Earnings Call Transcript - XNSE:LEMONTREE 2026-11-11

Operator

Ladies and gentlemen, good day, and welcome to the Lemon Tree Hotels Ltd. Earning 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 call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this call has been recorded. I now hand the conference over to Mr. Mitesh Jain from CDR India. Thank you, and over to you, sir.

Speaker 0

Thank you. Good evening, everyone, and thank you for joining us on Lementry Hotels Q2FY27 earnings conference call. We have with us Mr. Patanjali Kieswani, Executive Chairman, Lementry Hotels, Mr. Nilendra Singh, Managing Director, Lementry Hotels, Mr. Kapil Sharma. Executive Director and CFO of Lemon Tree Hotels, Mr. Saurabh Shardal, Managing Director and CEO of Fleur Hotels, Mr. Mayim Sharma, CFO of Fleur Hotels, Vishwav Preet Singh, Team Up, President Lemon Tree Hotels, and Vaibhav Jai, Senior Vice President, Sales Lemon Tree Hotels. 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 was shared with you all earlier. I would now request Mr. Kieswani to make his opening remarks.

Patanjali Keswani, Chairman

Thank you. Good afternoon, everyone, and thank you for joining us today. Neil, our Managing Director, will cover the business highlights and financial performance for Q2-27. Post that, Saurav, the Managing Director of Fleur, will share an update on Fleur's own portfolio and hotels under development. Lastly, Kapil, Sharma, our CFO, and I will share an update on the de-merger scheme. We will then open the forum for your questions and suggestions. Over to you, Neeru.

Nileendra Singh, Other

Thanks, Patu. Hi. Good afternoon, everyone. Let me take you through the key highlights of the quarter. Q2 F527 was our best ever second quarter with the highest Q2 ARR, revenue, EBITDA, PBT, PAD, and cash profit. For the quarter, our gross ARR stood at Rs. 6751. Up 8% year-on-year, and occupancy was at 76.1, up 633 basis points each year-on-year. As a result, REFPA grew at 18% to Rs.5137. Total revenue stood at 363.8 crores, up 18% Y-on-Y. Net EBITDA stood at 162.2 crores, up 22%. FAT grew at 90% to 79.8 crores. Cash profit grew at 28% to 97.2 crores. Our net EBITDA margin for Q2 FI27 stood at 44.6%, 157 basis points higher than 43%, which we achieved last quarter in Q2 last year. We delivered this despite the provision for SAR and GST impact, which together increased our expenses by 3.2% of total revenue in this quarter. On a like-to-like basis, our margins, therefore, was at 77.7%. Thank you. Yeah, 47.7%, up 474 basis points. A gross debt, as on 30th September 26th, stood at 1,429.2 crores, down 11% from 1,610.2 crores a year ago. A cost of debt reduced to 7.44%, down 28 basis points versus a year ago. Fees from management and franchise contracts for third-party-owned hotels increased 30% year-on-year. Total management fees from lemon trees stood at 40.8 crores, an increase of 19% year-on-year. In Q2 F527, on the asset light side, we opened 8 managed and franchise hotels with 523 rooms. We also signed 11 managed and franchise hotels with 825 rooms, about 1.6x of the inventory we opened during the quarter. Our combined operational and pipeline inventory now stands at 24,061 rooms. Across 285 hotels in 170-plus cities, of which 130 hotels with 12,131 rooms across 80-plus cities are already operational. Now I hand over the forum to Swarab to give us an update on flow.

Saurabh Satuzal, CEO

Thank you, everyone, for joining us on the call. Our owned hotels grew Q2 FY27 revenue by 15% YOY to 337 crores. And their hotel EBITDA margin percentage rose 112 basis rates to 63%. RAFPA grew in double digits across every brand and every region, ranging from 11% in Mumbai to 25% in Delhi. Aureka and Lemon Tree Premier together earned 63% of hotel EBITDA on 58% of revenue. Our keys portfolio continues to improve. Keyes RefPAR in Q2 FY27 was up 29% YOY to Rs.3109 on the back of a 976 basis point improvement in occupancy to 69.7% and 11% growth in ARR to Rs.4460. Keyes Hotel EBITDA margin rose 748 basis points to 50%. Now on our hotels under development. This quarter, we acquired land in Bandra is Mumbai, adjoining BKC, for about 120 crores to develop elementary premier Bandra, an owned upscale hotel with approximately 172 rooms, expected to open in FY30. It will be our seventh hotel in Mumbai and our first in Bandra. Our own 90-room hotel, Aureka Shimla, is scheduled to open in Q3 this year. Aureka Shillong, our 165-room leased hotel, is progressing well and is expected to open in FY28. At Aureka Varansi, our 47-room leased heritage hotel, piling work has begun and is expected to open in FY29. Lastly, for Aureka, Nehru, please. DDA has extended the letter of award till August 2027, which gives us ample time to secure all approvals, and we expect to open the hotel in calendar year 31. Now I hand over the forum back to Patu.

Patanjali Keswani, Chairman

Thank you, Saurabh. This quarter also we have shared pro forma financials in the earnings presentation for the first half of FY27 for both Lemon Tree and Fleop, as they would appear upon the scheme becoming effective. Kapil, would you like to speak on the scheduled timeline?

Kapil Sharma, CFO

Thank you. So, as you are aware, we got the CCI approval earlier, and post which we have also received the stock exchange and the SEBI approval. After receiving that, last month we have filed the scheme of arrangement with NCLT, and for which the first hearing has already happened, and now we are looking at proceedings to go on further. And then we reach a stage where we seek the shareholders' approval for the scheme, and we expect, as we discussed earlier, that within next calendar year, which is calendar year 27, we list fewer hotels on the stock exchanges.

Patanjali Keswani, Chairman

With this, we come to the end of our opening remarks, and I'll ask the moderator to open the forum for any questions and suggestions that you may have.

Operator

Thank you, sir. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question comes in. A reminder to all the participants, you may press star and 1 to ask a question. We have the first question from the line of Karan Khanna from Ambed Capital. Please go ahead.

Karan Khanna, Analyst — Ambed Capital

Thanks team and congrats on the sharp rebound in Repa growth after 4 or 5 quarters. First question, Patu, with the global geopolitical situation hopefully easing out. How should we think about early signs of FIT demand arrival that you are picking up, any notable changes in booking behaviors or travel trends that you are seeing, and as a follow-up, how should we think about 2H, which typically accounts for about 55% of your full-year revenue and 60% of your EBITDA? What sort of an upside risk do you see to your numbers if FIT comes back in a meaningful manner, especially for your Aureka portfolio?

