LEMONTREE - Lemon Tree Hotels Limited Share Price

In the Q1 FY26 earnings conference call, management provided an optimistic outlook for Lemon Tree Hotels, reporting record-high quarterly revenue of Rs. 317.4 crore, an 18% increase year-on-year. Net EBITDA rose 23% to Rs. 142 crore, yielding a margin of 44.8%. The company achieved a gross ARR of Rs. 6,236, marking a 10% YoY growth, with occupancy at 72.5%, up 591 bps. Profit after tax surged 139% to Rs. 48.1 crore, while cash profit increased by 51% to Rs. 82.3 crore. Notably, the company reduced its debt by Rs. 206 crore (11%) to Rs. 1,658 crore, with a lowered cost of borrowing at 8.01%.

Management highlighted several forward-looking initiatives:

1. Continuous investments in renovations and technology, expecting to complete major upgrades over the next 15 months, which will significantly enhance occupancy and ARR. Renovation costs are projected to decrease from 6% of revenue to 2%-2.25% as upgrades complete.

2. Renewable energy investments have led to a reduction in power and fuel costs from 8.7% to 6.9% of revenue, aiming for 50% renewable energy across the portfolio.

3. The company signed 14 new management and franchise contracts in Q1, adding 1,273 rooms to the pipeline and operationalized 5 hotels with 400 rooms.

4. With aims to exceed its five-year target of 20,000 rooms, management indicated the potential for growth to 30,000-40,000 rooms in its pipeline, driven by both owned and asset-light strategies.

5. Upcoming changes in senior management are expected to enhance strategic oversight, with plans for Fleur Hotels to become a listed entity, supporting asset-heavy growth.

In summary, the company's strategy focuses on significant renovations, technology enhancements, aggressive growth in rooms, and renewable energy utilization. Thus, management expresses confidence in a robust performance trajectory moving forward.

Q&A Summary from Earnings Transcript (August 11, 2025)

1. Question: "In Aurika, Bombay, the occupancy has been pretty robust, but ARR looks slightly subdued. What would be the management strategy on threshold level of occupancy post which we should expect ARR to take precedence?"

Answer: "For Aurika, our focus was to first elevate occupancy to sustainable levels. We achieved approximately 76% this year, up from 46% last year. Typically, we prioritize occupancy first, then shift focus to ARR as occupancy stabilizes. We've seen a nearly 50% increase in corporate bookings, and now that we've laid a solid foundation, we will concentrate on increasing rates moving forward."

2. Question: "We have these four hotels under pipeline expected to open in FY28. Is there a conscious decision to limit new additions or is there a lack of suitable supply?"

Answer: "We continue to pursue hotel development actively. Currently, we have two under construction: a 100-room hotel in Shimla and a 160-room hotel in Shillong. While we are prioritizing quality projects, accelerated growth is on the horizon for our entire portfolio, ensuring risk mitigation remains a key focus."

3. Question: "When I look at the ADR for the rest of India, what are the few markets which underperformed and how should we look at it going forward?"

Answer: "The performance of ADR across India varies significantly by market. We've seen markets grow by 15%, while others remained flat. For instance, Gurgaon and Mumbai saw modest growth due to our focus on occupancy stabilization. We grew RevPAR by 19%, maintaining a balance between occupancy and rate increases."

4. Question: "Can you share thoughts on recent senior management appointments and long-term aspirations for Lemon Tree?"

Answer: "Our strategy includes transitioning to an asset-light model, along with a listing of Fleur. Leadership changes aim to establish robust operational independence for both entities. My focus will be guiding Neelendra's transition, while Saurabh will handle asset-heavy growth at Fleur, ensuring both companies target accelerated growth and modernization."

5. Question: "With the management contracts pipeline being strong, do you foresee any execution challenges with aggressive growth?"

Answer: "While challenges exist, we remain confident in managing growth. Our talent development programs are designed to train staff in advance of openings. We anticipate a robust flow-through to EBITDA as management fees accelerate, aiming for 20,000 rooms by 2028, a target we expect to achieve within six months."

6. Question: "Has the BCG partnership for digital transformation yielded benefits in bookings or loyalty program enhancements?"

Answer: "The collaboration resulted in the establishment of a subsidiary focusing on tech improvements. While we're piloting revenue management and loyalty programs now, full benefits are expected to unfold from October onward. We currently have 2.1 million loyalty members, reflecting significant enrollment growth under our revitalization efforts."

7. Question: "Can you clarify the renovation expenses, and what do you see as the future contribution from the renovated Keys portfolio?"

Answer: "Revenue from the Keys portfolio has shown upward trends post-renovation, with occupancy and ARR both increasing. We are financially investing around Rs. 100 crore in renovations this year, with targeted revenues from Keys expected to reach Rs. 120 crore, aiming for EBITDA growth to Rs. 60-80 crore."

8. Question: "What will be the flow-through of events for Lemon Tree and Fleur leading up to Fleur's listing?"

Answer: "We anticipate significant growth in consolidated management fees from Fleur, with forecasts suggesting it could exceed Rs. 300-400 crore within three years. The demerger will allow Lemon Tree to expand its asset-light model and manage its strategic oversight effectively during Fleur's listing and subsequent growth."

9. Question: "With the focus on expanding core hotel brands, how do you view the growth trend of villas and alternate accommodations?"

Answer: "Our focus remains strictly within the mid-market segment, from 2.5 to 4.5 stars. While leisure assets have potential, we currently don't wish to diversify into villas or alternate accommodations, preferring to capitalize on our core segments with ample opportunities for growth."

10. Question: "How much debt are we targeting to reduce this year?"

Answer: "We aim for Fleur to be debt-free post-listing. Until then, we plan to systematically reduce our debt by about Rs. 50 crore each quarter, continuing to strengthen our financial standing."

This detailed summary encapsulates key insights from management during the earnings call, reflecting strategic priorities, financial performance, and forward guidance.