Ladies and gentlemen, good day, and welcome to the 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 and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Ms. Esha Shah from CDR India. Thank you and over to you, ma'am. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q2 and H1 FY 2023 earnings conference call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director, Mr. Kapil Sharma, Chief Financial Officer, and Mr. Vikramjit Singh, President of the company. We would like to begin the call with a brief opening remarks from the management, following which we'll have the floor 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 have 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, and over to you, sir. Thank you. Good afternoon, everyone, and thank you for joining us on the call. I'll be covering the quarterly business highlights and the financial performance for Q2 2023. Post which we'll open the forum for your questions and suggestions. This quarter we have centered our presentation around the comparison with Q2 FY 2020 to highlight the impact of the structural changes in the costs that have been implemented post-COVID. Q2 FY 2023 saw a further rise in ARRs while occupancy remained in line with the previous quarter due to the normal seasonal nature of the hotel business. Total revenues for Q2 FY 2023 stood at INR 197.4 crores, which is 28% up versus Q2 FY 2020 and 3% up on a quarter-on-quarter basis. Net EBITDA margin remained at 47.8%. This is 1,567 basis points above Q2 FY 2020 and down 38 basis points on a quarter-on-quarter basis. This very slight fall was due to a rise in payroll costs as our hotels are now ramped up to prepare for Q2 FY 2023, which typically has higher occupancies. The PAT for the quarter stands at INR 19.4 crores, which is up 742% when compared with Q2 FY 2020 and 43% up on a quarter-on-quarter basis. Despite occupancy not recovering to pre-COVID levels, Q2 FY 2023 has recorded the best gross ARR, EBITDA and PAT in the last 14 preceding quarters. Demand from corporate travel remains robust, and it continues to be the highest contributor to room nights sold. That is at 44% with a revenue share of 41%. Corporate travel along with airline and travel trade contributes 55% of room nights sold and 52% to the revenue. The contribution of the retail segment has grown significantly. Retail's contribution towards room nights sold is up 5 percentage points to 45% versus Q2 FY 2020 and revenue share is up 7 percentage points to 48% versus Q2 FY 2020. In terms of future demand, we see a significant improvement in consumer sentiment. Leisure and corporate travel continue to gain traction. We anticipate that consumption will strengthen even further in the coming quarters. The gross ARR stands at INR 4,917, which is up 19% versus Q2 2020 and up 2% on a Q-on-Q basis. Our focus on cost optimization has translated into an expansion of EBITDA by 1,567 basis points versus Q2 FY 2020, with a reduction of 557 basis points in payroll, 239 basis points in raw material costs, 127 basis points in H&LT and 643 basis points in other expenses. HLP is power. We are happy to share that we have expanded our presence with the signing of five new hotels in Hubli, Rajkot, Goa, Erode and Kanha. Two hotels, Keys Lite in Visakhapatnam and Lemon Tree Hotels in Mumbai in Kalina were operationalized in October 2022. Our current operational inventory comprises of 85 hotels and about 8,300 rooms with another 2,600 rooms in the pipeline. Hence, based on the current pipeline, by 2025, our total operational inventory will be approximately 10,900 rooms and 115 hotels. Compared to industry, Lemon Tree Hotels RevPAR grew 14% versus Q2 FY 2020, while the industry grew 7% in the same period. Lemon Tree Hotels recovered faster than the industry in Q2 FY 2023 versus Q2 FY 2020 in Mumbai, Hyderabad, Delhi, Bangalore, Pune, Gurgaon and Chennai. Diversity of team and gender inclusion is one of the key pillars of our corporate mission. We've been actively engaging with differently-abled or economically, traditionally, socially or geographically challenged individuals over the years. As we look forward, we aim to have about 30% of them on our team by FY 2026. With this, I come to the end of my opening remarks and hand over to the moderator. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may enter star and one on your 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. Anyone who has a question may enter star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Archana Gude from IDBI Capital. Please go ahead. Hi, sir. Good afternoon and, congrats on a good set of numbers, and thank you for this opportunity. I have two, three questions. Firstly, on the occupancy part. I'm referring to slide number 12 of our presentation. We're seeing this healthy improvement for us in Mumbai and Pune, when I compare to Q2 FY 2020 in terms of occupancy. Still, in our major markets we have yet to reach Q2 FY 2022 levels. My question to you is: Is there any structural change in these markets in terms of competition or demand itself is subdued and, it may take a while to reach, to earlier levels? Well, actually, the market has not changed, nor is it. I mean, I see no fundamental change. What has happened is that the pickup of. See, if you look at our business, there is one segment which is pure retail, which is like online travel agents and web and direct bookings with our hotels, and one is the corporate, the travel trade and the what one would call the airline segment. What we find is that, if you look at our occupancy, our occupancy vis-a-vis Q2 2020 is down by about 8 percentage points. The number of rooms that we have operationalized has gone up. In Q2 FY 2020, we had about approximately 3,975 owned and leased rooms, which today is about 5,100. The number of rooms has increased by over 1,000 rooms. Therefore, the actual demand for rooms, if you look at it from an aggregate basis, has shrunk by about 500 rooms, room nights per day, and that is entirely on account of corporate. What we are finding is that in some key markets like Gurgaon and in Bangalore, which are very, very MNC-heavy demand markets, because while 55% of our national demand is corporate and travel trade and so on, it is much higher in Bangalore and Gurgaon. We have a disproportionately high share of inventory there, which is about 1,300-1,400 rooms or about 25% of our inventory. There, the corporate demand has not reached pre-COVID levels yet. That will really occur in H2, which is why there is a slightly skewed perspective, as you mentioned. I have no doubt it will come back to full normal as in pre-COVID. Sure, sir. Secondly, on this Aurika Udaipur, when I look at the numbers, the numbers are still subdued and, so, like, how has been October for us and how is the wedding season looking for our Udaipur hotel? You know, as I have mentioned earlier, Archana, I am trying to meet in this market. Since it's our very first Aurika and our second one, which is managed, has opened in Coorg, I'm trying to position this brand right, because our plans in this brand are actually very large. As I said, this is our first summer with Aurika because we opened just before COVID. This is a journey of discovery for us. I'm aware that, I mean, as I said earlier also in conference call, I am raising the prices. I want to see how the market accepts the brand. We are doing still very well in terms of revenue and in terms of EBITDA. Perhaps we could do a better occupancy even in winter if we drop the price, but that's not our strategy right now. As you will notice throughout, our intention is really to maximize on revenue per available room, which is actual return per room. That requires you to play with the two levers of pricing and occupancy. Sometimes you will trade off on occupancy by keeping a higher price in order to maximize RevPAR. Sure, sir. Lastly, on Aurika Mumbai, should we expect some cost escalation given the prices of majority of the buildable costs have, you know, substantially gone up recently? You know, if you look at our cost structure, we are pretty good at controlling costs. We have given an indication that it will cost approximately INR 950 crore to build this hotel. In fact, I said between 950 maximum to 1,000, but I think we will be still at 950, and we will open it in Q3 next year. As far as the cost structure goes and the target goes, we are still very much there. If there is a change, it will not be material. It might be 1%, 1.5%, but it won't be significant. Sure, sir. Thank you so much and all the best. Thank you. Thank you. Our next question is from the line of Nihal Jham from Nuvama. Please go ahead. Yes, thank you so much, and congratulations on the performance. Thank you. A couple of questions from my side. First was that, has the trend that we've seen till September continued ahead in October and November also? Based on the business on books that you're currently seeing for the H2 part of the year. Okay. Nihal, this is a seasonal business. Normally, H1 is lower in occupancy- lower in demand and therefore lower in price, then H2. That's always the case. Within H1 and H2, typically, the high demand in H1 is in the