Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q2 FY '26 earnings conference call.

We have with us Mr. Patanjali Keswani, Executive Chairman; Mr.

Kapil Sharma, Executive Director and CFO; and Mr. Neelendra Singh, Managing Director and CEO of the company.

We would like to begin the call with opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation that was shared with you earlier.

I would now request Mr. Keswani to make his opening remarks.

Thank you, Anup. Good afternoon, everyone, and thank you for joining us on this call.

I will be covering the business highlights and financial performance for Q2, post which we will open the forum for your questions and suggestions. During the first half of the year, the industry faced multiple headwinds, including geopolitical tensions, floods, airplane accident, tariff wars, and GST revisions, which resulted in some muted demand.

Despite these headwinds, in Q2 Lemon Tree reached and recorded its highest ever Q2 revenue at ₹308 crore, which grew 8% compared to Q2 last year. Net EBITDA grew 1% to ₹132.4 crore, translating to a net EBITDA margin of 43%, which decreased by 306 bps year-on-year, primarily due to increased investments in renovation, technology, and a one-time ex gratia payment to employees due to salary cuts during COVID.

While these expenses/investments accounted for 8% of revenue in this quarter, we expect all these three expense heads to reduce to 5% of revenue in the next year before stabilizing at 2% of revenue by FY '28 onwards. We expect this will lead to a corresponding expansion in EBITDA margins.

We have completed significant renovations in H1 this year, with major upgrades being completed in the Delhi, Bangalore, and Hyderabad markets and the Keys portfolio. Post these upgradations, for example, the Red Fox Aerocity Hotel has been rebranded as Lemon Tree Hotel Aerocity, which will now allow us to reprice the hotel from this quarter onwards and capture significantly higher revenue.

Similar upgrades have occurred in our two hotels in HITEC City, Hyderabad, and in Whitefield and Electronic City in Bangalore, as well as, as I said, the Keys portfolio. As an example, we have seen a significantly improved performance in the first fully renovated Keys Hotel in Pune, which has now shown an increase of roughly 47% in RevPAR year-on-year.

Q2 FY '26 recorded a gross ARR of 6,247, which increased 6% year-on-year. The occupancy for the quarter stood at 69.8%, an increase of 139 bps year-on-year.

This translated into a RevPAR of 4,358, which increased 8% year-on-year. The company's profit after tax stood at ₹41.9 crore in Q2 FY '26, an increase of 20% year-on-year.

Cash profit for the company stood at ₹76.3 crore in this quarter, an increase of 9.2% year-on-year. The debt for the company stood at ₹1,610 crore as of 30th September, a fall of ₹212 crore vis-à-vis the ₹1,822 crore on 30th September last year.

Lemon Tree has also improved its credit rating to A+ from A, which has significantly reduced our cost of borrowings over the year to 7.72% in Q2 this year as compared to 8.68% in Q2 last year. On the asset-light side, in Q2 we signed 15 new management and franchise contracts, adding 1,138 new rooms to our pipeline, and operationalized 5 hotels, adding 272 rooms to the operational portfolio.

Lemon Tree also won the letter of award through an auction for 2.25 acres of land in Nehru Place, New Delhi. The proposed hotel on this site will be a 500- to 550-room Aurika Hotel, and the initial approvals and design of the hotel are currently underway.

This will give Lemon Tree a long-term strategic advantage with a very large, high-revenue-generating hotel in a prime location with minimal anticipated supply growth in the foreseeable future. As of September 30th, '25, the total inventory for the group stands at 242 hotels and 20,074 rooms, with 10,956 rooms and 121 hotels being operational and the rest in pipeline.

In keeping with the muted demand environment in H1, specifically in Q2, fees from management and franchise contracts from third-party owned hotels stood at ₹14.3 crore in Q2 this year, an increase of 7% year-on-year. Fees from Fleur Hotels stood at ₹19.9 crore in Q2, an increase of 8% year-on-year.

Total management fees for Lemon Tree stood at ₹34.3 crore in Q2 FY '26. Although there have been a few delays in the scheduled openings of managed and franchise hotels, we are very confident of accelerated growth in our management fees going forward.

While Q2 posed headwinds, our outlook for H2 remains extremely positive, with our continued investments in renovation and technology showing material increase in occupancy and ARR across the portfolio in Q3 and onwards. With this, I come to the end of my opening remarks and would ask the moderator to open the forum for any questions you may have.

Thank you.

Hi. Thanks for the opportunity.

My first question is on Aurika Nehru Place. If you can help us understand, because it appears that the total lease payments are at about ₹10,000 crore over a 55-year tenure, what kind of margins are you expecting in this project in the next 5 to 7 years, and more importantly, what kind of IRRs have you penciled in while finalizing this project?

As a follow-up, are there any other non-negotiable parameters that you maintain when considering a greenfield development on your own balance sheet?

Firstly, this is on the balance sheet of Fleur, and as we are looking at listing it. The IRR that we expect is north of 15%, but let me explain how this works.

This is a headline number you are reading. Our fees are going to be ₹24 crore, and it will escalate at 5% a year over a 55-year period.

Now we are talking inflation. Basically, this will escalate at the rate of inflation, and on a cycle basis with the repricing of this asset and its specific location.

You see, if they had sold this plot, our best guess is it would have gone for ₹600 crore. Really, we are paying something like a 6% rate on the value of their land, and that value of the land will be captured in the ARR.

Let me give you an example. Lemon Tree Premier Delhi nowadays is now doing north of ₹10,000.

We have done an IRR assuming this hotel is ready 4 years later based on a ₹12,500 ARR, which is therefore an IRR on a very conservative basis. Our best guess is that this hotel, once it's stable, like many of our existing hotels, like Lemon Tree Premier Delhi, for example, currently does about ₹24 lakh to ₹23 lakh EBITDA per room.

Okay? If you take this at a 550-room hotel and the current EBITDA of Lemon Tree Premier Delhi, and this is an Aurika, not a Lemon Tree Premier, then we are talking of ₹150 crore, of which we will give roughly 1/6 to DDA.

I would not worry about the headline number. That was to make it sound sexy.

For us, it's a very, very good project.

Sure, this is helpful. Just as a follow-up on this, if you look at your pipeline of projects, you have about 2, 3 hotels that are currently on the pipeline on your own balance sheet.

Essentially, if you look at most of the pipeline, this is largely in the Aurika brand. Is it a conscious strategy to position upcoming owned rooms under the luxury segment while expanding via the asset-light route for the midscale segment?

No, actually, frankly, Karan, we are quite—sorry, what were you—continue?

As a follow-up, given your balance sheet now supports you to perhaps take on more greenfield opportunities, what's the thought process for that now going forward, given that you've announced one project, which is Aurika Nehru Place? How should we look at future expansion in terms of greenfields going forward?

Okay. Let's go back for a minute.

