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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 call over to Mr. Anoop Poojari from CDR India. And over to you, Mr. Poojari.
Thank you. Good evening, and thank you for joining us on Lemon Tree Hotels Q4 and FY '24 Earnings Conference Call. We have with us Mr. Patanjali Keswani, Chairman and Managing Director; and Mr. Kapil Sharma, Chief Financial Officer of the company. We would like to begin the call with opening remarks from the management, following which we will 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.
Good afternoon, everyone, and thank you for joining us on the call. I will be covering the business highlights and the financial results for Q4 FY '24 and for the full year. Post which, we'll open the forum for your questions and suggestions.
In Q4, Lemon Tree Hotels continued its growth momentum from the previous year. Q4 '24 has been the best ever Q4 performance in terms of ARR, revenue, EBITDA, PBT and PAT. Q4 '24 recorded a gross ARR of 6,605, which increased by 13.4% year-on-year and 4.3% quarter-on-quarter. Occupancy for the quarter stood at 72%, which decreased by 163 bps year-on-year and increased by 605 bps quarter-on-quarter. This translated into a RevPAR of INR 4,754, which increased by 10.9% year-on-year and 13.9% quarter-on-quarter.
Total revenue for the company in Q4 was INR 331.2 crores, which was higher by 30% year-on-year and 13.9% quarter-on-quarter. The total revenue for the full year was INR 1,076.7 crores for the company, which increased by 23% over FY '23. The net EBITDA margin for the company in Q4 FY '24 stood at 52.9%, which decreased by 278 bps year-on-year, an increase 415 bps quarter-on-quarter. The decrease in EBITDA margin year-on-year was mainly owing to planned increase in renovation expenses above that spent in Q4 '23, as well as expansion of our business development team and overall payroll increases due to inflation.
The Keys portfolio EBITDA; margin percentage decreased by 16 percentage points year-on-year due to a big increase in renovation expenses over Q4 '23. The investment in renovation has allowed us to position Keys brand to capture better pricing and demand. Please refer to Slide 40 in the annexures, which showcases a case study on how renovation of the Key Pimpri, Poona, which is the first Keys hotel to be more than 50% renovated, translated into an ARR of 4,577, which was an increase of INR 800 over Q4 '23. The net EBITDA margin for the full year stood at 49.1%, which reduced by 278 bps over FY '23.
Fees for management and franchise contracts from third-party owned hotels stood at INR 14.4 crores in Q4 up 34% from INR 10.7 crores in Q4 previous year. Total management fees for Lemon Tree in Q4 were up 48% year-on-year at INR 41.2 crores compared to INR 27.8 crores in Q4 '23. The total management fee for the full year stood at INR 134.3 crores, which is up 30% over FY '23.
Owned hotel level revenue for the quarter from the owned portfolio increased by 28% year-on-year, and network revenue for Lemon Tree, which is the total system revenue of owned including Aurika, MIAL and third-party managed and franchise hotels increased by 31% year-on-year. Total network revenue for the full year stood at INR 1,621 crores for FY '24 as compared to INR 1,330 crores in FY '23, which translates to an increase of 22%. The debt for the company increased by INR 143.3 crores for about 8% from INR 174.57 -- INR 1745.7 crores in FY '23, which was owing to borrowing against Aurika, Mumbai Skycity.
The cash profit for the company increased 24% year-on-year from INR 237.1 crores in FY '23 to INR 293.8 crores in FY '24. During Q4, we signed 12 new management and franchise contracts which will add 667 rooms to our pipeline and operationalize 4 hotels added 176 rooms to our portfolio. As of 31st March 2024, the inventory for the group stands at 104 hotels operational, with 9,863 rooms, and our pipeline comprises an additional 4,000 rooms. In fact, as of today, we are pleased to announce that our operational inventory has crossed 10,000 rooms. We expect our operational inventory to be about 120-plus hotels, with over 11,000 rooms by end FY '25.
With this, I come to the end of my opening remarks. I would ask moderator to open the forum for any questions you may have.
[Operator Instructions] The first question is from the line of Karan Khanna firm AMBIT Capital.
Congratulations to the entire team for completing 20 years in business and 100-plus hotels with 10,000 plus rooms. My first question, Patu, if you look at the trends so far across most of the listed hotel companies, I think in fourth quarter, we have seen that the overall ARR growth has seen some amount of deceleration, especially for the upscale and the luxury hotels while players like you have still managed to deliver mid-teens to low teens kind of an ARR growth. So how should we read this as we enter FY '25?
