Ladies and gentlemen, good day, and welcome to Lemon Tree Hotels Limited earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Bujari from CDR India. Thank you, and over to you, Mr. Bujari. Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q3 and nine-month FY 2022 earnings conference call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director, Mr. Rattan Keswani, Deputy Managing Director, Mr. Kapil Sharma, Chief Financial Officer, and Mr. Vikramjit Singh, President of the company. We'll 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 forward-looking in nature, and a disclaimer to this effect has been included in the results presentation that was shared with you earlier. I will now request Mr. Keswani to make his opening remarks. Thank you. A good afternoon, everyone. Thank you for joining us on the call. I hope you and your families are keeping safe and healthy. I will be covering the quarterly business highlights and financial performance for Q3 FY 2022, post which, as you've heard, we'll be opening the forum up. We're pleased to share that we delivered a fairly strong performance during the quarter, registering a top line growth of 110% year-on-year. In the period, we saw healthy momentum in occupancy levels and ARRs across our hotels, driven by a robust demand environment led by the festive, holiday, and wedding seasons. There was also a healthy buildup in inquiries and bookings coming in from long stays, vacations, work from homes. In addition, we also saw a good recovery in business-related travel and conferences during the quarter, which further assisted growth. Overall, our occupancy on full inventory improved from 30% in Q1 to 51% in Q2 to 58% in Q3. Average room rate increased 54% year-on-year and 29% quarter-on-quarter to INR 3,901 in Q3 FY 2022. Total revenues from operations increased 48% quarter-on-quarter to INR 143.7 crores in Q3. From a profitability standpoint, our focus has shifted to controlling and reducing costs significantly, which has enabled us to achieve better operating leverage. Our cost control metrics resulted in EBITDA growth of 194% year-on-year and 83% quarter-on-quarter, with EBITDA margins expanding by 1,354 year-on-year and 870 quarter-on-quarter to 45%. We have further reduced the cost of debt by 10 basis points to 8% in Q3 FY 2022 from 8.1% in Q2. We continue to emphasize on key areas that have held us in good stead during this pandemic period. The first focus area being cost rationalization, where we continue to minimize our fixed costs and maximize variable costs. This has supported our profitability margin during these unprecedented challenging times. The second focus area is our emphasis on operating a healthy balance sheet with strong cash flows. Our proactive steps to ensure steady profitability and cash flow generation continue to strengthen our company. Coming to key developments during the quarter, I'm pleased to share that we expanded our portfolio in Gujarat. Situated near Gandhi Ashram, this new hotel will feature 52 rooms and will be operational in April this year. The hotel is in sync with our strategy to grow asset light by expanding our managed hotels portfolio and leveraging our brand. Our current operational inventory as of 31 December comprised 87 hotels with 8,489 rooms, of which 5,192 are owned, 3,297 are managed. Looking ahead, while there was a phenomenal rebound in overall demand in Q3, the situation evolved with the third wave of infections in the country. This had an impact on travel and tourism starting from late December and continuing into January. However, given the vaccination drives and improving economic indicators, we anticipate pretty quick recovery in demand environment. We are hopeful that consumption will reach to normalized pre-COVID levels in the coming financial year. On the whole, we remain confident of our business model and are sure to bounce back strongly in this new stable environment. Given our cost leadership, brand visibility, and the large number of rooms commissioned by us over the past few years, we believe we are well-positioned to capitalize on long-term growth opportunities and create value for our stakeholders. On that note, I come to the end of our opening remarks and would now like to ask the moderator to open the line for question and answers. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Archana Gude from IDBI Capital. Please go ahead. Thank you for the opportunity and congrats on good set of numbers. I have three questions. Firstly, can you give some more color on the Aurika Udaipur operation? How has been the wedding season for us, and also some insights on the competitive intensity? Okay. Aurika, when we have now two Aurika. The first one was Aurika Udaipur. Aurika really opened just pre-COVID. It did not have really an ability to, or the opportunity to stabilize. If you go to slide 16, you will find that in Q3, we increased the average rate from Q3 the previous year by about 45%, and the occupancy rate was 52%. We did fairly decent occupancy considering that, you know, it was a COVID year and, fairly decent average rate. To give you a flavor, Aurika today does a typical gross operating profit margin of about 65%-70%. When it does an income, for example, if I remember right, in December we did INR 5.5 crores. The expenses were about INR 2 crore, and it did an operating profit of INR 3.5 crore. That's how Aurika is doing currently. Going forward, we think that Aurika will probably stabilize at about 65%-70% occupancy at an average rate in the coming year of about INR 18,000, in which case it will hit 70% gross operating profit and a revenue of about INR 80 crore, INR 80 crore-INR 90 crore. It's in some very well. Sure. Is there competition in the Udaipur market compared to the rest of the, maybe the key places in Rajasthan? Because everybody's talking about Udaipur. Yeah. Udaipur, Archana, is a very strong. One, it's a very strong historical leisure market, and number two, it's a wedding market. Yeah, in fact, even companies do large conferences there, you know, as offsite. I'll give you this. In February, in January and February this year if Omicron had not happened, Aurika had confirmed business on the books in February of over INR 7 crore, which means we would have made a INR 5 crore EBITDA on it. But unfortunately, you know, obviously it got dissipated to some extent, not completely, but about 30%-40% of that disappeared. Going forward, Udaipur, in my opinion, has now become one of the most favored leisure destinations in our country for multiple reasons. Weddings are a key segment there. When I compare Aurika, broadly you will find that there are five or six hotels I will look at. The top two hotels in Udaipur in terms of average rates and occupancies are the Taj and Udaivilas, the Oberoi Hotel. There is Marriott. In rate it is us, and then after that is Trident and Taj Aravali. That's roughly where the position is. We are middle, in the middle there, below luxury and at the top end