We are brand agnostic as to when we deploy capital. What we are interested in is what is the market segment we want to target and where is it that there is sufficient demand, obviously, higher price the better, where we can compete in the market and look at a ROCE which meets our hurdle rates.

Based on what we felt about Shimla, about Shillong, and obviously about Nehru Place, we said we would put up Aurikas. For example, if we looked at another location, which we are, multiple locations, they may be Lemon Trees or Lemon Tree Premiers.

There is no conscious decision to grow the upscale portfolio. It is simply based on the type of demand and how we can get a return, and our bid is based on that.

Even if we lose the project, we are quite okay, because ultimately, it's all IRR. Huh.

My second question, if I look at the numbers for this quarter, it seems that Bengaluru grew just 6%, while Gurgaon declined by almost 10%. When I look at this versus peers, it seems that this is a bit lower compared to the performance of some of your peers in these markets.

Was there any specific reason why portfolio here relatively underperformed this quarter?

Yes, two reasons. That is linked actually to the P&L.

Let me just give you a number. In the last 3 years, 2.5 years, really in the last 2 years, we have renovated 3,000 rooms.

Now, how do we out of a portfolio that needs renovation, excluding new hotels of 4,600 rooms? We have spent a little under ₹300 crore in this renovation.

A large part of this is OpEx, which is affecting the bottom line, but the way we look at it is this is very limited short-term pain for significant long-term gain. I had referred in my opening remarks briefly to Keys.

The first fully renovated Keys Hotel, Pune, is showing 47% improvement in RevPAR, and you will start seeing it from Q3 because lots of rooms were shut in H1, and far fewer rooms will be shut in H2, where we see more demand. Our renovation is also based on demand-supply patterns.

In Gurgaon, we had closed a large number of rooms, and if I look at sold-out dates on the smaller inventory, we were sold out on many days, and we could not sell more rooms. It was very simple.

This is part of the reason, plus during renovation there was a lot of noise. When there's a lot of noise of banging, breaking, and drilling, and so on and so forth, your pricing also must reflect that.

There was a double impact really for us, and now that that renovation is over, I suggest when you look at Q3, you will get a complete picture of what the renovation is starting to yield, and I can assure you it will be a startling revelation.

Sure. My last question on Aurika Mumbai, if you can provide some color in terms of how have the ADRs and the occupancies trended during third quarter, and more importantly, what's the expectation for second half for Aurika Mumbai?

On the rest of the portfolio, October, November, what's been the RevPAR overall for the sector and perhaps for your portfolio as well?

I cannot comment on the sector, and I hesitate to give guidance. Let me tell you that I would be expecting mid-teens RevPAR growth this quarter, primarily because one of the reasons was October was very muted for the hotel industry because you had Dussehra, you had Diwali, and Chhath Puja this year in the entire month of October, which is a big deflator of business demand, and in fact, of often retail demand, other than pure leisure.

Dussehra, Diwali, and Chhath Puja last year were in October and November. In October, interestingly, we were 4% in occupancy lower than last year.

ARR was up, but occupancy was lower. In the first 15 days of November, not only have we overtaken that, but on an overall basis, we are in the mid-teens in revenue growth.

If we continue on this trajectory, then mid-teens is the minimum expectation for revenue growth for Q3.

Sure. On Aurika Mumbai?

If you can get some color.

Aurika Mumbai did well last year, if I remember right. On an improved base effect, it will still be north of 15%.

Sure. This is helpful.

Thank you. I'll come back in the queue.

Thank you and all the best.

Yes, Patu. Thank you very much.

In terms of renovation spend, if I'm doing the math correctly, it seems that you are 66% above last year same time, first half last year. Can you tell us how many rooms are done?

What are you thinking about second half and how much will be left over for fiscal '27?

Our question— The second— Go ahead.

Go on.

No, no, go ahead.

No, no, go on. Second question was around the GST rate cuts.

Obviously, you get a double benefit, right, lower room rates as well as higher disposable income for people to spend. Can you talk about that?

Have you seen any sort of discernible change in the last few days since September 21st, and if there's any way to kind of isolate that specific change?

Very good point. Thank you for asking, Sandeep.

As far as renovation goes, renovation is ongoing. The call we have to take is we have to renovate this entire portfolio by next year.

We have renovated about 3,000 out of 4,600 rooms. Some more will be renovated in in H1 in H2, many, many more will be renovated in H1 next year because it's a question of demand-supply.

This is a call we take based on what we see happening in each micro-market, and then there is always this trade-off. For example, many, many days in H1 this year the 70 80 rooms that were shut, 80 to 100 rooms that were shut of the Delhi hotels, we desperately needed.

That trade-off was that we would take the hit now and reprice the new hotels when they came back to market. It's a, as I said, short-term loss, long-term gain.

To summarize, this is ongoing. Right now, it's 3,000 rooms.

We have 1,600 more rooms to renovate. Now the other interesting thing is the high-value renovations are ₹10 lakh, ₹12 lakh a room.

Then there is medium-value renovations at ₹6 lakh, ₹7 lakh, ₹8 lakh a room, and then there is low-value renovation at ₹3 lakh a room. When I say I've renovated 3,000 rooms, some have been at ₹12 lakh, but we have tried to renovate the high-value hotels first.

Which is why we have spent about ₹300 crore, the majority of which is OpEx, over the last two, 2.5 years. Is that correct, Kapil?

Yes, yes.

Just in renovating, and that is why, I think, from a investor/analyst perspective, you've seen this decline in our EBITDA margins. This is a one-off decline because, as I mentioned, this entire investment which we are making, what we think is once over 3 years is really in technology.

This year, of course, we also have ex gratia, which will be another ₹20 crore, which is affecting our EBITDA. If you look at renovation OpEx, TFS OpEx, ex gratia, and so on, it put together is about 8% of revenue in this quarter versus 5% last year, which explains the 3% fall in our EBITDA margins in Q2 this year versus last year.

This is a balancing act, Sandeep. What I can tell you is, rather than give you month-by-month numbers, what I can tell you is that by the end of next year calendar year, most of the portfolio, if not all, will have been fully renovated.

Sandeep, that is the first point. Coming to GST effect, GST affected about when we looked at the previous year, about 50% of our portfolio was under 7,500 in room rate and 50% of our revenue was over 7,500.

For us, the impact then assessed was 3%, 3.5% of revenue, because that was the loss of input credit and your expenses would go up that much. Now, I think I mentioned in the last investor call that we were hoping that we would get to a 7% to 8% improvement in revenue to account for this 3.5% increase in cost in order to maintain our EBITDA margins.

That is very evident now, but obviously, we don't like the increased expenses. We think, looking at the way our rates are growing, this 3.5% impact on EBITDA will probably come down to 2.5% when we finish this quarter.

