Lemon Tree Hotels Limited (LEMONTREE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Lemon Tree Hotels Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir. Thank you.

Good afternoon, everyone, and thank you for joining us on Lemon try Hotels Q1 FY '27 Earnings Conference Call. We have with us Mr. Keswani, Executive Chairman, Lemon Tree. Mr. Neelendra Singh, Managing Director, Lemon Tree; Mr. Kapil Sharma, Executive Director and CFO of Lemon Tree; Mr. Saurabh Shatdal, Managing Director and CEO of Lemon Tree; and Mr. Mahesh Sharma, CFO of [indiscernible] [Operator Instructions] Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation that was shared with you earlier. I would now request Mr. Keswani to make.

Good afternoon, everyone, and thank you for joining us. Today, Neel Managing Director of Lemon Tree Hotels will be covering the business highlights and financial performance for Q1 '27 post with Saurabh CEO of Fleur will brief you on Fleur's business development. And lastly, I will share an update on the pro forma financials for Lemon Tree Hotels Limited and Fleur Hotels Limited upon the demerger scheme becoming effective. And of course, post that, we will open the forum for your questions and suggestions. Neel?

This is Neel. Let me take you through the key highlights of the quarter. For the quarter, total revenue stood at INR 346.8 crores, up 9% year-on-year. Net EBITDA stood at INR 119 crores, up 7% Net EBITDA adjusted for GST impact and provision for stock appreciation rights stood at INR 162.5 crores in Q1 FY '27, up 14% as compared to INR 142.1 crores in Q1 FY '26. PAT grew 19% to INR 57.3 crores, and cash profit grew 17% to INR 96 crores. Our gross ARR stood at INR 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 FY '27 stood at $4.8 it was 99 basis points less than 44.8%, which was -- which we achieved last year in Q1 FY '26. This drop was due to provision for stock appreciation rights and the loss of input credit in the GST leverage would increase our expenses by 3.5% of total revenue in Q1 this year versus 0 in the previous year same quarter. Our gross debt on 30th June 2026 stood at INR 1,475 crores, down 11% from INR 1,657.9 crores a year ago, and our cost of debt reduced 7.8%, down 53 basis points versus a year ago. In Q1 FY '27, on the asset-light side, we opened 6 management franchise hotels with 334 rooms which we had signed on an average 30 on a go ballpark. In this quarter, we also signed 13 managed and franchise hotels with 1,020 rooms, which is over 3x of the inventory that we opened. Our combined operational and pipeline inventory now stands at 23,381 rooms across 279 hotels in 170-plus cities, of which 135 hotels, which is 1,946 rooms across 81 CDs 80-plus cities are already operational. Network revenue for the quarter grew at 16% year-on-year to INR 576 crores with own hotels contributing INR 330 crores and management franchise hotels contributing INR 256 crores. So all hotels contributed 56% of our network revenue in this quarter. Fee income from management and franchise contracts from third-party owned hotels stood at INR 22.8 crores in Q1 this year, an increase of 42% year-on-year. Fees from Fleur Hotel stood at INR 22.6 crores at 6%, up 6% year-on-year. Total management fee from elementary stood at INR 45.4 crores, an increase of 21% year-on-year. Now I hand over to Saurabh for an update from Fleur.