of upscale. Got you. Sir, my second question is like when I look at the pipeline of hotels, out of 20 hotels, four hotels, you know, are in the rest of the segments and 15 comes in your Lemon Tree segment. Sir, I'm keen to understand what are the challenges to add inventory in Aurika and Lemon Tree Premier? We don't really have. Right now, you know, we are now looking at very aggressively growing our managed portfolio. In fact, what is not given here in that list of hotels you are referring to is about 30 active discussions we are in right now, and we are hopeful of converting a very large number of them into management contracts within the next 12 months. In fact, our business development team has said they will confirm 15 hotels in the H1 itself. Of course. Eight of them are Lemon Tree Premier. It is true that in current portfolio of expansion, there is, it's mostly inventory hotels and a few Keys hotels. Monetize the Keys brand also and it is going to be across the board. Aurika, that is separate discussion because it's a very different brand. It's in the upscale space. We are talking and I think we might be signing one Aurika in the month or two. Rattan, is the Rishikesh one confirmed? Hello? Can I be heard? Yeah. Is Rishikesh Aurika confirmed? Rishikesh we will sign. It will probably happen by the end of April. It's an amenity. There's no hesitation there. Okay. There is one Aurika we will sign, as you heard, in April, and hopefully one or two more in the next six months. But it's a new brand, and it may take a little longer to build out the managed portfolio on it. Because as you know, we are building our own Aurika in Bombay, which is 670 rooms. We've got all the approvals and in fact we are out of the basement and on the first or second floor already, which will open by Q3 next year, following year. We are quite hopeful that Aurika will expand, but it will take a little longer than the Lemon Tree brand, which is obviously better known and more widely distributed. Sure, sir. My last question. Recently there was this news that Hyderabad will get its first co-living space. We were to foray into this segment earlier, but, you know, because of this COVID, I guess we deferred. Are you keen to look into this segment again, or there is still time? Co-living for the moment we have put on pause. It's an interesting segment, but I think right now our focus is on getting back to pre-COVID levels of revenue with a massively reduced cost structure. This is what we are focusing on achieving in the coming financial year. After that, we will look at other opportunities, but right now the focus is on Lemon Tree Hotels. Sure, sir. Thank you so much, and all the best. Thank you, Archana. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Amandeep Singh from Ambit Capital. Please go ahead. Thanks for the opportunity. While the recovery remained healthy in Q3, will it be possible to give some sense on how January has been in terms of occupancy or ADRs, at least some trend-wise? If there has been gradual improvement in February already? Also, if you could touch upon how the bookings would be building up now for the upcoming month. Okay. Let me give you some flavor of how COVID has played out. I'm going to talk peak to peak. I'm going to give you a set of numbers. The first wave, which was in April of FY, in Q1 of FY 2021. If you look at our revenue, and I think this is true for all hotel companies, we were doing, for example, Lemon Tree was doing INR 2.5 crore a day in January and February. This crashed to INR 1 crore a day with the start of COVID and the first lockdown. By April we were down to INR 0.4 crore a day. It was really a drop of, you know, 85% in revenue within the space of two months. This revenue very gradually recovered, and it took roughly about 10 months before it hit its peak of INR 1.2 crore a day in February 2021. What I'm trying to say is that in wave one it was very L-shaped, and the recovery was very gradual, and it came back to 50% of pre-COVID, which was the peak in February 2021, which was our Q4. The Delta variant hit, and within another two months, our revenue had again crashed to INR 0.3 crore a day. That is 25% of the earlier peak of INR 1.2 crore. Surprisingly, within another three months it climbed back to INR 1.1 crore. Then till about December 2021, we had actually achieved about INR 1.8 crore a day. If you look at the second wave, the peak to peak, of course these peaks were half of the pre-COVID time, the recovery was five months. First wave recovery gradual, L-shaped, 12 months. Second wave recovery, much faster, more V-shaped, five months. We hit INR 1.8 crore a day in December, which is just one and half months ago. Then Omicron hit by the, I think, the last week of December, when we started seeing a significant drop-off in both bookings and cancellations. January was a big drop, nowhere near the earlier drops, but I would say broadly about a 40%-45% drop from December. This really started in the first week of January, continued till the fourth week of January. What is amazing to us, which we've been watching quite closely, is the very rapid recovery in February. To give you some flavor, if we were doing 3,000 rooms a day in Q3, January it dropped to 1,700, 1,600, 700, 1,650, 1,700 rooms. In February, it rapidly picked up and it started doing 2,000 rooms a day. Going forward, it looks like we will be moving into the 2,500-3,000 rooms a day in the next two weeks, because the pickup is amazing and very quick. In fact, the V-shaped recovery in the third wave is less than five weeks. First recovery was 12 months, second recovery was roughly five months. The third recovery V-shape is five weeks. The high, the top of the recovery is much higher than the previous. I told you, in the first wave, we came up to only INR 1.1 or 1.2 crore a day. In the second, we hit 1.8. I think it's reasonable to say we will exceed that in the third recovery. As far as average rates go, we took a conscious call that irrespective of demand, we would not drop prices. Frankly, our ARR in January is higher than in Q3. It is a little north of INR 4,000. I think quarter to date also, including February, it is north of INR 4,000, and we intend to maintain that. Thank you, sir, for such a detailed comments. Just one question in terms of Q3 itself. You also mentioned in your opening remarks about the recovery also happened in the business travel and conferences. Can you just elaborate if this was largely led by SMEs, MSMEs, or you also saw even large corporates had started to travel during the previous quarter? Let me just give you an example. You know, if I look at pre-COVID and exclude Keys because we really acquired Keys in November of 2019. When we look at our own portfolio, we were doing about 3,200 rooms on a portfolio of about 4,200 rooms, 4,300 rooms owned hotels. Retail was 1,200 rooms a day. Large corporates and medium and small enterprises were 1,500. Travel trade, which is really meetings, incentives, conferences, were 