Going forward, as our rates keep going up and more and more rooms are priced over 7,500, then we will have the double whammy benefit of higher ARR, higher GST input credit, and that should annul it, in our best guess, by next year. Does that answer you or confuse you sufficiently?

No, no. That was good.

Just one final kind of follow-on to that is, for this year, looking at your aggressive renovation schedule and obviously take the hits now for gains later, do you expect EBITDA margins to be up year-over-year, flat, down? Any commentary there?

I think in FY '26 our EBITDA margin will be the same as FY '25. Which means effectively that the increase in spend we will make up with a double increase in revenue.

If our spend goes up by x, our revenue will go up by 2x on that basis, and we will maintain our EBITDA margins. Going forward, our forward thinking is that we would be very disappointed if by FY '28 our net EBITDA without extraordinary expenses is less than 59%.

Okay. Thank you.

Hi. Thank you for the opportunity.

My first question is on Aurika Mumbai. Firstly, on the 71% occupancy that has been reported in the quarter, just wanted to understand how much of it has come from the negotiated one, that is the crews or operators, and how much of it is transient?

Are we seeing this trend change over the quarters? The second part to the same question would be that so far we have also seen ARRs declining YoY, and now that the occupancy has more or less stabilized in the last 3, 4 quarters, we are seeing 70% plus occupancy, when can we see the ARR growth pick up from here, and what is the stabilized ARR that we are looking at for the property?

We have kind of, I think I had said this in earlier calls also, where our first plan was to fill the hotel and then do the shifting of low-value business, and as we could, gradually replace it with high-value business. This is the largest hotel in India.

It has an enormous inventory, obviously, our focus was not on ARR, rather the total revenue we could generate from this hotel. When we talk that we have achieved 75%, say, in Q4 last year, that was within a year or so of operationalizing this hotel.

In my opinion, our team in Bombay, our revenue team, did a phenomenal job. It had a very large amount of crew and not enough corporate and negotiated, and not enough retail business.

When I look at retail today for Aurika Bombay, the corporate now has stabilized at about 130, 140 rooms. I'm talking Q2.

The airline business is at 150 versus 95 last year. The travel trade business is about doubled from 20 to 40.

Really, the negotiated business has gone up from 256 to 320 rooms. The retail business has gone from 80 rooms to 180 rooms.

Typically it takes a little more time. We don't advertise Aurika in the papers or in TVs and so on, but I'm reasonably happy with the pick up in retail, and I expect that this non-negotiated part of the business will continue to grow over the next 1 year.

Once that happens, let me put it this way: the gross ARR of the negotiated business is only at sub-8,000, but the retail business is north of 10,000. Because of this mix, the overall ARR was showing at 8,500.

My expectation is from Q3 onwards, it'll cross 9,500, then in Q4 it'll probably be north of 10,000. Next summer, we will then move towards, say, 9, 9,500, and in winter, we will hit our target, which will be 11,000 to 12,000.

Actually, I expect we will hit 12,000.

Understood. Thank you.

That is very helpful. My second question is that do you have any updates on the Fleur demerger?

Any updates that you can provide on what is the process and what is the timeline that we're working with right now?

It is in process. There are subcommittee of the board and the full board, which is in discussions, both boards, Lemon Tree and Fleur.

I think we will have a bunch of interesting things to tell the markets, I think, in the next 3 months. Would that be right, Kapil?

Yes, sir.

It is not only the demerger of Fleur, but some other even more exciting stuff, but we will talk about it when the time is right.

Got it. Thanks a lot.

I'll get back to the queue.

Good evening, sir. I have a couple of questions.

You talked about renovation of rooms, 3,000 rooms followed by 1,600 more. Just wanted to understand the schedule of this renovation.

Is this the first time we are renovating post COVID or has been a constant renovation where you're trying to upgrade the pricing for your portfolio over in past 5 years?

See, we took a call that we think that there are going to be structural shifts in consumption in India based on the current level of GDP per household and the expected move of different cohorts of customers who will treat mid-market branded hotels as non-discretionary rather than discretionary. Now, looking from that perspective, we took the call that, as I said, we would take some short-term pain, and this was not only strategic, it was also, in my opinion, essential, because we stopped renovation pre-COVID.

We planned, obviously, a routine renovation, but for 3 years during and post-COVID, we had to repair our balance sheet, because obviously, we were skeletal at the end of that. Really renovation started in summer of '23.

Okay? That, too, we didn't have so much cash flow, we did a few hundred rooms.

Then in '24, we accelerated. In '25, for example, this year, I think we are going to spend about ₹130 crore, ₹140 crore, including CapEx, in the renovation of our hotels.

As I have repeatedly said, these are one-offs, because once we finish this complete reimagination of our rooms, and these are lovely new rooms, which you will see we are capturing in pricing, by the way, in the fully renovated hotels we have, then our renovation spend will drop to 1.5% of revenue. While we are going through this pain, we are going to see it as probably 6% of revenue, and therefore, our EBITDA margins are going to take a hit of 4%, 4.5%, and I urge you to look at how it will be once the renovation is over, because it'll have a double whammy.

You'll have new rooms, very little future investment for the next 3 years. In fact, that 1.5% is an average.

I expect that in FY '28, '29, '30, we'll probably spend 0.5% of our revenue in renovations or upkeep. With it, our pricing will also go through the roof.

As an example, besides the Keys Hotel that we've renovated, we have now renovated 2/3 of the Keys Whitefield. If I remember right, the ARR has 30%.

Or 40%, sorry. I'm talking obviously this quarter, because last quarter was very muted, pricing in hikes were also muted.

If you look at Lemon Tree Premier Delhi, it is going through the roof. You look at Lemon Tree Premier Hyderabad, I was amazed to see that our ARR is north of ₹12,000, when it used to be ₹6,000 3 years ago.

This is going to be visible to you from Q3, Q4 as more and more renovated high-value hotels come for sale. Our plan is very simple.

I want to just mention to everybody, we will spend another ₹130 crore, ₹140 crore next year in total, so that we finish this entire portfolio once and for all. The fruits of the current renovation will be visible in this H2, and the fruits of the complete portfolio will be visible from H2 next year.

Even this year, it is very encouraging what we are seeing.

Sure. Thank you.

I have a related question. You mentioned about I think tech upgrades also.

What specific digital initiatives are being implemented, and how will they impact the guest experience and cost efficiency?

That's a work in progress. We have not yet focused on the cost towers that we want to implement, which is an automated way of managing costs, because we feel our control over costs and our management of costs is a key moat for us, and it is actually a moat which is difficult to overcome for any other hotel company as far as I know in India.

The focus was initially in creating, using AI, deep learning, our own revenue management system. This has been self-learning for the last 1.5.

I think it is at MVP2 stage. I think it'll be fully operational maybe by next winter, because the data we had during COVID was obviously irrelevant.

We need to build history and data and demand in order to be more and more accurate in automated pricing, dynamic pricing literally every 2 hours. As far as the second part goes, it was the clean-up of our data lake.