Patanjali Keswani, Chairman

So, Karan, we will stick to that, that it should be 55-45 and 60-40. Now, the point is that we are sanguine that this war will get over, or at least the impact of the war, if it goes into stasis, will be positive for us. But I am still not. 100% sure that, you know, there will be a meaningful jump in demand. And really, the impact we are hoping for, see, what is affecting India is oil prices, inflation, and the current account deficit. And all this uncertainty is leading to a drop in discretionary demand in the corporate side. Okay? Surprisingly, the non-negotiated side of the business, as you will see in one of our slides, has gone. But the corporate demand is still muted. And within corporate demand, one of the main segments we depend on in certain cities like Gurgaon is, you know, new hirings, joinies from, and this is very large business from the IT sector. And that has not, frankly, yet picked up. So I would say there is compensation through non-negotiated business. But those are all... Not, well, let me say that the corporate side has not picked up as much as it would if the uncertainty of the war and inflation reduced and the uncertainty of the war actually disappeared. So that would still be a conversation we will probably have after Q3 results.

Karan Khanna, Analyst — Ambed Capital

Sure. Second question to you, Neil, is on the hotel openings. Last quarter you mentioned about 2,000 keys will be open this year, but if I look at last quarter number of 334 keys and this quarter's net addition of 185, you'll still add about 550 odd keys that addition during 1H. And then on slide number 88, you're adding about 900 plus keys opening into 1H. So, effectively, net addition will be closer to 1,500 keys this year. Given this, how should we think about risk for the net additions of about 2,500 plus pipelines starting from FI 28th onwards?

Nileendra Singh, Other

Hi, Karan. So, typically, the net addition is an interesting one. It happened largely in Q1 and Q2 this year. It's not an ongoing phenomenon. We, we had, we had. Some hotels were compliant with challenges, and therefore, we had to resort to deflying them. But from a cross-opening of 2000, which is what I had mentioned last time, we are absolutely on track. And I'll go back to what I had mentioned again, let's say I mentioned to you earlier, that our signing acceleration started somehow sometime, let's say, in 2024 calendar year last year, and that starts showing up in the rate of opening as well. So, if you reckon, last year we opened about 1,523 rooms, odd. This year, Ross, we will end up opening 2,000-ish. You will not deflag anything, will you? No. And there's nothing on the paper for deflagging in Q3 and Q4. And therefore, our... Our opening rate will also accelerate, going at almost the same rate as we started accelerating the openings next year onwards.

Karan Khanna, Analyst — Ambed Capital

Sure. And then last question, Saurabh is on Aureka, Nehru place. Is there a change of plan here? Because until last quarter, this was 572 keys, and now it's 610 keys. And also, in terms of timelines, earlier you were looking at FI30, but now it's CY31 at the end. So can you help explain what's driving these delays from DDA's side? And on Bandra East, how are you thinking about ERRs for this asset? Will it be similar to the elementary premier at Algeria? That will be my last question.

Saurabh Satuzal, CEO

Okay, thanks Karan. So on Aureka, Nehru Place, as you know, we are taking the land from DDA. DDA has certain approvals to provide it to us, which is basically getting approval from the Ridge Management Board and the CEC, which is the Empowered Committee, you know, and once that is done, then DDA has to get the tree-felling approval and actually removing the trees. From that side. So depending on their performance, that delay is happening from there because of those two processes not yet completed. However, we have got one more year extension from August 26 to August 27 now, purely from the fact that we have ready the building plans and everything. However, we are waiting for the approvals, which is a condition precedent in our bid with DDA.

Patanjali Keswani, Chairman

See what's happened. Karan is a very interesting thing. Obviously, DDA is very keen to do this. It's a big deal for them. It is the first time last year they started leasing land rather than selling land. And they were very happy with our bid and were very keen to execute it. However, this being Delhi and this being specifically within the ridge of the Aravallis, It requires specific approvals. So, the specific approvals required relate to the tree cutting, basically, and the fact that it is, as I said, part of the Ravili's reach. Now, the process is fairly lengthy. It has been going back and forth. A couple of meetings have happened. We are now told that there will be another meeting this month, and then there will be Perhaps another meeting next month, after which they will take two to three months to remove the trees. Now, this is unfortunately not in our hands, but we are given to understand that, you know, this will occur in the next few months. Once it happens, then the FSI available and the height available, we've got greater clarity on it, and we feel we can build about. 610 rooms, not 570 as we had earlier planned. So those drawings are ready. We are simply waiting for the following that the minute the Ridge Management Board gives the formal go-ahead, we will immediately submit the plans. And concurrently, Delhi Development Authority has identified the land where they will plant 10x the number of trees. So they have to basically plant 3,500 trees to remove these 350 trees. That will take three months. So, in that time, we hope to get the approval. So, one, these things will happen concurrently, and hopefully, and I am again, of course, not clear when this will happen, but hopefully in the next few months, we should be able to start construction.

Karan Khanna, Analyst — Ambed Capital

Great, thank you, team, and all the best.

Patanjali Keswani, Chairman

Yeah, but we will construct very fast. We've worked out the entire process. We are doing B1 flow plating, so on and so forth. So we hope that once we get approvals, the loss of time will be a little made up, at least half made up in the speed at which we constructed.

Saurabh Satuzal, CEO

And I think Karan had a question regarding Bandra East from an ARR underwriting. I'm sure Karan, Bandra East is next to BKC. So our focus would be a deep demand market of Bandra-Kurla complex. And get the clients coming from Bandar Kurla Complex rather than being dependent on there. So our view is currently when the hotel opens, which is FY30, we are looking at around 12,000 aprox as an ARR to start with. And then we build it up from there.

Karan Khanna, Analyst — Ambed Capital

Great. Thanks, Salabh. Thank you.

Operator

Thank you. We have the next question from the line of Achal Kumar from HSBC. Please go ahead.

Achal Kumar, Analyst — HSBC

Yeah, hi. Thanks for taking my question. So, and kindly excuse me if the previous guy has asked this question, I just dropped off. I mean, it's regarding the land acquisition at BKC, where you plan to build the hotel, you know. So, I just want to understand, I mean, would you be able to sort of, you know, justify this investment in terms of ARR? And why I'm asking is because, you know, so your Aureka Mumbai Hotel, which is a very posh hotel, a great hotel, and I met part there a few months back. And still, I was checking, it is selling for like 8,900 for November, December, while many other hotels are selling for 25,000, 30,000, and even Ginger is selling for 8,000. So, I mean, if that kind of rate is there, and I believe Lemon Tree is going to manage the BKC property, and you're not thinking about any fancy names like Merrius and all. So, my question, I just don't understand, you know, what are your thought process behind opening hotel at such an expensive place, and BKC is very expensive, and so any color on that would be helpful, please.

