LEMONTREENSENovember 18, 2022

Lemon Tree Hotels Limited

8,915words
64turns
10analyst exchanges
1executives
Management on call
Keswani to make his opening remarks. Patanjali Keswani
Good afternoon, everyone, and thank you for jo
Key numbers — 40 extracted
INR 197.4 crore
arter due to the normal seasonal nature of the hotel business. Total revenues for Q2 FY23 stood at INR 197.4 crore, which is 28% up versus Q2 FY20 and 3% up on a quarter-on-quarter basis. Net EBITDA margin stands
28%
asonal nature of the hotel business. Total revenues for Q2 FY23 stood at INR 197.4 crore, which is 28% up versus Q2 FY20 and 3% up on a quarter-on-quarter basis. Net EBITDA margin stands at 47.8%, whi
3%
business. Total revenues for Q2 FY23 stood at INR 197.4 crore, which is 28% up versus Q2 FY20 and 3% up on a quarter-on-quarter basis. Net EBITDA margin stands at 47.8%, which is 1,567 bps above from
47.8%
ich is 28% up versus Q2 FY20 and 3% up on a quarter-on-quarter basis. Net EBITDA margin stands at 47.8%, which is 1,567 bps above from Q2 FY20 and down 48 bps on a Q-on-Q basis. This very slight fall wa
1,567 bps
ersus Q2 FY20 and 3% up on a quarter-on-quarter basis. Net EBITDA margin stands at 47.8%, which is 1,567 bps above from Q2 FY20 and down 48 bps on a Q-on-Q basis. This very slight fall was due to a rise in p
48 bps
-quarter basis. Net EBITDA margin stands at 47.8%, which is 1,567 bps above from Q2 FY20 and down 48 bps on a Q-on-Q basis. This very slight fall was due to a rise in payroll costs as our hotels have now
INR19.4 crore
o prepare for Q3 FY23, which typically has higher occupancies. The PAT for the quarter stands at INR19.4 crore, which is up 742% when compared with Q2 FY20 and 43% up on a quarter-on-quarter basis. Despite oc
742%
h typically has higher occupancies. The PAT for the quarter stands at INR19.4 crore, which is up 742% when compared with Q2 FY20 and 43% up on a quarter-on-quarter basis. Despite occupancy not recove
43%
The PAT for the quarter stands at INR19.4 crore, which is up 742% when compared with Q2 FY20 and 43% up on a quarter-on-quarter basis. Despite occupancy not recovering to pre-COVID levels, Q2 FY23 ha
44%
vel remains robust, and it continues to be the highest contributor to room nights sold which is at 44% with a revenue share of 41%. Corporate travel, along with airline and travel trade, contributes 55
41%
ntinues to be the highest contributor to room nights sold which is at 44% with a revenue share of 41%. Corporate travel, along with airline and travel trade, contributes 55% of room nights sold and 52
55%
4% with a revenue share of 41%. Corporate travel, along with airline and travel trade, contributes 55% of room nights sold and 52% to the revenue. The contribution of the retail segment has grown sign
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Guidance — 20 items
Patanjali Keswani
opening
“I will be covering the quarterly business highlights and the financial performance for Q2 FY23, the post which we'll open the forum for questions and suggestions.”
Patanjali Keswani
opening
“We anticipate that consumption will strengthen even further in the coming quarters.”
Patanjali Keswani
opening
“Hence, based on the current pipeline, by 2025, our total operational inventory will be approximately 10,900 and 115 hotels.”
Patanjali Keswani
opening
“As we look forward, we aim to have about 30% of them on our team by FY26.”
Archana Gude
qa
“Lastly, on Aurika, Mumbai so should we expect some cost escalation given the prices of most of the costs have substantially gone up recently?”
Nihal Jham
qa
“950 -1000 crore to the business hotel, but I think we will be still at Rs.”
Nihal Jham
qa
“We will open it in Q3 next year, as far as the cost structure goes and the target goes, we are still very much there and if there is a change, it can't be material it might be 1%-1.5%, but it won't be significant.”
Nihal Jham
qa
“So as of now, and I'm talking mid- November, things have gone exactly as we anticipated, which is October will be weak and November will be very strong.”
Nihal Jham
qa
“I don't want to give an exact number because I've already given guidance on the full year.”
Patanjali Keswani
qa
“I'm saying that Q3 will be a surprise to you in pricing and we will trade off occupancy because we are convinced that within this year itself, whether in Q3 or in Q4, at some point, our occupancy will catch up to pre-COVID.”
Risks & concerns — 9 flagged
This quarter, we have centered our presentation around the comparison with Q2 FY20 to highlight the impact of the structural changes in the costs that have been implemented post-COVID.
— Patanjali Keswani
So as of now, and I'm talking mid- November, things have gone exactly as we anticipated, which is October will be weak and November will be very strong.
— Nihal Jham
I would much prefer we don't go to the other route, which is to build up demand at a low price and then try and raise the price because, at that point, it is very difficult to change pricing.