We had, I think, 10 million customer profiles. Keeping in mind privacy laws, on and so forth, we were wanting to reimagine and reinvent our loyalty program and our website.

That, too, is work in progress. Elements of it will be visible now from this quarter.

We have about 2.1 million members, but there is a fair amount of duplication, we are trying to use basically technology to drive our loyalty/website. Third element is on sales.

We use Salesforce. We have integrated it into our system.

We have put a middleware in place, where we think we will be significantly able to improve the efficacy of sales. Now, why am I talking about efficacy of sales?

It is also linked to, as a strategy and as a industry, we have high attrition. We were looking at automating as much as we can on the front-facing, relatively low-engagement jobs of front office, housekeeping, on and so forth, even engineering now.

Our intent is very simple: how do we use technology to improve guest service and experience? How do we use it to improve revenue?

How do we use it to outreach to more and more customers using third-party data sources? How do we price it better so that we can maximize our yield?

Of course, how do we improve our repeat guests, which is already, I think, north of 40%? How do we keep increasing each of these, because put together, they lead to a completely virtuous cycle?

I'm pretty confident that by next year, we will have achieved at least 70%, 80% of what we hope to achieve over the long term.

Sure. Thank you.

May I ask one more question? IHCL's recent acquisition of Clark Hotels significantly expands presence in mean luxe and midscale segment under the Ginger brand.

Given Lemon Tree's leadership in this space historically, how do you view this consolidation impacting your growth strategy or otherwise?

I don't see any change actually, because it was a branded portfolio earlier, it is still a branded portfolio. Ginger really is positioned versus Keys, the two lower Keys brands, and maybe Red Fox, and we were competing with Clarks, and now we'll compete with Ginger.

I just see it's good that more and more consolidation will happen, and ultimately, the consolidation of the very fragmented hotel hospitality landscape in India will lead to, I think, better standards, better outreach, and will help this structural shift towards branded hotels. I see it more as collaboration, no competition.

Just a minute, Pratik, I think somebody just advised me I should also mention a very large part of our technology investment is geared towards managing scale. While we have not accelerated, I was talking to my new colleague, Neel, who I hope will be talking to you going forward, we want to focus extensively on the asset-light part of our business because of this very fragmented landscape.

While we have 240 hotels in our portfolio now, including the pipeline, we want to use technology to not only drive the business development, but to also drive customer outreach to these new locations we are getting into so that we really juice the network effect of our system. That is an unstated outcome we want to get from the technology investments we're making.

Sure. Thank you, and these were my questions.

Yeah. Hi, sir.

My question is for technology investment what we have done, is it our in-house team or we are having a third-party vendor where they are working on it?

We've started with BCG laying out, Boston Consulting Group laying out a strategic roadmap, which was scanning best practices worldwide in technology and in our industry. When that assignment got over, we, in the process, also recruited a couple of BCG consultants.

We have our own leader of the team, and it is in a 100% subsidiary of Lemon Tree called Totally Fox Solutions. It is a tech company.

It is currently doing all its piloting with our owned hotels, and now we are going to move into the managed portfolio. The team is, I think, about 20 people, Kapil?

30 now. Now

there are 30 people in this team, which is why you're seeing this investment in technology. We are working with various vendors.

We also have some implementation support technology staff, like from Ernst & Young right now. We have also various other platforms that we are using and putting a middleware in place.

Our intention is ultimately to be self-sufficient other than in those modules in our technology stack where the architecture accepts commodity products like, for example, property management systems, and we simply put a middleware in order to get that data in the right place and then do the right set of analysis, and so on and so forth.

Okay. These 30-member teams we have created there, their main work whatever module we are getting from the supplier software or maybe they are integrating that module to our system, right?

Maintaining that.

Correct. They're using APIs, middleware, and then creating our own AI/ML, our LLMs on top.

As I said, because that data is limited post-COVID, this is a work in progress. We really started this about a year and 2 years ago, and we think the results, early results are visible, but many of them are at MVP2 stage, and we think they'll be fully well, let's put it this way, debugged and piloted out and checked at scale and then rolled out in the next 12 to I would expect 18 months.

Yes.

Yeah.

Okay. Now coming to Aurika Mumbai, how is the MICE activity or the business segment there, and what are we trying to increase more MICE in our hotel?

MICE versus last year doubled from 19 rooms to 41 rooms in Q2. Q2 is a very bad example because it was really the worst quarter.

In Q3 and Q4, we will be able to give you more color. Suffice to say that the change in mix, see, somebody asked me earlier about Aurika too, Sumant.

If you look at last year, in Q2 we did 337 rooms per day, which is about 50% occupancy, and this year, we did about 504 rooms a day, which is 75% occupancy. This increase of about 170 rooms per day from last year to this year in Q2 in a very muted demand environment came not due to a growth in corporate, because corporate didn't grow.

It was due to a growth in a little bit of growth in airline and a massive growth in retail. Really, this 170-room growth, if I summarize, 100 rooms came from non-negotiated and 60 rooms came from airline.

Therefore, airline was a deflator, because the rate of airline is 8,000, whereas negotiated was an inflator. It's a mix.

It varies: what do we pick up, at what price, what is MICE at, and so on. For example, the doubling of the MICE business dropped our rate by about ₹1,500, because in Q2 there wasn't such significant MICE.

Last year we did ₹9,000 for 19 rooms; this year we did ₹7,500 for 41 rooms. What I intend to say is I'm pretty pleased with the way it is progressing based on my experience of opening big-box hotels.

By next year, I think whatever we said was our target, about 12,000 ARR and so on, you'll start seeing that definitely play out.

Okay. Patu.

Thank you.

Good evening. Congratulations on a good set of numbers again.

I have one question to start is, again, I didn't get the opening statement, what was the main reason for the muted quarter industry-wide, and do you still expect to do 100% of your internal expectation at the beginning of the financial year?

Yes. To answer, yes.

Now, why was Q2 muted? Perspective: last year, Q1 was muted because of elections, and pent-up demand moved to Q2.

Last year, Q1 base was low, Q2 base was high. Traditionally, most hotel companies report Q2 is the worst quarter, traditionally.

Last year, for example, Q2 was much better for us than Q1 precisely because of this reason I just enumerated. Now, Q1 this year, because of the low base of last year, was a 17%, 18% growth in our revenue.

Q2, on the other hand, because of high base last year, was muted and further affected partly by base effect and partly by there were these massive rains, which really affected us in multiple locations. There was this airline crash, which affected airline traffic and also demand for us for about 2 weeks.

There was this war or this war effect. There were multiple little, little, little reasons affecting large swaths of India or, in fact, all India.

It was muted, and I think when I look at the results which have been given by the larger players like Taj or ITC and so on, if I take out consolidation and I take out other income, they are all in 7%, 8% zone. We grew, they grew roughly the same.