Patanjali Keswani, Chairman

I'll answer that. It is basically, forget for a moment the ARR and occupancy, the average EBITDA that we do in Bombay is about 22 to 25 lakhs a key. Make it very simple. Our investment, which will fructify three years later, will be at roughly 2 crores a key. Now, BKC is a very, very, very different market to Andheri. We are very, very confident that we will... Let me give you an example. We have a very small hotel there with rooms at an average of 120 square feet a room, okay, which is like the smallest rooms in India. That hotel does 7,500 to 8,000 ERR today at 80% occupancy. And it is in Kalina, quite close to where we are building this hotel. I think we can say with great certainty that we will achieve 12-13% Rossi immediately in this hotel, and if we are lucky, it could be significantly more. You know, if we hit this target of 12,000, which I think will happen, it will be much higher. So I would not be, I think, optimistic by saying we will achieve 12-13% definitely and better, hopefully.

Achal Kumar, Analyst — HSBC

Okay. Understood. Perfect. Then my second question is about the ARR growth of 8%. I think previously we've been saying that because of the renovations, we are getting some boosts per ARR. Now, 8% do you think it's quite a lot is because of the renovations? And it would be really helpful if you can break this 8% into, you know, how much was because of underlying growth in the underlying increase there are or how much was because of the renovations and all. That would be very helpful, please.

Nileendra Singh, Other

Hi, Atal. So, very fundamentally difficult to isolate how much of that is, let's say, a renovation and what is not. I'll answer this differently for you, Atal. In the last quarter, we had said we'll start, you know, we'll balance out the REFPA growth between ARR and occupancy. And if you see Q1 because of the West Asia conflict, our Rapa growth was... Skewed more towards occupancy. We had a stronger retail play, so our era growth was, let's say, muted. This quarter, where demand was better, emerging out of Q1, we did, if you can see the slide 24 on the, sorry, slide, I just renamed the number. Give me a second. Slide, yeah, slide 24 it is. You will see that the Revpar growth is quite consistent across all our brands and most of our cities, and that is driven largely through... Through 8% on an average ARR growth and occupancy growth, which is 60-33 basis points. So, there is an element of, certainly there is an element of renovation here for some of our key properties, the biggest example of which is Keys, where 80% of our renovation is now complete, and you can see the development of ARR and occupancy because we are not only able to... We're not only able to fill the hotels better, but we're also able to drive higher ARRs. And the other example is our hotel, like the hotel in Delhi, where again, after having now been renovated, you see a significant increase in... You can see a significant increase in ARR and occupancy. So I can isolate it from a property-to-property perspective, but it's difficult to aggregate or disaggregate the 8% ARR growth. All I would say is it's a healthy balance between occupancy and ARR, and hence 18% is a very strong result coming out of Q1.

Achal Kumar, Analyst — HSBC

And then I remember last quarter, I think you said that you have been sort of following a bit of an ARR active load, occupancy level passive strategy, so where you are keeping your ARR low to boost your occupancy. So was that also a factor in your sort of 8% ARR growth, but the occupancy was so high?

Nileendra Singh, Other

Not as much. That was a tactical move in Q1, and therefore occupancy growth was significantly higher than AR growth. You will see that Q2 is far more balanced in that sense.

Patanjali Keswani, Chairman

I think there is another point. If you look at the slide that was referenced to you, you see where did we not do much renovation, where we did not see much upside was in the Red Fox portfolio. So, if you notice, there the focus was refurbishment, not high cost, and drive occupancy, because we did not see a significant improvement in pricing there. So, you will notice in Red Forks, there was an occupancy growth, but not a significant ARR growth. But the repair grew because of occupancy. Whereas, if you look at, you know, say, keys. The rev power grew because both the occupancy and the ADR grew in certain of the rev keys that were completely renovated. So it's a combination. By uplifting a hotel, basically, you try to get a more demand. If it's a price sensitive market, then the focus is more demand, less pricing. And if it is a... A deep market like Delhi, where we, I mean, you know, bricks, but bricks didn't matter to the airport side. It mattered to the central Delhi side. But in bricks, without bricks also, Lementary Premier Delhi and Red Fox, which has now become Lementary Hotel Delhi, these have grown north of 30 percent. And that's because we've been able to reprice the completely renovated portfolio. So it's a combo. Where you can, you will reprice significantly, but the purpose of renovation was to come up to standards which led to an improvement in price slash occupancy slash both. Does it kind of make sense?

Achal Kumar, Analyst — HSBC

Yeah, absolutely. I understood. Fair enough. And my final question is on the color in the second half. I guess especially we are in the middle of November, so I guess you must have got a very good visibility, especially in the third quarter. So I would really appreciate if you could give us a bit of a color in terms of how the trading has been in terms of ARR occupancy and sort of a bit dark. And definitely, you know, any color, I think it's swirly, but any color on Q4 would also be helpful. Thank you.

Nileendra Singh, Other

Yeah, great. This is where it gets difficult, because this is the next two big quarters. However, I would say that we are yet not in the middle of Q3, and the effect of Diwali between October and November is still getting played out. We're just coming out of Diwali, so we're measuring how Diwali impact has been. So, difficult for us to... To explain how will the X2 go from here, all I can say is that the momentum that we built up in Q2, we see that momentum on the retail side for sure. Like Patu said right in the beginning of the call, corporates are slightly steeped to pick up, but generally speaking, this is a time when corporate and retail demand starts picking up anyway. So I guess the real, let's say, gauge will be after this week when Diwali, Bhaiyadur, Chhatpucha, all of that gets over. Then we'll get to figure out how H2 plays out. However, we believe, totally from a delivery perspective, we will still be in the 55%, 55-45% share between H2 and H1. Like we've broadly been on that frame every year. So given that H1 is over, you can almost estimate how H2 will go given the ratios are in that order, 55-45.

Achal Kumar, Analyst — HSBC

Okay, perfect. Thank you so much.

Operator

Thank you. We have the next question from the line of Web of Mulay from Hightong Securities. Please go ahead.

Vibhor Mule, Analyst — Haitong

Hi, thanks for the opportunity. My first question was on our F&B revenue growth. Given rev par growth has been in the range of 18% and the top line growth is also in the range of 18. That implies that F&B revenue growth has also been very strong in this quarter. So, just wanted to understand what has led to this growth and would this be a sustainable growth rate going forward as well here.

Nileendra Singh, Other

Yeah. Hi, Vagov. I mean, simple answer, yes, it is similar to the overall REVPAR growth, largely driven by mice and banqueting. You know, these are critical businesses for us in many of our properties. And as this season starts, we generally start seeing around the middle of Q2 sometimes the uptake in mice activity, group activity, and sometimes wedding as well. Those weddings start peaking. Usually weddings start peaking in Q3 and Q4. I would say nothing extraordinary, but expecting mice, vetting, and just the, let's say, the buoyancy of Q3, Q4 take place this quarter as well, this quarter and the next quarter as well.

Vibhor Mule, Analyst — Haitong

Understood. Secondly, on our management fee income, our Fleur hotel's revenue has grown by 15% in Q2, but Fleur's fee income has grown by 11%. So, just wanted to understand why is there a divergence in the fee income that's been received by Lemon Tree with respect to the revenue growth supported by Fleur?

