Lemon Tree Hotels Limited (LEMONTREE) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Lemon Tree Hotels Limited Earnings Conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anup Pujari from CDR India. Thank you, and over to you, sir. Thank you.

Good afternoon, everyone, and thank you for joining us on Leventry Hotels Q1 FI27 earnings conference call. We have with us Mr. Patanjali Keswani, Executive Chairman, Leventry Hotels. Mr. Nilein Rusing, Managing Director, Leventry Hotels. Mr. Kapil Sharma, Executive Director and CFO of Lemontree Hotels, Mr. Saurabh Satuzal, Managing Director and CEO of Floor Hotels, and Mr. Mayank Sharma, CFO of Floor Hotels. We would like to begin the call with opening remarks from the management, following which we 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 I shared with you earlier. I would now request Mr. Keswani to make his opening remarks.

Good afternoon, everyone, and thank you for joining us. Today, Neil, Managing Director of Lemon Tree Hotels, will be covering the business highlights and financial performance for Q127, and post with Saurabh, MD, and CEO of FLUO. We'll brief you on FLUO's business development. And lastly, I will share an update on the pro forma financials for elementary hotels, limited and fewer hotels, limited upon the demerger scheme becoming effective. And of course, post that, we will open the forum for your questions and suggestions.

Hi, this is Neil. Let me take you through the key highlights of the quarter. For the quarter, total revenue stood at 346.8 crores, up 9% year on year. And EBITDA stood at 151.9 crores, up 7%. Thank you. Net EBITDA adjusted for GSC impact and provision for stock appreciation rights stood at Rs. 162.5 crores in Q1, FI27, up 14% as compared to 142.1 crore in Q1, FI26. Pat grew 19% to 57.3 crores, and cash profit grew 17% to 96 crores. A gloss error. Stood at Rs 6,361, up 2% year-on-year, and occupancy was 75.7, up 314 basis points versus last year. Our net EBITDA margin for Q1 F527 stood at 43.8, which was 99 basis points less than 44.8, which we achieved last year in Q1 F526. This drop was due to provision for stock appreciation rights and the loss of input credit in the GST levy, which increased our expenses by 3.5% of total revenue in Q1 this year versus zero in the previous year, same quarter. A gross debt on 30 June 2026 stood at 1,475 crores, down 11% from 1,657.9 crores a year ago. And our cost of debt reduced to 7.48%, down 53 basis points, which is a year ago. In Q1, F527, on the asset light side, we opened six managed and franchise hotels with 334 rooms, which we had signed on an average 30 months ago, Paul Park. In this quarter, we also signed 13 managed and franchise hotels with 1,020 rooms, which is over 3x of the inventories that we opened. Thank you. Operational and pipeline inventory now stands at 23,381 rooms across 279 hotels in 170-plus cities, of which 135 hotels, which is 11,946 rooms, across 80-plus cities are already operational. Network revenue for the quarter grew at 16% year-on-year to 576 crores. With owned hotels contributing $3.20 crores and managed and franchise hotels contributing $2.56 crores. So owned hotels contributed 56% of the network revenue in this quarter. Fee income from management and franchise contracts from third-party owned hotels stood at $22.8 crores in Q1 this year, an increase of 42% year-on-year. Fee from Flo Hotels stood at 22.6 crores, up 6% year-on-year. Total management fee from Lemon Tree stood at 45.4 crores, an increase of 21% year-on-year. Now I hand over to Saurabh for an update from Flo.

Thank you, Neil. Thank you, everyone, for joining us on the call. Let me give you a quick update on our hotels under development. At Aureka Shimla, our own 90-room hotel, we have deployed approximately 108 crores of capital as on 30th June 2026. Finishing work and operational licenses are in final state, and we expect the hotel to open shortly. At Aureka Shillong, a leased 165-room hotel, we have deployed approximately 33 crores as on 30th June 2026. with the expected opening in H2FY28. At Aureka, Vararasi, a 47-room Leeds Heritage Hotel, we have begun the work and with an expected opening in FY29. At Aureka, Nehru Place, Delhi, final approvals are pending from the authorities. With expected CAPRIN deployment to be announced in new course and an expected opening on or after FY2030. Recently, an extension of validity of letter of award for another year was received by Flair from DDA, providing ample time for the project to attain all approvals. We have renovated 300 rooms this quarter, for which we have spent approximately 10 crores, and we anticipate a similar number in the next coming quarter. As for the Keyes portfolio, renovation was two-thirds complete as on 30th June 2026, and the portfolio is showing significantly improved performance with a double-digit growth across all locations. His portfolio repowering Q1 FY27 was up 19% year-on-year to Rs. 2,885, on the back of a 350 basis point improvement in occupancy to 67%, and 13% growth in average room rate to 3808. On the pipeline side, we continue to evaluate a growing number of opportunities, whether an existing operating hotel or development of new hotel. Now, I hand over the forum back to Patu. Thank you.

Thanks, Harv. I want to take this opportunity to continue our conversation on the D-Mizer scheme. Like last quarter, we have again shared Proforma financials for both Lemon Tree and Fleur hotels as they would appear upon the scheme becoming effective. For Lemon Tree on a Proforma basis in Q1-27, revenue stood at 65.7 crores versus 54 crores. In Q1 last year, which is up 22%. Net EBITDA before provision for stock appreciation rights was 38.1 crores versus 29.3 crores. And net EBITDA margin improved to 58.1% from 54.2%, up 83 basis points. PBT after share of profit of associates was 46.3 crores versus 38.4 crores, up 21%. PAC was 33.6 crores versus 27.5 crores, up 22%. And cash profit was 40 crores versus 30.5, up 31%. For Fleur on a pro forma basis, Q1 27, revenue stood at 311.4 crores versus 292 crores, up 7%. Net EBITDA without GST impact was 125.1 crores versus 114 crores, up 10%, with a margin of 14.2%. Thank you very much.

We will now begin the question and answer session.

Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question is from the line of Archana Gude with IDBI Capital. Please go ahead.

Hi, thank you for the opportunities. I have a few questions, starting with Keyes. With 19% repair growth, Keyes is surely outperforming the flagship branch. So does it match with the growth we envisaged before we took the renovation, or there is more to look at it in the upcoming quarters? So that's my first question.

Should I? Yeah, sure. It's okay. Keys, what we said about a year and a half, two years ago when we started the renovation was that we're targeting Keys to achieve RedFox ARRs, which was, if I remember right, 4,500 rupees, and we are close to that now. However, Keys is still a work in progress. The full renovation, we will be renovating many, many more rooms this year, so we expect that next year Keys will operate to full. Full performance, which means the occupancies will be close to the elementary average occupancy, and the ARR will continue to improve and will reflect the full performance. Basically, I have said we are targeting a 60 crore EBITDA from Keyes, and I think that is something that we will achieve.

And all I would add quickly is that almost 75% of the portfolio is now renovated. The interesting thing is, and we've talked about this in the earlier calls as well, that the hotels that got renovated earlier, aka our Pimpree property, our Whitefield property, are showing results of that renovation. It's a very neat, sharp product, and the high-quality renovation shows its impact both in occupancy as well as ARR, and therefore we're not only able to price it better but also get more rooms filled post-renovation, and that's today visible across the portfolio of seven hotels, and that's why as a portfolio it could deliver a 19% rep power.

All right. Just to follow up on this, what would be the operating expenses for keys renovation this year? I think we'll be completing everything by this year, right?

So the operating expenses will be depending on which part of the portfolio. So those hotels that are going for a full renovation and a complete upgrade. We are investing in the second level Keys, so we finished Keys Ludhiana, we are now doing Keys Cochin, Keys I would say that we would end up, when we finish the full portfolio, the balance spent on 300 rooms would be about 13, 14 floors.

Sure. One more question. We have done extremely well in some of the key markets like Delhi, Pune, Harabad, in terms of occupancy. But at the same time, Bombay and Gurgaon, we couldn't do that well. So for the markets, we did well. Was that a few events which led to this kind of growth or how we should look at it as a sustainable number going forward? And what's the outlook on Bombay and Gurgaon markets going forward?