Now, obviously, some may have grown better. They were concentrated in markets which were less affected, which are the smaller players, but I don't want to comment on that.

What affected our EBITDA margins is very simple, and I keep repeating it, which is we are making massive investments in technology and in renovation. That when we finish the renovation, we will have invested ₹450 crore across the portfolio.

When we finish, and this is a catch-up and a reimagination, and when we finish our technology, our technology spend will typically stabilize at about 0.7% of revenue, but much-increased revenue. There was another impact this year, which was the repayment, or I should say, the ex gratia we gave to those staff members who took a big hit during COVID on their payroll, on their salaries, and roughly ₹20 crore will be paid back to them in this year.

That ₹20 crore will have an impact on our EBITDA for this year, but that is an absolute one-off. The increase in renovation expense will continue to next year, and if I look at the total expense on these one-offs and this increase in renovation, it accounted for 8% of our revenue vis-à-vis 5% last year, where we also did a lot of renovation.

There was a 3% hit on our EBITDA. Last year we did 46%, this year we did 43%.

It's very simple math.

Got it. May I quote you, sir, on an interview you gave on YouTube recently with the Inside Scoop, and where we spoke about a ₹1,000 crore EBITDA target next year, I suspect, and then there's a road map towards gaining a lot of market share and hitting a ₹1 lakh crore valuation at some point.

Is this possible after the delisting or the relisting of Fleur versus Lemon Tree, where Lemon Tree continues to capture a lot of franchisee and managed hotels, and Fleur continues to capture market share in larger cities?

Yes, we do want to target ₹1,000 crore, but I want to be very specific: this is for both Lemon Tree and Fleur put together. I was talking of our as a group.

What is the vision? It's very simple.

At some point in time, any company has to take a view on the future. When Lemon Tree started, it was totally asset-heavy.

Roughly 10 years ago, we started focusing on the asset-light side when we felt we should start looking at monetizing our brand and expanding our network. We are a young company.

We are really from the first hotel to today, that first 50 rooms to the 12, 11,000 rooms we have, it has happened in the last 20 years. Now that our brand is monetizable and very widely recognized, our view is very simple: in the mid-market space, we do think we are dominant, and ultimately, there will be one, two, or three players in this space.

It is traditionally worldwide the single largest space in the hospitality sector and the one where you have maximum scale. I joke with a couple of my friends in the hotel industry that all the large hotel companies started in the mid-market, and they acquired five-star brands.

In India, for whatever reasons, we have been more five-star driven and less mid-market driven. Like in China between 2006, where we are today in household income and so on, and 2013, this grew 6, 7x, and I expect the same thing will happen in India.

We have to take a view on it with appropriate risk adjustment. What's our view?

Our view is we list Fleur as a pure asset-co. It will have its own set of investors.

It will raise capital. It will build hotels.

We will support it. Obviously, it may have other brands, but we hope with our performance that we will be the preferred provider of management and brand services.

Lemon Tree will continue growing with third-party hotels and will now start focusing on franchise. Now one very important element of the Indian market is that individuals who own small hotels do not want us to manage their hotels, because it's like a family business or some nephew or niece or daughter runs it.

We want to provide them technology/distribution support, and that is the traditional model globally when the market has expanded from where we think it is today to where we think it will go in 2033. That's our view, it's very simple.

We are trying to make it sexy, we are trying to say we will help you with ESG, we will show you how to use renewable energy, we will lower your costs, we will demonstrate to you that every buck you pay us in fees, we will improve your revenue/EBITDA by 4x. We want to be an attractive provider of these services and basically monetize our brand and management capability, and use Fleur to grow in those markets where we think they will generate the hurdle rates of IRR we look at, because that is a massive opportunity for Fleur, too.

Noted, sir. Noted.

Thank you so much. Out of ₹1,000 crore expectation, my last question is, which to normalize after a year, will you expect what percentage to be Fleur and what percentage to be Lemon Tree?

Yaar, I can't give you so much guidance, Vikram. One day when you're in Delhi, come over for a coffee, and without it being UPSI, I'll try and show you how we are looking at it as a vision.

I'll definitely. Who should I get in touch with to get in touch with you?

Me. [email protected].

I'll write to you, sir. Thank you so much.

Thank you. Thank you.

Thanks for the opportunity, and congratulations on a good set of numbers. Sir, my first question was regarding our management portfolio.

We have continuously seen strong traction in terms of signings, but openings have been lagging, and I understand the actual timelines are beyond our control and it's more dependent on the developers. For our growth to sustain going forward, openings of management contracts is going to be critical.

Just wanted to understand, when do you see this pace of openings to pick up going forward for managed portfolio?

Typically, at least with my experience and conversations with other players in the managed/franchise space, openings are always behind the curve. Because if you are a growing company, you will be always adding more pipeline.

The pipeline that you open is 3 years ago. Just think of it very simply: if I signed 800 hotels in or 1,000 hotel rooms in 2023, I will open them in 2026.

In '24, I'll sign 1,500 rooms, I'll open it in 2027. In '26, I'll sign 4,000 rooms, I'll open it in 2029 or '28.

Really, there is a time lag. This is a positive sign that we are signing more than we are opening, because what we are opening is what we signed 3 years ago.

As long as the signings are more than the openings, it means that there is positive net addition. Am I making sense to you?

Yes, sir. If you can just provide broad guidance in terms of possible number of keys that could be added over next 3 years?

The operational keys on the managed portfolio.

We are now going at the rate of what, Vilas, 4,000 rooms? I think we should do 5,000, 6,000 next year, maybe 7,000 the following year.

We would also look at some acquisitions, which is unstated, but I kind of implied it. We think that we should be closer to 35,000 to 40,000 rooms as a pipeline.

That is double the pipeline in the next 2.5 years, including operational.

Okay. Second question on Aurika Mumbai.

Last year for Q3 and Q4, Aurika performance had notably improved, right, sequentially. For Q3 and Q4, occupancy as well as ARR are relatively higher.

Do you think the higher base for Aurika, which was actually a benefit for first half, where Aurika did lower occupancy last year, that will be a challenge in terms of posting a double-digit growth?

No, not really. Look, it's also, I think, one very important part of our business is not only cyclicality due to demand-supply over a 7-year cycle, but also seasonality.

Unlike, see, like you talk to a hotelier in America, he knows exactly when Christmas is, when Good Friday is, when Thanksgiving is, and so on, because it's a fixed date. In India, the important festivals are not a fixed date, they vary.

As I mentioned in passing earlier, last year in October, there was really Dussehra and the beginning of Diwali, and Chhath Puja was in November. Whereas this year, all the three were in October.

In October we were flat vis-à-vis last year, but in December November, we are very far ahead of last year. When I look at Aurika first 45 days, we are roughly, in spite of doing well last year, we are roughly 30% ahead of last year.