Patanjali Keswani, Chairman

So, it's very simple. While Fleur as a portfolio has grown at 53%, I think, in... No, the portfolio of Fleur has a 53% GOP. Our management fee income, about one-third of it to 40%, is a function of GOP margins. And if the margin is affected by 2-3%, as it has this year, because of the renovation, beyond normal, then the fees come down proportionately. So, think of it this way, that when you look at FLEO portfolio, the two things that are impacting our margins is GST, which was not there last year in H1, and the renovation, which anyway affected the margins. Now, GST is, of course, an ongoing thing, but renovation will drop to 1.2% of revenue next year. And that will itself improve the margins by about one and a half percent. So we expect that the management fee income in FLIR will start accelerating with the rate of growth of FLIR as the EBITDA margins start paying us incentive fees. Is that clear?

Vibhor Mule, Analyst — Haitong

Yes, I understand. My last question was on our ADR. So, for the quarter, we have reported 8% of ADR growth. In the Aureka, again, the ADR growth has been at around 9%. Just wanted to get the expense of our revenue management strategy, since there is a GST impact below 7,500 ADR. So, are we not strategically trying to raise the ADR rather than focusing on the occupancy and secondly related to Aureka specifically, now again occupancy has stabilized in the range of 75%. So, can we expect ADR growth to be higher from H2 onwards?

Nileendra Singh, Other

Good point, Baba. And I'll answer the second question first. Yes, Orica, I did say last time as well that I do feel, we all feel that Orica is now mature and occupancy is relatively stable. It's a well-known brand now across the board. And therefore, going forward, we will certainly want to take the AR route to improve Orica's performance. That is also visible in Q1 versus Q2. I mean, at 9% AR growth, this is the highest AR growth in the AR portfolio in many quarters in the past. So you can start seeing this already, that we are pricing AR to its potential and to its positioning. Coming back on your first question, coming back on your first question around revenue management and GST, I mean, what exactly was the point, Weber?

Vibhor Mule, Analyst — Haitong

So, I was trying to understand, are we not trying to focus on increasing the ADR about 7,500 thresholds in order to reduce the GST rather than focusing on it?

Nileendra Singh, Other

So, there are two ways to look at it. First, I think the real performance is REVPAR. And therefore, depending on how the season goes, where we are, which month we are in, and how the demand plays out, we, of course, use both the levers, occupancy and REVPAR, to be able to drive, occupancy and ARR, to drive the REVPAR. So that's principle number one, that RevPar is the major metric, and with our kind of volume, we use both levers, AR and occupancy. The other thing I think on GST, the 7,500 mark is interesting, that many of our hotels are significantly above 7,500 mark, and therefore the question on GST doesn't arise. Similarly, a bunch of a portfolio is, let's say, significantly below $7,500, where it will not be possible to raise the price to cross the $7,500 mark because the product is not like that, aka, let's say, a Red Fox or a Keys hotel. So, the logic of getting past the $7,500 mark applies to all those hotels, which are ballpark in that era range, which are few, and on those hotels. Of course, through a combination of, let's say, pricing strategies, segment strategies, we've been trying to get over the 7,500 mark, and that plays out every day, actually. And so, therefore, from a revenue management perspective, to your point, it is important for us as a chain to make sure that anybody, any hotel which is potentially on that, let's say, Line of 7500 over a period of time goes past it so that we are able to, you know, we don't have the GST impact like we had in the previous times. Anybody who's way above 7500 doesn't apply. Any hotel that is way below 7500, we can't reprice them overnight to be over 7500.

Patanjali Keswani, Chairman

No, but I think you will see a slight change that I think last year our... Percentage of revenue over 7.5 was 48% or something. Is that correct? And this year it is 50%. So I think we mentioned this in some earlier earnings calls that gradually this percentage of revenue, which is over 7.5 will keep increasing as we reprice. But remember that repricing a 5,000 rupee hotel will not lead to a reduction in GST because it will go to 5.355. But repricing a 7,000 rupee hotel will lead to a reduction in GST. So, within a 7,000 rupee hotel, again, there is a percentage of the business over 7,500 and a percentage of the business below 7,500. So, this is very specific to some hotels, but we are generally sure that over time, this percentage, which is now 50% of the revenue, will start inching up and the impact of GST, therefore, will keep reducing. That's a percentage of revenue.

Vibhor Mule, Analyst — Haitong

That is perfect. Thank you and all the best.

Operator

Thank you. We have the next question from the line of Janish Joshi from PL Capital. Please go ahead.

Janish Joshi, Analyst — PL Capital

Yes, sir. Thanks for the opportunity. My first question is the reduction in our own key count to about 5,600 odd rooms that we have seen in this quarter. I believe it is predominantly due to the Lease Termination Contract Act in Burgaon. So, any reason for discontinuation of the leak, that is question one. And the related follow-up is that even on the management contract side, I think there were about 250-odd keys that got leak flagged in the quarter. And I think in the opening remarks, you mentioned that there were some compliance-led challenges. So, if you can maybe elaborate a bit on that, and the related follow-up will also be that. The guidance of 2,500 odd keys that we are giving from FY28 and beyond, is it a gross number?

Patanjali Keswani, Chairman

Okay, so I'll answer this. This is Patu here. So, what happened in Gurgaon was that it had two basements. Earlier, one basement was approved for banquets. Then recently, after a fire somewhere, they withdrew that approval. And they said you cannot any longer have banquets there. As a result, it significantly affected the performance of that hotel because about... 30% of the business that hotel got came from either banquet income or the conferences that it used to get. This was a large banquet. So this was a post-major clause. We asked the owner of the asset to try and get this approval. They tried for two, three months, and after which we terminated it, if I remember right, on 30th of September. August. So we terminated it in August, and it was shut down from when? From our?

Kapil Sharma, CFO

August was the last month of operation.

Patanjali Keswani, Chairman

Yeah, so apple to apple, that income disappeared actually from our own portfolio. And the reason that there are some, I will ask Kapil, will you explain why there is that exceptional item? of profit, which I'm sure would be a question.

Kapil Sharma, CFO

Yeah, sure. So there are three elements to it. So one is, as Mr. Keswani has just explained, that there is a termination of the lease agreement. So due to this termination, there is reversal of lease liability and right to use asset, which are accounted for for a lease asset. So due to that reversal, there is a result of a revenue, actually, which is an exceptional revenue in the P&L account, which is one of the major exceptional item, which is roughly 41 crore. Then there are two exceptional items which are relating to expenses. One is the provision for which we have made as a conservative accounting based on outcome of a similar case relating to property tax for some other hotel chain. So we have provided around 16 crore towards that liability. And then there is a small 3 crore adjustment which is diminution in the value of investment in one of the facilities.

