LEMONTREE - Lemon Tree Hotels Limited Share Price

Management Outlook:
Lemon Tree Hotels anticipates sustained growth driven by accelerated expansion of its management/franchise portfolio, completion of owned hotel renovations (continuing into FY26-27), and capitalizing on rising demand in India's mid-market hospitality sector. The company aims to solidify its position as the preferred mid-market brand, targeting 20,000 rooms by 2027 (currently at ~16,385 rooms). Renovation expenses (peaking at ~1.5-1.7% of revenue post-FY27) are expected to enhance pricing power and margins, with a long-term EBITDA margin target of 60%.

Key Highlights:

1. Growth Levers:

   • Asset-Light Expansion: Signed 13 new management/franchise contracts (766 rooms) in Q3. Total pipeline: 88 hotels (6,068 rooms).
   • Aurika Brand Expansion: New Aurika, Shillong (PPP project; 120 rooms, Rs. 120 crore investment) and plans for Aurika, Varanasi (luxury segment).
   • Fleur Hotels Listing: Expected in 1.5"“2 years to unlock value, reduce debt, and fund future projects.

2. Financial Performance:

   • Q3 FY25: Revenue up 22% YoY to Rs. 355.8 crore; PAT surged 82% YoY to Rs. 79.9 crore.
   • RevPAR grew 21% YoY to Rs. 5,018 (ARR: +7%, occupancy: +826 bps).
   • Management fees rose 35% YoY to Rs. 43.7 crore.

3. Operational Focus:

   • Renovation Impact: Renovated hotels (e.g., Keys Pune) saw ARR increase by ~24%. Full renovation completion by FY27 to drive margin expansion.
   • Market Strategy: Target network dominance in 160"“170 Indian cities (0.5M+ population) via data-driven infrastructure (highways, airports) and demographic trends.

4. Risks & Mitigation:

   • Supply Concerns: Confident in absorbing new supply (e.g., Navi Mumbai airport) based on Delhi Aerocity's resilience.
   • Debt Reduction: Gross debt at Rs. 1,760 crore (consol.); targets debt-free status in 3 years via cash flows/Fleur listing.

5. Margins & Efficiency:

   • Cost discipline (wage growth below revenue growth) and RevPAR optimization (mix of occupancy/ARR) to sustain EBITDA growth.
   • Aurika, Mumbai stabilization (target: Rs. 11,500"“12,000 ARR, 85% occupancy by H2 FY26) to boost premium segment contribution.

Final Note: Management remains bullish on India's mid-market hospitality demand, emphasizing brand loyalty, operational scalability, and strategic asset-light growth.

1. Question: "My first question part is on Aurika, Mumbai. Congratulations on the ramp up in terms of occupancy. You recently mentioned that you expect this property to stabilize by FY26. What kind of RevPAR can we expect for FY26...? And as a follow up for the Aurika brand... should we expect more Aurika branded hotels to be added to your own pipeline...?"
   Answer: Aurika Mumbai is expected to stabilize in H2 FY26 with ARRs over Rs.11,000 and 85%+ occupancy. The Aurika brand remains strategic, with projects like Shillong and potential additions (e.g., Varanasi). Aurika Coorg's closure was due to undisclosed reasons, but the brand will expand opportunistically.

2. Question: "With the new Navi Mumbai airport and new supply coming in that market, do you see that as a risk...?"
   Answer: Navi Mumbai's supply impact on Aurika Mumbai is deemed temporary. Historical trends (e.g., Delhi Aerocity) show airport micro-markets absorb new supply over time. Focus remains on capturing Indian demand, with Aurika positioned as upscale, not mid-market.

3. Question: "Given your ambitious goal of expanding portfolio to about 20,000 rooms by 2027, do you foresee operational challenges...?"
   Answer: Pipeline growth faces potential delays from third-party owners' execution, but demand from asset owners is strong. The target of 20,000 rooms is achievable in 12"“15 months, with accelerated signings outpacing slippages.

4. Question: "Can you highlight the benefits of renovation... especially for Key's portfolio...?"
   Answer: Renovated Keys hotels (e.g., Pune) saw 24% ARR growth and ~90% occupancy. Post-renovation, EBITDA per Key is projected to double from Rs.3.5 lakh/year to ~Rs.6.5 lakh, driven by pricing power and demand recovery.

5. Question: "With respect to the new partnership at Shillong... how will the accounting happen... and will the state government contribute to CAPEX...?"
   Answer: Shillong's Aurika is a JV with majority ownership by Lemon Tree. Total investment: ~Rs.120 crore (Rs.35 crore equity, Rs.70"“80 crore debt). Benefits include 5% interest subvention, GST reimbursement, and Rs.15 crore capital subsidy. Projected EBITDA: Rs.15 crore/year, equity payback in 1.5 years.

6. Question: "Standalone revenues were up 2% while PAT was down 16% YoY... standalone business faced challenges...?"
   Answer: Lower standalone PAT was due to reduced one-time development fees from Fleur (linked to Aurika Mumbai's setup). Underlying performance improved YoY, excluding this fee.

7. Question: "What is the operating cash flow generated... and debt repayment target...?"
   Answer: 9M FY25 cash profit: Rs.240 crore. Debt reduced by Rs.150 crore, with plans to become debt-free in 3 years. Fleur's listing (planned in 1.5"“2 years) may expedite this.

8. Question: "For hotels outside metro cities... ARR growth was 1%. Is metro demand outpacing Tier 2...?"
   Answer: Mid-market growth follows luxury cycles, with Tier 2/3 cities expected to catch up as discretionary spending rises. Lemon Tree's network strategy targets 170+ cities to build a "moat" via geographic coverage.

9. Question: "Bangalore's performance saw a significant jump... color on city-wise trends...?"
   Answer: Bangalore's growth reflects renovation impacts (e.g., Keys Whitefield). Full performance will improve post-renovation. RevPAR focus prioritizes revenue/sq. ft over isolated occupancy/ARR metrics.

10. Question: "Can you simplify Fleur's structure... and ARPU trajectory...?"
    Answer: Fleur will house owned assets, operate independently post-listing, and target $100M EBITDA. Lemon Tree will retain significant stake. RevPAR aims for mid-teens growth, with EBITDA margins targeting 60% post-renovation.

11. Question: "Aurika Mumbai's ARR strategy... pricing power...?"
    Answer: Aurika Mumbai will prioritize higher-value retail/corporate demand over crew segments. Repricing will follow stabilization, targeting ARRs above Rs.12,000. Lemon Tree Premier���s success in Delhi/Mumbai supports this strategy.

12. Question: "Of the 6,000 keys to renovate, how much is done...?"
    Answer: ~2,600"“2,700 rooms renovated by FY25-end (45% of 6,000). High-value hotels (e.g., Premier Delhi/Hyderabad) prioritized. Remaining renovations (low-impact) extend into FY27.

13. Question: "Gross/net debt figures..."
    Answer: Consolidated gross debt: Rs.1,760 crore (Dec 2024). Standalone: Rs.300 crore. Net debt: Rs.1,690 crore (consolidated).

14. Question: "Service quality risks with Tier 2/3 expansion...?"
    Answer: Growth prioritizes brand integrity via strict quality controls. Franchisee oversight and net promoter score tracking ensure consistency. Talent management strategies minimize wage inflation.