350, and airlines were 150. I know I'm giving you an unnecessary breakdown, but it added up to 3,200 rooms. Our ARR at that time was about INR 4,500. January, February 2020, we did 3,200 rooms, of which large corporates were 1,500 and medium corporates, and average rate was INR 4,500. In Q3, the retail went and I'm referring to pre-COVID January, February. Retail went from 1,200 pre-COVID to 1,700. Large corporates and medium small enterprises dropped from 1,500 pre-COVID to 900, and most of them were medium, small and micro enterprises. Large corporates were still less than 100. The meetings incentives dropped from 350 pre-COVID to 250. Airlines dropped marginally from 150 to 120. We did about 3,000 rooms in Q3, of which nearly 80%, nearly 60% were retail and only 30% were large corporates. The recovery has been. Let me put it in a synopsis. The rate of growth of retail has been more than the rate of drop of large corporates. In fact, roughly, if I look at it, the micro, small and medium enterprises have come back more or less. Retail has grown more than equal to the rate of growth of corporates. Got it. Thanks for the detailed breakdown. Just one follow-up on your Keys portfolio. While you understand that it has been impacted given the mix of micromarket in Bangalore and Kerala, but where do you see your profitability on a sustainable basis once the Keys recovers given your cost control in place this time? See, we look at portfolios and buckets of hotels based on the average rate, the occupancy, the cost structure. Keys comes into a bucket which is similar to the bucket between Red Fox and Lemon Tree. On a stable basis, we had an expectation that Keys would generate an operating profit of roughly INR 1,700-INR 1,800 a day on a full inventory basis, or about INR 6.5-INR 7 lakhs per room per year. Based on what we are seeing happening right now, you see it's still a period of, you know, transition, as I see it. Assuming there is no major fourth wave and that this moves into an epidemic rather than a pandemic, we reckon that Keys will come back to full performance within the next nine-15 months. I'm not exactly sure when, but it should come back. Lemon Tree portfolio will bounce back earlier, but Keys will take a little longer because those markets were much more affected. Fair enough. If lastly, if I could squeeze in one more. With ECLGS scheme now getting extended, so any update on the evaluation of distressed opportunities where you would be looking to brand and manage that inventory? Yes, we are looking at a lot of opportunities, but they are really under an NDA with various funds, so I can't really comment. As an overview, I can tell you that there is not as much distress as one would imagine. See, ECLGS has unfortunately or fortunately helped only the larger players. I don't know the extent of transmission of this by banks to the small standalone unbranded hotels. Technically, those should be in more distress and therefore should be available for consolidation. I'm not really seeing, surprisingly, enough signs of that. I can't really comment with any certainty what is happening there. What I am seeing is that irrespective of distress, a lot of standalone hotels want to now join chain, get branded because they feel that will help them with their revenue side. That's what we are trying to capitalize on. Not distress as much as simply bringing them into our distribution system. Got it. Thank you. Thanks for this. That's all from my side, and all the very best. Thank you, Amandeep. Thank you very much. Participants, you may press star and one to ask a question. The next question is from the line of Rajiv from DAM Capital Advisors. Please go ahead. Yeah. Good afternoon, sir. Am I audible? Yeah, you're audible, Rajiv. Yeah. My question is on slide number nine, on the left chart, where you have your throughput number, monthly throughput number, which is going to INR 55 crore for the month. And your cost is basically at INR 26 crore. Now, it seems that if we on a month-on-month basis, the incremental revenue has a flow through of 65%, from if we take May as a denominator for each incremental month. I just want to understand, I mean, is this sustainable? And when do we see, let's say is there a large bullet fixed cost which will come as things would, you know, tend towards normalcy and the 65% flow through, you know, will decline? I suggest you go to the first page of the annexure, Rajiv. I have put it in the annexure. Perhaps I should have put it in the main presentation. Not the first page, sorry. Which page is it, Nipun? Where I asked you to put the performance of Q3 versus pre-COVID? 22 slide number. Okay. If you can go to slide number 22. Yes, sir. It will give you an indication of how we are expecting to do in the coming financial year. Again, I don't want to say this is forward-looking. I'm just going to explain something to you. If you are on slide 22, Rajiv? Yes. Yes, sir. Okay. This is a comparison between Q3 pre-COVID and Q3 FY 2022. If you see our revenue in Q3 pre-COVID was INR 200 crore and in Q3 this year was INR 144 crore. Now, let me make three broad observations. Q3 FY 2020 pre-COVID did not reflect the full revenue of Keys because we acquired Keys in the middle of Q3. Number two, five key hotels, Aurika, Lemon Tree Mumbai, Lemon Tree Premier Pune, Lemon Tree Premier Kolkata, and Red Fox Dehradun were new hotels and not stable. If you add on how they would normally perform, this INR 200 crore number would be a higher number, maybe INR 225 crore-INR 250 crore. Now, if you look at the third line, it is the expenses. Here are our expenses. We had total expenses when we did INR 200 crore of INR 120 crore. This occupancy was about 70%-73%. Now, with an occupancy a little shy of 60%, our new expense structure is INR 80 crore. Let me synopsize that. This INR 120 crore of expenses pre-COVID, about 70%-75% was fixed. About INR 90 crore was fixed, INR 30 crore was variable. Today, our new fixed expenses are about INR 55 crore-INR 60 crore and INR 20 crore is variable. Let's assume we go back to 75% occupancy. The INR 20 crore of variable expenses will jump by about INR 5 crore. What I'm saying quite directly actually is that our total expenses under no circumstances will exceed INR 85 crore-INR 88 crore a quarter. Which means that there is a permanent saving, in other words, in our cost structure of about INR 30 crore a quarter or INR 120 crore a year. This will be the operating improvement in operating leverage and in our EBITDA margin from this coming financial year. I expect that our EBITDA margin should be north of 50% from next year onwards. Sure. This is very helpful. Same thing, if you can elaborate on your. You disclosed this hotel level EBITDA per room, which used to be in FY 2019. I'm looking at a year-end presentation. Where it's, for example, for Lemon Tree Premier it used to be INR 1 million per room and for Lemon Tree Hotels and Red Fox used to be INR 0.6, INR 0.5. Do you think this materially change and to what terms is this particular bit. I think you can do the math yourself. I have said to you quite directly that our revenue from operations should come back to pre-COVID levels next year. Our expenses will be down by INR 120 crore. Our interest costs will be down somewhat compared to the previous year because our interest rates have come down. One can do the pro forma P&L quite easily from what I said. You need to look at that slide on, you know, when you talk costs, you need to look at an earlier slide, which I think was slide 12, which will tell you what has happened in Lemon Tree from a cost perspective. You will see that we were doing 37% EBITDA, net EBITDA pre-COVID, which has now become 55%, 45% although the revenue has come down by 30% in that pre-COVID to post-COVID. I mean, during COVID period. If you just expand the revenue back to pre-COVID levels, you can work out the new EBITDA margin. Sure, sir. That's all. Thanks a lot. Thanks. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Sanjay from Envision Capital. Please go ahead. Yeah. Good afternoon, sir. Thank you for giving me this opportunity. Sir, I just wanted to ask a question on this CapEx plans. I mean, which we are doing for this Bombay hotel Aurika. Is the CapEx completed or we are planning some more CapEx on that? Can you highlight some things on that? Yeah. Aurika is a 670-room hotel. If you actually look at slide 15, it will show you an interesting number. If you look at slide 15, it will show you the occupancy that we achieved in Q3 in Mumbai. You will notice that while the ARR was depressed, the occupancy was still 76%. What I'm trying to say is that Mumbai is perhaps the deepest market in India in terms of demand, and we suspect it you know with any cycle. We are very bullish on Aurika Mumbai. We are expecting that we will be able to achieve an average rate of INR 11,000-INR 12,000 there on 670 rooms. We are planning to build it rapidly and open it by Q3 in the following, not this coming financial year, but the year after. That is October to December of calendar year 2023. The total investment required in Aurika is about INR 900-INR 950 crore, depending on interest capitalization. Our expectation is that we have already spent about INR 400 crore there. Our expectation is that the next twelve months will require about INR 200-INR 250 crore. The following nine months will require another INR 200-INR 250 crore. Because of pending bills and so on, the following year, that is calendar 2024, we will need to pay the balance INR 100-INR 150 crore. We are very confident we will be able to fund this through internal accruals. Debt will not go up. Basically this INR 500 crore will be funded without increasing the gross debt. Okay, thank you so much for this answer, sir. Just one more clarity on this. That INR 11,000-INR 12,000 is the per day cost of that room, right? If I'm not wrong. I'm sorry. Sir, the INR 11,000 or INR 12,000 per day you said. You mentioned some amount, right? INR 11,000 or INR 12,000. Yeah. In 2024. Yeah. What is that? That's our expected ARR. Okay. Expected ARR. The Lemon Tree Premier in Mumbai, in January and February pre-COVID, once it was stabilizing, was doing INR 6,500-INR 7,000. We are fairly confident that if in 2020 we could do with a Premier INR 6,500-INR 7,000 at 75%-80% occupancy, then surely Aurika, you know, four years later will be able to do INR 11,000. Okay. This answers my question, sir. Just one more clarity on this. From the previous participant, you mentioned that EBITDA will be 14% in FY 2023. That is an expected EBITDA margin, right? If I'm correct on this, if my understanding is right. 14%? Sorry? 14%. One-four, 14%. No, EBITDA margin. What do you mean 14%? I'm talking 50%. Okay. 50%. Yes. Okay. That's all from my end, sir. Thank you so much and good luck. Thank you. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Vikas Sharma from NT Asset Management. Please go ahead. Yeah, hi. Just a quick question on the notes to the accounts that, regarding the Social Security Code that it is not yet implemented, so it has not been taken into consideration. What kind of impact could it have on the financial? I'm not sure of this answer. Kapil, can you answer that? Yeah. Sorry, which code you are saying? The Social Security Code. The Social Security Bill. No, but this is not yet effective, actually. Yes. I mean, if it becomes effective, what kind of impact would it have on the financial? No, this is being assessed actually. We are also getting through this. We'll let you know separately about it, like how it would impact as far as our organization, Lemon Tree, is concerned. Yes. Okay, perfect. Yeah. Vikas, do you have any follow-up question? No, that's it. Thank you. Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal Financial Services. Please go ahead. Yeah, hi. My question is, for post first wave we have seen a significant recovery in the budget hotel, but now we are seeing the muted kind of occupancy. Can you talk about what is happening currently in budget hotels compared to what the first wave it was? Well, you know what I have found is that, as I said, if you look at January, it was quite affected. Not as badly affected as the earlier trough, but quite affected by Omicron. February seems to have had a very quick bounce back. My expectation is at the rate at which bookings are picking up, we should be back to at least Q3 levels in the next week or two at most. Basically the impact of Omicron will be for a period of maybe five weeks, and then it will be back to Q3. I expect stable performance in the hotel sector closer to pre-COVID levels in H1 in this coming year. Actually looking at how it's playing out, I suspect that we will be at pre-COVID levels by actually second quarter of this coming financial year. No, no. Because my question is we have seen a sharp recovery in budget hotels post first wave. From there we are seeing a muted performance in the budget hotel side. What is happening currently in the demand side? Sumant, it's not budget hotels. There are three types. Budget, there is economy hotels, mid-market hotels, upscale and luxury hotels. Yeah. Say Red Fox and Keys Hotels I'm talking. Yeah. Those ones will take a little. Well, I'll tell you what's happening. During the COVID pandemic, all hotel segments dropped their prices to a greater or lesser extent. There was a cascade downwards. What happened it meant was that if you were normally a Red Fox user, you could now at that same rate afford. If you are a Lemon Tree user, you could at that same rate afford a Lemon Tree Premier and a Lemon Tree Premier guy could afford a, you know, a Trident or a Aurika. What happened was the prices came down. That's why occupancies moved based on price. However, what you may see now is that all hotel companies are now firming up their prices, which means the traditional segments for each, the traditional users for each segment will go back to that segment. My expectation is that this waterfall will work again. Both Red Fox and Keys occupancies, which were actually much lower than Lemon Tree and Lemon Tree Premier in Q3, will start coming back from this coming year because the pricing is firming up and therefore affordability will move customers back to their original type of hotel. Am I making sense? Yeah. Got it. Yeah. Can you talk about the tax side this quarter? There is a deferred tax. I'm sorry, I can't hear you here. Tax, deferred tax in this quarter. What was that about? Yeah. Kapil, can you answer tax? Okay, sir. If you see the results there is a tax liability which is coming at a level of INR 2 crore, which is for the standalone subsidiaries. Overall you would see a negative PBT but there would be some tax liability. That is coming over there. Which is deferred tax. Thank you so much. Okay. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Achal Kumar from HSBC. Please go ahead. Yeah. Hi. Thank you for the opportunity, sir. I had a couple of questions. First of all, I wanted to understand what sort of structural changes do you see in the customer's behavior going forward, which might be positive or negative for the hotel industry in the longer term? If you could please share your thoughts. Do you see any changes or if there are, what sort of changes do you see? The one clear change, and I'm talking about with a back view, not a forward view, because I'm not sure it will remain, is an emphasis on hygiene, safety, security and relatively contactless service. Now, what do I think will happen going forward? I suspect that there will be, while I think this desire for safety and hygiene will continue, but as the pandemic recedes into an epidemic and then ultimately, you know, becomes like a flu, I suspect that humans will revert to normal, as has happened after multiple epidemics in the world. As far as contactless service goes, Indians, and they are the majority of our customers, we have, you know, 85%-90% Indian customers in normal circumstances. They want service. What we are really evaluating is what part of our services will continue to be contact intensive and which parts we can really just move towards an automated model. We are very keen to move towards contactless check-in and check-out and towards, you know, being able to go to your room using your mobile phone and using QR codes for ordering food. If we can achieve that and there is no pushback from customers, it will lead to a significant saving in our wage bill. I cannot categorically answer what is likely to happen, but I am trying to tell you what we would like to see happen. I am pretty confident that some of these things will continue, but I am not 100% sure which will and to what extent. I hope I'm clear, Achal, because it's very difficult for me to guess what will continue once things come back to normal. If you look at previous epidemics, the reversion to norm has been very quick and people forget everything, wearing masks, so on and so forth. Yeah. No, I mean, you know, actually, you know why I ask this question is that if you see general trend, even, I mean, that ties to the previous question also that, you know, why they're having recovery, slow recovery in the lower end of the hotels. Now, if you see even likes of Taj and ITC, the Chalet Hotels and everything, I mean, the recovery has been very fast. In the quarter of December, the recovery was sort of very close to pre-COVID levels. What I'm trying to understand is that are customers very happy or wants to pay higher or spend higher on the services side, on the leisure side, on the hotel side? If that is a change in the trend, I mean, that means probably a recovery will be faster in the higher end of hotels, you know, in your case also. That is what I wanted to understand basically. I mean, you know? Do you understand what I'm saying basically? No, I understand what you are saying, but I think that reversion to value for money will very much come back. Maybe, you know, customers, I find at least personally, that Indian customers are very, very value for money conscious, especially in the mid-market. I feel that I'm thinking aloud because your question is interesting. I feel that there will be a pull-up, maybe the five-star chains have done, you know, recovered faster, but the mid-market it has recovered. If you actually look at that slide again, which is page 15, you will see that Lemon Tree Hotels, Lemon Tree Premier have both been north of 60% in Q3, which is actually close to the pre-COVID levels, and it is the lower two that have not. There are reasons for it, actually, because if you look at a couple of the Red Fox hotels, they were in locations where there was absolutely no demand. Keys, of course, 60% of the inventory was in Whitefield, Hosur Road in Bangalore, two IT-heavy markets which were close to zero, and Kerala. This is more a locational thing. Looking across India, since we are in over 50 cities, I do see that, you know, customers are very value for money conscious, and they will come back to their traditional segments. I don't think there will be a move up or a move down unless there is, you know, during the COVID time, they were very bothered about safety and security and perhaps they wanted a, you know, more reassuring kind of stay. They will all come back to norm. That's my broad view. You know, if you see even I was reading with some amusement the The Economic Times article on Airtel when they said that if they increase the data charges even a little bit, so many customers will fall off. That's true even in our business. There is a limit to how much you can increase prices and then customers just disappear. I don't think this logic will apply in the coming year, that there will be a permanent shift. Yeah. If you see the shift in the customer's behavior and positive move towards the hotels like Aurika and Premier, do you think you could change your strategy and grow faster in those brands and then taking a step back on Red Fox and all? Yes and no. You see the way we look at growth is slightly different. I'm going to digress for a moment. I'll give you an example. We opened our hotel in Kolkata. Before we opened our hotel in Kolkata, you have to keep in mind we are a new brand, okay? We are only a 17-year-old company, and really we got to scale only in the last five years. Most of the other Indian chains are 50-year, 70-year, 100-year-old companies. They have, there is more familiarity. When we looked at Kolkata before we opened the hotel, let's assume we were getting a certain amount of business out of Kolkata to the rest of our hotels across India. The minute we opened our hotel in Kolkata or in a new city, within six months, the business we generate for the rest of our chain, or what we call network effect, is 5x to what it was before we opened the hotel in that city. That is, that means the return that we get is not only the return on that individual hotel, but the incremental return the rest of the hotel get by the sheer presence of