Patanjali Keswani, Chairman

Now, I want to also add one thing. On and off, I think one thing we have to recognize is that various agencies in India raise various demands on us. Okay. At any given time, there is always some pending demand on GST or on property tax, so on and so forth. And these are often, by nature, arbitrary. It is impossible for us to actually anticipate which state will suddenly make a demand on property tax or X, Y, Z. So, you know, while we report it as an exceptional thing, it is actually that. We do not know who will raise what demand when. So I just want to alert those who are listening that it is, you know, and we make, that is why we try and clarify these are exceptional. What happened in Delhi last year was an exceptional demand. Again, it came with bad back effect. It went to court. Other hotels who went through this demand took this matter to court. The court then struck it down. Then they appealed, so on and so forth. So in our case, what we always try and do is we are conservative. We try and provision for it. And if it does not happen, of course, balle balle. But if it happens, as Kapil said, this is in Pune, this property tax issue, Bangalore. So, this in Bangalore, we have accounted for it. What I want to say is that this entire 45 crores, 41 crores is non-cash. That it is not part of our cash profits, so on and so forth. And it is just on account of this accounting thing.

Janish Joshi, Analyst — PL Capital

And the second part of the question, deflagging issue, the compliance argument that you...

Patanjali Keswani, Chairman

So that is why we deflagged that 80-room hotel, which is from the owned portfolio. Now, as far as the other hotels go, these are again, you know, these issues come because suddenly the authorities will raise a compliance issue and if we feel it is relevant... In any form, we give a notice, we give a cure period, and if the owner is unable to get the relevant approvals, then we deflag. Your question was, will this continue? By and large, no, because in our business development assessment, before we sign a hotel operating agreement, we have a list of condition precedents which include all necessary compliances. But it is possible that going forward in some hotel at some time, like happened in Gurgaon, there could be a sudden event that makes it non-compliant. Now, the 530 rooms that we deflat, if I exclude the Gurgaon one, the 450 rooms. These were an ongoing thing, by the way. It was not that it was deflagged just in one quarter. We had given various time periods based on the requirements to various asset owners and then we took a call that we would deflag these. It is possible, however, and not that we have line of sight on it, that some owner may actually get it corrected and come back to us, as has happened in one case, but we will be very conservative in this matter. Because as you know, compliance relating to fire, life, safety, these are issues which have very grave consequences. So, you know, we deflag where required. But next year, the two and a half thousand which Neil has committed to you, please note, not me. I do not expect, Neil, that there will be any deflagging or if it will be, it will be very.

Nileendra Singh, Other

Yeah, I was about to say that, Jinesh. These hotels, of course, because they're concentrated across Q1 and Q2, it looks like we should start reporting net of deflagging, but there's no line of sight of any significant deflagging. And if there were to be any, we'll, of course, announce that at the right time, but these are exceptional moves.

Janish Joshi, Analyst — PL Capital

I understood. One last question from my side. Sir, I think we have also formed a Holyoke subsidiary in Mondays. So, just wanted to get some sense. Are we kind of looking out for an operating asset over there or are we kind of willing to take the construction risk? Also, any color on ticket size or indicative inventory that we are targeting over here?

Patanjali Keswani, Chairman

So, we were looking at some acquisitions there too. These were operating assets. This was not construction. We do not feel we want to construct anything. So, this was purely a play to acquire an asset which we felt was underperforming and where we could push more Indian customers, which was, it was a specific asset. However, it was a large ticket size and a large EBITDA acquisition. But recently, the Maldivian government has said that 40% of the revenue of a hotel must be kept in Maldivian rupees. So this has made this project completely unviable, in our opinion, because everything is paid for in U.S. dollars. But if we are forced to keep 40% of the revenue in Maldivian rupees, then the project absolutely does not make sense, nor does any. Debt on it makes sense. So it is right now in cold storage, but we are very interested in Maldives. And if this government policy changes, which may happen, then we will evaluate this again.

Janish Joshi, Analyst — PL Capital

Thank you so much, sir, and all the best.

Operator

We have the next question from the line of Samit Sinha from Macquery. Please go ahead.

Samit Sinha, Analyst — Macquarie

Yes, thank you very much. I apologize for the background noise at an airport. A couple of questions. So, Patu, we've discussed several times, you look at airline data, you look at air traffic data, number of passengers. That number continues to weaken, but you did have a good quarter. So, any learnings from that? Are you already seeing this sort of divergence? And the second thing is, the last few years have been quite tumultuous between, you know, renovations and things coming from left field, you know, wars, et cetera. Just wanted to understand, what sort of learning have you, as a managing team, got over the last few years that will feed into your strategy or your tactical approach over the next few years?

Patanjali Keswani, Chairman

So, let me first talk about revenue. Revenue is in the hands of God. Okay. What affects a hotel starts from supply demand in a micro market, then the segments it gets business from, then the impact in each of those segments with external factors like, you know, we all know what happened with hiring in the IT sector. Then it continues on at the national level into how the economy is doing. And even the airline sector is a proxy for travel. It is not a direct proxy. It is an indirect proxy for hotel demand because, for example, an interesting statistic would be, Samit, to look at how many same-day air trips happen. So if airline traffic grows 10%, but 4% of that is same-day trips, then really overnight stay is only the 6%. Then the second thing is how much of it is double occupancy. So if it is a couple traveling, it requires one room, but it is actually shown as growth of two airline seats. So there are multiple factors is what I am trying to say. What have we learned? Airline travel is a proxy. We continue to track it. But what we have seen is the impact of other stuff, geopolitical conflict, as I said earlier, inflation. Companies cutting down on discretionary travel out of, you know, a desire to control their costs. All these play out into our sector. The other thing is that we are in the mid-market. So we get demand from companies which is, A, more discretionary because the CEO may continue to travel and stay in a five-star or the senior vice president, but the manager, well, which is a larger volume, may stop traveling or may reduce traveling. What we have seen is that our plan was very clear. Renovation was a catch-up. It had nothing to do initially with anything other than the fact that for over three years we had not done any renovation and the Keyes portfolio was languishing because it was an extremely old, you know, worn-down portfolio. So, the entire innovation... Catch up. Think of it that we spent 1.2, 1.3% a year in renovation. For three years, we had not spent that. That was 4%. And then there was an improvement that we wanted to achieve in the high-price hotels, which we felt we could reprice. So, all these factors led to our investment in renovation, and we will, by next year, go back to 1.2% of revenue as our ongoing renovation, and that will go on forever. The war had an impact linked to what I had said earlier. What is our learning? Our learning is that at all times, we must be cost warriors. So our biggest moat is that we have built nearly 6,000 rooms, built or we leased 6,000 rooms. They are in very high demand markets. I know supply is growing in India, but it is not growing in these high demand markets. It is actually growing in the tier 2, tier 3, tier 4, where we are absolutely asset light. Our intent is that we, at the end of this year, we will have more or less fully upgraded our portfolio. We should be able to reprice slash increase occupancy. We should be best in class in cost so that the operating leverage plays out for us. Now the rest, of course, is in the hands of God. When will this war get over? When will oil prices come to $70? These are things we cannot answer, but we want to be future ready, and I think I can say with some degree of confidence we are there, and you will start seeing this play out now quarter by quarter.