first quarter. It is seasonally a little weaker in the second quarter, though I know we have actually done better. The third quarter is better than the second quarter, but not as good as the fourth quarter. Because in the third quarter, in October, for example, this year, you have what's called Dussehra, Diwali, so on and so forth. For a business hotel-heavy company like we are, where about 85% of our inventory is business hotels, mostly Diwali and Dussehra are periods when you do relatively lower occupancies. As of now, and I'm talking mid-November, things have gone exactly as we anticipated, which is October would be weak and November would be very strong. H2 looks to be or let me say Q3 looks to be just as we anticipated. Q4, based on advance demand, also looks to be about what we thought it would be. Broadly, in H2, you do anywhere from, you know, 115% to 130%, 140% of the revenue you do in H1. If you do INR 100 in H1, you can do anywhere from INR 115 to INR 140 in H2. I don't want to give an exact number because I've already given a guidance on the full year. It's as we expected and perhaps slightly better. That is helpful, sir. The second question was that you did allude in the last call that incrementally you are looking at pricing, the rooms right, even if there is a slight loss in occupancy. I think the results are in a way also reflecting that. The results. No, the results will show you in Q2. In Q3. Fair. Exactly what I said. Yeah. Absolutely. Just I had this observation on Red Fox specifically, where the pricing is much higher. While, say, for the brand like Lemon Tree or Lemon Tree Premier, there is still a pricing room in terms of the customer set. Does for Red Fox, which is a value-focused brand from our side, this kind of aggressive pricing change the mix of the brand or ideally would it be fair to say that going for pricing in the Red Fox brand is the right way ahead for you all? You know, you are asking actually a question I would expect a director in my company to ask me. Let me be specific here. See, Red Fox is a... You're right, it's our value brand. But the reality is that it had a very low base in the past. If you look at Q2 2020 on slide 11, you will see that it was priced at you know at INR 3,000. And all we've done is we've kind of repriced it now in line with what the replacement cost of these assets should be. These assets are typically at 50% of the cost of, say, a Lemon Tree Premier, which is why if you look at even the EBITDA per room, we've tried to bring the EBITDA up in these hotels. As you will see in the quarter, it was INR 1.3 lakhs versus, for example, a Lemon Tree Premier was INR 2.8 lakhs. It required a bigger increase in pricing than Lemon Tree Premier. Therefore it had a bigger impact on its occupancy. The RevPAR is up only 8%. Remember, Red Foxes are far more in the tier two, well, in the less prime locations than Lemon Tree Premier or even Lemon Tree. Therefore, the kind of customers we get there are also more by definition value conscious and willing to take a trade-off on location and price. It's a process. Let me be honest, it's a process of discovery for us. What we are very clear is we are going to price right and therefore maximize RevPAR rather than focus only on occupancy, which used to be our strategy earlier. Now, I know this may not exactly answer your question, but we are quite clear that we will catch up on occupancy to pre-COVID levels. It is therefore a short-term pain of repricing and then building demand up to pre-COVID levels. I would much prefer we don't go to the other route, which is build up demand at a low price and then try and raise the price, because at that point it is very difficult to change pricing. Am I making sense to you? Yes. I just had a final clarification was that on the occupancy comment that you made, that you have some belief that looking at, keeping these prices also you can get the occupancy back to what Red Fox used to do earlier. No, I'm saying our prices will go still up. What you are seeing is the prices of Q2. I am saying that Q3 will be a surprise to you in pricing. We will trade off occupancy because we are convinced that within this year itself, whether in Q3 or in Q4, at some point our occupancy will catch up to pre-COVID. What am I saying? I'm saying your ARR, which was, you know, whatever it was, say it was 4,900. We are very clear we want to target at least a 10% improvement in that ARR in Q3. A further improvement in Q4. There will be a catch-up in occupancy. This, you know, this 18% improvement or 19% improvement in ARR is absolutely