Yeah, sure. Thanks, Sartan. I think the answer broadly, let me summarize the big impact we had in Q1, which is what most of the hospitality industry, let's say, experienced, which is a West Asia conflict that led to… The biggest effect of that was, of course, lesser inbound traffic and the uncertainty. Now, that had second-order effects, and in our segment, that translated largely towards lesser domestic travel as a second-order effect of less inbound travel, and we saw that corporate demand in most of our high-density... CBD locations like Bombay, even Hyderabad and Bangalore declined. There was lesser travel in, let's say, our segment, our corporate segment. There was lesser hiring. There was lesser relocation. And hence, it was pretty clear in early April that this segment would typically be softer as companies were tightening their belts on travel and expenses or just traveling less. This, therefore, in many cases, was compensated by our retail studies. So, we amped up our Let's say our ability to fill our hotels through retail because of the softness in corporate demand. In cities like, and I'm now answering your question, in cities like Delhi and Hyderabad and Bangalore, we could more than compensate the decline in corporate traffic that came through because of a recession conflict. In Bombay, we couldn't. And in Purgam, we couldn't. And hence, Essentially, you would see the softness in Bombay and Golgaon market, whereas Delhi, Bangalore, and Hyderabad continue to do well.

Also, there is still the lag effect of the 2,000 new rooms that have opened in the micro market of Bombay, near the airport, in the last two years, and that supply is still being absorbed. So, there is, you know, there were some Novotel, and some Radisson, and some other brands that opened, and put together, there were 2,000 rooms. But Bombay is such a market that when supply injections happen on this scale, there might be a temporary mismatch between supply and demand, but it catches up very rapidly. And I think you'll see that even with us in, you know, in these quarters going forward, the catch-up.

Sure. So, on this, maybe just last, I'll speak to one more question. How was the situation in July and first 10 days of August? Some improvement over Q1 in terms of demand?

Absolutely. I think Q1 sounds like everybody caught a little bit of a cold. Q2 is significantly better, and July was great. Good recovery in July, and August continues to be solid as well.

So, that was really helpful. Thank you, and all the best. Thank you.

Thank you.

Thank you. Our next question is from the line of Achal Kumar with HSBC. Please go ahead.

Yeah, hi. Thanks for taking my question. The first one on ARR, so ARR in this quarter was up only 2% despite 19% growth in keys. So what's going on? I understand that probably was dropped the rates to boost the occupancy. Is that the strategy we should expect going forward, or are you going to change that strategy and boost the ARR? So just want to understand a bit of flavor on that, please.

Yeah, so, Achal, and good to hear you again. You're right. And I'm going back to what I said to Ashina. When in early April, in fact, as early as March, we could understand that corporate demand, both inbound-led demand and domestic travel, both will be affected, we had to pivot to fill in the rooms through our retail channels. They come at a lesser net ARR in that sense, and hence you would see that when we deploy a more volume retail-based strategy, the occupancy looks so much better in Q1 versus last year, but at the cost of ARR, you're right. But I would say this is temporarily. This was undertaken largely to react to the situation that we had in Q1. We're back to a more balanced approach in July, August, and that's the way to look at it, to be able to drive eras higher and maintain our strength and occupancy as well. So, temporary, of course, in Q1.

Okay, so you mean from the Q2 onwards, we should expect the change in the strategy, right?

Yes, yes. I would say, I mean... Our strategy generally has been to keep our strength on occupancy and drive higher ARR premium. Q1, as you know, was an aberration for almost everybody in our segment. And then, therefore, in the mid-scale segment, we had to resolve to a more volume-based, retail-based strategy, tactical plan, rather than continue to drive ARR, which was anyway softer.

Right. Fair enough. My second question was around your growth pipeline. So you have given the growth for, you mentioned about the growth pipeline for the next year, but what I'm trying to understand is that have you sort of sketched out your growth in terms of brand-wise? I mean, should we expect the majority of the growth in the higher-end brands, the upper-end brands, or do you expect more to do with the keys, you know? So I just want to send a bit of a flavor on that so that, you know, we can understand what kind of GST impact you continue to face, please.

Yes, interesting. So, I mean, you know from the pipeline that Saurabh talked about, most of them are Oricas. So, we will continue to, at the top end of the business, continue to expand in Oricas and in Leventry, in demand-dense areas or in key destinations. That doesn't go away. These are areas where we'll deploy our own capital and build larger destinations. However, as we expand into Tier 2, Tier 2, Tier 3 India, we will also use elementary hotels and keys, brand boats, both the brands, to penetrate India deeper, on the asset light side. So, I would say the approach towards, let's say, expansion is two-pronged. One, to continue to... Let's say use our upper mid-scale brands and upper upper-scale brands to penetrate in demand-dense areas, and use our mid-scale brands, a.k.a. Leventry Hotel and Keys portfolio, to penetrate deeper into India.

Okay, fair enough.

Sorry, this is Saurabh. Just to add on the capital deployment, last quarter also we had said that we are pursuing rooms of around 2,500 keys, so that pursuit is still on, and we are very hopeful to achieve that in the few quarters ahead. You know, we are very confident on the capital side.

No, I think, if I may speak for both of you, we are talking about two absolutely different strategies. One is the asset-light growth of Lemon Tree, which will come from signed hotels which start opening typically 30 months, as Neil mentioned in his opening remarks, from 30 to 36 months from when they are signed. So, as long as the rate of growth of our signings is much more than the rate of growth of openings. It means that what we are really opening is what was signed, say, two and a half years ago, and what we sign now, we will open two and a half years later. So, that will tell you the rate of acceleration of our AssetLite site managed fee business. Now, if you overlay that with the fact that FIOR is now growing fairly aggressively, and we will have, I'm pretty sure, in the next few months, a bunch of announcements as to the... Thank you. What we signed in 24 will open starting, in fact, end of this year, and what we signed in 25 will be opened a year after that. So the fee income stream is fairly clearly defined. All we have to overlay on that is within the third-party owned hotels is the quality of the fees. So if it's a tier one city or a metro, then the fees are... Much higher than those in Tier 2, and that is higher than those in Tier 3, and so on. So we have a full model on this as it happens, and we have a fairly clear line of sight as to where the fee income of Lemon Tree will be over the next 3 to 4 years, because that's based on the signings that we have as at present. Overlay that with the fees that we will earn from current and future hotels of Fleur, and then you have the aggregate of the two, and And that, too, is an interesting number. And I think over the next, you know, 8 to 12 quarters, you will start seeing an acceleration in the fee income of Lemon Tree.

Right. Fair enough. My final question is around the strategy, of course, in terms of debt, in terms of ROCE. So while the picture around the lemon tree looks pretty bright, if it's an asset-like model, you'll have very healthy margins, very healthy ROCE, and probably the dividend. But on the Fluor side, aren't you worried about if the model is only asset-heavy? So aren't you worried about at some point of time, you know, you will be very debt-heavy and all that? So do you think you're comfortable with that, or do you think at some point of time, Fluor could also change the model and could think about doing some asset-light? So any color on that, please?