Operator

Do you have any further questions?

Nileendra Singh, Other

Yeah, I think he was saying this.

Patanjali Keswani, Chairman

Yeah, Samit. Okay, I think we can go to the next person in line.

Operator

Yes, sir. We have the next question from the line of Rajya Garwal from Access Capital. Please go ahead.

Zahara Patel, Analyst — Solidarity Advisors

Hi, team. Thank you for the opportunity. So, my question is the overall supply which is coming in the mid-scale segment. We are seeing players like IH and IPC address and expanding in the mid-scale segment. This is also accompanied by multiple international grants as well. So, taking this into consideration, do you see a supply risk, you know, supply outspacing demand which could potentially impact the rest part of this model?

Nileendra Singh, Other

Well, simple answer, no. Structurally, what's happening to India is there's a clear deficit between supply and demand. And while, like just Patu said, while in the deep demand, let's say, districts of the country, there's little supply coming up, most of the supply is coming in Tier 2, Tier 3 markets, where while… Well, there is competition, but I guess there is enough demand. Also, one, because of the structural reasons. Secondly, you know, there are new destinations getting developed. There are new reasons to go to these destinations. There are more highways getting developed. So, demand generally is on a... It's not a structural high, and given where India is heading with all such development, we believe that demand will continue like this. So, it's difficult to believe at this point of time that supply will outstrip demand. We might get, in certain areas, we might get competitive, but that is bound to happen in Pratchikiv as tier 2 cities get lucrative for hotel brands, as it happens in consumer brands as well. So, competition is okay. Will it? Will supply outstript demand?

Patanjali Keswani, Chairman

We don't think so. But even if it does, it's not a, Prachi, this is not a winner-take-all game. So when we said supply is growing in tier 2, tier 3, tier 4 markets, the supply growth is actually an opportunity for us. To increase our network, and surely, I mean, ITC is a reputable brand, Marriott is a reputable brand, Taj, and so on. All these guys will increase their footprint, but so will we. And that is visible because 50% of our portfolio is not open yet. And I would not worry about it. If I was a capital allocator, I would question it, but we are not allocating capital to these markets. We are simply going after building our network there, which is the fee income side. So does that answer your question?

Zahara Patel, Analyst — Solidarity Advisors

Yeah, that's very helpful. Thank you.

Operator

Thank you. We have the next question from the line of Dixie Jain from INCRED Research. Please go ahead.

Dixit Jain, Analyst — Incred Research

Hi, thank you for taking the question. My first question is regarding the OMAX deal that we signed during the total. Can you give us a little more information about the investment that we are about to do and also when will this be operational? Also, for FLIR hotels, the total 2,500 rooms that are expected to be operational by FY30. What is the timeline looking like for that?

Nileendra Singh, Other

Hi, this is Nilendra. I'll answer the OMAX part, and I'll invite Swarov to do the flow part. So the OMAX, the partnership with OMAX, or the MOU with OMAX, It's asset light. So they, as developers, are developing townships and hotels and remodeling bus transit points or bus stations. So we don't have any investment. We will be managers and brand owners for those properties. So from our perspective, this is in line with our asset light strategy as we go into, let's say, deeper markets. The reason it's an interesting, let's say, partnership is because there are two kinds of development OMAX is doing. One is clearly their townships, which are very well located and very large. They are over hundreds of acres, and therefore there's a fair amount of both resident and transit demand in those areas because of the location and the density of population that they come from. And the other, let's say, kind of development that they're doing is through PPPs out with the government where they're remodeling bus stations in a few Tier 2, Tier 3 cities. As you know, many of these bus addas are very well located in the center of the heart of the city. Usually the cities come around the bus addas, and therefore, as a part of that development, when a hotel comes up next to a bus transit point, You know, it is right in the thick of demand. We thought going to Lucknow, let's say Lucknow, Varansi, Khazibad. Greater Noida and such cities is in line with where their development is happening and hence the MOU with them. Most of these, therefore, there are 4,000 rooms ballpark in 10 properties. Nine out of these 10 properties are greenfield, so expect the same timeline around three years, three and a half years to... to factify, and these are large townships, so it might take slightly longer, if you will. So one of them, which is in greater Noida, might come in the next 12 to 18 months. The others will take the usual three years plus. That's on OMAX, and Saurabh can help you with the floor.

Saurabh Satuzal, CEO

Hi, Dixit. So on 2,500 rooms operational by FY30, FY31, we are working towards this. We said that by the time we list, We should have a site of these 2,500 rooms. We are working towards this, but given that these are all acquisitions, and because of diligence of, you know, legal, technical, you know, soil testing, plus if there is an operational hotel, the financial diligence, all that, because we are dependent on various consultants and the client, it might... It takes time more than what we might envisage at most point of view. So long story short, 2,500 rooms, we are still very hopeful that we should be able to achieve that between operational brownfield and greenfield assets in the next 9 to 12 months by the time we get listed. And FY3031, we are quite hopeful that we should be able to. Do that given the construction timelines and challenges, like in Delhi, during winter time, now you get the grab done, so it might shift the construction timelines, so depending which city or which country we are taking this asset in, we will abide by those laws, and sometime here and there might happen, and otherwise we will keep the group posted.

Dixit Jain, Analyst — Incred Research

So currently there are no additions planned in FY27-28?

Patanjali Keswani, Chairman

There are some acquisitions we are looking at, and they are going through due diligence. I mean, somebody earlier asked about Maldives. So there are always ups and downs, but as Saurabh said, we will hopefully achieve this two and a half thousand rooms, and part of it is acquisitions, so that will have a direct and immediate impact on the EBITDA of Leon.

Dixit Jain, Analyst — Incred Research

Thank you for taking the question.

Samit Sinha, Analyst — Macquarie

Thank you.

Operator

Thank you. We have the next question from the line of Murtuza Arsivala from Kotak. Please go ahead.

Murtuza Arsiwala, Analyst — Kotak Securities

Hi. Just an extension to those additional keys question. You know, the Warburg Pincus investment of 960 crore, is there a timing or a contingency to it? Will it happen before FLIR is listed? Will it happen after? Are there any milestones? Do we have any timelines around that investment?

Patanjali Keswani, Chairman

No, it is entirely dependent on acquisitions slash developments. There is no restriction. We can call for it. They said they need two weeks. Obviously, we will take the money if and only if we can deploy it. But based on what we are seeing right now, we are nearly 100% sure that we will take the entire amount. For example, Bombay, we didn't take any money. Because we had it in cash with us. But, you know, some of the new projects we are looking at, and, you know, it's on call. Let's put it this way. It's on call. There is no restriction.