Thank you, Neel. Thank you, everyone, for joining us on the call. Let me give you a quick update on our hotels under development. At [indiscernible], our own anteroom hotel, we have deployed approximately INR 108 crores of capital as on 30th June 2026. Finishing work and operational licenses are in finance sale and we expect the hotel to open shortly. At [ Orica Shilong, ] a lease 165-room hotel. We have deployed approximately INR 33 crores as on 30th June 2026 with the expected opening in H2 FY '28. At Orica, Vanadis, 47 room yield Heritage Hotel, we have begun the work and with an expected opening in FY '29. And [indiscernible] narrow plays Delhi. Final approvals are pending from the authorities with expected capital deployment to be announced in due course and an expected opening on or after FY 2030. Recently an extension of validity of letter of board for another year was received by player from DDA, providing ample time for the project to attain all the programs. We have renovated 300 rooms this quarter, for which we have spent approximately INR 10 crores, and we anticipate a similar number in the next coming quarter. As for the Keys portfolio Renovation was 2/3 complete as on 30th June 2026, and the portfolio is showing significantly improved performance with a double-digit growth across all locations. This portfolio RevPAR in Q1 FY '27 was up 19% year-on-year to INR 2,885 on the back of a 350 basis point improvement in occupancy to 67% and 13% growth in average room at [indiscernible] 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, Saurabh. I want to take this opportunity to continue our conversation on the demise scheme. Like last quarter, we have again shared pro forma financials for both Lemon Tree and Fleur hotels as they would appear all the scheme becoming effective. Polimery on a pro forma basis in Q1 2027. Revenue stood at INR 657 crores versus INR 54 crores in Q1 last year, which is up 22%. Net EBITDA before provision for stock depreciation rights was INR 38.1 crores versus INR 29.3 crores as net EBITDA margin improved to 58.1% from 54.2%, up 83 basis points. EBT share of profit of associates was INR 46.3 crores versus INR 38.4 crores, up 21%. That was INR 33.6 crores versus INR 275 crores, up 22% and cash profit was INR 40 crores versus 30.5, up 31%. For Fluor on a pro forma basis, Q1 2017, revenue stood at INR 311.4 crores versus INR 292 crores, up 7% Net EBITDA without GST impact was INR 125.1 crores versus INR 114 crores, up 10% with a margin of 14.2%, up 112 basis points from 39.1% EBT was INR 46.5 crores versus INR 35.5 crores, up 31% and PAT was INR 34.7 crores versus INR 28.3 crores, up 23%. Cash profit was INR 684 crores versus INR 61 crores, up 12%. With this, we come to the end of our opening remarks, and will ask the operator to open the forum for the questions that you may have.

[Operator Instructions] Our first question is from the line of Archana Gude with IDBI Capital.

A few questions, starting with [indiscernible] With 19% RevPAR growth is strongly outperforming the flagship brand. So does it match with the growth in message before we took the renovation? Or there is more to look at it in the upcoming quarters? So that's my first question.

Yes sure. So what we said about 1.5 years, 2 years ago when we started the renovation model that we're targeting keys to achieve Red Fox ARR, which is, if I remember right, INR 4,500. And we are close to that now. However, key 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, [indiscernible] will operate to full performance, which means the occupancies will be close to the lemon average occupancy and the ARR will continue to improve and will reflect the full performance. Basically, I said we are targeting a INR 60 crore EBITDA from kids, and I think that is something that we will achieve.

And all I would add to and quickly is that these almost 75% of the portfolio is now renovated. The same thing is and you've talked about this in the earlier calls as well, that the hotels have got renovated earlier pre-property, our pipes property are doing -- 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 today visible across the portfolio of stores the 7 hotels. And that's why we as a portfolio, it would deliver a 19% RevPAR increase over last year.

Just a follow-up on this. What the operating expenses for elevation this year? I think we'll be completing everything by this year-end rate.

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 were key spine, which cost roughly INR 11 crores. And then it was his white field, which would have cost us about INR 23 crores. So these are over. Now we are investing in the second level keys. So we finished [indiscernible] We are now doing Key's Fortune, Keys Sientra and Geita, which will be at about 4 to INR 500,000 a key. So I would say that we would end up when we finish the full portfolio, the balance spend on 300 rooms would be about INR 13, INR 14 crores.

Sure. One more question. We have done extremely well in some of the key markets like Delhi pooling has again occupancy. But at the same time, Mumbai and [ Kulka, ] we couldn't do that well. So for the markets we did well, what's 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 your outlook on the [indiscernible] market going forward?

I think the answer broadly, let me comment the big impact we had in Q1, which is what most of the attrit industries let's say, experience, which is the West conflict that led to multiple -- 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 inbound travel. And we saw that corporate demand in most of our high-density CBD locations like Bombay Hyderabad and Bangalore declined. There was letter travel in, let's say, our segment, our corporate segment, there were lesser hiring, there were lesser relocations. And hence, there was -- would be pretty clear in the early April that this segment would typically will be softer as companies who are tightening their belts on travel and expenses and those are traveling less. This, therefore, in many cases, were compensated by our retail strategy. So we and up our, let's say, our ability to fill our hotels through retail because of the softness in copper demand in cities like I'm now answering your question, in cities like Delhi and Hyderabad in Bangalore, we could more than compensate the decline in corporate traffic that came through because the bases conflict. In Bombay, we put it and go down cut. And hence, entry, you would see the softness in Bombay and Guda 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 2 years, and that supply is still being absorbed. So there is there were some hotels and some [indiscernible] and some other brands that opened and put together, there were 2,000 routes. 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 these quarters going forward, the cash up.