Yeah, sure. See, the very purpose of separating the two is to have two different kinds of companies with two different mandates and two different risk-return profiles. Fleur is a company that will be only focused on asset creation, whether it is through development or through acquisitions. The only asset-led side of Fleur's business, if we are using the word asset-led in an asset-heavy business, is through leases. So, when Fleur leases a hotel, think of it very simply as follows. If a hotel today costs 1.5 crores a key, including land, a 200-room hotel costs 300 crores. So, the way to look at leases is that we will basically put in maybe 5 to 10% of the capital when we take a hotel, maybe more depending on what the agreement is, but we will typically take 50 to 60% of the EBITDA. So, think of it this way, a 300 crore hotel making 35 crores. or 40 crores of EBITDA, we invest maybe 40 crores, and we would take 20 crores of EBITDA, of which power would go as fees to lemon tree, and the balance would remain with FLIR. So that is the only asset light side of FLIR. However, FLIR's return on capital is fairly meaningful even today. If I look at FY26, So, Fior did, after all fees, a net EBITDA of 550 crores on a total capital deployed, if I remember right, of about 4,300 crores. So, it was, you know, about 12.5%, 13%. And once we finish the Keys renovation, once we finish the entire renovation, our expectation on Fior is it should move towards a 15% rosy. Lemon Tree has reported a 58.7% EBITDA margin. Lemon Tree's ROSI will be meaningfully higher. I don't want to comment on what the ROSI will be because it is very simple. The capital deployed by Lemon Tree is marginal. It will hardly need any capital going forward other than investments made in brand and in marketing and in generative search and in tech, which is not meaningful. And its fee income will continue to accelerate. You will see that this quarter. In spite of all the slowdowns, it has still led to, I think, we've increased our supply by 15-16%, but the fee income has grown 42%. So, that is very evident that the rosy of lemon trees will become very, very high, and you will see that play out, especially when we have actually given one point of guidance, which is our long-term plan in the next three years, or four years, is to have an EBITDA margin around 75-80%. And of a much, much, much larger base of hotels, which we are managing and charging fees for. So does that answer your question?

Yeah, that's fine. Absolutely. I have one more, but I'll come back.

Thank you. Sorry, I didn't answer your debt question. We are very clear. We are broadly looking at debt to EBITDA. See, occasionally we are building six big hotels, which is what our plan is. Debt may briefly cross two times existing EBITDA. But our long-term plan is that in FLIR, debt to EBITDA should hover around 2. And that's a good sign because it means we are able to productively deploy capital. If debt to EBITDA falls below 2 is to 1, you can actually ask a reverse question, which is why are you not growing? So it's a balanced approach. And right now our debt is only, I think, in FLIR is about 1,200 crores or 1,100 crores. The numbers we announced excluded the cash position in Lemon Tree and Fleur, which is about 200 crores, so actually our debt is 200 crores less than what Neil said. At a group level, it is 1275 crores. Is that correct, Kapil? Yeah. And our EBITDA was 700. So we are in the zone where there is comfort and an ability to deploy meaningful capital. Keep in mind that Warburg has to put in 960 crores, so that too will be deployed in Fleur before we list. And we have, as Saurabh mentioned, a bunch of very exciting opportunities. Some of them are going through, you know, a phase where we will be able to make announcements fairly quickly. And I think just wait for the next six months. You may be very pleasantly surprised.

Perfect. Thank you and wish you good luck. Thank you.

Thank you. Our next question comes from the line of Karan Khanna with Ambit Capital. Please go ahead.

Jai, thanks for the opportunity. Two questions from my side. Firstly, Patu and perhaps Saurabh, you could take this as well. Following up on Mumbai performance, a couple of quarters back, you spoke about significant rising power for Aureka Mumbai in SI27, given that the occupancies are stabilized. Obviously, since then, we've had the West Asia crisis, but fundamentally, given the performance for Mumbai this quarter, would you like to bring down the guidance for Mumbai for FI27? Will it be single-digit RAPA this year, or are you confident of double-digit RAPA here?

See, about Orica Bombay, in Bombay, with the supply edition and whatever has happened, I would still say Q1 was an aberration. Q2 will be better. And as far as growth goes, I think we are now kind of feel we have stabilized Aureka. So we will be focusing on the ARR of Aureka. And I think you see what happens currently in Q2. And then we can have this conversation. Because anything I say becomes very, you know, very guidance oriented. But all I can say is we are focusing on pricing now. In fact, Neil is personally focusing on it. Would you like to give a broad comment on this, Neil?

Yeah. Karan, hi. Again, good to speak to you. I think we all believe that, and you've talked about this in the past calls as well, Karan, that the Orica in Mumbai is now a stable brand. It's recognized well. And therefore, at the kind of occupancy it delivers, we believe it's a good time to be able to now reprice it and reprice it to the positioning that we want Orica to have in that sense. So, again, without the current aberration notwithstanding, we will continue to drive. And then secondly,

Neil, if I look at slide 63 of the presentation, where you're targeting to open 2,000 keys in FI27, Q1, you're at 334 keys, so is there a risk of slippage here in terms of number of openings in FI27, or are you confident about opening all the 2,000 keys during the year?

Yeah, so, okay, good point, Karan. I mean, in this business, there are always a little bit of a wash or a slippage in there. Broadly, I'm pretty confident to be around the 2,000 keys mark, and things happen. But from the pipeline that we have today and the kind of relationships we have with our owners, I feel largely confident unless something large falls on our heads. But 2,000 should be okay.

And then lastly, Saurabh, you know, talking about FLUR, you're considering to invest around 2,000,000 crores in probably the peak of an upcycle in FLUR post-D merger, given that one of the advantages that Lemintree has enjoyed in the past has always been to invest in a downturn and wait during an upcycle. So could you help us with how you're thinking about IRRs in this expansion strategy? And on the 960 crores of capital infusion by Warburg, is there an update here on Timelines?

So, thank you, Karan, for your question. So, from an investment timeline perspective, we would deploy given what we get as the best opportunity, given our internal assessment of DROC, what we want to go forward with. So, there is no hurry. We want to deploy capital at the right strategy, at the right locations, and when we see that our capital deployment gets us the right return. So from an upside investment perspective, we are still focused on markets, which has deep demand in the top six, seven cities in India. That is where we want to chase our opportunities. And the markets which are closer to India, you know, three to five hour journey from India, where a lot of Indians are still traveling overseas. And we see that also as an upside going forward in the next two, three, five years, given the size of the economy and growth of the per capita income. So those are two of our larger strategies. And some of the leisure locations which are upcoming, like temple tourism or some of the other tourism where Indians are traveling. So these three are focused strategies from an investment. And like Patu said, all would be not just be a pure investment. Some of them would be brownfield. Some of them would be operating asset between six to eight multiples, what we will look at at buying. And some would be deep demand greenfield assets. And also for better returns, some of them will be long-leaved buildings, which will be taking either a brownfield or an operating asset or a greenfield. But mix of all these four-five strategies with a full focus on the return on capital is what our strategy is, given Warburg is giving us 960 crore and some kind of 200-300 crore of balance sheet money, which we currently have.

Let me add to that for a minute. Let me add Karan. We are not in an upcycle. We are not in an upcycle. The India occupancy is still mid-sixties. And I do not... People say we are in an upcycle. An upcycle is defined when India occupancy is crossed 70-72%. At the rate of growth of our economy, I think we will be in an upcycle next year or the year following. So, deployment of capital in demand-dense markets means actually... The level of volatility in a demand-dense market, whether it's a down-cycle, mid-cycle, up-cycle, is much, much less, because by definition, a demand-dense market is supply constrained. That's the reason why it's demand-dense. There is more demand-dense supply. And I'll give you a classic example of this. A demand-dense market is Outer Ring Road, Bangalore. A demand-dense market is BKC, Bombay. A demand-dense market is where we have 1,000 rooms, which is near the airport in Bombay. That in spite of 2,000 rooms coming in, still the occupancy in that market is in the early 70s. So, there may be a small, you know, one may say that if we are targeting a ROC of 16% post-feeds. In a situation of high supply coming in in a demand-dense market, it means expensive supply has come in, which is why these markets have moats, which are basically cost-led or capital-deployed-led. And we are fairly confident based on our ability to attract customers to our brand that we will perform well in these markets. And we don't really consider bottom of cycle, middle of cycle, top of cycle. We look at how we are performing and say, look, you know, this is what we think we'll deliver. We know our cost structure. We know the kind of revenues we can generate. And it is on that basis of knowledge that we make capital allocation decisions.

Sure.

And the debt is always taken, assuming down cycle conditions, for a margin of safety. That's it.

Great. This is a helpful part too. I'll come back in the queue for follow-ups. Thank you.

Thank you. Our next question is from the line of Samit Sinha with Macquarie. Please go ahead.