Yes. So I think the part of the question is if you look at FY '25, are you seeing some sort of a down trading overall in the industry where people are now pressuring, perhaps from a luxury or upscale going to a mid-scale or/and how should we read FY '25? What kind of expectations do you have on overall FY growth for the industry and for yourselves?
That there is a base effect coming into play. So after COVID, in the first year, there was a fairly significant hike by nearly every player in the hotel industry in pricing. So this was exceptional because, normally, pricing hikes occur after demand improvement, but this was a counterintuitive call, which amazingly happened in a very fragmented market by us, which is the hotel industry. So that led to -- if you look back on FY '23, there were large price hikes us included across the industry in India. So obviously, in FY '24, while there was some improvement in pricing in this higher base, and there is after all, a limit to how much you can increase pricing on an ongoing basis. That is the first point.
So my forward view is, now I think the whole industry will wait for the upcycle, which is imminent in my opinion. At which point, you will see further significant hikes. Otherwise, typically, the hikes you will see will be in the -- depending on the market and depending on the quality of hotel, it could be anywhere from 5% to 12%. So that is the kind of price hikes you will see going forward. Now coming to Lemon Tree and down-trading, see, I think what you have seen is early stages of a structural shift in demand by consumers in India as the GDP moves from this current place.
So if you look at India's GDP today it is like -- well, I know people don't like these comparisons. But it is the same as China in 2006 and Indonesia in 2007. So let me give you a very interesting example. There are 6 high-frequency indicators which demonstrated a real structural shift in discretionary consumption moving towards nondiscretionary for very large cohorts of consumers there. Both these countries were at India's GDP per capita there and had a very small base of, what I would call, wealthy, which is say households earning over $100,000 per household. If I remember right, India itself has, from the last study I read a few years ago, 3, 4 years ago, India had only 1 million such households, which are real consumers of luxury.
And then there were about 4 million, 3.5 million, 4 million households, which earned more than INR 30 lakhs, going up to INR 85 lakhs. So this was the situation in India 3, 4 years ago. And this was identical to what China had in 2006 and Indonesia in 2007. Now what happened after that was 5 high-frequency indicators were, first, that the number -- the air traffic started taking off. And that you can see in India. In fact, I think some very encouraging signs are coming from the airport airline industry, because they've ordered capacity which is roughly 3x of their current capacity, which will be operationalized in the next 5 years.
So that should tell you how we are looking at air travel demand in the next half decade. Number of airports. India has 150 airports, that would increase to 250, but the number of runways are going to double -- double from the current level. Four-lane highways have doubled over the last 5 years, and I expect it to double in the next 5 years. SUV demand has increased enormously in India, identical to what happened in China and Indonesia.
When you look at these high frequency indicators and the current income, GDP per capita and then household income. We are at that cusps where we will start following those guidelines, with China and Indonesia with this, which were roughly 22% CAGR growth in branded hotel rooms for 6 years. That was the boom in the hotel industry that these 2 countries saw at this point in the GDP with these kind of high-frequency indicators.
The first point is that the segment that took off first, because it had the lowest base, was luxury and 2 years lag, then mid-market took off. I think we are seeing the same thing in India. You will notice luxury operators are showing a much higher growth in ARR than the mid-market. But this, to me, is a precursor to the mid-market. So to answer your point in a very, I guess, in a long way, I do think that there will be a big growth in mid-market, but that won't necessarily be at the cost of luxury because both these consuming segments or cohorts of Indian customers are going to increase in normal stay for -- in the next 5 years.
Sure. But just as a follow-up to this. So is it safe to assume that FY '25 possibly, because we've seen a fairly high growth in FY '23 and FY '24 ARRs, we could see some moderation in terms of the overall growth. So let's say, '26, '27 as demand picks up, potentially the growth cycle further pickup in that period?
Well, I would say that rate growth this year should not be less than last year.
Okay. Despite the fact that in first quarter, I think we've seen some election and heat ways and all other aspects. And likewise, if second quarter itself used -- is traditionally a soft quarter, you're confident about a fairly robust rate growth in FY '25 versus FY '24 as well?
Yes. I think it's fairly safe to say that.
Sure. My second question on the Aurika Mumbai, if you can talk more about how the ARRs, occupancies, rent, customer mix have framed it for Aurika during the fourth quarter? And what's your expectation for FY '25?
So fourth quarter, we did, I think, about 66%. The -- let me just pull out the figures for -- where is the Aurika, yes, we did about 66%. ARRs were about 9,000. This was because, as I said, we still have a large -- we had a large base of crew rooms. Which we had taken opportunistically. Going forward, Aurika did well in April. I think May has been same as -- well, excluding Aurika, it has been same as last year in terms of occupancies and ARRs, because it was a very, very soft month because of this extreme heatwave and this, what is it called, this election. This election also had a deflationary impact on demand for hotel rooms.