not what we want. We want a much higher improvement in average rate and a catch-up in occupancy subsequently, but within the quarter. Understood. I got that, sir. I wish you all the best. Thank you so much. Thank you. Thank you. Our next question is from the line of Karan Khanna from Ambit Capital. Please go ahead. Yeah, hi, thanks for the opportunity. Just a couple of questions from my side. First, we're hearing a lot of international and, Indian hotel chains that are looking to expand, in the mid-income segment and also the tier two and tier three cities. How do you think, this could impact the ask rate, for management fees for the industry? See, as long as they are branded hotels, by and large, the bigger branded hotel chains are rational in the fees they ask. Because there is a very big difference between a listed branded player, so to speak, whether international or Indian or a much smaller brand, branded, but a player who focuses more on management contracts. See, if you are looking only as a relatively smaller player, you are focused on cash flow. You will trade off fees because your game is to basically get more and more hotels and earn management fees. The larger players are more interested in two things. One, a fair fee, which means it's typically a much higher fee. Number two, longevity of contracts. If you look at the contract between, you know, say a Taj or a Marriott signing and say a standalone smaller chain signing, and I'm not going to comment on Lemon Tree, I'm talking in general. The quality of the contract of the former are much stronger, and in fact, you can value that contract based on an NPV of future management fees. Whereas the quality of the contract signed by a local operator of hotel is very weak, and it is normally the owner of the hotel who benefits from the contract with no consequence. Now, we have deliberately followed the former strategy, which is we want strong contracts so that we can price our contracts as an NPV of future fees. When you look at those competitors, and a lot of them are getting into the market, which is the branded players, I do not see that there will be a trade-off on fees. Yes, there will be more competition, but whoever gets it will get it at the right price. I'm really the more I see this happening, the better I feel, because all it's doing is organize a very fragmented market. I do not see it as a disadvantage. I see it actually as a great advantage because the more consolidated the hotel industry gets in India, the more rational will be the behavior, whether it's pricing or in terms of quality of it and so on. Sure. Second, you know, in terms of your CapEx, what we are seeing is that the total CapEx stood at INR 470 crores for the Aurika and the other hotel as of September versus INR 440 crores as of the end of June quarter. Just wondering, assuming a 30 crore quarterly run rate that takes six to eight quarters before you complete the balance 500 crores of CapEx. I just want to- Very much on track. Let me explain. Think of it as a take-off. When the hotel is under construction, what happens is that the first up to about six to nine months before it is ready, the consumption of capital is relatively low because you are really building the structure, okay, which is a low-cost part of the hotel. The high-cost part of the hotel is the finishing and the ordering of equipment, which typically, as I said, happens about six to nine months before the hotel opens. Really the pickup you will see in expenditure will be from Q4 this year, because if we are going to open the hotel in Q3 next year, which is the October-December quarter, then really you will see a pickup in CapEx from, say, January or February this coming year. Even in that INR 950 crores, which we have said we will spend, and let's assume we have spent by then, say, INR 500 crores, including this quarter. The next INR 450, at least INR 100 crores will be spent after opening the hotel, because those are related to performance clauses, which contractors, you know, when they build our hotels or supply equipment, and we settle that six months to maybe even nine months after opening. So broadly, we will require about INR 350 crores next year to open this hotel next calendar and another INR 100 crores post-opening. That is why we said we've tried to align our cash flow. You will find even our gross debt has in fact remained flat in spite of us constantly investing capital in this hotel and, in fact, in a lot of renovation in our existing hotels, because we feel we can align the two. Just continuing on the CapEx, you know, you