Yes, thank you very much. So, Patu, picking up on what you're talking about, the management fee, clearly good performance there. I think everyone's waiting for the compounding to start in that business. We saw year-over-year average revenue per room up 12%. For the last three quarters, it was negative. Should we assume that it will stay in this kind of range going forward now on a sustainable, durable basis? I understand that, you know, in your business, it's suddenly a new batch of rooms, a new batch of cohort of rooms comes in, and suddenly that number could go down. But do you think, you know, if you could give us a sense of how that line would compound, then I have a couple of follow-up questions.

See, certainly, we are not happy with Q1 performance. We feel we could have done better. But Q2 onwards, we are definitely going to look at double-digit growth numbers, okay? But that is as a company. As far as management fees go, the minute we hit double digits, say, in Fleur, then the management fee from Fleur also hits double digits, and Fleur still accounts for 56%. of our network revenue. So, Fleur is growing well. So, it's a virtuous cycle. The better Fleur grows, the better our fee income from Fleur grows. Third party is a different ballgame. It is growing very rapidly. I think I have said this before that the rate of growth of So, operational rooms in third-party hotels is set to accelerate finally. Because if you just go back to time, three years ago, we signed 2,000 rooms. You know, two years ago, we signed 3,500 rooms. Last year, we signed nearly 5,000 rooms. So these rooms, this rate of growth of signing translates to openings three years out, and therefore fee income from those hotels. So, as long as the rate of growth of signings is significantly higher than the rate of growth of openings, it's a positive trajectory and a flywheel effect. So, that you are going to see very clearly in the next two years in Lemontree and, of course, going forward. We are very, very optimistic about it. In fact, I should say confident. And, uh, uh, simultaneously, fewer will not start. Deploying capital, which will lead ultimately to Rossi's forefrior and fee income for Lemon Tree. So the sum of the two is quite exciting.

And Samir, I'll just quickly share some numbers. So between last Q1 and this Q1, we've added 1,300 rooms. And now, because last year was... Compared to the preceding years was the biggest year in terms of room additions, in terms of signing. This compounding is bound to happen. So I'm repeating what Patu said. Till the time we continue to open, assign much more rooms than we open, and both will eventually... Keep going anyway, you will start seeing this compounding. The first batch of, let's say, 1,300 rooms, which opened in this Q1, or between last Q1, this one, just make it illustrative, at least in this quarter. You'll see similar trends in next quarter as well.

No, think of it this way, Samir. We signed 5,000 rooms last year, FY26, and FY29 will open, all going well around 5,000 rooms, in Lemontree's portfolio of managed hotels. This excludes anything that Fleur may add on. Just to give context, we are currently operating only 12,000 rooms. So just in FY29, or, you know, in that year, 29 going to 30, we'll open 5,000 rooms, which is 45% of our current inventory in managed portfolio.

Thanks. I can see the flywheel is about to turn there. Secondly, you know, just talking about, you know, on the margin side, you know, EBITDA margin compressed about 90 basis points. This is better than we expected. I think you're guided to a much bigger decline for the year. How should we think about the progression for the year in light of the fact that second quarter seems to be turning around nicely, you know?

Let me ask you, what do you expect Lemon Tree's net EBITDA to be for FI27?

I mean, I can probably give you my numbers, but... I'm just curious. What is your expectation? Yeah, I'm not... I'm looking at my numbers. I'm at, what, 7.5 billion?

No, I'm asking percentage. Oh, percentage, about 47%. Okay, it will be well better than that. See, I will repeat to you a very interesting thing. Our EBITDA margins are fundamentally compressed because we have a bunch of expenses which are not normal, still playing out. One of them was unanticipated, which was what happened with GST, but our mitigation for GST is to, as a strategy, constantly look at how we can replace rooms below 7.5 to over 7.5.

So, what was the error in Q1?

6.3 something? So our ARR in Q1 was 6.3. So what Neil is saying is that he is going to focus on increasing ARR. So let's assume a 5-6% improvement in Q2. In winter, that will go up another 10% hopefully. So what you're going to see is more and more rooms being sold at over 7.5. So the GST impact comes down. Number two is... And this is very significant for us, is the amount of money we have spent in renovation. It is, it's an enormous sum. And that will drop dramatically next year. Dramatically. So, what should the EBITDA margin, net EBITDA margin be next year on a consolidated basis will not be visible because we will hopefully, you know, next year demerge. But if I looked at it... Because our performing hotels' EBITDA margin is already, you know, at the hotel level in the late 50s. As revenue grows, the below-the-line expenses get distributed over larger revenue, and GST, of course, hopefully will reduce, and renovation will drop dramatically. So there is no reason why we should not, and I'm saying it in front of Neil, I'm putting pressure on him and Zora, but there is no reason why EBITDA margin's net should be less than 50%. And this is my statement. You will have to see what happens in Q2 and going on into Q3. And remark you, Q2 will also have a lot of renovation expense.

And let me just top it up. See, I mean, you've seen the trend that our innovation is also tapering. So that will help. Our ARR will, that will help, clearly. Our GST impact broadly, I would say, you could still say this is ballpark in the range of 2% of our overall revenue. But banking on a much stronger Q, sorry, H2 of the year, I also agree that... The 50% is not something just too...

And that's for fiscal 28? Yeah. Or 27?

27 will not be 47. It will be better. But fiscal 28, if we don't do 50, then we have underperformed.

Thank you very much.

Thank you. Our next question comes from the line of Dixie with InCred Research. Please go ahead.

Thank you for taking the question. My first question is regarding the number of rooms that we've added this quarter for management fees. The net addition seems only to be 134 rooms, whereas we've mentioned that we've opened 334 rooms. So, have any hotels management contracts ended? And how do we see these going forward? Are the 2,000 room addition on management contracts gross or will it be net addition?

Thank you. Just to get it right, just to rephrase what you're saying, so first of all, we've added 1,300 rooms from last quarter to this quarter. Last, I think, Q1 to this Q1. So in one year, year and year. Did you get that?

Yes. I am asking about Q4 to Q1.

Okay, so what has happened is one contract we have terminated mutually, which is in Tarudan Valley, which is a 70-room resort. Then there was a hotel called Nestor Hotel, which we inherited from Keys, which was giving us no fees, but it was in the portfolio, and we have in fact taken it. We have taken it to NCLT now. So it was not reflecting in the fee income, but it was reflecting in the inventory. Are you getting me? So between these two, we removed 70 rooms from Tarudan Valley and 130 rooms from Nestor, which is 200 rooms, but the income loss was only from Tarudan. It was not from Nestor, because Nestor was a, we were not even charging fees, it was just, you know, had our brand, the Keys brand, and it was, we were trying to resolve the payment they owed to Keys when we acquired it. So you can imagine, we acquired it in 2019, and they owe a large amount of money to Keys. So this was, this was just, you know, think of it as just notional. The only upside is that if they pay the old fees, which they hold keys, it is very substantial and if we get it well and good, but it has had no impact in our revenue perspective. The impact has been with the 70 rooms of, what is it called, Tarotan Valley. By the way, just to alert everybody, we are very clear. We are signing lots of hotels. There will be cases where we will terminate our agreements because of a lack of adherence to our brand standards. And so, therefore, what one must look at, as you have rightly looked at, is net room addition. As we grow more aggressively, there will be a drop due to friction. In managed hotels, there will be some losses, but as far as possible, obviously, it will be not material compared to the number of hotels, rooms we open.

Thank you. My next question is regarding the ADR growth that we've seen for the quarter. There has only been a growth in Keith's portfolio. There has not been growth in L, Lementary portfolio, Lementary Premier portfolio, or Red Fox. How do we see this moving for the next two years?