But I see June is showing a significant pickup. So on a quarter basis, I think Aurika will do as we expected. I don't want to give any specific guidance on it. But it is doing as well as we expected, and we are gradually taking out the crew base. So we'll replace it with the segments that we really want to target, which is corporate, retail, meeting and incentives. As far as for the owned company goes, I think Q4 will be certainly -- at least Q1 will certainly be much better than Q1 last year.
And then last question, Patu, given the success you've seen at Keys Select post renovation in Pune, do you believe you can replicate the similar sort of success in the rest of Keys portfolio? And what's your expectation for overall RevPAR growth for your Keys portfolio in FY '25 and FY '26?
So FY '25 is still a work in progress because the only Keys hotel that went through -- see, we did a bunch of renovation in Keys, but it is early stages because that's not visible in the sense that it is part of the hotel. So I was very specific when I said that you can look at Keys Pimpri because that is one hotel we have renovated...
Ladies and gentlemen, the line for the management has been disconnected, kindly stay connected while we try to reconnect.
[Technical Difficulty]
The line for the management has been reconnected. Over to you, sir.
Okay. Can you give us 10 seconds.
Sure. Sir, you may proceed now.
Yes. So actually, what was the -- where were we actually?
The Keys portfolio.
Yes, Keys. So my view is I just -- I think we gave you an illustration of what happens when we renovate a hotel more than 50%. So Keys Poona was renovated first. This year, we are going to now start renovating all of that. And I think the full impact will be visible only from October the following year. But you will see early signs of it from this October, this coming October. What do I expect? Very simple. Our target EBITDA for Keys would be INR 60 crores a year, minimum. And I think we will be getting there certainly by next October. And some signs of it will be visible from this October.
The next question is from the line of Achal Kumar from HSBC.
We will move on to the next question, which is from the line of Chatan Sharma from Systematix Shares & Stocks Limited.
Am I audible?
Yes.
Yes, sir, you mentioned that on interest rate in the coming quarter, the price hike of 5% to 10% can be seen. Okay. Sir, my question is what will be the focus area of inventory in terms of ARR and occupancy for FY '25 and '26? What will be the strategy for it, as we can see ARR going on a single digit or double-digit on Y-o-Y basis, but the occupancy is falling down. So what will be the focus area?
Well, occupancy is not falling down. You are seeing the weighted average impact of Aurika Bombay because that is obviously not at the level of the rest of the company. So Aurika without -- Lemon Tree as a group may have done 72%, but it is 3 parts. There is Aurika which did 66%, there is Keys which did 56%, and then there is Lemon Tree without Keys and without Aurika, which did over 75%. And I certainly don't feel this occupancy will reduce. If you look at -- I'm talking Q4, if you look at next year and so on, or this coming year.
What I think will happen is that, depending on micro markets and its hotels across India, demand in each of those micro markets, my view is that there will be different mixes of occupancy hikes and ARR hikes. What I can say is for Lemon Tree certainly, we will see at least a 15% increase in revenue every year for the next 3 years. And this will partly be led by ARR increase, partly by occupancy and partly by management contract business increasing. So that minimum, we expect is 15% increase.
The next question is from the line of Kunal Lakhan from CLSA.
Am I audible?
Yes.
Yes. So just want to understand what will be the -- what would have been the same-store ARR growth, excluding Aurika?
So you are saying quarter-on-quarter or...
No, Y-o-Y.
Y-o-Y, if I look at Lemon Tree without Keys, grew by north of 10%, it will do north of 5% and the company as a whole grew by roughly INR 100, INR 150 and which is about 13%, 14%.
Sorry, I could not catch the number, there's some network issue there. If you don't mind repeating it?
So ARR or on a year-on-year basis, as the group if you notice went up from to INR 5,800 INR to 6,600. Now if I take out fees then Lemon Tree with Aurika grew by over 10%, Keys grew by 5%. And therefore, that gives you an idea without MIAL the ARR grew by 8%.
Okay. So without MIAL, ARR, but it's including Keys you're saying?
Yes, because Keys is a displacer for us on an aggregate base.
Okay. So 8% growth in ARRs excluding MIAL.
Including everything, that's right.
Understood. And this is what you're expecting for the industry would grow at 5%, 10% but what would be your assumption be on the same-store ARR group for Lemon Tree?
See, Kunal this is -- how do I say? You're talking revenue management business. So while I understand the higher the ARR growth, the more the operational leverage. But the fact is that I cannot give you an indicator of what will grow more. It is completely a function of how the market is behaving.