In Q3. Therefore, it will take our average up.

When I say mid-teens, well, 15% of that growth of mid-teens, say 2% is due to the Aurika impact. I'm starting to wonder, guys, when I listen to all of you, that are you going to grill me the same way with Aurika Delhi?

That's what I'm worried about, but anyway. Aurika is now performing the way we wanted to, the journey we envisaged for it, and I think you will also be quite happy with the outcomes for Q3 and Q4.

Great, sir. Just lastly on the Lemon Tree Premier and Lemon Tree Hotels, the performance has been divergent across both the brands in Q2, while Lemon Tree Premier did see a positive RevPAR growth with slight occupancy improvement, Lemon Tree Hotels actually posted a negative RevPAR with quite a bit of decline in occupancy.

Any particular reason for this divergence?

Part of the reason, as I had explained earlier, a significant part is the renovation that we did, because the renovation is not that we are renovating 20% of Lemon Tree Premier and 20% of Lemon Tree Hotels, it varies. If you look at it, Red Fox, for example, 1/3 of the Red Fox in Delhi was shut, and that's why it was 0% growth.

In fact, the occupancy was negative. Similarly, lots of Lemon Tree Hotels like in Ahmedabad, in Indore, in Aurangabad, in Chennai, which was a high-demand market, we had to shut large portions of it.

This is a catch-up. I would urge you not to look at a quarter result, please look at the full-year result.

It'll tell you exactly what's happening, because we are also being quite conservative and careful in the way we are renovating. Ideally, I would have liked to shut down the entire portfolio and renovated in 6 months, but then there would have been zero revenue for those 6 months.

Right. Sir.

Thank you so much for answering my questions and all the best.

Thank you.

Thanks for giving me the opportunity, sir. I have a couple of questions.

First, a clarification. You mentioned that renovation cost overall will be around ₹450 crore.

I guess in your earlier comments, you mentioned that out of that, we have spent around ₹200 crore. For next 2 years, should we assume renovation cost to be around ₹250 crore—

No, take the weighted average of renovation cost at ₹10 lakh a key. Okay?

We have renovated 3,000 rooms and spent ₹300 crore, of which the majority, I don't have the exact breakdown, is OpEx. We still have to renovate another 1,600 rooms, you assume another ₹160 crore at the same rate will go into renovating these, of which the majority will be OpEx.

This will be reflected next year, and then it'll more or less disappear after that.

Sure. Sure.

Sir, my second question is on the demand front, especially in the midscale or mid-premium range of hotels where we are looking large supply which is coming up in most of the markets. Just comment on the demand front in this particular segment, because supply is going to be there, but also in terms of demand, how do you see demand shaping up in this particular space?

The best proxy for demand, Kaustubh, is the rate of growth, which is the consolidated industry that is a proxy for hotel demand is airlines. Unlike the hotel industry, where a lot of this assessment frankly is anecdotal or is just an assessment, I don't think it has much in data, because data is all over the place.

The airline industry has ordered 2x more aircraft or 2.5x more aircraft and number of seats than currently exists, and I presume these will come over in the next 5 years. Even if we assume some old aircraft will be retired, what you do see is that a consolidated, forward-thinking, highly technology-driven industry like the airline sector is saying, "We will more than double our seats in the next 5 years."

Number two, the number of airports in India are going to grow from 140 to 260. Improved connectivity, I'm not talking Vande Bharat trains and roads and highways and SUVs.

What does this tell you? That demand is going to grow at 15%, 16%, 18% a year, and that is the hypothesis on the basis on which we are also doing whatever we are doing.

I don't see supply growing at that rate. It is absolutely not correct.

The few reports I have read talk about 5%, 6%, 7%, 8% CAGR, but demand will be. It's not something to really worry about, it'll work in our favor.

Right. Sir, connected question to this, do you see this demand-supply gap to reduce depending on the markets, like Tier 1, the gap will be a little bit less in Tier 3 towns where penetration of the overall sector is improving, the gap would be a little higher?

Just your thoughts on that, sir, because a lot of reports suggest that supply, it might be coming up very high in the Tier 3 towns, but the demand will be higher because that market is yet to penetrate. On the other hand, in Tier 1 towns, the supply is less, but demand will continue to be good.

Thoughts on that, sir?

It is all economics. Unlike 10 years ago when supply of hotels was partly irrational and partly driven by conversion of black to white, a lot of hotels were built on that basis, they had no basis on economic return.

Fortunately, today, after demonetization, government keeping a track, I think a lot of hotels are built in through institutional capital or listed players or equivalents, and they are built on the basis of economic rationale. Naturally, if it costs ₹1.7 crore, ₹1.8 crore a room to build a four-star hotel in Delhi, the only person who will build it will be somebody who's confident about an appropriate IRR.

The future markets, you're very right, will be as they diffuse, as demand diffuses into Tier 2, Tier 3, Tier 4, where the cost of land is low, there will be more and more hotels coming up there. On the base effect, there will be a much higher growth of supply because of also lower base in the Tier 2, Tier 3, Tier 4 markets, and the metros and Tier 1 will see more measured supply growth because the base is already very large and the cost is also very high.

Okay. Thank you, sir.

Thanks for the understanding and all the best for your future.

Thank you.

Hey. Hi, sir.

Thanks for the opportunity. Just one question from my side.

Which micro-market are you most excited about, and where do you see a lot of potential? Additionally, why was Gurugram soft this quarter in terms of occupancy and RevPAR?

See, one reason for Gurgaon was a lot of rooms were shut for renovation. It was a catch-up.

One reason was demand in Gurgaon in one of our large micro-markets, which is Sector 60, was muted because the previous year we had two large groups, which did not materialize this year. They were tech companies, and we didn't get it because this year the hiring stopped basically.

These are, again, as I say, this is a quarterly phenomenon and so on. This is not a long-term trend, and I urge everybody based on seasonality to look at a full half-year at least, and preferably a full-year performance to get a better gauge of the market and performance.

Now, when I look at which market I think is very sexy, frankly, I just see a bit of a IP. We have identified six or seven markets where we think airline traffic is going to go through the roof, branded supply is very low, unbranded supply is highly priced, which means that customers don't have choice, and customer feedback is not too great for those hotels.

This is an ideal opportunity for us, because we offer quality assurance, safety, hygiene, and a certain standard of product and service. Obviously, we would like to go to those markets, but I don't want to talk about it.

It will be part of our strategic growth map.

Okay. Fine.

I am very excited about our Nehru Place, our Shillong Hotel, and I'm also looking very closely at Dubai. Because to me, Dubai, with 6 million Indians going there every year, is a phenomenal market for any hotel company in India with a hotel brand, an Indian hotel brand.

It's about time Indian hotel companies went international wherever Indian customers are going.

Got it, sir. Yeah.

Thank you.

hi. Thanks for the opportunity.