So the umdi drop, well, there has been a small growth. In ARR of about two and a half, three percent, if I remember right. The main reason for this is that we have been pushing the retail segment, and we are obviously dropping prices somewhat in order to increase occupancy, and that was specifically based on the conditions of Q1, which is where we found, see, we are not so affected by inbound travel, okay. What we are affected by is large corporates who are our customers. And their managers and, you know, deputy general managers who travel, who then stay with us. Now, large corporates took a decision, and we spoke to a number of those CEOs, actually, that they would tighten their bills because of uncertainty in Q1. I mean, we know this because a few of them, actually, we have spoken to. And that was because of, you see, for a large corporate, travel is discretionary at some level. So they were saying, some of them inside even told me directly that they've asked their people to do Zoom calls rather than go on actual travel. So that was the impact. But the interesting thing is that we are seeing that coming back in Q2. Q1, as I said, was an aberration. I still feel and maintain we could have done better. But in Q2, I think all these issues will be resolved. And we will go back to the expected level of improvement in revenue through a mix of ARR and a more balanced mix of ARR and occupancy.

Have we completed any renovations for Red Fox or Lemon Tree Premier where we've seen a good ARR growth?

Well, look at Delhi. It is the only portfolio except for, see, one reason why you are seeing that Red Fox by Lemon Tree had a negative ARR growth in Q1 versus Q1 previous year was, we rebranded the Red Fox Delhi airport into the Lemon Tree Delhi airport. Okay. But it is the last bit of renovation is left, I think, in the entire portfolio of 487 rooms. 37 rooms are balanced, which are currently under renovation. And the sad thing is both the hotels are doing over 90% occupancy. So there is a real loss of revenue. But we will open this by the end of Q2. And these two hotels, Delhi, are the fully renovated. Actually, fully renovated hotels, and now Hyderabad, high-tech city, is also fully renovated. So, these are showing, you know, a good improvement, in spite of market conditions not necessarily being conducive. And wherever we have renovated, we see that, you know, customer response is good. So, now, local market conditions may be X, Y, Z. But we are confident This will lead to significant improvement in REVPAR as it plays out by the end of this year.

Thank you.

Our next question comes from the line of Vineet Agarwal with Bhajaj Alternates. Please go ahead.

Hello. Yeah, thank you. And thank you for the opportunity. A couple of questions. One is, with three international destinations now operational, which is Nepal, Bhutan, and Dubai, and fresh Nepal signings this quarter, what's the medium-term ambition for international contribution to network revenue and fees? And are further overseas markets under evaluation?

which are preferably three hours flight from us, where lots of Indians travel, because it is time for us to now monetize our loyalty program, and the fact that in our existing markets in India, 45% of our demand is repeat. One opportunity which is very clear is, of this 45% demand, only half is in our loyalty program, which still accounts for 2.5 million members. And we find a lot of them in our internal surveys and conversations with them. Travel internationally, short hops. So what are the markets where Indians go? The biggest and best market is UAE. You'll be surprised to know that in spite of war, the Indian movement to UAE was not significantly affected. Other than a few days, it is still very much there. Then the next market is... Nepal, where we are already expanding significantly. Then Thailand, specifically Bangkok and Phuket. South of India, there is not so much Sri Lanka, but certainly Maltese. So when we look at this, there are lots of Indians traveling here. And many of them are property members. So it begs the question that, you know, if 32 million Indians traveled overseas last year. Over 12 million traveled to these three markets I spoke about. Actually, it's probably a larger number. This is an old number I have. So, it is, in my opinion, a very simple thing. Go where your customers go. Marriott did that in the 50s and 60s. So did Hilton. So did other international brands. They always went where their customers, who were familiar and comfortable and liked their brands, they went there. And there is no reason why Indian brands. Should not also go international, in my opinion, because we now have the numbers, which is Indians traveling overseas, and why should we not capture that share of the wallet?

Thank you. And the second question is, what is the incremental ref power uplift you are expecting once the renovation of remaining keys are also completed?

So I would not say RevPower uplift. I would say simply that we have a simple target. Keys should generate six and a half hours. And if Keyes has an EBITDA margin of 50% when it's stable, it means 13 lakhs to 14 lakhs per room. So that's what we want. We want a revenue of about 150 to 120 crores from Keyes and a 60 crore EBITDA.

Thank you so much. And all the best for future quarters.

Thanks, Benito.

Thank you. Our next question comes from the line of Jinesh Joshi with PL Capital. Please go ahead.

Thanks for the opportunity. Sir, I just wanted one small clarification from your side. I think our total fee income, which is third-party plus FLIR, it is mentioned at about 45 crores in the presentation. However, if I look at our pro forma financial, the figure mentioned over there is about 66 crores. So, if you can please first clarify on this part.

Yeah, so that's not fees. In the pro forma, we still have two leased hotels in Lementry, which are not being transferred to Fleur, because their balance lease terms are of maybe six, seven years, and there is a restriction in our lease agreement that we would not be able to assign it to any other company. So what you are seeing is a 20 crore, I guess, revenue from them? Yeah, EBITDA. EBITDA, yeah.

Yes, pretty much. One second observation as well. So, if I look at our network and franchise revenue, the number that we have reported in the presentation, I think the growth is about 29%, whereas for our own hotels, that growth figure is at about 6%. So, just wanted to check this high growth number is... Simply due to addition of the managed rules that we have seen on a YY basis, or does this also have some kind of an impact whereby our network revenue from the managed side is doing slightly better than our own potential? So if you can just maybe clarify on this part, and lastly, just one short follow-up, what will be our KPIs for 27 and 28?

So there were many questions. Same store revenue growth for managed portfolio was in the late double digits, single digits, I think it was 9-10%. Okay. One of the reasons is some of the hotels which we opened last year were not stable in the managed portfolio. So, they stabilized this year. So, on a low base, there was a higher impact of revenue. Okay. Number two is new hotels that we opened, also adding... to the revenue of the managed portfolio. And what that meant was that while they are not performing at full revenue per fee capacity because they are still new and will take a year or more to stabilize, they are also incrementally adding to the fee income. So if you do a sum of the parts, same store, 9-10%, new hotels, additional, and that's what led to this growth. What we signed in the last three years, then the rate of growth of fee income will be enormous. And there is something I would recommend you track. Thank you.

By 27 and 28, if you can just maybe highlight that.

This year, it is about... About... People say he'll give you the exact details because we have to search for these numbers. But what I can say is that next year onwards, OPEX and CAPEX in renovation will meander towards 1% of revenue from what it was in the past three years.

Thank you. Our next question comes from the line of Vaibhav Mule with Hightong Securities. Please go ahead.

Hi, sir. Thanks for your question. My first question, again, was on the renovation. I wanted to delve a bit more on the timelines. I think last time we met on the call, you had said the tentative timeline of October for completing the overall renovation exercise. Even almost 75% of the inventory is now renovated. What is the revised guidance on completing the overall renovation exercise? And related to that, in this quarter, yes?

Yeah, so it's like this. We did 300 rooms in Q1. We think we'll do about the same number or a little more this quarter. So now what we do, let me just make one, give one clarification. Renovation is of three types. There is high value renovation, which is 10, 12 lakhs a key. Those are in high value locations where we feel we will be able to improve both. ARR and occupancy, like Keyes-Whitefield or Pimpri, Keyes-Pimpri, and those are what I would say large renovations. Those are more or less completely over except for old Red Fox, now Lementry Delhi, and a little bit in Electronic City in Bangalore, which is being rebranded as a Lementry Premier. And, where else do we have Hype? And Red Fox, Red Fox Hyderabad, which will also be rebranded as a lemon tree, lemon tree hotel when it's complete in October. The other renovations are in the nature of much smaller interventions, and in fact, in some cases, are basic refurbishments. So, Ki is Kochen, Ki is Vishaga Bhatna, Ki is... Trivandrum will go through a refurb, of which I think about one-third or one-half is over. But those are two and a half, three lakhs per roof. So, when we say we are renovating 300 rooms and six, 700 rooms in H1 this year, those are high-value renovations. What will flow into Q3 and Q4 will be more in the nature of refurbs and quicker turnaround. So, a refurb can take as little as a week. And at most a month. And if I refurb 800 rooms in Q2, in Q3 and Q4, the cost could be much less than the renovation of 300 rooms. So it's a mix and match strategy because we are very careful and mindful of the money we spend in each hotel based on the earning capacity that we expect from the incremental investment. As far as lemon tree goes, we will have... Finished the full renovation of the main hotels and refurbishment of a lot of keys and other hotels that needed intervention in FY27. In FY28, we will revert to norm, which is really no renovations, but a continuing thing on refurb. Refurb can happen when you need to replace the... You need to redo the upholstery, you need to improve some lighting somewhere, and these are minor costs, which is why I said, typically, we spend 1%, 1.2% of our revenue in renovation, and we will revert to norm from next year. There may be a little bit of stuff left here and there, but by and large, the entire portfolio will be new by next year.