What I said was that I would expect revenue to grow 15%. This would be a 10% growth in ARR and a 5% growth in occupancy, or the other way round. It is entirely a function of the market and how it operates from each H1 this year.
Understood. My second question was on the debt side. And I think this will be the peak debt levels. I think you had mentioned that...
That's right. So debt reduction will start from this year. And there are 2 views, as I have said earlier. We are very confident that our debt will be 0 within the next 4 years, we'll be net debt 0 but it should be this year or before that, which is something we're thinking about then obviously we will be debt free much earlier because your has roughly 75% of the total debt for the company and while it is consolidated view of 60% of that company. So we are looking at various options, and it is at the very latest that we will do debt free in 4 years, but we could very well go debt free in the next -- in shortly.
And any time line on this restructuring?
No. We are really discussing it. There is no specific time line.
The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Pvt Limited.
Sir, I just need one clarification on the debt level. We have stated that the debt increased by about INR 140-odd crores pertains to Aurika. But I believe this was the second quarter of operations and the CapEx would have already been incurred. And only after that, the inauguration is possible. So if you can just clarify what led to this increase of 140-odd crores?
Well, we don't pay every fee upfront. So there are -- we have lines of credit from our fundraiser and so on. So in many cases -- you see, fee expenditure in a re-opened hotel while you may build a hotel over 3 years, 4 years, 60% to 70% of your CapEx clearly is because of the last 1 year, okay? And more than half of that is in the last -- between the last quarter. So we have what is called lines of credit, we have also guarantees and so on. So some of -- we pay it advance, made advance payments, but the balance was met after the hotel was operationalized. So that's really common by the way.
Sure. So any balance, which is pending as of now?
No.
Sure. And sir, secondly, if I look at your pipeline of managed room inventory over the 3 years, I see a fall in the number of signed in, which you have given in the PPT. So are we facing any fresh challenges in new signed ins? And any comment on that?
On the contrary, I don't -- what you are referring to, there is no fall. If I look at -- let me just tell you, if I look at this year and quarter 4, we signed 667 rooms and we opened 176 rooms. Quarter-on-quarter, the preceding quarter, we signed another 9 hotels with 630 rooms and opened about 300 rooms in 5 hotels. If I look at year-on-year, we did see our quarter we see signed 9 hotels with 538 rooms and open 1 small hotel. So the trend side is positive.
I don't think this is guidance when I say that we are very confident that we have 2,000, 3,000 more rooms on our pipeline this year. And our endeavor is very simple, It is that we open any -- I can't because your line on how many hotels we'll open next year. I can say it will be between from 1,200 to 2,000. Those are the rooms we should open this year. Because there are delays which are outside our control. But if we open up to 2,000 rooms, what I can guarantee is that we will have signed in more than 2,000 rooms. So what you will constantly see is more opening, more signed ins. And in each case, the signed ins will be more than the openings so that we keep within the pipeline.
Okay, sir. One last question from my side. I mean if I look at our airline share, it is at about 13% in this quarter. And if I remember right, in the last earnings call, you had highlighted that roughly about 100 rooms will be reserved for the crew business. But if I look at the total airline share, it is up from about 8% to 13%. So is it that the crew business at Aurika has increased from the last quarter?
Not particularly. See, we had about 200 to 250 crew rooms in the second -- in the fourth quarter. That accounts -- if I just take it over the base of, say 6,000 rooms, it is about 1%, which is most of the [indiscernible]. But going forward, we will -- once we have built demand from the other segments. We will automatically reduce -- improve that on a historic level of 8 to 10 because it's a good business. It's a business that covers your weekend, which is traditionally very low demand. And the bottom line -- sorry, yes, so that is very specific to that quarter. But going forward, I think you will see airlines demand in about roughly close to 10% for our company.
The next question is from the line of Achal Kumar from HSBC.
Am I audible now?
Yes, you very audible, Achal.
Yes, perfect. So first of all, I just want to understand on -- about the tables on Slide 15, where you've shown the city-wise ARRs, occupancy and the brand-wise. I'm so sorry, if you already discussed it because my line was pretty bad. So first of all, on Aurika, what happened, I mean, why your ARRs are down 35%?
And then on the city side, if I see, I think there was a sort of a quite a sharp decline, particularly in Bangalore occupancy rates. And then otherwise, like Mumbai and Pune also, the ARRs were -- sorry, Mumbai, really the ARR was flat. So what's happening in the different markets? I mean if you could please highlight about your brand and the city wise, please?