that hotel in that city. Am I making sense to you? Yeah. Strategically, the way we are going to grow in the next 24 months is very simple. We are looking at the top 150 cities in India. We are currently in the process of evaluating what is the air traffic out of each of these cities, which markets are there, are those air traffic routes going to, where we have hotels, what is our current demand from those cities? If we get to those cities based on our simple multiplication of 5x, what will be the growth and demand if we open hotels in those cities? This is a strategic way of expansion, and we are executing that in the next 24 months. That is why I said earlier that, you know, we have identified 15 hotels we will most likely sign in H1, which will be actually part of this strategic growth strategy. The separate way to grow is opportunistic, where we get whichever hotel comes to us under management. As long as it does not cannibalize our existing hotels, we take them under management. It's a joint strategy. One is strategic and proactive, one is relatively more reactive and what comes to us we take. What will add value to our network is actually getting into all these 150 cities. Because if you look at that, then our occupancies would just be unbelievable. Right. Fair enough. Sir, going back to my original question, which was about the potential changes of customer behavior. Basically, I mean, if I look at, you know, many companies are actually going with a hybrid model now. I mean, employees have been asked to work from home few days a week and then from office a few days a week. Basically that is a kind of a structural change which we don't think will revert back in the next few years. That means probably employees will have more flexibility to sort of combine the work and the leisure, and then there could be a change. Since now the customers are taking more short breaks, looks like staycations is in high demand even in the U.S. or Europe. Those kind of structural changes I was talking about, you know, do you see those kind of changes? If those kind of changes really happen, you know, then definitely do you think that will definitely be positive for the hotel industry? That's my point actually. Let me just give you some forward view. If I look at what happened pre-COVID, during COVID, and now towards the end of COVID, I find that the retail segment, which is really people. See, retail means what? When a customer comes as a retail customer, books through my website or books directly with the hotel or through my call center or books through MakeMyTrip and comes to a business hotel, that person typically is coming for business reasons. It could be a small independent entrepreneur, it could be somebody part of the gig economy, it could be somebody who's just visiting the city and have come and stayed in our hotel. That segment, which is the highest rate segment, has grown enormously. What used to be 1,200 rooms a day in the peak pre-COVID, which is January and February of 2020, is today over 1,700 rooms. Even if I conservatively estimate, it will be north of 1,800 rooms next year. That is an increment of 600 rooms a day in our system. We are already doing over 500 of those rooms even now in the middle of Omicron. As far as large corporates and medium small enterprises go, large corporates are about were about 600-700 rooms a day. They today are 100 rooms. Okay? Because many of them have not started travel, and that is what you are referring to. However, the medium, small and micro enterprises, which were about 800 rooms a day, are all back. They are traveling. We are now doing 900... In Q3 we did 900 rooms a day from these two segments, 90% of which was medium, small and micro enterprise. What the point I'm trying to make is between these two segments, which are our two largest segments, the maximum drop in large corporates could be 300-400 rooms, assuming that all of them go with, you know, work from home, hybrid model, do not travel much, go with Zoom, and so on. The retail segment growth is double of that drop. On an aggregate basis, what I'm trying to say is that I do see an improvement in demand if I aggregate retail and business travel, and that improvement is in the range of about 300-400 rooms a day. Okay? Which is about 6% occupancy for Lemon Tree on the owned portfolio. As far as the other segments go, they are more or less going to all come back, so they will not have a real demand, you know, any impact on our business. If I summarize this, I say we were doing 3,200 rooms a day pre-COVID with 4,200 rooms. Now with 5,000+ rooms, we should do about 3,600-3,800 rooms next year. Average rates will definitely, it looks, come back to the 4,500 zone. Perfect, sir. Sorry, my last question, if I can squeeze in, is that, you know, how do you see the overall demand and supply for the hotel industry, given that, of course, some of the supply has been under financial stress, and then some of the supply went out of the business also, that happened in probably non-branded space, smaller space. Overall, I think on the last call you said that now building a hotel or constructing a hotel or constructing a room which will cost anywhere around like INR 1 crore is economically not worth it. Looks like probably there may not be a huge development or there may not be significant greenfield projects. Overall, how do you see the demand and supply over the next three, four years? You know, I was joking with somebody that as a entrepreneur, I am by nature optimistic. That's the only way any hotel company could have survived what these three tsunamis or, you know, these three waves did to us. What I see happening is basically, if I go back to pre-COVID time, there was an average rate of growth of demand in absolute numbers of rooms in the branded space was about 11%-12% a year for the 10 years pre-COVID, from 2009 to 2019. This was in spite of the global financial crisis, demonetization, all that stuff. Still, demand for branded rooms kept growing in India. I think you can use airline growth as a proxy because the rate of growth of airline demand is roughly, you know, can be linked to the rate of growth of branded hotel rooms. Now, what I understand from what I read from people who study this, like, you know, hotel consulting companies do, that supply growth in India is now supposed to slow down to 3%-4%, maybe max 4.5% a year for the next five years, because it takes time to build out a hotel. You can with certain certainty predict the rate of growth of supply at least four-five years out. Keep in mind that supply growth before COVID in those 10 years was 15% a year. Now it is going to drop to 3%-4%. I personally don't know exactly how much supply has dried up. My estimate based on the Hotel Association of India estimates was roughly 60,000 rooms were shut out of 170,000 branded rooms, and maybe half of them would come back. Maybe 10%, 15%, 20% of supply would be permanently out of the market. It is difficult to estimate till demand