Understood. Just related to this, in Q1, we have seen almost 250-bit impact on margins on account of GSP as well as SAR progress. But margin decline has been around 100-bit. I'm assuming that part of this is because of lower apex part of the renovation in the P&L, which has partly observed the overall impact. Can you elaborate a bit more on how much of this offset was because of the operating leverage and because of the renovation? And related to what you said on the renovation, can we expect improved margin trajectory because of new renovation in H2?

So, you know, we spent about 9.8 crores in renovation in Q1. 2.25, 2.3% of revenue. So that was then the total spend. Now, normally, what would we expect? Normally, we would have spent 3 crores, which is 1%, or 1.2%. It varies, but it is not material. So basically, the incremental spend was about 6 crores this year. Next year, that will disappear. So what we expect is there are four or five impacts which have played out. One was a one-off of property tax ex-gratia last year. There was now the ongoing impact of GST, which we are hoping to ameliorate. There was the massive impact of renovation in the last three years. All these will disappear except for GST. And GST has to be tackled from a pricing perspective, and we are very cognizant of that. So if you ask me, our EBITDA margin versus last year deteriorated by one percentage point on revenue, but our spend in renovation was 2.25%. And if you see the waterfall change, it was an incremental 5 crores over last year. Sorry, a reduction in 5 crores over last year. Last year, we spent 15 crores in renovation. So this renovation is now tapering off. So EBITDA margins should recover. And next year in summer, it should be definitely 2% to 100% higher than what it is this year. And overlay that winter EBITDA margins are significantly higher because of season, pricing, demand, etc. And that's where you can come to the average of at least 50% net EBITDA margin, which is our expectation next year. In fact, you should see elements of it even in Q2 and H2 this year.

Understood. Just lastly, if I may add on the 2500 piece potential acquisition that we are planning. Given this will be partly operational portfolio and partly greenfield with 960 crores being infused by Warburg, we already have around 1200 crores of debt on the book. Assuming mid to upper mid scale sort of a portfolio, will that increase our debt levels to north of 2000 crores for a temporary period at the time of acquisition? And does that take your net debt to a bit north of 3A? Is that a correct assumption?

No, it is incorrect. I'll tell you why. Suppose I'm building a 500 crore rupee hotel. Take three and a half years to build it. The immediate payment, typically, depending on the land value, can be 20 to 30 percent of this 500, which means I will immediately pay 100 to 150 crores to acquire the land. Now, of the balance, 350 crores, the way the spend goes is in the first year you spend only 15 percent of that because it's towards digging a basement and making your shell, which is a cold shell and it's a low cost. Second year, another 25-30% goes. It is only in the last year, specifically in the last nine months, that you spend up to 30-35% of the project cost, because that is in finishing and in equipment orders. So, let's make a number. I am building a 100 crore hotel. I paid 20 crores plus 10. I spent 30 crores this year. I spent 20 crores next year, 25 crores, and then I spent 40-50 crores in the last year. Now, how does this money get spent? Assuming one is to one debt equity, which is our general perspective, the first 50 crores goes from our pocket and takes care of the first two years or two and a half years. In the last year is when you technically require debt, but you have also cash flows. So we try and match our free cash with that requirement. So really debt. So, equity is not what we look at as much as debt to EBITDA. So, we use operating EBITDA, known EBITDA, to really look at debt for new hotels, rather than fund new hotels based on a presumed EBITDA. So, that is a standard risk mitigation practice that Lemintree has had from the beginning. Do I make sense to you?

Yes, sir. That is clear. Thank you for your detailed answer and all the rest.

Thank you. Thank you. Our next question is from the line of Rajiv Bharti with Novama. Please go ahead.

Yeah, thanks for the opportunity. Sir, on the renovation side, put together we are spending close to 450 odd crores, and like you have merited earlier. Including CapEx. Including CapEx. Yeah, and this will be close to two years break-even. That means, let's say, after two years of stabilisation, you will add close to 450 crores in terms of the absolute revenue, right? On the top-line side.

Yeah, maybe not so because the operating leverage of incremental revenue is higher, but we target a 50% of spend as EBITDA improvement.

Okay. I'm just seeing, let's say, from Q1 of F526 to Q1 of F527, we have seen close to 28 to 29 crores kind of a delta. Ideally, the capex which we have done from pre-F525, including F525 close to 230 odd crores, if I'm not wrong, that should have, a quarter of that should have.

Yeah, absolutely right. And what you have to look at is where has that spend happened each year, in which hotel, that's what we track, and how has that hotel performed two years later. So, for example, we spent 11 crores in upgrading keyspin3. I'm just giving you an example. So, how is keyspin3's delta in EBITDA before and after that spent? That's what we look at. So, it's not that. Sorry?

So, the Pimpri example is one which has been highlighted, which we take it. Any other case study?

Yes, Lemon Tree Premier Delhi, which has been fully renovated. Have a look at that. Nipun, will you share some numbers with him on a phone call? So, what are the fully renovated hotels? Now, this year it is now finally Lemon Tree Premier Hyderabad, Lemon Tree Premier Delhi. By end of this quarter, it will be Lemon Tree Hotel Delhi. There will be Lemon Keys, Whitefield. These are the high-impact investments, okay? So, like Lemon Tree, Delhi, both the two hotels will have accounted for 50 crores of renovation expense. So, as they're going to buy 25 crores is the question. So those kind of numbers will be happy. Actually, what you need to see is the breakdown of where the money has been spent, and what is the incremental EBITDA once it has stabilized and reopened. I mean, opened as a renovated hotel, and those numbers are very visible.

Yeah, so the request is that, is it possible to, let's say, put more case studies like you have shared with the PIMPRI one?

Well, in the next presentation, why don't you take Leventry Premier Hyderabad, Leventry Hotel Delhi, wherever we spend large amounts of money. I think we spend 35 crores in Hyderabad, 30-35, 50 crores in Delhi. That's 85, which is over 20% of our total spend. Have a look at that. Sure, Chaka. Start showing more and more hotels. I think you want more transparency, we'll give it to you.

Sure. That's all for me, sir. Thank you.

Thank you.

Our next question comes from the line of Subhi Gupta with Renetra Asset Managers. Please go ahead.

Yeah. Hi, Senna. Audible.

Very audible, ma'am.

Yeah, hi. Sir, most of my questions have been answered. Just one question. The investments that we're doing on the technology side, what kind of contribution should we expect towards booking?

So, investment in technology is three. One is impossible to quantify in terms of return on investment, which is improvement in efficiency. Okay, which is an ongoing process. Now, just to give context to everybody, Lemon Tree, I must confess, in the first 15 years of its operations, had a bunch of its technology stack. The architecture was very, I should say, archaic. We used to work with Excel spreadsheets. We had a small revenue management system. We had a multiple set of vendors providing property management system, point of sale system, so on and so forth. Just after COVID, I think Kapil decided to put an ERP in place. Is that correct? So, the first one and a half went into ERP. And implementation of that itself was quite a nightmare. Then we said, now we need to look at elementary as it's growing, because at that point we were accelerating our signed contracts, which is 2024, when we signed 3,500 rooms. So, what do we need to be far more efficient as an operating company? Then, number two, where can we capture clear upsides through revenue management, through better sales? How do we integrate with and how do we use providers like Salesforce, which we felt we could finally afford? And what are the other steps like loyalty program, our website, so on and so forth, which we needed to upgrade? Now, those... That was for the last two and a half years. That's what we've been doing. Some of them have hit MVP 2, some have hit MVP 1. And what we have done is started rolling them off across our owned portfolio because we didn't need to ask any owner for approval for it. And I can say broadly that certain targets have been met. Certain are still work in progress. Now we've got... Karthike on board, who was the chief digital and technology officer of Coca-Cola. He now runs our technology vertical. He has been studying everything in place, and we are looking for further improvements in our offerings. But right now, it is still very much an in-house thing. Our intention is, once we have rolled it out to our satisfaction within our existing portfolio, Then we will look at the managed portfolio and offer them these services. And in our new contracts with the managed hotels, we have specifically said that technology upgrades and so on will be at their cost and will be linked to our brand standards. So, to summarize, we are recognizing these investments, although we are OPEXing it mostly. They are also investments in terms of monetization.