Okay. So first point, let me talk Aurika. What you are seeing in Aurika in this slide is for the full inventory of Aurika, which includes Aurika Bombay. So if I look at Aurika Bombay, which did about 65%, 66% occupancy this year, and then I overlay it with Aurika Udaipur, the fact is that the occupancy from Q4 last year to Q4 this year has hardly fallen, if you notice that number. Now Aurika Udaipur has a much higher average rate than Aurika Bombay, because Aurika Bombay is, say, 9,000 and Aurika Udaipur which is 1/4 is inventory or 1/5 is inventory actually, has a much higher rate.
So what you are seeing is the weighted average rate of 10.5, which really tells you that if you go by the ratio of 1:4, Aurika Udaipur did about 15,000, 16,000, and Aurika Bombay did about 9,000 and the weighted average is 10.5. Then you take the 10.5 multiply it by the occupancy and that's your RevPAR. Does that make sense to you?
Yes, yes.
Yes. So this is a weighted average thing. Because Aurika Bombay it's 5x inventory of Aurika Udaipur. Now coming to city-specific, you are asking for Bangalore. Bangalore is still going through -- you see what -- we have a very large inventory in Bangalore in the IT-heavy markets, which is Electronic City and Whitefield. So that impact, you are seeing still, which is -- a lot of our business used to be new joinees, the mid-level managers and so on.
And tech companies, as you must have read in the papers and I'm sure you cover, you will see their hirings have slowed down significantly, and that is the impact you are seeing in our occupancy there.
As far as Mumbai goes, Mumbai, our Lemon Tree premier, in fact, did better this year than the previous year. But what you are seeing is the weighted average impact again of Aurika Bombay, which is a new hotel and at 66%. So when you see that, keep in mind that Aurika Bombay is 2.2x the inventory of Lemon Tree Premier Bombay, which is 300 rooms, which is why you're seeing a weighted average occupancy of 73% and ARR of about 9,000, which tells you that actually Lemon Tree Premier was close to 9,000 also.
Right, right. Okay. No, I get that. My next question is about the ARR. I think recently, I think market was a bit surprised in terms of the slowing down of ARR. Of course, we understand that, I mean, there is a limit to which we can increase the prices. But I mean, if you talk about the bottom end of the category like Keys and Red Fox, I guess if you look at the ARR, I think pretty much 3,600 or 4,500 which you reported.
I mean given the strong demand, given how the GDP is growing, how the per capita is growing and the preference for the travel leisure is growing, don't you think there is a significant -- there's a significant potential, especially in the bottom category of the rooms?
I mean how do you see the potential increase in the ARR going forward, especially in bottom category? Of course, I can understand Aurika is only 10,000, but they are also, again, it's a mix impact. But otherwise, on the bottom side of this, don't you think there is a huge potential, how do you see the market, how do you see your potential for yourself and the rate hike?
I actually feel that price sensitivity as you go down the pyramid is more and more. So the person who stays in a Keys is far, far more price-sensitive than a person who stays in an Lemon Tree Premier, and similarly, a person who stays in Aurika. See, if I look at Aurika Bombay, Aurika Bombay's ARR net of crew is about 11,500. It is the weighted average of the 2 that brings you to 9,000, 9,100, whatever it is. But Aurika's ability to reprice is much higher and so is Lemon Tree Premier than Keys. And overlay this with the fact that this is not a renovated product, you see we bought it just a few months before COVID and we are now renovating it.
So while I agree with you, there is enormous ability to reprice Keys, it is only when we renovate it and it won't be at the rate at which we can reprice the higher categories. As far as our long-term view goes, here is what I have said earlier that once Keys is renovated, its average rate will move to INR 4,500, which was what roughly Red Fox's rate is. So within the next 2 rate cycles, that is by October next year, you will see Keys becoming -- gradually moving up to INR 4,500. Red Fox in my opinion, will move to north of INR 5,000 and Lemon Tree and Lemon Tree Premier and all, each of them will be north of INR 7,000. So that is roughly the trend lines that we see.
These will not be dramatic price hikes every quarter, but there will be 2 more price hikes, 3 more. One will be in October, one will be in January for different segments and one will be in October the following year. At which point, I'm reasonably sure that if you look at Slide 15, what -- Keys by Lemon Tree will move towards Red Fox. Red Fox will move towards Lemon Tree Hotel's ARR, and Lemon Tree will move towards Premier, and Premier and Aurika will be significantly north of what you see.
Right, right. I think that's quite an interesting point you said. I mean, so -- but then, that means you're talking about 15%, 20% increase in the rates. But I mean, do you see that's the only cues left out in the system? And then that's the maximum potential? Or do you see that -- apart from that, there are some other opportunities for you to increase the rates or maybe better traffic mix? So I mean how should we look at here the maximum potential here, from here on?