mentioned roughly INR 540 crore of CapEx, which has to be incurred over the next year and a half. Do you think that the internal cash flows will be sufficient to sort of fund this INR 540 crore, or you think the debt levels will also go up because of this? I have said earlier that by and large our gross debt will remain the same. That implies of course that we feel that we can fund all this through our internal tools. Sure. Now just an extension because you know your quarterly finance cost run rate is around INR 45 crores. Mm-hmm. which implies roughly INR 270 crore-INR 300 crore over the next year and a half. Mm-hmm. If we add the CapEx amount of around INR 5-INR 540 crore, that translates into roughly INR 850-INR 900 crore kind of a cash outflow. Versus this, you believe that, you know, INR 800 crore kind of a cash flow over the next year and a half will be achievable? Broadly, yes. Okay. All right. That's it from my side. Thank you. Thank you. Thank you. Our next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead. Yeah. Hi, sir. Hi. When we see the room rent of INR 2,500-INR 3,500 and across industry branded player I have seen the OR is lower than pre-pandemic. I'm sorry. Can you repeat that, Suman? I'm sorry, your voice cracked up. Okay. Room rent range of INR 2,500-INR 3,500 across, you know, branded players. We have seen occupancy rate is lower than pre-pandemic versus luxury. Why it is so? Is it because of pressure from the unbranded player or supply is higher? Can you talk on that? No, you have to be specific. Are you talking about Red Fox Hotel? I'm talking about all the room rent. We have Red Fox and other hotels, which is in the range of INR 2,500-INR 3,500 room rent. Mm-hmm. The observation is the occupancy, not for you, for other- No, actually. Other branded player also it is lower. Maybe the room addition is higher for other player also. Is there any supply-side pressure in this segment? No, actually quite the reverse. If you go to slide 11. You will see that, you know, we have tried to give by brand occupancy in ARR and then by region. What I want to alert you about is pre-COVID, that Q2 FY20 quarter we are referring to was pre-Keys. There was no Keys then. We had not acquired Keys. As you know, we acquired Keys three months before COVID hit. The way I look at it is what did we do without Keys and what did we do with Keys? There is another slide a little ahead, which I would like you to look at, which is slide 21, and I think that answers your point. Our occupancy actually in Q2 FY 2023, if you go to slide 21, was a little short of 70%, okay, with an inventory of 4,154 rooms, which means really these were 200 additional rooms we added because our inventory of owned rooms was 3,975 in Q2 FY 2020. You add Keys and Keys is the deflator as you will see. When you look here, let me just put it in perspective. Keys has two components. One is about 50% of its inventory is in Bangalore and Pune, where the occupancy we did was a little under 65%, about 63, 64. The other 50 percent, which is another 470 rooms, was in cities like Trivandrum, Cochin, Ludhiana and so on, where our occupancy even now was sub 40% because Kerala has not recovered, at least in this segment. The average occupancy Keys did was 53%, but the average occupancy Lemon Tree did was a little short of 70%. That's the key point I'm making because if you go even city-wide, like Bangalore, if you go back to my slide 11. If you go to Bangalore, we did 68% occupancy instead of 80% pre-COVID. What was that? Actually, what it meant was that we did in Keys about 61, 62, and in the original Lemon Tree hotels we were well north of 70%. You are seeing the average, which is 60%. The real comparison of 80% in Q2 FY2020 is actually with the Lemon Tree products, which did much better than the Keys products. Same logic applies in Pune. Same logic applies in rest of India. If you look at rest of India where we have 1,660 rooms. If I take out Keys, then we were much higher than this. I haven't calculated exactly, but it was much higher than this 52% that you are seeing, which is the aggregate. Really, as I have said in the earlier con calls also, Sumant, Keys is a product which we were unable to renovate because COVID hit us just three months after its acquisition. We are in the process of renovating Keys. We have started it in fact this summer. By next summer we will have renovated all these 936 rooms. Our plan is very simple. We think in Bangalore and Hyderabad and Pune, we can reprice it by at least 40% more than it is today. We are going to invest more capital there in the