Most of my questions are answered, Keswani sir. Thanks for all the detailed answers.

I just have one last question. One is this Navi Mumbai Airport coming closer to its operations, just your broad thoughts in terms of positives and adversities that whatever negatives we can see from your point of view.

How we can capitalize, or any interim impact, some broad thought process on that. That's all, sir.

Deepak, sorry, I couldn't hear you clearly. What was the specific question?

Am I audible better now, sir?

Just move your mouth a little away from the mic, because I think it's getting a little—

My question is that with Navi Mumbai Airport coming closer to its operation, your broad thought process on the impact and the overall portfolio for Mumbai market.

I think it's a great thing, because near the airport, the market is already doing very well. Aurika at 75% is probably, because of its large inventory, the lowest performer in occupancy.

There will be initially some shift in demand from Mumbai's current airport to Navi Mumbai, and we ourselves are looking at putting up supply there, either asset-heavy or asset-light. Actually, I think we have signed some asset-light.

We are operating one hotel. How many rooms?

About a 100-room hotel we are already operating in Navi Mumbai, but we want something very close to the airport. We are discussing with one other owner another 150 rooms.

That's Navi Mumbai, but we would like to put up 400, 500 rooms there. Similarly, actually at Jewar Airport.

Our perspective is very simple: we don't want to buy land or invest capital unless we see sufficient demand there. We are excited about competing for demand.

We are not in the business of anticipating future demand, because that can affect your hurdle rates. Any big airport in any major metro, new one, is something of great interest to us.

Even Bangalore, for example, we are looking at how do we get some more presence next to the airport. I have no doubt that in the next 2, 3 years, we will have a similar perspective for this place, what is it called, Hyderabad and Calcutta.

In fact, Calcutta, we are looking quite actively. This is ongoing.

We think this is all linked to the overall theme that I spoke about earlier, and we would be interested in growing in these markets.

Got it, sir. Sir, one last question.

IndiGo has already announced 18 flights operating on a daily basis from that particular airport. Now, given we have meaningful chunk of business coming from crew business, anything you want to share from that point of view, or do you think it's going to be offset by incremental demand that we are seeing in the current portfolio?

I actually don't have a clear idea how this will play out. My broader thesis, or I think I should say our broader investment thesis is, where it is opportunistic and there are hotels available to manage, obviously, where there is no capital deployed other than some effort by us, we are ready to go anywhere and build our network.

When we talk about the Fleur perspective of deploying capital, then we want certainty of demand, and then the only risk we look at is will we get our fair share or more than our fair share of the RevPAR in that market. That is a very simple way we look at it.

It's no complicated way, it's simple: is there demand, can we capture our share of that demand, can we give a return if we invest capital there, will we meet our hurdle rates, and then we go for it.

Got it, sir. Got it.

Fine. Okay.

Thank you.

Thanks for taking my question. Sir, we have already renovated 3,000 rooms and also a few more 1,500 approximate room will be renovated by next year.

Can you give some rough idea how much maintenance CapEx will be required next year onwards to maintain these 4,500 rooms?

There are three types of expenses in room or hotel maintenance. One is repairs and maintenance, something gets spoiled, etc., etc.

Typically that's 1.5% of revenue, that is every year, irrespective, 1.5% to 2%, and that is captured in our regular OpEx. It's not incremental, it is just regular.

Then there is stores and supplies and housekeeping supplies, which is a curtain needs replacement, a carpet needs replacement, or some furniture needs polishing. That, too, is factored in our routine ongoing expenditure.

The third element is refurbishment and renovation, that is when rooms get old. In my broad experience, typically after a room has been used for 250 to 300 days for 5 4, 5 years, it needs a freshening up or a refurb.

Our normal expense there is 1.5% to 1.7% of revenue. Because of this catch-up, because we did nothing during COVID for 3 years, then we did nothing for the next 1 year, we were really catching up for 4, 5 years.

Our strategy is normally we renovate 1/6 of our portfolio every year, assuming every 6 years we refresh the entire portfolio. This time, it was a huge catch-up, which is why I said we will spend ₹450 crore instead of normally spending ₹25 crore, ₹30 crore a year.

Really over 2 years, we are spending nearly ₹300 crore this year and next year instead of spending ₹25 crore, ₹30 crore a year? ₹50 crore, ₹60 crore.

The incremental spend is ₹250 crore, of which the majority is OpEx, which is why you're seeing deflated EBITDA margins. Now, how does this play out?

I would urge you to look at our performance in the Hyderabad market, which is now 70% renovated; look at our performance in Delhi; look at our performance in Keys Whitefield and Keys Pune, and you will understand exactly what I mean. Our principle is that any investment we make like this, we want a payback in 2 years.

If we spend ₹300 crore, what I am saying is we want ₹150 crore increase in EBITDA per year going forward.

Roughly if I calculate, it would be ₹100 crore per year would be a maintenance required for 4,500 rooms?

No. 1.5%, take our revenue ₹1,500 crore, say, I'm just taking a number, it's ₹25 crore.

So ₹225 crore approximate maintenance will be required.

No, no, ₹25 crore, Ashok.

Only ₹25 crore? Okay.

Yes. That's why I'm crying, that we spent ₹300 crore instead of ₹50 crore.

The ₹250 crore is what you're punishing me for by saying the EBITDA margin has shrunk.

Okay. After for 5 years no renovation will be required?

No. Now it will not be required because this is a catch-up.

Now we will do maintenance renovation or what is called refurbishment. Please assume after we finish next year, going forward for at least the next 5, 6 years, it'll be ₹20 crore, ₹25 crore a year.

Sir, we have spent so much, but our depreciation has reduced in a half-year basis. Can you explain?

Because the majority of this spend is OpEx, it is affecting our EBITDA margin. It is not coming in your gross block.

Sir. Thank you.

Thank you. Best wishes to you.

Thank you, sir.

Thank you.

Am I audible?

Yes, you are.

Sir, regarding the declaration we made with the RJ Corp hotels in Ayodhya and Guwahati, sir, do we have further details about it, about when it might open, and would it be an Aurika Hotel or will it be a Lemon Tree Premier?

As Ravi Jaipuria was a very early investor in Lemon Tree, and he counts it among his best investments, in spite of doing so well in Varun. Ravi for a long time has been talking to me about investing significant capital in hotels as his personal capital, not company capital, he is a believer in the same thesis that I have, which is that there will be a structural growth in consumption of mid-market hotels.

About a year ago, he told me that he would like to build a whole bunch of Lemon Tree/Lemon Tree Premiers in India in markets which we recommend, which would be designed, built, managed, and branded by us, and he would be the asset owner. Right now, he has committed in the first two hotels, there is a 300-room hotel in Ayodhya.