comes back. See, the real knowledge we will get will be when demand comes back to pre-COVID levels and supply has been suppressed or shut down, then that will be reflected straight away in the average rates. I think at some level you are seeing that happen with hotel companies. You will notice the average rates of any hotel company now have gone up significantly in the last 1 year. That is an indication to you of how the market is moving. Broadly, to answer your point, I think there will be a demand-supply imbalance within the next six months. I do accept that large corporate there may be some disruption in demand, but it will be more than compensated by retail growth. There will be certainly disruption in supply. I cannot estimate, I'm just saying broadly 10%-20%. Therefore I assume that there will be a repricing in the hotel sector, within six months from now. Perfect. Thank you, sir. Thank you so much for your guidance and good luck. Thanks, Achal. Thank you. The next question is from the line of Nikhil Agrawal from VT Capital Market. Please go ahead. Good evening, sir. Thank you for the opportunity. I just wanted to know, like, could you give the breakdown of the revenue from each of your hotels that's possible, the room revenue? Sorry? The breakdown of room revenue from each of your brands. I mean, each brand of yours. I don't have it here, but you can get it, I think, from the presentation in slide 15. Okay, sir. What I wanted to understand, I had done the math, and it is summing up to around INR 64 crore. Your total revenue is around INR 144 crore. Like, what is driving? Is it your Bangkok revenue? Has that really contributed this quarter? Not at all. Look at slide 15. Okay. Okay, sir. I'll check it. Yeah. like you said that your margins will improve to 50% post-COVID. Like, what would be the core year margin? What would be the year-on-year margin? I'm giving it to you. Just go to slide 15 and look at the top right first column, Q3 FY 2022. You are given the heading is RevPAR, revenue per available room. Yes. Yeah. Multiply that by the number of rooms. Aurika Hotels & Resorts has 139 rooms into INR 8,050 a day into 92 days of Q3. Similarly, Lemon Tree Premier multiplies 1,603 rooms by 2,837 into 92, and so on. When you add it all together, you will get to the room revenue. Room revenue would be, I don't know, about 125 crore. Okay, now when you come to margins, just go right, to the extreme right, and the hotel level EBITDA margins are visible in Q3. You can see it's 68% for Aurika, 48% for Lemon Tree Premier, 47% for Lemon Tree Hotels and 44 and 29. Then you can derive the EBITDA. Below EBITDA you only have corporate expenses. It's easy to get net EBITDA. The differences are net EBITDA. Okay. Yes, sir. What I wanted to understand was like, your what would be your margins annually? Like this 50% you said is for quarter three, this is a good quarter for the hotel industry, what can we expect, your annual EBITDA to be around? I do not want to comment on hotel industry. Each company has its own business model. Let me just say this, that if you look at pre-COVID, when we were doing, you know, for example, in January and February, we were doing, I think, 3,200-3,300 rooms a day at 4,500 ARR. Our revenue per day was about INR 2.4 crores. Our PBT was at, breakeven was at INR 2 crores and our cash breakeven was at INR 1.8 crores. Now, I said quite clearly that we are seeing roughly INR 120 crores a year on a permanent basis. Our PBT, which used to be INR 2 crores a day breakeven, will now be in the zone of INR 1.7. Our cash breakeven, which used to be INR 1.8 crores, will be roughly INR 1.45 crores breakeven. Now, next year, I don't want to give guidance, but I would expect that we should do 3,700-3,800 rooms a day at INR 4,500. Revenue should be roughly INR 2 crore-INR 2.5 crore a day, and therefore we should be PAT positive broadly. Okay. Figure the bill, please. Okay. Sorry. Hello. Yeah. Yes. Just one last question. I wanted to understand your scheme of arrangement or like the presentation says you own 58%. What is exactly the scheme of arrangement, if you can explain? I'm sorry I couldn't hear you, yaar. Can you repeat? Hello. Am I audible? Your voice is not very clear. Oh, one second. Hello? Yes, go ahead. Yes, sir. I wanted to understand, like, what is the scheme, your scheme of arrangement in Aurika, the MIEL hotel? It says you own 58%, so is it in partnership with TPG? Yeah. It's in partnership with TPG. We have a joint venture asset company which owns about 3,500 rooms out of our 5,000-6,000 rooms. We 100% own about 1,600-1,700 rooms. In partnership with APG, we own the other 3,500-3,600 rooms. There we have a 58% stake or 59% stake, and they have the balance. Through Aurika, MIEL is also part of this entity. The 900 CapEx is the total CapEx for the hotel, for the whole full hotel that you're selling? Right. Okay. Thank you, sir. That's the summation. Thank you. The next question is from the line of Amit Kumar from Determined Investments. Please go ahead. Yeah, thank you so much for the opportunity. I have just one question really. You know, you talked about the network effect and, you know, potential for expansion into, you know, those top 150 cities in the country. You know, what is the... What will be the, you know, company's footprint, you know, now, you know, within these, you know, 150, you know, cities and, you know, what is the, you know, sort of potential... I mean, you may not be able to cover the entire 150 over the next, over the next 24 months, but where are you now and, you know, where do you think you'll sort of potentially, you know, land up, over the next two years? Okay. To answer your point, we are today in 54 cities, and if you really look at Pareto, okay, Amit, then Yeah. In 150 cities there are perhaps 50 cities that account for 80% of air traffic, right? We are in all those 50 cities, so anyway we are in those markets where 80% of air travel happens. When we go to 150 cities, if and when, because I cannot comment on that, the timeline, then we will capture 100% of at least the visibility in these cities. Now, with 54 cities we have 87 hotels. We will be about 105-110 hotels within the next two years on a confirmed basis, and we will be in about 65-67 cities. Our intent is that in the next not two years, it will probably take longer, but in the next three-four years we want to be in as many of those 150 cities as is possible, and we are going to go after it very aggressively. We think it will have a virtuous cycle effect because every new city you go to, you are able to fill that hotel with your presence in the other city and vice versa. It's no rocket science. It's simply that the larger your network, the more visibility you have, the more people you have on the ground, and the greater your ability to fill the other hotels. As I said, we are very focused on domestic Indian market, where the demand for branded rooms is growing very rapidly. I think it's a virtuous cycle because