Sure. So on this -- maybe just last -- I'll squeeze 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 got a little bit of a cold. Q2 is significantly better and July was great, good recovery in July and always continue to we saw it as well.

Our next question is from the line of Achal Kumar with HSBC.

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 drop the rates to boost occupancy -- is that the strategy we should expect going forward? Or are you going to change that strategy and who's there? So I just want to understand a bit of flavor on that, please?

Yes, so good to hear you again. You're right. when we -- I'm going back to what I said to us, when in early April, in fact, as early as March, we could understand that corporate demand both inbound lead demand and domestic travel, both will be active. We had to pivot to fill in the room through our retail channels 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 , you're right. . So this is -- but I would say this is temporarily this was undertaken largely to react to the ensuing to the situation that we had in -- 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 in occupancy we -- so temporary, of course,

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 all or almost everybody in our segment. And therefore, in the mid-scale segment, we had to resolve a result is also a more volume-based retail-based strategy plan -- tactical plans rather than continuing river, which was anyway soft.

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

Yes, it's interesting. So the -- I mean, you know from the pipeline that sort of talked about, most of them are Orica. So we will continue to, at the top end of the business continue to expand in Oracles and in inventory 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, and Tier 2 DSC India, we will also use Lemon Tree Hotels and Keys brand both the brand to penetrate India people. 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 midscale brands and [indiscernible] brands to penetrate in demand dense areas and use our mid-scale brands, AK, Lemon Tree Hotel and Key portfolio to penetrate deeper into India.

Just to add on the capital deployment . Last quarter also, we had said that we are pursuing rooms of around 2,500 kits. So that pursuit is still on, and we are very hopeful to achieve that in the few quarters ahead. We are very confident on the capital side.

See, we are talking about 2 absolutely different strategies. One is the asset-light growth of Lemon try, which will come from signed hotels which start opening typically 30 months, as Neel mentioned in his opening remarks, from 30 to 36 months from when they are signed. So if you -- as long as the rate of growth of our signings is much more than the rate of growth of open -- it means that what we are really opening is what was signed, say, 2.5 years ago. And what we are going to -- what we sign now, we will open 2.5 years later. So that will tell you the rate of acceleration of our asset light side managed fee business. Now if you overlay that with the fact that Fleur 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 acquisition/development we are going to be doing. That will add further fee income to Lemon Tree. And it's the combination of the 2 that we are looking at from Lemon Tree's perspective as to where it will be in the next year and the years ahead. We have a fairly clear line of sight. If you -- if those of you who are interested, look at what we signed in 2023, you will find that we opened it in this year. 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 feed. So if it's a Tier 1 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 the entry 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 flu, and then you have the aggregate of the -- and that, too, is an interesting number. And I think over the next 8 to 12 quarters, you will start seeing acceleration in the fee income of lament.

Right. Fair enough. My final question is around the sort of first strategy. Of course, in terms of debt, in terms of ROCE while the picture around the Lemon Tree looks pretty bright. It's an asset-light model, you'll have very healthy margins, very healthy ROCE and then probably the dividend but on the Fleur side, aren't you worried about if the model is only heavy. So aren't you worried about at some point of time you will be very be heavy and all that. So do you think you're comfortable with that? Or do you think at some point of time, we could also change the model and could think about doing some asset light -- so any color on that, please?