So let me give you a number, Achal. In 2006, '07, '08 and '09 until the global financial crisis, the average rate of Lemon Tree which did not have a Lemon Tree Premier, it only had Lemon Trees and Red Foxes, the ARR was INR 9,000. So actually, we are below what was there 15 to 18 years ago. And that is true, by the way, for every hotel company that had hotels there. So there is an ability to reprice. I am talking about pari-passu, everything being equal, we will continue in this price line. But if the demand parameters change, then every number I have given you is too low.
Okay. Understood. Fair enough. And finally, my last question is about the competitive landscape. How do you see the competitive landscape for the overall industry and for Lemon Tree basically?
Yes, I think -- I don't -- well, I do not see much competition very frankly for -- because of a very basic reason, it is that demand is growing. So when demand grows, then everybody runs like horses. It doesn't matter what you were in your previous avatar, but everybody becomes a race horse. So I don't -- I mean, obviously, there is competition in terms of similar hotels going after similar accounts and retail customers. But there is -- I can sense the early tide of a rising wave of demand.
And I think that's going to quite distinctly get demonstrated in the next 15 months. At which point, the question will be how much can you reprice? Why have you not repriced for? And so I don't know if I'm answering your question. I don't see competition as the issue. I just see this enormous opportunity of rising demand.
The next question is from the line of Sumant Kumar from Motilal Oswal.
Is there any event residue to Q2 FY '25 due to [indiscernible] in Q1 FY '25? So have you seen demand is spill over from Q1 to Q2?
What do you say, have we? Have we seen any? I don't see any demand spilling over from Q1 to Q2. I think that there was a slowdown in demand in May partly due to weather, partly due to elections, and that is galloping back actually in June. But Q2 is -- no, to answer you point, Q2 is traditionally weaker than Q1. But last year too and the previous year too, Lemon Tree did better in Q2 than Q1. And I think that trend is very clear this year, too?
So there is no indication of any event that is spilling from Q1 to Q2?
No, no.
The next question is from the line of Hardik Doshi from White Whale Partners.
Yes. I just wanted to ask a bit more about the renovation costs. I don't know if I missed it, but can you break out how much of the renovation costs in the fourth quarter? And how much of it was the CapEx versus OpEx? And also, what are you expecting for the fourth quarter and second quarter?
So renovation is ongoing. So it is higher every quarter, frankly, than the preceding year same quarter. That will tell you the numbers. But bottom line is that, this year, I have said this earlier, we will spend INR 100 crores on renovation and next year too. And at the end of it, by October calendar '25, the entire company will be new hotels. And as a percentage of revenue, this year, quarter 4, it was about 2%. And last year, quarter 4, it was 0.6%.
Okay. So it's about a 1.4% impact on overall EBITDA.
That is correct.
Yes. And you think INR 100 crore for FY '25 and then another INR 100 crores for FY '26, is that correct?
More or less. Part of it will be CapEx. So I think what will be the OpEx? Normally, OpEx is about 70%.
60%, 65%.
Yes. So the numbers you see as a percentage of company revenue are about 2/3 of the actual renovation spend, because 1/3 is CapEx. So when I say INR 100 crores, it means that the hit to the EBITDA will be, I think, maybe INR 65 crores.
Okay. Got it. And on the INR 100 crore a year on FY '25 and '26, is that fairly even through the quarter? Or is it like more first half?
So we average it out. Basically, we spend more in H1 than in H2 because that's the low season and we can shut more rooms off.
So the ratio is, what, about 60-40 or 70-30?
It depends. Because the question is how are you financially accounting for it, is it equalized or is it an allocation. It's an allocation, so assume it's equalized. Though cash flow, it may be different.
Okay, understood. Then just a follow-up on the Hyderabad and Bangalore market, I think you mentioned a bit about the IT slowdown and impacting you. The impact has been pretty stark on Bangalore in particular where your occupancy has fallen by almost 500 basis points and then your EBITDA margin has fallen by 15 percentage. So how much of that is related to renovations and how much of it is just your weak demand and...
So we shut 100 rooms of Keys in Whitefield for renovation. So of the total Whitefield inventory, which is 350 rooms, operating was only about 250. So 58% is on the full inventory. So it is true that there was some opportunity cost to this. But I think it will be more than compensated by the average rate hikes we'll be able to get. Similarly -- so that's the largest micro market where we -- for us in terms of rooms in Bangalore.
