560 rooms at about INR 4,200. So the ARR improved by about over 10% and the occupancy doubled more or less. Airline segment, which was only 120 rooms at INR 3,600 in Q4, which is the 10% I spoke about outside of corporate and retail. The Airline segment was increased to 120 to 140, and the average rate went up 33% from 36% to 48%.
The travel segment, the travel trade segment, travel agents and conferences and so on. In Q4, only average 150 rooms at INR 4,900 and that is now increased by 50% to a little over 220 rooms in April at about INR 5,500. Retail, which was INR 4,200, was 1,240 rooms in Q4. Now it was much less in the first half of Q4 in all these cases and much higher in the second half of Q4. So you can say it was 1,000 or 900 rooms in the first half and 1,500 rooms in the second half of Q4.
Retail averaged 4,200 in Q4 and went to 5,500 in April, but did 1,500 rooms. So you add it up, basically, this is about 3,400, 3,500 rooms we did at an ARR of -- I forgot, about -- April was low, it was about INR 4,900.
[Operator Instructions] Our next question is a follow-up from the line of Adhidev Chattopadhyay from ICICI Securities.
My question is on the Aurika, Udaipur. So I think, if I remember correctly, you had said earlier that the full year revenue potential was around INR 65 crores for this hotel. Sir, does this number still stand, or do you expect much higher numbers, if you're looking at whatever bookings and demand you see at the end of the year.
We will do at least this.
Okay. So INR 65 crores. And sir, if I heard you correctly, you have said the Mumbai Airport Hotel, whatever it is operational, you are expecting INR 150 crores to INR 200 crores of EBITDA. So on a top line basis, that would imply at least INR 300 crores to INR 350 crores of top line over there annually on a stabilized basis?
Not sure, because Bombay, for example, our existing hotel, which is 300 rooms and an upper mid-scale hotel, unlike Aurika, which is an upper upscale. So the Bombay hotel does 60% GOP already, currently. Okay? So you can assume that an Aurika, Udaipur, will do a 65% GOP. So when I say I will do, hypothetically, INR 200 crores of EBITDA in Aurika, it really means the revenue I need is about INR 330 crores, okay?
Okay. That is a stabler setup. Secondly, sir, you alluded probably that you have consciously increased the rates now, like to cater to more premium customers. Is it more a seasonal thing or is it something for a more longer term strategy to get premiumization of customers [indiscernible].
So let me put it this way. Normally, you increase rates after demand firms up. But we went counterintuitive this time. And we said even in Q4, we did not drop prices to pick up more retail business, which is obviously available at, say, INR 3,000. So if you notice, the retail ARR, even in Q4, was INR 4,200, okay. Just below the travel trade ARR. So when you take a call like that, then you have to consciously accept that some business you will not get which you may have gotten otherwise. But that is a short-term loss because what you are doing is you're repositioning your hotels, because during COVID, everybody's ARRs went so far south because the customers were not your real customers. Do you get me?
So a five star hotel was taking customers who would normally stay in a 4-star or a 3-star, but they dropped their prices so much that the customer went up and stayed with that five star. It happened to us between Red Fox, Lemon Tree and Lemon Tree Premier, too. So we found many of our Red Fox customers were in Lemon Tree and Lemon Tree customers were in Lemon Tree Premier. So now when you reposition after a 2-year gap, there is some initial, but we felt minor pain in repositioning in terms of repricing. So as I said, we took our prices up very significantly. And while in corporate it is kind of based on fixed contracts, even there we went up by 10%.
In airlines, we went up by over 30%. In travel trade, we went up by over 10%. And in retail, we went up by 30%. So when you do that, obviously, some customers drop away. But what I am very, very confident about is that the demand that has come back is such that we will be easily able to replace, and in fact, more than replace the demand that was there in Q4.
Okay. This is something which we'll evaluate from time to time going forward, I guess, depending on...
Yes. So you will have to really look at our occupancy and our ARR this quarter besides the revenue for you to understand exactly what I'm saying since I don't want to give you specific guidance.
Sure, sure. Fine, sir. That is very helpful.
[Operator Instructions] Our next question is from the line of Rajiv from DAM Capital.
My question is regarding Slide 23, where you have given your active discussions regarding 81 hotels. So safe to assume all of these are under Carnation, right?
Yes. But as you know, Carnation has become a 100% subsidiary of Lemon Tree as of Q4. So this is where the management fee income will go. If you look at this slide, you will see that in '19, '20, '21, we only added 11 hotels. Now this year, for example, we will open at least 1,000 rooms and at least 14 hotels to increase our inventory. We've also signed term sheets, as you will notice, in Q4, of another 800-odd rooms and 8 hotels. And we are pretty sure that this year, we will be -- if I spoke very broadly, I think we will sign at least another 2,000 rooms, which is, say, another 30 hotels in the next 9, 10 months.