the more hotels we bring into our network, the more we consolidate our fragmented hotel room market and the more opportunity we offer to our existing customer base. Just one small question. You know, in terms of competition among your, you know, competitors, which sort of, you know, company at the present moment would probably have the largest, would be sort of far advanced in terms of this network effect, you know, in terms of their presence, you know, in these 150 cities? Or, you know, in terms of the network, are you the largest? You see, we are paranoid. We think everybody is our competition and also everybody is our collaboration, collaborator. We don't really look at competition on an all India basis. We look at competition regionally and in micro-markets. What we really do is we look, we go into a certain city, we will say, "What are the five-star chains doing in that city? What are the unbranded standalone hotels doing in that city?" We will scrape websites. We will look at the average pricing of those hotels in the last one year. Of course, last two years is the wrong period to look at, but we will look at normal times pricing. We try to estimate how we would do there based on our current competitive standing against those types of hotels. Based on that we, and the location where we are getting that hotel to manage, we are able to, with a high degree of probability, predict the kind of performance we do. That performance which we predict is directly linked to the performance of that hotel. It does not take upside into account. Upside being the business we will get from that city to our other hotel. That we don't factor in. Which we intend- Yeah, that's more from an operations management perspective. I was more sort of, you know, talking top-down more from a strategy perspective that, you know- Okay. network effect which you expect to sort of benefit from over the next, you know, two, three, four, five, you know, years, are they sort of already, you know, chains which are, you know, sort of slightly or at that level of slightly advanced or, you know, you have the sort of highest, you know, footprint in terms of number of cities? I mean, obviously. No, that way companies like Marriott, InterContinental Hotels, these guys have more hotels than us, but obviously under management. There is obviously Taj, which is the Indian giant, which is in I don't know how many cities, but certainly many more than ours. These are different markets. Taj is more in the upscale and luxury. We are more in the mid-scale and going up to upscale. The market demographic, you know, the demand patterns are slightly different. There is also a degree of well, interconnection also. It's difficult for me to answer who our competitors are on an India basis, but I can tell you in each city, in each micro-market, who you know, we consider our competitor. It's That's fine. Some 5 chains. I'm good with, you know, your explanation of the issue. Thank you so much. Thank you. The next question is from the line of Niteen S. Dharmawat from Aurum Capital. Please go ahead. Yeah, thank you for the opportunity. Am I audible? Yes. Yes, sir, you are. Okay, fantastic. Very detailed presentation. Thank you for putting up this quarter-on-quarter. What I see is that we are, you know, expanding rapidly across the geographies. We have been putting up effort in bringing down the interest as I can see. I see that, you know, debt is piling up. What is our, you know, thought process with respect to that as we progress and improve the conditions, market conditions get improved. What will be the, you know, debt trajectory? If you can give some guidance on that for next one year and two-year period, where do we want to go with respect to debt? See, we did some internal brainstorming, the team. We've also got a very actively involved board of very smart people, and basically we want to look at using COVID as an opportunity to reinvent ourselves. Lemon Tree was founded by me in September 2002. The first hotel opened in 2004. We had 50 rooms. Today, 18 years later, we have, you know, 170 times the number of rooms. We want to go to ideally 25,000 rooms in the next five years, which will give us some level of dominance in the domestic mid-market space. In order to do that, we ask ourselves, "What is it that will stop us from getting there?" We've identified six-seven key pillars which will guide us for the next three years on a rolling plan basis. Number one is that we want to digitally transform our company, and we are, as I said before, working with BCG. They will hopefully start their assignment in the next two-three months, which is enabling us to improve our revenue management at a very different level to what most hotel companies do. Also, our customer contact processes and our back office. The second focus area is talent, where we are doing major reviews. We are setting up a new, completely new company balanced scorecard and KRA, where we will heavily drive growth and operational metrics and incentivize in a very different way to what we did earlier. The third is our ESG focus. We want to be best in class in ESG. We've given our first ESG report last year. We are looking at best in class in India, definitely metrics in terms of energy, renewables, social initiatives, employing people with disability, water management, waste management, and so on. The fourth is renovation. We are going through a brand architecture exercise where we are trying to integrate Keys and each brand is going to have a very distinct brand profile and personality, and we intend to renovate backwards all our hotels to bring them to those standards. That is also a three-year to five-year plan. Next, we are looking very closely at our cost structure. We are actually very pleased with the fact that we have been able to structurally reduce our costs at current levels by INR 120 crores a year. We feel that there is still some opportunity for another INR 20-30 crores, which we are evaluating. Next, we want to be debt-free within five years. The first plan is that we will try and fund the Aurika Mumbai through internal resources. We will not increase our gross debt, and over five years we are reasonably confident Lemon Tree at most in five years we will be debt-free, unless we raise some third-party capital like we did with APG and reduce debt. Those are the options we have on the table, which we are looking at. The board is very involved, and broadly, that's our view, and we want to basically reinvent ourselves as a new-age, digitally enabled company, and go as asset-light as possible. Got it. Thank you so much. All the best. Thank you. As there are no further questions, I now hand the conference over to the management for closing comments. Thank you, everybody. Thank you for listening in, your patience and your questions. I look forward to talking to you folks again, for the next quarter. Thank you very much. On behalf of Lemon Tree Hotels Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.