Then we have another 325 rooms in Electronic City in Hosur, of which I think about 30, 40 rooms were shut. So about 10%. And that, too, is a very IT dependent market. So you are seeing the impact of both. Nothing to worry about because we have been giving early indications that IT hiring should start in quarter 3 onwards. So I guess we are quite dependent on that. That's a very large segment for us.
Quarter 3 onwards, I guess 1Q and 2Q, these kind of trends will continue in Bangalore, at least?
Yes. And we are also quite clear that that's an opportunity for us in that adversity to renovate as many rooms as we can.
Got it. And what about Hyderabad, is that a similar impact because of IT...
Yes. We have shut -- in Hyderabad, out of the 663 rooms, we have shut about 80, 90 rooms. So -- and that happened in summer -- in winter too, by the way. We have -- it's ongoing renovation. Hyderabad is a very high-demand market. But we've taken a conscious call that we want the entire company to be completely new and renovated by October next year, which means that we will continue to renovate through winter and summer. So about 12%, 15% of Hyderabad will be shut at any given time.
Okay. Understood. Last question from me is on Aurika Mumbai. I guess, in a few quarters out, 10 months, you're also going to open up in the same region. I know that is a bit more premier. But how are you looking at that from an occupancy and ARR perspective?
So let me give you an anecdotal information. When we built our hotel in Delhi, which is where I'm sitting, everybody told me at least that, listen, 5,000 rooms are going to come up in 3 years. And how is this market going to absorb this amount of inventory. If I include the hotels that came up in Dwarka, in this micro market, 6,000 rooms opened over the space of 3.5 years and all the supply was absorbed. Because the rate of growth of airline traffic more than match the rate of growth of supply for the whole city.
The same thing is happening in Bombay, Bombay is a larger demand market than Delhi. And when I look at it from that perspective, there is -- why is the Lemon Tree Premier doing 90% occupancy in INR 9,000 even in a relatively subdued -- when all the occupancies are in the mid-60s. It's because it's a very deep micro market. And I have some experience of Bombay. Whenever a new supplier had come, it has always gotten absorbed. So I'm not really bothered about the supply that is coming up because I have this confidence that the city will be able to absorb that supply.
Just a follow-up on that is, I guess, what is different in Delhi is the Bombay airport already is running chockablock, right? And if the traffic is going to increase, at least from an airline perspective, it is going to be in the new Bombay when that opens up, that airport. So as more and more supply comes around, don't you think there could actually be a very different dynamic playing out versus what happened in Delhi?
Not at all. In Delhi that Jewar Airport in Greater Noida is coming up. And if you look at -- you see, you look at growth in capacity of each airport. I would not look at what is happening elsewhere. I would say simply, they are renovating another runway in the Bombay airport, how much supply is going? How many new aircraft are coming? And I would look at it from that perspective and just simply extrapolate and say, if they are saying capacity is going to increase 100%, but the number of rooms in Bombay is growing 25%, 30%, then I think it's fairly safe to say they will continue to be demand.
Because Bombay and Delhi airports attract every single segment. It's not segment-specific. There is business travel, there's leisure travel, there's meetings, incentives, conferences. There are so many levers of demand. I mean think of it, Reliance Jio, that center, it will have so many events of such a scale that, forget Bandra Kurla complex, the whole of Andheri hotels will get full every time they have a big event. And it's happened, I have seen it myself in Aurika.
The next question is from the line from Sakshee Chhabra from SVAN Investments.
So actually, why I understand that on your Keys portfolio, because of the renovation, the EBITDA margin has gone down, but post renovation, what sort of sustainable EBITDA margins can be maintained on hotel level?
Post EBITDA -- post-renovation, what will it do?
Yes. I wanted to understand that.
It will do INR 6 lakhs a year per.
The next question is from the line of [ Ashok Kumar Daga ], an individual investor.
Yes. Are you able to listen me?
Yes, I can hear you.
Yes, sir. So my basic question is that when I'm going through your report, I have noticed that the promoter's holding is reducing from every quarter. In March '23, your holding was 23.62. In June '23, it was 23.60. In September, 23.28. In December 23.21. In again, March '24, 22.87. So you are regularly...
Right down my pledge -- it was to write down my pledge, my pledge is 0 Now.
Your pledge is 0, means your holding has been sold out?
No, my pledge was to be written off. So obviously, I'll sell some shares to pay off the debt.
Okay. So now means your holding has been reduced continuously, so is that trend is going on? Or now that will be stopped?
More or less stopped. I cannot comment due to any emergency requirement, but it is more or less stopped.