Our next question is from the line of Achal Kumar from HSBC.
I have three, if I may. So first of all, so I'm referring to Slide 17. If I remember it correctly, at your Q3 results, I mean you reported strong recovery in your premium brands like Aurika and Lemon Tree Premier, and the argument was that the customer's behavior is changing and they actually prefer hygiene. So they're actually shifting a notch above and hence the recovery is faster in the premium brand. Now of course, the rates are high, the RevPAR is high, which means definitely people are ready to pay more for the leisure. But then your occupancy level in Aurika seems to be slow -- or lowest than the other brands. So do you think the customer behavior is coming back to normal or how do you see whatever the behavior there was a shift due to COVID? So that is my first question.
Secondly, generally, the perception is that the demand would actually exceed the supply side. So how do you see the supply demand balance for the industry over the next 2 to 3 years. So that's my second question.
And the last question, sorry, if you've already answered it, I joined a bit late. How is the recovery in the corporate demand you see? So these are my 3 questions, please.
Okay. So customer behavior during COVID was -- I want to be very specific. I don't look at Lemon Tree as a general example. I look at the branded sector. There was a clear move from unbranded to branded because of a presumption that the branded hotel sector would offer better hygiene, better processes, better standards, cleanliness and so on and so forth. I do not see those customers going back. See, the customers who may leave the branded sector and go back would be the very, very price-sensitive customers. And I'm not really able to disaggregate how many of these customers would be going back, how many would remain and so on.
The broad point I'm trying to make, Achal, is that the customers who were normal customers were not there for most of the past 2 years. Because like you, you are a customer, you must have hardly traveled. Nobody traveled. So that is coming back, number one. Number two, I'm seeing an interesting trend linked to PLI. There is this enormous increase in corporate travel from the manufacturing sector. And in fact, it is something I'm watching closely for the last 2 months. And I feel that, that will be an upside for the branded hotel sector in the next 2, 3 years. But that, too, will be a subset.
Overall, last 15 years, from 2005 to 2009, '10, demand was more than supply. So that was an upcycle. Once the global financial crisis occurred, from that time to 2019, '18, actually, demand was very subdued -- sorry, occupancy was subdued because demand every year, while it was growing at 11%, 12% a year, was less than rate of growth of supply in the branded sector, which was about 15%. Now things were recovering in the 1 year before COVID when, of course, COVID occurred. Now what am I seeing, it's like, forget the last 2 years, going forward, demand is going to get back to 11%, 12% at least. That's my minimum expectation, because even in the middle of demonetization, in the middle of low growth, our demand was still growing at 12%.
Supply, on the other hand, will now not grow at north of 5%, because you know supply for the next 5 years, it's studied closely by HVS, by Anarock, by HTL and so on. And supply is known, because it takes 4, 5 years to bring supply on the ground. So the next 4, 5 years, my expectation is demand annually will outpace supply. And when that happens, typically, the sensitivity to pricing is 5x of that. So if the occupancy grows, if demand supply imbalance is 5%, you can safely assume that price will at least increase 25%. And if you are a history buff, you can go back to 2000 to 2006 in the hotel sector and look at the listed players' reports. You will find price increases were 50%, 70%, 100% increase in average rates on a year-on-year basis for 2004, 2005, and 2006. And I suspect that is going to come back. But of course, that's a hope. I hope it materializes.
Right. And how the recovery in the corporate traffic looks like at the moment? Of course, you talked about the recovery coming from manufacturing sector. But overall, how do you see the recovery in the corporate demand?
I'm seeing phenomenal recovery. As I said, it doubled between Q4 to Q1 in April. It is even better going forward. And when this PLI, manufacturing activity, et cetera, starts kicking in, I reckon it will be a further upside there. Difficult to project how much, but corporate demand is back fully to pre-COVID levels. Now pre-COVID, Q1, because remember, corporate demand is much higher in winter than in summer.
Right, right. Sir, let me follow up on your demand versus supply situation. So that clearly means the demand would actually outpace supply by miles, because if the demand is expected to grow at 11%, 12%, the supply is north of 5%. That means...
South of 5%. Supply is south of 5%. Different guys are estimating 3.5% to 4.5%.
Right. Right. Fair enough. So that means the demand is going to outperform or outpace supply by a mile. So actually, 2 things here. First of all, so that means the ARR should be strengthened significantly from here on if that equation proves out to be true? And secondly, I mean, how long do you think this upcycle could be, which is actually kicking off now? How long do you think this upside could be, 10 years? Do you think 10 years, 5 years?