— Patanjali Keswani
And in fact, you can value that contract based on an NPV of future management, whereas the quality of the contract signed by a local operator of the hotel is very weak, and it is normally the owner of the hotel of the contract with no consequences.
— Patanjali Keswani
Is it because of pressure from the unbranded player or supply is higher?
— Sumant Kumar
But is there any supply side pressure in this segment?
— Patanjali Keswani
December will also be in our anticipation of our trend line, a good month until about 20th of December when slowdown starts due to Christmas, New Year, but that's an annual event.
— Patanjali Keswani
Frankly, it's difficult for me to give a clear number for H2, I can only give you a range.
— Patanjali Keswani
The rest depends on how Q3 and Q4 play out, and how much is the impact of this war continuing impact in terms of, for example, a lot of charter traffic to Goa has been affected.
— Patanjali Keswani
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Q&A — 10 exchanges
Q
Congratulations on a good set of numbers. I have 2 or 3 questions. Sir, firstly, on the occupancy part. So, I'm referring to Slide number 12 of our presentation. So, I see this healthy improvement for us in Mumbai and Pune when I compared it to Q2 FY20 in terms of occupancy. But still in our major markets, we have yet to reach Q2 FY20 levels. So, my question to you is, is there any structural change in these markets in terms of competition, or demand itself is subdued and it may take a while to reach to original level? Well, the market has not changed nor has there been any fundamental change.
Archana Gude
Lastly, on Aurika, Mumbai so should we expect some cost escalation given the prices of most of the costs have substantially gone up recently? So if you look at our cost structure, we are pretty good at controlling costs. So we have given an indication that it will cost approximately Rs. 950 -1000 crore to the business hotel, but I think we will be still at Rs. 950.crore. We will open it in Q3 next year, as far as the cost structure goes and the target goes, we are still very much there and if there is a change, it can't be material it might be 1%-1.5%, but it won't be significant. Our next que
Q
Just a couple of questions from my side. First, we're hearing a lot of international and Indian hotel chains that are looking to expand in the mid- income segment and also the Tier 2 and Tier 3 cities. So how do you think this could impact the ask rate for management fees for the industry? See, as long as the branded hotels, by and large, the bigger branded hotel sales are rational in the fees they ask because there is a very big difference between a listed branded player, so to speak, whether international or Indian or a much smaller branded player who focuses more on management contracts. So
Patanjali Keswani
Broadly, yes.
Q
So room rent range of INR 2,500 - 3,500 across branded players, we have seen occupancy rate is lower than pre-pandemic versus luxury. Is it because of pressure from the unbranded player or supply is higher? Can you talk on that?
Patanjali Keswani
No, you'll have to be specific. So are you talking about Red Fox total? So I'm talking about all the room rent we have at Red Fox and other hotels, which is in the range of INR2,500- 3,500 room rent. The observation in the occupancy not just for you, for others branded players also it is lower. Maybe the room rent is higher for other players as well. But is there any supply side pressure in this segment? No. Actually, quite the reverse so. If you go to Slide 11, you will see we always give by brand occupancy in ARR and then by region. So what I want to alert you about is pre-COVID that Q2 FY20
Q
My question is that the recovery hasn't happened at the lower end and also recovery hasn't happened on the corporate side. So, should I conclude that the rooms dedicated to corporate are mainly the lower-yield ones? Don't assume that because in some markets, even if corporate is not caught up, the retail demand has been replaced. There are multiple things even though by and large supply additions have been very marginal, pre-COVID, there were supply additions planned disproportionately in some markets and less in others. So for example, Hyderabad, Gurgaon, and Bangalore have gone through a sup
Sanjaya Satapathy
I mean because of work from home or something else looking No, I think you're gradually picking up here. I mean, they all say the demand is coming back our sales team says it, the customers say, so I think it's just a question of catch-up. Everything doesn't catch up at the same time.
Q
Yes. So I have a couple of questions. One being our total expenses have come down nearly 15% compared to Q2 FY20. How much of this should reverse going ahead, especially on the employee cost side as we gear up for a stronger season in H2? And is there a significant portion of temporary workers in our employee mix? No, we don't have temporary employees and all that. We have either permanent employees or outsourced employees. So certain roles like security or some housekeeping, etc. we have outsourced employees, but they are not temporary at all because once we take people on, we do not like to
Venil Shah
Sir, taking this question, you mentioned that our staff per room to be around 1, and that has come down to now 0.6, 0.63. Is this something which you're witnessing across the industry? Or is it something specific to our strategy? Well, to a great or lesser extent across the industry. But in our case, it is much more because we have done some level of automation also. Sir, and my second question would be the fee for managed dates was around INR 15 crore for H1. Where should we build this number? And where do you think, this will trend say by FY 25? Should this be closer to INR 100 crore? Well,
Q
My questions are both like earlier. So first question is, when you say on second half revenues like higher by 15% to 40% versus first half. So like it feels like with present industry or a company do like a 15% versus first half, that will be a negative surprise standing in like today? Assume I do INR 100 in Q1. Typically, I expect to do INR 95 -100 in Q2. So, let's assume I do INR 200 in H1. In H2, I should do, assuming everything is normal, I mean the industry, this is not a guidance for Lemon Tree, you should do anywhere from INR110 to INR120 in Q3 and INR125 to INR135 in Q4. So what I'm sa
Prateek Kumar
Sure, sir. And my second question is about cost. So are there any pent-up costs in the system, which we foresee? No, we are very clear we are very transparent. We don't defer any costs. We are audited by a big 4. So, there are no surprises, negative or positive in our cost. The only point I would urge you to look at is we are not sure what our final tax will be. So, we have been conservative in our taxes.