Thank you so much. Thank you.

Thank you. Our next question comes from the line of Nikhil Poptani with Kizuna Wealth. Please go ahead.

Yeah, hi sir. Thank you for giving me the opportunity. So my first question is that our non-negotiated room, as we've already mentioned that, that we try to fill in with the details. So can we expect the negotiated rooms to go up back in the mix? And how much would be the pricing impact for that if our negotiated room goes back, the mix goes up back? That is my first question.

Hi, Nikhil. So, definitely, yes. I guess when we, like I said, as we achieve more balance, which is already visible in July and August, you can certainly see in the next presentation, you will potentially notice a better balance of negotiated and non-negotiated business. No doubt about it. It will be difficult for me to comment, because it's speculative, depending on the seasonality, the rate and the error for the different segments differ. But I can tell you this for sure, that the balance between retail or negotiated and non-negotiated will be better Q2 onwards.

The second question is that, on an average that we are going to add 2,000 units will come in four years, from 2026, 2027, 2028, 2030. So, when we are targeting 50% EBITDA margins, so when the fixed cost comes up, won't that impact our margin a little bit?

No, I didn't get you. I'll answer this.

Let me explain a bit. How does net EBITDA come? Net EBITDA comes hotel level less below the line expenses. The below-the-line expenses, which do not grow significantly, we made all the investments we need in technology and in people, they will not grow at the rate of growth of revenue. So below-the-line expenses, which is fundamentally corporate expenses as a percentage of sales, will keep reducing as a percentage of sales. When we say that, you know, we are targeting in Lemon Tree to ultimately have EBITDA margin of 75% to 80%, it means really we are saying we will double our management fee income and our below-the-line expenses, which is basically talent and technology, as the percentage of revenue will then drop to 20-25%. Now, with growth, what happens is fixed costs get distributed and margins expand. Wearable cost is something we are very focused on. It is something we constantly look at seeing how we can reduce it. And typically in our company, our hotel expenses half are wearable and half are fixed. So the way we look at it is that wearable costs will grow at the rate of growth of occupancy and fixed costs will grow at the rate of inflation. And that is what we try to achieve. Which is why we said next year, if our revenue grows X, whatever that X is, and I don't want to give guidance there, and I'm talking now consolidated and not disaggregated, then the EBITDA margins expanding to 50% is not a big deal. Plus, please don't look at Q1. Q1 is an aberration. It is the entire year that last year, for example, I think we did 49% EBITDA margins. So what am I saying? I am saying basically that if our renovation expenses drop by 1% of revenue, our EBITDA margins will be 50%. And I would urge you to look at slide, which is that slide on EXO's renovation expenses. Please look at slide 20. In FY26, we did 49% of EBITDA margin, with a 5.8% impact due to GST, technology, and renovation. We are saying GST will increase to 2%, which it will. Technology will increase by 50% from 0.6 to 0.9. However, renovation will drop. The sum of the parts, there is a 1% reduction in expenses, and therefore, 49 should logically go to 50.

Is that clear?

Yes, yes, sir.

Now, sir, another question is, like, on the lines, that if we are targeting, like, let's say, increasing our average limit to 7,500 plus, so what would be, like, the timeline to achieve that? Like, would it take one year, two year, three years?

Oh, it won't. So let me explain. GST applies for that percentage, the input credit or the input credit we lose is the percentage of rooms that we sell below 7.5. So, for example, our company average was 52% below 7.5 and 48% above 7.5. Our intent is not that we will be able to get rid of all the rooms will not go to 7.5. Our intent is that this percentage Should ramp up so that a larger and larger percentage of rooms are sold at over $7,500. Okay, for example, Red Fox East Delhi will never charge $7,500. It will never happen. Red Fox Jaipur will never charge $7,500. So there are hotels where, based on their brand positioning, their location, and the market they serve, they will be in the $3,000, $4,000, $5,000 range. But there are plenty of hotels we feel we can reprice. In demand-dense markets, where a large amount of our revenue comes, and that is where our GST impact will progressively reduce, which again, I refer you to the slide 20. We are saying basically 2% will drop to 1.7 and continue to drop, but there will never be a situation where it will be zero.

Yes, sir. So the initial impact will get lower and lower as we increase, as our mix for the 7,500 room grows up.

Yes. For example, all the new Orekas that we are opening will all be over 7,500. Somebody raised the question that Orekka Bombay. Orekka Bombay today has less than 5% JST impact. We'll make it zero by next year. Lemon Tree Premier Bombay as I think about 10-12%, we'll make it 3-4% by next year. So there are certain markets, LTP Hyderabad, 7-8%, we'll make it 0%. So when we look at these markets like LTP Delhi, now it's a Pareto principle. These account for larger inventory with much higher revenue per room, and as we keep increasing the rates here, the GST will progressively reduce. So please look at it as a weighted average.

Thank you, sir. Thank you, sir.

Thank you.

Thank you. Our next question comes from the line of Rahul Majetia with Stratton Oakmont. Please go ahead.

Hi, thanks for taking my question. So, with our accelerated asset light expansion into Tier 2 and Tier 3 markets, What's our situation regarding the regional mice expansion? So, local banqueting, regional mice, have we restructured our central sales and advertising and promotion teams to capture this demand, or is this burden purely falling on the franchisee partners? And are we... Are we expected to extract a higher marketing or franchise fee to fund some national-level brand campaigns for these elementary brands, which are managed by a third party?

Great. I'll answer that. So, for your first question, we have, actually, Let's say, modified a sales structure to be able to bring more focus, better relationships, and a greater, let's say, execution strength to each segment. When I say segment, I mean airlines is a segment, mice and weddings is a segment, and travel trade is a segment. And therefore, look at our sales structure as... We are led by segments in the headquarters, aka airlines, mics and weddings, and travel trade, and in the geographies as well, through our regional sales structure, which is classified into three clusters, north and east, south and west. As we become larger and deeper penetrated into India, there are two learnings that we've taken in from the past. First, when we created the initial elementary model didn't have too much space for banquets. As India has grown and as we have grown, we've learned that... That weddings and banquet revenue is a reasonable source of revenue, while we'll still continue to be in the range of 75-25 room revenue versus others. Banqueting and harnessing these local might opportunities is a big revenue source. Looking at that and the general evolution of our chain in that direction, we have, to your point, structured or restructured our central sales team to cater to that. The leaders for these segments, travel trade, mice, weddings, airlines, are also in place now. So as we execute the second half of the year, we believe that... We do expect more output from these segmental opportunities that so far we've been, let's say, mild in executing. To your second question, will we charge more for national campaigns? Not right now. We already, at this point of time, have a fee structure which is based on base fee and sales and marketing fees. What we certainly do at this point of time is have a very clear marketing calendar that speaks on two aspects. One, the seasonality aspect and the other themes for the quarter. For example, the theme that we've been, let's say, promoting very aggressively in Q1 and part of Q2 is weddings and celebration, and that, I guess, is in the ambit of driving overall... Let's say, messages for all our hotels, including third-party owned at our own. So, no, we don't want to charge what is anything additional to what we are charging already to our third-party owners.

That will be awesome, I said.

