Lemon Tree Hotels, the largest mid-priced hotel chain in India, plans to list its subsidiary Fleur Hotels to achieve its goal of becoming a debt-free company in six years.
The management of the hotel chain told investors on its conference call that 90 per cent of its debt lies in its subsidiary Fleur Hotels.
Lemon Tree’s consolidated total debt as of March 2024 stood at Rs 2,336 crore.
The company has also invested in renovation, digital transformation, expansion of business development and sales teams, and an overall annual payroll increase, which resulted in a lower Ebitda (earnings before interest, tax, depreciation, and amortisation) margin on a year-on-year (Y-o-Y) basis. This increased investment in allocation and renovation expenses will continue into FY26.
“As and when we take Fleur public, should it be earlier than this, then naturally our debt will become zero in six years,” said Patanjali Govind Keswani, chairman and managing director of Lemon Tree Hotels, in the earnings call. He added that 90 per cent of the company’s debt resides in Fleur Hotels.
According to Crisil Rating, Fleur Hotels’ revenue stood at Rs 573 crore in FY23 compared to Rs 274 crore, up over 100 per cent, while its profit after tax stood at Rs 59 crore compared to a loss of Rs 114 crore.
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“In the next four years, we should be close to debt being zero, which means we are in a position, we feel, to write down our debt over four years,” said Keswani.
The Keys Hotels (a chain by Lemon Tree) portfolio’s Ebitda margin decreased by about 10 per cent Y-o-Y due to an increase in renovation expenses over Q1 FY24, which was a 100 per cent increase, the management told investors.
During the quarter, 25 per cent of the total Keys portfolio was shut for renovation, which impacted the ability of the hotel chain’s portfolio to increase occupancy, which decreased by 148 basis points (bps) Y-o-Y.
“With demand growth expected to exceed supply growth in the next few years, accompanied by structural tailwinds that India is currently witnessing, this significant investment in renovation will allow us to better position our hotels going forward to capture superior pricing and positioning, and position Lemon Tree as the brand of choice in the mid-market segment,” said Keswani in the earnings call. Post the renovation process, the renovation expenses will drop to 1.5-1.6 per cent of revenue, he added.
During the quarter, the Delhi-based hotel major signed three new management and franchise contracts, which added 187 rooms to its pipeline, and operationalised four hotels, further adding 331 rooms. The inventory for the group stands at 107 operational hotels with 10,125 rooms, with a pipeline comprising an additional 4,000 rooms as of June 30.