Yes, sure. See, the very purpose of separating the 2 is to have 2 different kinds of companies with 2 different mandates and 2 different risk return profiles. Fluor is a company that will be only focused on asset creation, whether it is through development or through acquisitions. . The only asset-light side of Fleur's business, if we are using the word asset light in an [indiscernible] business is through leases. So when Fleur leases a hotel, think of it very simply as follows. The hotel today costs INR 1.5 crores is a key, including land, a 200-room hotel costs INR 300 crores. So the way to look at this 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 we have INR 300 crores hotel making INR 35 crores or INR 40 crores of EBITDA. We invest maybe INR 40 crores and we would take INR 20 crores of indoor which parts fees to lament and the balance would remain this year. So that is the only asset light sides. However, for return on capital is fairly meaningful even today. If I look at FY '26, for date after all fees and net EBITDA of INR 550 crores on a total capital deployed, if I remember right, about INR 4,300 crores. So it was about 12%, 13%. And once we finish the key renovation, once we finish the entire renovation, our expectation on Fleur initial should move towards a 15% ROCE. Lemon Tree has reported a 58. some percent EBITDA margin. Lemon Tree ROCE will be meaningfully higher. I don't want to comment on what the ROCE will be because -- it is very simple. The capital deployed by inventory 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 if fee income will continue to accelerate. You will see that this quarter, in spite of all the slowdown, it is 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 ROCE of Lemon Tree will become very, very high. And you will see that play out, especially when we have actually given on to guidance, which is our long-term plan in the next 3 years or 4 years is to have an EBITDA margin around 75% to 80% and offer a much, much, much larger base of hotels, which we are managing and charging fees for. So does that answer your question. Sorry, didn't answer your debt question. We are very clear -- we are broadly looking at debt see, occasionally, we are building 6 big hotels, which is what our plan is. Debt may briefly close 2x existing EBITDA. But our long-term plan is that in floor debt-to-EBITDA should over and that's a good sign because it means we are able to productively deploy capital. If debt-to-EBITDA falls below 22, 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, about in about INR 1,200 crores INR 1,100 crores the numbers we announced excluded the cash position in Lemon Tree, which is about INR 200 crores. So actually, our debt is INR 200 crores less than what Neel said. At a group level, it is INR 1,275 crores. Is that correct? And our EBITDA was INR 700. So we are in fact in the zone where there is comfort and an ability to deploy meaningful capital. Keep in mind that [indiscernible] has to INR 1,960 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 a phase where we will be able to make announcements fairly quickly. And I think just wait for the next 6 months -- you may be very pleasantly surprised.

Our next question comes from the line of Karan Khanna with Ambit Capital.

Two questions from my side. Firstly, Patu and perhaps Saurabh could take this as well. Following up on Mumbai performance, a couple of quarters back, you spoke about significant pricing power for Orica, Mumbai in FY '27, given that the occupancy has stabilized. Obviously, since then, you had the rest Asia crisis, but fundamentally, given the performance of Mumbai this quarter, would you like to bring down the guidance for Mumbai for FY '27, Will it be single-digit RevPAR this year? Or are you confident of double-digit?

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

Yes. In my current again, good to see you. I think we all believe that and you've talked about this in the past call as well, Karan, 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 price it to the position that Orica the positioning that we want it to have in that sense. So again, without -- I mean, the current aberration notwithstanding, we will continue to drive Oricon the price that or pricing a little better than today. and you will see that in the FI improvement going forward, for sure.

Sure. And then secondly, Neel, if I look at Slide 63 of the presentation, where you're targeting to open [indiscernible] you are at 330. So is there a risk of slippage here in terms of number of openings in FY '27 or are you confident about approve all the 2,000 pets during the year?

Yes. So okay, a good point, Karan. I see -- I mean, in this business, there are always a little bit of wash or slipped in there. Broadly, I'm pretty confident to be around 2,000 key 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 is large falls on our heads, but 20 could be okay.

And then lastly, sort of talking about Fleur, you're considering to invest around INR 3,000 crores and probably the peak of an upcycle in postmerger given that one of the advantages that Lemon Tree has enjoyed in the past has always been to invest in a downturn and during an up cycle. So could you help us with how you're thinking about IRRs in this expansion strategy? And on the INR 950 crores of capital infusion by Warburg, is there an update here on time lines?

So thank you, Karan, for your question. So from an investment time line perspective, we would deploy given what we get as the best opportunity given our internal assessment of the ROC 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 where we see that our capital deployment gets hurt right return. So from an upside investment perspective, we are still focused on markets which has deep demand in the top 6, 7 cities in India. That is where we want to chase our opportunities. and the markets which are closer to India 3- to 5-hour journey from India war, a lot of Indians are still straggling overseas, and we see that also as an upside going forward in the next 2, 3, 5 years, given the size of the economy and growth of the per capita income. So those are 2 of our larger strategies and some of the leisure locations, which are upcoming like tempered tourism or some on other tourism were Indians are traveling. So these 3 are focused strategies from an investment. And like Patu said, all would be not just be a pure investment. Some of them would be done -- some of them would be operating assets between 6 to 8 multiples, what we will look at buying and some would be deep demand greenfield assets and also for better returns, some of the long lease buildings which we will take in either a brownfield or an operating asset or a greenfield. But mix of all these profile strategies with a full focus on the return on capital is what our strategy is. Given voba is giving us INR 960 crores and some kind of INR 300 crores of balance sheet money, which we currently have let's ask to me .