All the best from the coming quarter.

Thank you. Our next question comes from the line of Shivam Singh with Capital Arch. Please go ahead. Shivam, you are not clearly audible.

Not very clear.

Sir, I wanted to ask you, sir, why are we not getting into an airline catering business where we can maximize our F&B revenue or something like that?

A great question, Shivam. I'll answer it in my way. Badu, please help me if you want to come in as well. I think the simple answer, Shivam, is just focus and focusing on our strengths. Catering, you know our business model is largely driven on maximizing room revenue, and therefore F&B is a relatively smaller part of the business. And therefore, the strength of our business model is in driving rooms and associated business. Catering, while it could be an exciting business, but we believe we'll keep our focus at this point of time in penetrating deeper into India. And like we always said in Limitree, what we stand for is a good sleep, a good shower, a good Wi-Fi, and a good breakfast. For our guests who saved us across the network.

And, sir, my second question was, regarding, sir, what portion of our business is related to an OTA?

Yeah, late 30s, mid 30s to late 30s. It depends on, sometimes it depends on the tactic that we might deploy on that month or quarter. But, broadly speaking, it will be in the mid 30s.

Sir, when we are spending so much on tech, why not go for it, sir?

Our own?

Sir, our own marketing and getting bookings directly instead of going through an OTA.

Oh, 100%. I think that is also a very, let's say, an oft-executed playbook, Shivam, where hotels generally tend to drive a higher portion of direct through on the basis of their website and loyalty, which is our plan as well. So, not denying that at all. As we get better in our loyalty program and convert better on our website, this is bound to happen. In fact, in Q1, as we deployed a stronger... The retail, let's say, plan, our proportion of business from our direct channels also increased.

Sir, I had another small question. Sir, what was the enterprise value at which we transferred all the hotels to Fluor?

The enterprise value is evident in the fact that today, we own 59% of Fleur and Warburg owns 41%. When we transfer everything, we will be 74% and they will be 26%. So you can work back home.

Sir, I have worked on that, sir. So 960 that they will be investing at a later point of stage, will the valuation remain the same or will that be prevalent to the market scenario at that point of time?

It is a valuation which is fixed at, I think, a billion dollars. So they are investing in floor at a billion dollars. So they are giving 100 million dollars for 10% primary.

Okay, sir. So the post-holding would be 26% would be Warburg, and the remaining would be with us, right?

No. The demerger scheme envisages the following. Initially, before they have put in this money, We own 74, they own 26. Of the 74, we will distribute 33 to elementary shareholders. That will lead to an automatic delisting. Are you with me?

Yes, sir. Yes, sir. I am.

And we will then be 41, shareholders will be 33, and Vorberg will be 26. Now, somewhere before this, Vorberg will put in $100 million. And the stake will go from 26 on 100 to 26 on 110, because that additional 960 crores will give them 10 more shares. Are you with me?

Yes, sir.

Then the shareholding becomes, Lemon Tree is 41 on 110, Gorberg is 36 on 110, and Lemon Tree shareholders are 33 on 110.

Okay, sir. That is really helpful to know, sir. And regarding our growth, when do we see an exponential growth starting? Because in the last five quarters, we haven't been growing at the pace which we were confident of doing at that point of time. So do we see a tipping point after which we start the acceleration again?

So see, growth, when you say growth, what growth do you mean? Fear was not a going concern once Aureka Bombay opened. The capital that was deployed by APG was then agreed to number, and that capital was fully deployed once Aureka Bombay opened. No further capital was deployed either by Lemon Tree or APG in Fleur. So Fleur after that could have only grown at the rate of its free cash flow. To solve for that and to take advantage of what we felt were opportunities, Warburg brought out APG. And then is now putting in additional capital. That will lead to a significant growth spurt, which I think we have already said we are in active discussion. And hopefully two and a half thousand rooms, whether operating or under development, will come into our portfolio. So let me give you some numbers. We currently operate a shade under 6,000 rooms. We are building 850 to 900 rooms. If we acquire these 2,500 rooms, then we are talking 3,300 rooms, which will be a mix of operating assets and some assets that will open over the next three, three and a half years. So, basically, we are saying FLIR will increase by over 50% in rooms by FY30, MOTA MOTA, but much more in revenue because The incremental rooms that are being bought are all Oricas, other than some operating assets. So you can do your math backwards. Once we start making announcements, it's easy to do the math backwards because we are actually giving you EBITDA per room for different brands in our quarterly presentations and annual presentations. So all you have to say is how many new Oricas are opening? This is the average Orica EBITDA per room into this. This is the elementary premieres and so on. So that is one aspect of growth, and I am personally very bullish on it, which is why I am staying on as an executive director in Fleur for the next five years. As far as Lementry goes, it is now reinventing itself as an asset-light player at scale. We did not feel we could do this split earlier. Lementry had to demonstrate a high growth in fee income and a large amount of fee income for it to be. Asset light player in India, because there is at present no asset light player of scale in India in the hotel space. So in that sense, we are new, and we hope the market over the next six quarters will understand what Lemontree can generate as free income, and how exciting that is, and the rate of growth, and appropriately decide what it is worth.

Absolutely, sir. That was a really nice explanation. Thank you so much for it.

My pleasure.

Thank you. Our next question is from the line of Arjavi Marwaha with Marzlan. Please go ahead.

Yeah, hi. Thanks for the conference call for getting my question. I just had a simple question. What kind of progress have you made towards the demerger in the last quarter, and when do we expect the demerger between the floor and the lemon truth demerger to just...

Yeah, so, as you know, as we discussed in the last meeting also, that this is at approval stage with the authorities. So, currently, with the SEBI post, we got the CCI approval and some scrutiny by the stock exchanges. So, that is in process as of now. Post with the NCLT process, filing and meetings and hearings would start. So, as we pointed out earlier, that calendar year 27 would be the year when this will be completed. This is a later part of the year, but the first half of that, we should be able to complete this whole de-merger exercise and list fewer within that timeline. You have to keep in mind all these are subject to SEBI, to then shareholder vote, creditors approval, and then NTSB approval. There's a whole process. And after all that, it will still take one month, I think, for it to be listed. So, conservatively, since we have very little control over many of these approval processes, you can say it is in the late second half of next year. Would you agree with that, Kapil, with some certainty?

Okay, thank you. So that will be around 12 months from now. And I guess 4-1-4 weeks into tracking.

Thank you. Our next question is from the line of Vikram Shah with Vikram Securities. Please go ahead.

Good evening. My question was more towards Good morning, everyone. We've had, because I keep track, we keep traveling to Rishikesh, to Delhi. It deteriorated quite a lot. This is a elementary premier that I'm talking about, and I mean, I don't want to get into the details too much, but I can see a visible quality deterioration, as I said. What are we doing to, you know, renovate or to make these things, you know, better? Which hotels are you talking about specifically? Lemon Tree premier next to the Delhi airport, and then there was the Lemon Tree in Kapovan.

Well, I'm surprised to hear that because the Lemon Tree score has gone to 4.6 on 5 after renovation. So, I don't know which room you stayed in and what happened, but our general customer feedback is fantastic and our rate has gone up significantly and so has occupancy. I'd like to know which room you stayed in. If you can just send the details, we'll get back to you. Rishikesh is a managed portfolio property which needs renovation and I think it is happening. When is it happening?

So, we are planning for later this year and next year.

Okay. So, Rishikesh will go through renovation, but that's a managed hotel, so, you know, owners have to agree and so on. But I think he's agreed to renovate also. But it would be helpful if you just... Nipun, just take the number, and we'd like to get, we'd love to get some inputs from you, as to what you found.

Maybe pictures, etc., of course, this was just for a constructive, you know, conversation, so I'd be happy to share it.

No problem, please share. I appreciate that, Vector, and thanks for bringing it up, we'll come back to you soon.

Thank you.

Thank you. We have no further questions, ladies and gentlemen. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.

Okay. 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. Thank you. Thanks. Thank you.

On behalf of Lemon Tree Hotels, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.