upgrade. In the remaining markets, we are going to bring the product up to what we think is the minimum brand level. We think there too we can reprice by 10%-15%. Really, the upside will be captured next year. Whatever you see about Lemon Tree this year will be really without Keys contributing to it, which will really show next year. Can you talk about the corporate rate hike in the upcoming months? What we are negotiating. We have already hiked corporate rates. If you look at corporate rates today in Q2 FY 2023 versus Q2 FY 2020, we are already up by north of 15%. Retail, we look at that segment. We are up INR 600 in the corporate airline and travel trade segment versus Q2 2020. In the retail segment we are up INR 1,000. That's why you're seeing a weighted average increase of about INR 800. Okay. The mix has increased, right? Corporate is No mix has changed. Okay. As I said, there is, when you look at the demand drop, which is the occupancy as I said. Now I'm aggregating Keys and Lemon Tree. The actual in numbers are in Q2 FY 2023 we did 3,346 rooms. Sorry, 3,367 rooms on our base of 5,090, which translated to that occupancy of, you know, 66%-67%, whatever we have announced. In Q2 FY 2020 on a smaller inventory, we did a higher RPD. If I break the two, then I see that the traditional segment of corporate airline and travel trade is a segment that has really come down. The retail segment has continued and in fact picked up. That is. That is really the corporate segment. That is why I said that impact has come in Gurgaon, Mumbai, and Bangalore, where a lot of corporates still have not picked up travel to the full levels. I expect it will catch up in H1. Is there any resistance from the corporate side or is the industry giving lower inventory to corporates for future? I again, you, your voice disappeared there. Mr. Sumant Kumar, could you switch to handset mode and speak, sir? Your audio is a bit muffled. Okay. One minute. My question is there any resistance from the corporate side or industries are not giving more inventory to the corporate? No, actually, I you know, month by month I see corporate demand picking up slightly, except in some markets. See, normally 55% of our business comes from non-retail. In some markets it's 80%, like Gurgaon or Bangalore. Okay? So in those markets where we are more dependent on corporate, especially large corporate, some of those large corporates have not really come back to the full level. It is possible they may never come back to the full level. But the trend line shows that demand from those segments is increasing but has not caught up to pre-COVID. So some segments have caught up to pre-COVID and some haven't. And there we are very dependent on those segments, which is Gurgaon and Bangalore. The catch-up is still to happen fully. Okay. Can you talk about the demand side for the upcoming quarter and correlation with the G20 things are also happening, so how the demand is going to be, your thoughts on that? I think demand is gonna be phenomenal. With G20 they're going to have hundreds of meetings all over India. In some cities the government has already blocked hotels, told them they want, you know, rooms from them. I have no doubt it will be very accretive in terms of value, obviously, to the hotel industry in calendar year 2023. As far as demand goes, as we expected, October was a very slow month because of Dussehra, Diwali. November is the catch-up month, so it's doing very well. December will also be in line with our anticipated trend lines, a good month till about 20th of December when slowdown starts due to Christmas season, but that's an annual event. Q4 will be again a phenomenal quarter. We've kind of It's going as we expected. There are no negative surprises. I think the positive upside will, I do think, happen in Q4 because of the G20. I cannot comment on it currently. I don't have a good picture. G20 has higher surprises in Q4, not Q3? See, what happens, G20, they’ll book obviously a certain number of room nights everywhere and therefore there will be a improvement in demand and therefore that will play out in pricing and demand. I have not worked out what will be in Q4 for G20, but we feel it will be a significant impact. Okay. Thank you so much, sir. Thank you. Thank you. A reminder to our participants, if you wish to ask a question you may enter star and one. The next question is from the line of Sanjaya Satapathy from Ampersand. Please go ahead. Yes, sir. Thanks a lot for the opportunity. My question is that, whenever I see recovery, I see recovery mostly in the premium side, whereas