There may be a small diagnostic center of Medanta on one floor there, but this 300-room hotel will be built by us. We will be charging ₹15 crore to build this hotel, to design and build it, and he will spend about ₹300 crore, and this 300-room hotel will be branded a Lemon Tree Premier, and we think it should be ready in the next 3 years.

Then there is, as that there is a very big development happening in Guwahati, where they have acquired land from the government for roughly 5 acres to build a 600-room Medanta Hospital, 100-bed, if I'm right, child care hospital, and a 300-room Lemon Tree Premier and a 50-service-apartment Lemon Tree Premier, which will connect with the both the hospitals and will provide not only rooms for tourists and for business, because it's a great location, but also for patients, once they finish their basic treatment, they will move there for after-patient care, and for the families of patients who can stay there in the serviced apartment. This is being built for us.

We are charging Ravi another ₹15 crore to design and build this, and then we will charge fees, our normal fees, which is typically 9% of revenue for both these hotels, and Ravi will invest another ₹300 crore in this hotel and serviced apartment, actually ₹350 crore. He has also asked us to look for more opportunities for him.

He is going to be a 50% shareholder in the Aurika Shillong. I think we have announced that, right, Kapil?

Yeah. Beyond that, he has said that if we ever find an interesting opportunity and if we want to do it, obviously, we will do it, otherwise, he would be happy to do it.

Sir,

there were some auctions in Andaman in islands other than Port Blair. Did we bid for that?

No, we didn't bid for it.

Sir.

See, there are many things we think will happen, Shivam, in the next 3 to 4 years. What I have is an assurance from Ravi as an ultra-high-net-worth individual that he would like to grow a portfolio of Lemon Tree-branded and managed hotels, and it's a good thing, because every project that comes to us, we don't necessarily want to invest our own capital.

Sir. Sir, regarding the platforms we are listed on, sir, a lot of platforms are charging more than twice of what we are charging on our own website.

Is there a pricing model which we are getting wrong, or is it something else regarding that?

No. Look, we want to offer the most attractive price on our direct channels.

The reason being on these other channels there is a commission. It could vary from 13%, 14%, 15%, 16%.

If the guest books directly on our channel, it is 15%, 16% cheaper than if they book, say, through MakeMyTrip or Booking.com, and so on. Our perspective is very simple: we want to use loyalty and our website to drive direct non-negotiated traffic, and ultimately, we monetize it, because in our new managed hotels, we also charge 12% of the revenue, incremental revenue booked through our website and 4% through our loyalty program as additional fees to owners of hotels.

Basically, we are saying we are like an in-house online travel agent, and we think it'll be a large revenue-earner for us as we start building this network out, and that's part of our tech spend, as I had mentioned, I think, a little earlier. Right now, we earn only a few lakhs, maybe a couple of crores, but it'll shoot up to ₹20 crore, ₹30 crore in the next 2, 3 years.

Sir. Sir, are we lagging on the Shillong and Shimla hotel openings because the construction does not seem to be in pace with our timelines?

No. Shillong, we are very much in our timelines.

We will open it in 2027 mid. Shimla, we deliberately delayed for two reasons: we didn't have much capital, frankly.

It was an capital allocation decision since it resides in Lemon Tree and not in Fleur. COVID, we started it before COVID.

During COVID, everything stopped, as you can imagine, and post-COVID, we were busy repairing the balance sheet first year after that. Second year after that, we were deploying capital in the operating hotels for renovation.

Now you will find we are so cash surplus now that we will start accelerating Shimla, and I think we will open half the hotel by next year. Next year.

We'll do a soft opening next year. Basically, Shillong will open 2027, and Shimla half of it will open next year.

Sir. Thank you.

Sir, there's one small suggestion that I have. Sir, can we add the number of rooms under renovation in our investor presentation by any chance?

That is a factor in calculating the quarterly analysis that we do. Good idea.

Thank you for the suggestion, we will implement it. What I want is how many are already renovated every year, how much did we spend, how much have we finished in H1, what are we doing in H2, and what are we planning in next year, they have a clear idea.

Absolutely. That would be very nice, sir.

Thank you so much, sir.

Thank you for the suggestion, Shivam.

Thank you, sir.

Hi. Thanks for the opportunity.

I was looking at the city-wise RevPAR growth which you'll have provided. Looking at the major cities like Delhi, Gurgaon, Bangalore, I was seeing the growth on CAGR basis from pre-COVID to now, from 2Q FY '20 to 2Q FY '26.

It's in low to mid single digits, which is broadly in line with the increase in replacement cost or the construction cost. Just want to understand, when will this demand-supply mismatch manifest into disproportionate RevPAR growth?

What can we expect over the next 3 to 4 years?

First is that you are taking 6 years when you should take 4, because 2 years there was no RevPAR, and then building demand back up. My first recommendation is look at CAGR at least some other investors I've spoken to who eliminate COVID as a black swan event.

Now, coming to your other point, it is very valid what you are saying, that replacement cost went up in spite of COVID because that was due to the time factor of inflation. Even today, by the way, in many markets, it does not make sense to put up a hotel at ₹1.7 crore a room, and there is a certain element of risk.

Really the way to look at hotel return is your cash and non-cash return. It's like nominal GDP.

Nominal GDP is inflationary impact and the real rate of growth. Similarly, here it is your rate of growth of EBITDA plus the replacement cost of the asset, and that is your real return.

I would recommend that you look at it from that perspective, and it is an interesting return. Of course, in the second case, the assumption is when you look at capital asset appreciation, that you are able to reprice to get a certain return on it and/or you sell the asset and you capture the capital upside.

Why don't you show H1? Go on.

Please go on, Kushal. As a follow-up,

can we get a range, ballpark, what type of RevPAR growth can we expect for the industry, not necessarily for Lemon Tree, for the next 3 to 4 years, because in major cities, I'm talking of the metros and the Hyderabads and all of those, just because of the demand-supply mismatch? Because the last cycle which we know was 20 years old and that time the industry was more informal.

Just want to get a range how it can be.

See, on an absolute basis, if I look at the average rates we charge today for the hotels that existed with us, because our company was very new in the last cycle, it is 20% lower in rupees than it was in 2007 and '8. Okay?

To give you an example, we had two, three hotels in Gurgaon, and if I remember right, our rates were ₹9,000 and ₹10,000, and today it's ₹7,000, ₹8,000. It is still a catch-up amazingly, that after 17 years and inflation, the rate is still not caught up to the pre-Global Financial Crisis rate.

My view is that if the thesis we are betting on plays out, then occupancy of the hotel sector, not individual hotel or even a micro-market, once it crosses 70%, 72%, you see significant repricing. When that happens, I cannot project, but my best-guess case is in the next couple of years, you will see significant repricing.

I cannot say whether it'll be next year or the following year, it'll obviously depend on market conditions. Number two, if the structural tailwinds which I am betting on occur, then pricing will go through the roof.

Okay. That answers my question.

Thank you.

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 we look forward to interacting with you soon.