Let me add Karan. We are -- we are not in an upside. The India occupancy is still mid-60s. And I don't know why people say we are in an up cycle. An up cycle is defined when India occupancies cross 70%, 72% at the rate of growth of our economy, I think we will be in an up cycle next year or the year following. . So deployment of capital in demand dense markets means actually, there is a 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, our demand dense market is supply constrained. That's the reason why it's demanded. There is more demand and supply. And I'll give you a classic example of this. The demand dense market is out of inroad backlog. Demand dense market is BKC Bombay. Our demand des 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 -- one may say that if we are targeting a ROCE of 16% post feeds. In a situation of high supply coming in, in a demand-led market, it means expensive supply has come in, which is why it is -- these markets are most 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, 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 is always take.

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

Our next question is from the line of Sameet Sinha with Macquarie.

Yes. So Patu, picking up on what you're talking about the management fee. Clearly, good performance there. I think everyone is waiting for the compounding to start in that business. We saw year-over-year average revenue per room up 12% for the last 3 quarters, it was negative. Should we assume that it will stay in this kind of range going forward now on a sustainable bearable basis I understand that in your business, it's suddenly a new -- that's a room when batches of rooms comes in and suddenly that number could go down. But do you think -- if you could give us a sense of how that line will 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 flu, then the management fee from Fleur's it's 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 fee growth, the better fee income from fee growth. Third party is a different ball game. It is growing very rapidly. I think I have said this before that the rate of growth of operational rooms in third-party hotels is set to accelerate finally because if you just go back to time, 3 years ago, we signed 2,000 crores. 2 years ago, we signed 3,500 crops. Last year, we signed nearly INR 5,000 crores. So these rooms, this rate of growth of signing translates to openings, 3 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 2 years in inventory. And of course, going forward, we are very, very optimistic about it. In fact, I should say confident. And simultaneously, or will start deploying capital, which will lead ultimately to proceeds for Fleur and fee income for lament. So the sum of the 2 is quite exciting.

So I will share the 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 sign much more rooms than we hope, and both will eventually keep growing anyway. You will start seeing this compounding. The first back of, let's say, 1,300 rooms, which opened in this Q1 or between last 2 and this one, just make it illustrative at least in this quarter. You will see similar trends in the next quarter as well. So think of it this way. I mean, we signed 5,000 rooms last year FY '26 and FY '29, we'll open all going well around 5,000 roles in Lemon Tree's portfolio of managed hotels -- this excludes anything that Pure may add on. Just to give context, we are currently operating only 12,000 loans. So just in FY '29 or in that year, 29 going to 30, we'll open 5,000 roles, which is 45% of our current inventory in managed pool.

See the 5 years about to turn there. Secondly, just talking about -- on the margin side, EBITDA margin compressed about 90 basis points, a little better than we expected. I think you guided to a much, 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 coming -- turning around nicely. What sort of margin should we expect for the full year?

Let me ask you, what do you expect Leeny's net EBITDA to be for FY '27?

Okay. I mean I can probably give you my numbers, but Yes. Yes. I'm not -- I'm looking at my numbers. I'm at about 7.5 billion?

No, I'm asking percentage.

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 75% to over 75%. So what was the ARR in Q1 6, something . So our year-end in Q1 was 63%. Neel 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 75%. So the GST impact comes down. Number 2 is and this is very significant for us is the amount of money we have spent in renovation. It's an enormous one. 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 next year demerge. But if I look at it, it should be 50%, because our performing hotels EBITDA margin is already at the hotel level in the late 50s. As revenue grows, the below-the-line expenses get distributed over a 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 seeing it in trend of NIM and putting pressure on AM and so, but there is no reason why EBITDA margins 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 stop it up. I see -- I mean you've seen the trend that our renovation is also tapering, I mean, 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 net of our overall revenue. But banking on a much stronger -- sorry, H2 of the year, I also agree that the 50% is not something that's too difficult to receive.

And that's for to '28?

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

All the best. Our next question comes from the line of [indiscernible] Research.

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

Just to get it right to rephase what you're saying. Are you -- so first of all, we've added 1,300 rooms from last quarter to this quarter -- last in Q1 to this Q1. So in 1 year, year-on-year. Do you get that?