Q
Sir, on your ROI, which is rest of India, the price increase in Q2 versus the base quarter Q2 FY20, there is INR 1,000 increase, which we see. And the similar number is what we see in case of INR 1,100 in Hyderabad. So -- and while the occupancies are, I mean, down in rest of India. So is there experimentation you are trying to do on the pricing side to test the ROI market possibly because the supply of good hotels there is lower? Or is this an established trend already? No. So one is, again, you will have to separate the performance of the rest of India between Keys and Lemon Tree. The occupa
Rajiv Bharati
COVID the retail should be paying you, I mean, my basic understanding retail is traditionally higher than corporate, right? And you are able to price higher . Absolutely right, If you look at revenue share pre-COVID in corporate, it was merely the room night share. So, the room night share of corporate pre- COVID was 48% and revenue share was 47%. But because we increased the ARR, you have to look at it not as a percentage, but as an ARR number. We increased the ARR of retail more, if you look at pre-COVID to post- COVID, our retail ARR has gone up over INR1,000. And our non-retail, that is co
Q
Just wanted to understand what would be this ratio of outsourced employees to your total employees?
Patanjali Keswani
I would reckon that permanent are like 70% and outsourced would be 30% or maybe 75%- 25%, roughly that. But in terms of cost I think your bigger question is the variable cost. But in terms of cost, it may be 25% of our staff, but it will be only 15% of cost because obviously, the permanent employees are include managers and senior staff. So, that cost is higher for employment. And this ratio, how would it move like after this Mumbai property is opened up? Very similar, Pallavi. It will remain the same because certain departments are outsourced and certain are permanent. So, that does not reall
Q
My question was on the industry room supply additions. So, if I see your return on capital for the quarter or the projections for the year, it is still low- double digits. That too, which is on a historical cost of land and historical cost of construction. So, if I were to calculate the return on capital for constructing a new hotel on today's cost of land and cost of construction, I believe it would be low-single digits. Also, we are one of the most efficient
Patanjali Keswani
players with some management fee income as well, which flows through our bottom line. So in this context, can you help me understand that how much do ARRs have to go up from here where that will become lucrative for an institutional investor or an HNI investor to invest in building on new hotels? And are you seeing any new supply additions being planned already? So supply, what you know for a fact is future supply growth up to 5 years out because there are enough agencies in India, professional agencies who track it and supply takes 3 to 5 years to anyway, operationalize. So, future supply gro
Q
Thank you, everybody, for your interest and support. We'll continue to stay engaged. Please be in touch with our Investor Relations team or CDR India for any further details or discussions and I look forward to interacting with all of you soon. Disclaimer: This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy.
Management
Speaking time
Patanjali Keswani
30
Moderator
11
Sumant Kumar
5
Pallavi Deshpande
5
Rajiv Bharati
4
Nihal Jham
2
Aesha Shah
1
Archana Gude
1
Sanjaya Satapathy
1
Venil Shah
1
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Opening remarks
Aesha Shah
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 the conference call, please signal an operator by pressing “*” then “0” on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Ms. Aesha Shah from CDR India. Thank you, and over to you, ma'am. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotel Q2 & H1 FY23 earnings conference call. We have with us today, Mr. Patanjali Keswani, Chairman and Managing Director; Mr. Kapil Sharma, Chief Financial Officer; and Mr. Vikramjit Singh, President of the company. We would like to begin the call with brief opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be for
Patanjali Keswani
Good afternoon, everyone, and thank you for joining us on the call. I will be covering the quarterly business highlights and the financial performance for Q2 FY23, the post which we'll open the forum for questions and suggestions. This quarter, we have centered our presentation around the comparison with Q2 FY20 to highlight the impact of the structural changes in the costs that have been implemented post-COVID. Q2 FY23 saw a further rise in ARR, while occupancy remained in line with the previous quarter due to the normal seasonal nature of the hotel business. Total revenues for Q2 FY23 stood at INR 197.4 crore, which is 28% up versus Q2 FY20 and 3% up on a quarter-on-quarter basis. Net EBITDA margin stands at 47.8%, which is 1,567 bps above from Q2 FY20 and down 48 bps on a Q-on-Q basis. This very slight fall was due to a rise in payroll costs as our hotels have now ramped up to prepare for Q3 FY23, which typically has higher occupancies. The PAT for the quarter stands at INR19.4 cror
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