Murtuza Arsiwala, Analyst — Kotak Securities

Okay. Fantastic. Thanks so much.

Operator

Thank you. We have the next question from the line of Rahul M, from an individual investor. Please go ahead.

Rahul M., Analyst — Individual Investor

Hi, thanks for doing my question. So, we frequently talk about the growth in our loyalty member days. I want to look past our enrollment numbers and look at utilization. What percentage of our rough room nights in Q2 were booked by active loyalty members? And when we account for the direct discount given to the loyalty members, what is the net edit margin differential of a loyalty member booking versus an OTA booking after the fact in the commission?

Patanjali Keswani, Chairman

So, Rahul, There is no discount given to loyalty members. What loyalty members get is whichever channel or segment they book from, they are pricing there, whether it is through our website, whether it is through the call center, whether it's through an OTA, whether it's through a company. Typically, I don't have the numbers offhand of Q2, you should get that in future, but about 45% of our business, when we last checked, which is about a few months ago, We found was repeat guests. And of them, so out of every 100 customers we get, 45 are repeat, but only 25 are loyalty members. So today, 25% of our total business is loyalty. 45 is repeat, so the runway for us is actually another 90% or 80%. We should definitely enroll the other 20, which we are trying to do as quickly as possible. And as far as pricing goes, there is no impact, but typically our loyalty payout is about 4%. So when a customer uses the loyalty points, it is 4% of revenue, but that 4% gets absorbed within the network. So somebody who books a hotel in, I don't know, in Delhi and spends 30,000 rupees, of which 20,000 rupees for two nights is due, he will get a benefit or she will get a benefit of 800 rupees. And this 800 rupees can go and, you know, they can spend this in another hotel. Of our network. So really, it's a self-supporting kind of internal system. And not only that, there is something called breakage. So we, for every, you know, 1 lakh rupees that are benefits given to members, typical breakage is anywhere from 30 to 40 percent. So actual consumption is only about 60, 70 percent. Does that broadly answer the question?

Rahul M., Analyst — Individual Investor

That's definitely helping. My second question is in a totally different direction. So, regarding franchisee-free structures, what extent are our modern franchisee-free structures linked to performance milestones? For instance, do our contracts include any escalator clauses that increase our fee percentage once our centralized brand distribution crosses a certain threshold? Convertly, do owners demand some de-escalators or CCAPs if there are some macroeconomic headwinds or some other reasons that compress their local rest power below some agreed upon baseline?

Patanjali Keswani, Chairman

Actually, franchise is where we have dipped our toes because there is an implication of lack of control over the asset and therefore a potential impact on the brand. But franchise is 100%. Basically, think of it as a brand slash sales and distribution agreement. We are not involved in the running of the hotel, though we use technology to monitor the customer feedback and therefore the net promoter score. Our fees are entirely a function of typically the room revenue and a smaller percentage of the F&B revenue. It has nothing to do with the performance in terms of the agreement. However, what is super important is that we perform for that owner, which is why he or she is giving us their asset. So it's actually a moral responsibility for us to improve their performance. And as long as we improve the performance, I don't think they have any issue because we share with them what the local market has performed in and how we are standing relative to the local market. And I can say by and large, I would say over 90% of our owners are very happy with the performance that we are providing for them. There are, of course, owners who feel we could do better. And we are making efforts there, but there is no termination in these matters. Frankly, once you tie us up, we tie you up. And it continues, and therefore, you can treat it as a little bit like annuity fees, though it varies based on performance. Does that answer it?

Rahul M., Analyst — Individual Investor

Yes, just a last inquiry on this. What is the rough A&P spend percentage from the franchises as part of our consolidated ad spend or promotional spend?

Patanjali Keswani, Chairman

What do you mean? Can you read?

Rahul M., Analyst — Individual Investor

Do the franchises contribute to our overall consolidated A&P spend? And if yes, what percentage would it be?

Patanjali Keswani, Chairman

So, you know, it is an indirect spend. So, there will be some sales and marketing spend. There will be some local search engine. Now, of course, generative optimization, but it is not significant. As far as possible, we want to charge a flat percentage, you know, whatever it is, 5% of revenue or room revenue, 6% of room revenue. I know it starts at 4, goes up to 6, and that should include all the spend that we do because ultimately he is buying into our brand, and it is our responsibility to deliver revenue for that owner.

Rahul M., Analyst — Individual Investor

Yes, that's very helpful. Just a comment on the Aureka properties. I have stated some of them, and they are fantastic brands and really well curated. So, all the best for the future quarters, and I love the experience there.

Patanjali Keswani, Chairman

Thank you. Actually, it's a long haul for us, because this is the first time you can say we compete with very established brands. And, but we are opening, going to open so many Oricas in so many key markets that something like what happened with Lemon Tree over 10-12 years will happen with Orica. I understand the impatience with certain investors, but I think Orica will be a pleasant surprise for investors over the medium term.

Rahul M., Analyst — Individual Investor

That is, from my side, all the best of the coming quarters. Thank you.

Operator

Thank you. We have the next follow-up question from the line of Web of Mule from Hightong Securities. Please go ahead.

Vibhor Mule, Analyst — Haitong

Hi, thanks for the follow-up. The bookkeeping question from my side, what is our CAPEX done in FI 27 till now, and if you can also share the CAPEX planned over next two to three years for each year. And regarding the renovation expense, I think we were entering around 120 to 130 dollars of OPEC towards renovation last year. So what would be that number now?

Patanjali Keswani, Chairman

About 60-40.

Kapil Sharma, CFO

No, it includes the projects under construction also.

Patanjali Keswani, Chairman

No, exclude the projects. First, let's talk about renovation.

Kapil Sharma, CFO

Renovation, yeah.

Patanjali Keswani, Chairman

Renovation, it would be about 60-65% would be OPEX and the balance, CAPEX. So, CAPEX would be basically when we replace some equipment or do some major capital asset investment in our hotels. As far as investments in our... Ongoing portfolio goes, as you know, we just invested 120 plus 9, about 130 crores in the buyout of Bombay. We must have spent 20, 30 crores in, maybe another 50, 70 crores in Shimla and Shilong. We have not really started any major expense in Varanasi. Nor in Nehru place. So you can say put together, we have, including a capex renovation and that would be about 180, 200 crores? 200 crores.

Vibhor Mule, Analyst — Haitong

Okay, so renovation and expense in capex would be around 30 crores for this.

Patanjali Keswani, Chairman

Well, yeah, 40 and then you assume another, so about, we have spent 200 crores, you assume, including in the projects. And we have also paid off our debt. So you can work backwards to see the cash flow generated. Actually, the way to look at it, Vaibhav, is when we, you should look at, as I think in the, I've told you, in the US it happens. Look at our free cash. Okay, and then account for all the expenditure on capex, whether it is in projects or whether it is in capex of existing hotels.