Because your holding has been reduced drastically. And the second thing is that the sales figure, which when I've gone through your sales figure, in March '21, the sales was INR 252 crores. In March '22, INR 402 crores, so that is nearly double. Again, in March '23 INR 875 crores. But in March '24, the sale figure was INR 1,071 crore. So we are about some 20% to 25% increase is there. But the earlier year, the sales was more or less 100% increase. So then how...
The reason is COVID. No, the reason is COVID. Because the figures you are referring to when you look at '21, for example -- I mean, you look at our sales pre-COVID. So if you look at pre-COVID, I think we did about INR 675 crores in the year pre-COVID. When COVID, obviously, there was hardly any sales, so then it started picking up on a new base. So I would urge you to look at the figures of INR 675 crores, pre-COVID and then INR 800 -- which -- go to slide.
INR 825 crores in March '22.
That is right. So look at -- in your mind, just delete the 2 years of FY '21 and FY '22, yes.
Okay. So then after the March '19, then March '23 onwards, it will be the same, some 20% or near around that growth will be there.
No, I want to be very clear, Mr. Daga. I said that we will continue to grow at least 15% a year. And obviously, we would like to grow more than that, but 15% is a soft problem.
Is the benchmark, minimum benchmark?
That's correct.
Okay. And one more thing is there that your operating profit percentage, although in amount on typical increase. But March '23 to March '24, March '23, it was 51% and March '24, it was 49%. So it shows some decline in the percentage figure.
Well, I think as a company, I am told we are the first in the world to show over 50% net EBITDA. So I would not worry about 1% or 2%. I think the important thing is that part of -- most of the difference was on account of renovation, a big increase in renovation, and that will reach dividends after 2 years. You see what I have to look at is try and take advantage of what I think will be structural shifts in demand 2 years out. And therefore, while there is some short-term pain in terms of potentially a INR 200 crore expenditure, of which INR 130 crores will be directly on the P&L.
Looking forward, I think our view has been very simple, that the total renovation expenditure that we are incurring, we should earn back in 2 years in incremental EBITDA. So I'm giving you a number that if we have spent INR 250 crores in 3 years, then in the following 2 years, we expect to recover it in incremental EBITDA beyond what we would have otherwise achieved.
Okay. So it means that your -- whatever expenditure you have already incurred, so your view is that in the next 2 years, you're going to recover that one. And then the later on, the benefits will start continuously and your renovation work has been already -- will be completed by that time?
That is correct.
The next question is from the line of Hardik Doshi from White Whale Partners.
Yes. Just a quick follow-up on -- in terms of -- you mentioned the 15 months out, if there was a significant demand cycle, then it would in a much higher ARR. But then what about from a supply side? Because every day in the papers, we keep on reading about like new inventory coming up, new plant by so many chains. And this -- I know there's a lag that happens in terms of when supply comes through post announcement, but that will start catching up 15 to 18 months out as well, right?
So let me answer this in 3 points. Point one, as you said yourself, supply takes time to operationalize. So when I signed, typically there are 3 -- when management -- when we sign management contracts, we have 3 types. One is the conversion, which means its existing supply being rebranded. So it comes from some other brand to us as Lemon Tree. It is rebranded, so it's no increase in supply. Then there are -- there is brown -- and this happens typically within 6 to 9 months of signing. It becomes operational.
Then there is brownfield, which means there is some kind of a structure up, but you have to finish it. That normally takes 18 months to 3 years, and it is new supply addition. Then there is greenfield, which means it's ground up, and that takes 3 to 5 years. So when we give our signings, we make -- take care to mention this is a conversion, this is a brownfield, this is a greenfield.
Now what supply additions are happening in India, second point, is that a lot of it is in Tier 2, Tier 3, Tier 4 cities, where, interestingly, we are only in 64 cities and we want to go to 150 cities in India where there is -- there are going to be airports, so they are not already there, and where there is at least a population of 0.5 million. And this is going to happen by us through an asset-light route, which means we'll go from management/franchise in these locations.
Where we have capital invested is basically in the big cities, the 5 million plus population. So if you go to Slide 15, you will notice in our case -- go to Slide 15, in our case, out of the 5,800 rooms we have, outside of the 6 big, I would say, net metros, we have 25% of our -- less than 20% of our supply outside these cities, which is where more supply is coming up. So I wouldn't personally worry too much about that. I would say, how are these 6 cities where we have 80% of our capital deployed, how are they going to perform? And I'm quite sanguine about supply and demand growth in these markets.
Ladies and gentlemen, as there are no further questions, I would like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you once again for your interest and support. We'll continue to stay engaged. Please be in touch with our Investor Relations team for any further details or discussions. And I look forward to interacting with all of you soon.
Thank you, members of the management. On behalf of Lemon Tree Hotels, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.