the sub INR 3,000 room rental, that is where the maximum, the recovery is yet to happen. Is that the segment which essentially caters to the corporate sector which you are talking about? Again, I couldn't hear you fully, Sanjay. Could you repeat the last line, please? My question is that the recovery hasn't happened at the lower end and also recovery hasn't happened in the corporate side. Should I conclude that the rooms dedicated for corporate is mainly the lower end ones? No. Don't assume that because in some markets, even if corporate has not caught up, the retail demand has replaced the. See, there are multiple things. Even though by and large supply additions have been very marginal, pre-COVID there were supply additions planned disproportionately in some markets and less in others. For example, Hyderabad, Gurgaon and Bangalore have gone through a supply growth to a minor extent, but it has happened. Demand growth has not been significant on the retail side. These are markets which are heavily dependent on corporate and especially IT. Sometimes a combination like that can affect the demand supply dynamics of a micro market. What you are seeing is the aggregate. What I look at is that in Gurgaon and Bangalore, we did very well. Okay? Gurgaon and Bangalore were having a negative RevPAR. While I understand where you're going, I am repeating to you if you take out Keys, because Keys is 20% of our inventory. Then the rest of the group did very well actually. Because if you take Keys out, not only were our occupancy much higher, our ARR was also much higher. I mean, just in your mind, just go to slide 21 and you will understand exactly what I'm saying. Okay? Sir, if I can just ask. No, wait. I'm answering your point. Go to slide 21. You will see Lemon Tree's ARR grew 25% on FY 2020 to FY 2023. From INR 4,100 to INR 5,000, close to INR 5,200. Occupancy only slipped 5%, okay? For a repricing at the level of 25%. It was Keys that slowed down, and specifically in Trivandrum and Cochin and so on. It's just a catch-up there. You have to really think of it as two groups, and the performance of Keys is what is currently on a weighted average slowing us. That is the one we are most confidently be able to pick up, so it's low-hanging fruit in that sense. Yeah. What were you asking besides that? My next question is that, this corporate sector recovery in Gurgaon and Bangalore, which you are talking about, are you attributing that to this work from home phenomena or something more? No. You see, what happens is there is all types of corporates. In some markets there is heavy dependence on small/medium enterprises. In some markets there are large corporates. In some markets, the largest share is MNCs or tech companies and stuff like that. Gurgaon and Bangalore is really tech companies and large MNCs, and that's where I don't see currently demand fully back to pre-COVID levels. I mean, because of work from home or something else we can. No, I think it's gradually picking up. I mean, they all say the demand is coming back. Our sales team says it, the clients say it. I think it's just a question of catch up. Everything doesn't catch up at the same time. Thanks a lot, sir. Thank you. Thank you. Our next question is from the line of Venil Shah from Prabhudas Lilladher. Please go ahead. Yeah. Thanks for the opportunity, sir. Sir, three questions. Mr. Shah, I'm sorry to interrupt. If you're in a speaker mode, switch to handset and- Yeah, that's fine. Yeah. Is it better now? Yeah. Yeah. So I have a couple of questions. One being, our total expenses have come down nearly 16% compared to Q2 FY2020 levels. How much of this should reverse going in, especially on the employee cost side as we gear up for a stronger season in H2? And, is there a significant portion of temp workers in our employee mix? That would be my first question. A significant portion of? Temporary employees as we gear up for seasonality element in our business. No, we don't have temporary employees and all that. We have either permanent employees or outsourced employees. Certain roles like security or some housekeeping, et cetera, we have outsourced employees. They are not temporary at all, because once we take people on, we do not like to ask them to go, whether directly or indirectly. As far as the cost structure goes, it's a permanent reduction. I have said this before, so I think you will see it play out. I do not think there will be. In fact, I have said in the last conference call, I vaguely recollect, that we are going to keep adding staffing till we find the right level. Currently, we