I'm asking about Q4 to Q1 .

Okay. So what has happened is one contract we have terminated mutually, which is in Tartan Valley which is a 70-room resort. Then there was a hotel called Nexstar Hotel, which we inherited from key which was giving us no fees, but it was in the portfolio. And we have, in fact, taken it to [indiscernible] we have taken into -- so it was not reflecting in the fee income, but it was reflected in the inventory. Are you getting me? So between these 2 we removed 70 rooms from Garuda Valley and 130 rooms from Neste, which is 200 rooms, but the income loss was only from Taruda. It was not from [indiscernible] we were not even charging fees. It was just had our brand, the cheese 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 and they owe a large amount of money to keys. So this was just -- think of it as just notional. The only upside is that if they pay the old fees, which they own keys, it is fairly 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 does it call -- how is that an -- and 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 store -- 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.

My next question is regarding the ADR growth that we've seen for the quarter there has only been growth in tees portfolio, there has not been growth in Lemon Tree portfolio [indiscernible] or [indiscernible] How do we see this moving for the next 2 years?

So the only drop -- well, there has been a small growth in ARR of about 2.5%, 3%, 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 deputy general managers who travel who then -- now large corporates took a decision, and we spoke to a number of those CEOs actually that they would tighten their belts 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 had 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 that maintained, 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 her are in occupancy.

Have we completed any renovations for repo on entry premium where we've seen a good ARR growth?

Well, look at Delhi, it is the only portfolio except for -- see, we -- 1 reason why you are seeing that Red Fox by entry had a negative ARR growth in Q1 versus Q2 -- 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 2 hotels daily are the fully renovated actually fully renovated hotels. And now Hyderabad Hi-tech city is also fully renovated. So the -- these are showing a good improvement in spite of market conditions, not necessarily being conducive. And wherever we have renovated DC that customer response is good. So now local market conditions may be X, Y, Z. But we are confident that this renovation is going to lead to a significant improvement in RevPAR as it plays out by the end of this year.

Our next question comes from the line of Vinit Agarwal with Bajaj Alternates.

Just a couple of questions. One is with 3 international destinations now operational, which is Nepal, Bhutan and Dubai and fresh Nepal timing this quarter. With the medium-term ambition for international contribution to network revenue and fees? And are further overseas market under evaluation?

So we are interested in markets which are preferably 3 hours flight from us. where lots of Indian car 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 royalty program, which still accounts for 2.5 million members. And we find a lot of them in our internal surveys and conversations with their travel internationally, short ops. So what are the markets where Indians go? The biggest and best market is UAE. You will 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 a where we are already expanding significantly. Then Thailand, specifically Bangkok and Phuket. South of India, there is not so much [indiscernible] but certainly all days. So when we look at this, there are lots of Indians traveling here. And many of them are 20 members. So it begs the question that a 32 million Indians traveled overseas last year. Over 12 million travel to these 3 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 sorted [indiscernible] in other international brands. They always went where their customers who were familiar and comfortable and like 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.

And the second question is like what is the incremental RevPAR uplift you are expecting once the renovation of remaining keys are also complete?

So I would not say RevPAR uplift, I would say simply that we have a simple target. Key should generate 6.5 per key EBITDA. And it keys as an EBITDA margin of 50% when it's stable, it means INR 1,300,000 to INR 1,400,000 per. So that's what we want. We want a revenue of about INR 150 crores to INR 120 crores from Kees and a INR 60 crore EBITDA.

Our next question comes from the line of Jinesh Joshi with PL Capital.

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

Yes. So that's not fees. In the pro forma, we still have 2 lease hotels, it's event, which are not being transferred to Fleur because their balanced lease terms are maybe 6, 7 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 the INR 20 crore. I guess revenue from them? Yes. EBITDA. Does that answer your question?

That pretty much. One second observation as well. So if I look at our network and franchise revenue for next the number that we have reported in the presentation, I think the growth is about 29%, whereas for our owned hotel stack growth for is at about 6%. So I just wanted to check this higher growth number is simply due to addition of the managed rules that we have seen on a Y-o-Y basis? Or does this also have some kind of an impact whereby our network revenue from the managed side is going slightly better than our old just maybe clarify on this part. And lastly, just one short follow-up, what will be our CapEx for '7 and '28.