Vibhor Mule, Analyst — Haitong

Understood. And what will be the capex for next two years, 28 and 29?

Patanjali Keswani, Chairman

Difficult because if we do the acquisitions we are hoping for and the new properties and so on, then we reckon that it will total to about 3,000 crores over the next three and a half years.

Vibhor Mule, Analyst — Haitong

Understood. Last year on the Bandra land acquisition, you mentioned the timeline for operationalization as FY30, given we have just completed the acquisition now and approvals and design are still pending. So, are you confident that effectively operationalize FY30 or would there be a possibility of delay to FY31?

Patanjali Keswani, Chairman

Okay, so basically, when we start, we reach a certain stage in due diligence. You see, Bombay has been going on for one year. Let me explain. Because this was a slightly complex acquisition. There were multiple owners in it. I think 19 owners or something. Yeah, so there was a society that had to be bought out, all that. So I don't want to get into the details, but it took a year. Now, we started designing. Once we were pretty clear that it was happening, which was about six months ago, we started designing the hotel, and as it happens, the design is complete. The architect we have selected is a very competent, well-known architect, and he is now, as we speak, drawing the hotel, making these drawings for approval. At the same time, the hotel has, that property has approvals to excavate, which we will start hopefully in the next two, three weeks. And we will simultaneously submit the drawings. For approval. And as it happens in Bombay, thankfully, we can do the excavation at the same time as we have submitted drawings. So we reckon that in the next three to five months, we should be out of the basement, the drawing should be fully approved, and we can start building the superstructure. Typically, in a development case, you try to avoid the monsoons for digging. So in our case, like in Delhi, you try to avoid grab. And in Bombay, you try to avoid monsoons. So we hope that the shell will be under construction in the next three to five months. And we are out of the basement. And then we reckon it's 22 floors. Is that right, Sourabh? 21 floors. So in 20 months, we should finish it. And of course, there will be six months for approval and interiors and so on. So, it's not an unreasonable expectation. Six months plus 21 months plus six months is 33 months, say three years, and three years is what we have actually said, F527 to F530. Does that answer? Yeah, but don't hold me to it because tomorrow the government might say we'll take six months more. And, you know, we will always be transparent and tell you where we got delayed and why. But I think people should also understand that there is so much in development in real estate that is out of our control.

Vibhor Mule, Analyst — Haitong

Understood. Thank you.

Operator

Thank you. We have the next question from the line of Zahara Patel, from Solidarity Advices. Please go ahead.

Zahara Patel, Analyst — Solidarity Advisors

Thank you for the opportunity. My question is on the report number 4. So, the EBITDA margin in the last flight has reduced, like, it has further refunded by the top provision of tax, with about 56%. So, are there reasons, again, the corporate overrepened talent acquisition?

Patanjali Keswani, Chairman

So, very simple. Our expenses are fixed. More or less, they may escalate at 4% a year in the lemon tree standalone. So why we feel it is the right time for us to demurge the two entities is that Lemon Tree, as Neil had said earlier, the hotels we signed three years ago will start opening up going forward. And what will happen is that it will be mostly flowing for operating leverage. There will be hardly any impact on the expenses. So we do feel that in the medium term. In the next few years, we will definitely hit 80% flow-through. So, what does that mean if our operating expenses are, you know, if you work backwards, our operating expenses are 100 crores, say, for elementary standalone. We would like to target 500 crores fee income and therefore have a 400 crore EBITDA. Of course, the 100 crores will go up by 4% a year. Therefore, that 500 will also be automatically, I mean, has to be adjusted for. But it's not unreasonable, and it is very common worldwide, that as the fee income grows, obviously, the operating leverage starts playing out. So, we have to look at it from that perspective.

Zahara Patel, Analyst — Solidarity Advisors

I got it. And secondly...

Patanjali Keswani, Chairman

Sorry, sorry, I want to add one thing. What you need to see is... Every year, what is the net EBITDA margin of lemon tree? And you can track it. Actually, the way to look at it is every quarter or half year, year on year, how is it changing?

Zahara Patel, Analyst — Solidarity Advisors

On the OMAP scale, so given there's about 4,000 rooms with 10 projects, so this is much larger properties that we're working on. So these are like approximately 400 rooms per project. So this will be under which grand are the greenfield, like the 10, 9 are greenfield, is the land acquired over here, and we're working with much larger properties, which is usually in the tier 3-3 cities, we work with smaller properties. So, this is mainly because of a massive project, right?

Nileendra Singh, Other

So, okay, so Zara, your voice is not very clear, but I'll answer from what I understood. Did you say are they large for Tier 2, Tier 3 cities? Is that what you meant?

Zahara Patel, Analyst — Solidarity Advisors

No, sorry. First question was in terms of the greenfield of CAPEX, greenfield acquisition. So, is the land acquired over there from OMAX's side already? Yes. Secondly, in terms of the project size, if we take 4,000 rooms for 10 projects, which is one project of approximately 400 rooms, so we usually work with much lower-sized properties in the Tier 2, 330. So, is it mainly because of the project size of OMAX, or are we changing more or something?

Nileendra Singh, Other

Yeah, no, so, okay, so I'll answer this, fair point, fair. So, yeah, so... Yeah, this is according to the project size. That's how the hotels are. They are larger inventory. And the other way to look at this is that there are cities like, Zara, there are cities like Lucknow and Gazibad and Geta Noita. Typically, if you aggregate our inventory across different brands, we still might have so many rooms. It's just that in one location, if we are able to aggregate, let's say, on an average 400 rooms, that actually works in our favor. There is better leverage, there is better concentration on demand, and we can service, and cost of cost, and we are able to service demand in a much more efficient way. So, concentrated inventory in a tier 2 Download anywhere. Actually, it's a good thing. And did you also ask which brands will this be?

Patanjali Keswani, Chairman

Brands come last. This land is all owned by OMAX. This is all their master planning. So they have not come to us with some future expectation. These are all land banks, larger developments owned by them. They have already designed the areas for the hotels in each of these markets, which is why it is so specific. And what Neil had said earlier is other than, I think, the Greater Noida Hotel, these will take three to four years out. So, the fee income will not come for four years. Let us assume that. And the inventory design is all at OMAX Hesda. Okay, now the brands, Neil, you can answer. Yeah. So, Zara said the brands will be inventory.

Zahara Patel, Analyst — Solidarity Advisors

Noted. Yeah, that was very helpful. Thank you.

Operator

Thank you very much. Ladies and gentlemen, that was the last question. And with that, we conclude the question and answer session. I now hand the conference back to the management for their closing comments. Thank you, Anubadu, sir.

Patanjali Keswani, Chairman

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 discussion. And we look forward to interacting with you soon. Thank you.

Operator

Thank you, members of the management. On behalf of Lemon Tree Hotels Limited, we conclude this conference. Thank you, everyone, for joining with us today, and you may now disconnect your lines. Thank you.