No, no, no. See, what happens is, 2 years from now, my guess is, or 3 years from now, your ARRs will be double of what it is today. And I'm not talking Lemon Tree. I'm talking branded hotel sector. I want to be very specific. Now at that point, you will find all hotels, on a replacement cost basis, the ROCE will cross 15%, 16%. On a book value basis, it could be 100%. I'm not going there. But the minute your return on capital on a current value or a replacement cost basis is 16%, 18%, then fresh supply is planned. So my estimate is that by end of next year, there will be such an upswing in the hotel sector that the returns will then kind of justify further investments. But the minimum that will take is 3, 4 years more.
So the next 5 years should be very good for the hotel sector. But as in any cyclical business, supply will come and supply will then depress pricing, because the rate of growth of supply will be such that it will overtake demand for a year or 2 in a typical cycle. There will be a drop in pricing. And then again, the cycle will reverse, because supply will then dry up till demand and the pricing justifies further investment. So just a typical cyclical business.
Right. So that means most of supply should come from brownfield projects, not the greenfield, because if it is greenfield, then anyway it must be visible, right? So it must be brownfield projects or conversions, right?
Not so much brownfield, yes. If you look at all the supply in India put together, I would be surprised if it is more than 15%, 20% of current supply. And that will take the next 2, 3 years to come, okay? Or maybe 4 years. So the next round of supply will not be conversions. There will be no brownfield, it will all have to be greenfield. In fact, many of the potential owners we are talking to are talking greenfield. They are talking to us now about building hotels which could take 4 years to come up.
Okay. That's interesting.
Our next question is from the line of Nihal Jham from Edelweiss.
Sir, I just had one question. I'm sorry if this has been asked earlier, I dropped off, that when you are guiding for the 50% EBITDA margin, could you just discuss on the levers of the same? Because in Q3, which is a seasonally strong quarter and where the benefits of cost benefits still stay, we are at around 45% margin. So what is going to be the incremental driver, other than rate recovery, which will take up there? And also considering that your costs will come back as things open up.
My costs are fully back. So let me just summarize. What was the revenue in Q3? So Q3 revenue was INR 145 crores. Divide it by 90%, that is INR 1.6 crores a day, right. At INR 1.6 crores a day, we did 45% net EBITDA. Now that really means that my expenses were 55% or INR 90 lakhs a day. Is that correct?
Yes, that's fine.
Okay. So let me summarize. Q3 revenue per day INR 1.6 crores, all in expenses till net EBITDA of INR 0.9 crores. So INR 70 lakhs profit, INR 63 crores EBITDA for the quarter, 70 x 90. What I'm saying now is that our all-in costs for Lemon Tree are on a fully operational, full inventory basis, assuming 75% occupancy is INR 95 lakhs per day. Add to it corporate expenses of INR 12 lakhs a day. Add to it renovation expenses of INR 8 lakhs a day. That becomes INR 1.15 crore. So expenses have increased from INR 90 lakhs a day to INR 1.15 crores. This is taking into account renovation and all staff hotels fully operational. And I'm saying that we will do north of 50% net EBITDA. So you can do your math then.
Fair enough. So basically, it's the...
By the way, I've said minimum 50%. I didn't say 50%.
No, sir. I think this should help in giving clarity.
Next question is from the line of Tanay Shah from Dolat Capital.
Just one question on my side. Regarding the other income, I see that it has gone up to, say, around INR 7.6 crores this quarter. This is around 3x the previous 2, 3 quarters. Any specific one-off item or is this sustainable?
It's a one-off item. So you might have seen that we have deflagged one of our hotels, which is Red Fox, Chandigarh. So this was a leased property. So as per the accounting standard, when you basically make lease ineffective, so whatever you have accounted for earlier, in terms of your interest on the lease liability and the depreciation on the right-to-use asset, that is to be reversed. So that has been done due to this transaction, which has resulted in a revenue of roughly INR 7 crores, out of which we have made some provision, which is roughly INR 4 crores about the recoverable. So that's the INR 3.25 crores you are seeing in the other income, which is a one-off item.
Our next question is a follow-up from the line of Hitesh Arora from Unifi Capital.
Sir, just wanted to -- could you give the management fee income number as well in the revenue from operations?
I'm sorry?
What is the management fee income in the overall, I think, INR 150 crores revenue from operations?
It's about INR 17.5 crores for the year. See, management fee income for us is roughly 7% of revenue. So the revenue last year was INR 250 crores of the managed hotel. So we got INR 17.5 crores. This year, we think revenue will be INR 600 crores -- INR 500 crores to INR 600 crores of managed hotels, okay, with the current portfolio, not new hotels. So you can take 7% of that as our management fee income.
[indiscernible] significant number.
Well, in 2 years, it will be super significant, but it's there.
Thank you. That was the last question. I would now like to hand the conference back to the management for closing comments.
So thank you, everybody, for your patience, for your questions. And I'm actually now looking forward to talking to you after Q1, because then you can see what I'm saying generally play out. And take care until them. Thank you.
Thank you, members of the management. On behalf of Lemon Tree Hotels Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.