are nearly there. Our staffing levels are, I think 0.63 or 0.64 per room, or maybe 0.65, and it'll stabilize at 0.66 staff per room. Which used to be one staff per room pre-COVID. The short answer, though I've given you a long one, is our cost structure is permanent, what you are seeing. As you will notice that, if you look at, for example, slide 21, again, I'm just having a look here. Our expenses are actually even without Keys hotels, down by about INR 14 crore versus Q2 FY 2020, although we added about 200 rooms. Keys was the reason that the aggregate expenses went up, but even so, it has been less than FY 2020. This cost structure will not change. As I have said, this will lead to EBITDA margin, net EBITDA margin north of 50% even in this financial year, as you will see it playing out. Think of it very simply. If we did INR 390 crore in H1. Even if we do a 10% improvement technically in H2, that is INR 400 and, say, 24, 30 crore, then we will cross INR 800 crore, which is double of FY 2022. That INR 30, 40 crore of incremental income, the increase in cost will be less than 25% because our variable cost is 22%. A simple back-of-the-envelope calculation is if we cross INR 820 crores or INR 810 crores, that is we do a H2 which is marginally better than H1, then we will north of 50% and a revenue which is 100% over the previous financial year. Sir, taking this question ahead, you mentioned that our staff per room used to be around one. And that has come down to now 0.6, 0.63. Is this something which you're witnessing across the industry or is this something specific to our strategy? Well, to a greater or lesser extent across industry. In our case it is much more because we have done some level of automation also. Got it. Sir, my second question would be, the fee for managed hotels was around INR 15 crores for H1. Mm-hmm. Where should we build this number and where do you think this will trend, say, by FY 25? Should this be closer to INR 100 crore? Well, it's simple. H1, normally the fees for managed hotels is much less than H2 because you have what's called incentive fees, which is earned by you based on the EBITDA performance of managed hotels. Normally in H2, as I said, the income is 20%-30% above H1, and that really gives you an uplift in your EBITDA. H1 into H2 is again one to 1.5 maybe because the fees are much higher. Three years later we have a projection, which is based on how many, you know, rooms we expect to operationalize. Right now when I told you we as of today will have 11,000 rooms approximately in the next two years, we are also signing very rapidly, and I have given some broad guidance on it. Now, if all that plays out, then our fee structure will definitely be north of INR 100 crore in FY 2025. Got it. Sir, one final question. You mentioned about undergoing some CapEx or renovating the entire Keys portfolio. Could we know the quantum for the same? It's very simple. Yeah, it's INR 4 lakh a key for half the portfolio and INR 1 lakh a key for the other half. If you average it is INR 2.5 lakh into 1,000 rooms, about INR 25 crore, of which we have spent some this year, which is actually part of the expenses. I think we have spent about INR 7 crore in renovation already this year, and we will spend the balance next year and the following year, and it comes out of before the net EBITDA figure you see. Got it, sir. Thank you so much for answering this question. All the best. Thank you. Thank you. Our next question is from the line of Prateek Kumar from Jefferies. Please go ahead. Good afternoon, sir. My questions are both, like, related to some of the points you covered earlier. First question is, when you say on second half revenues, like, higher by 15%-40% versus first half, so, like, if we, like, let's say as an industry or your company do, like, a 15% versus first half, that will be a negative surprise, standing in, like, today? Okay. Let me give you an example, Prateek. Suppose I do INR 100 in Q1. Typically, I expect to do INR 95-INR 100 in Q2. Let's assume I do INR 200 in H1. In H2 I should do, assuming everything is normal, I mean the industry. This is not a guidance for an entry. You should do anywhere from INR 110-INR 120 in Q3, and INR 125-INR 135 in Q4. What I'm saying really is that if you do INR 200 in summer, you should do INR 230-INR 260 in winter. Am I making sense? This is 30, so therefore your annual revenue will be INR 430-INR 460. However, your expenses, like if your expenses are INR 100 bucks, and let's assume you do an EBITDA of INR 100 bucks in H1. In H2 your revenue is INR 430-INR 460, but your expenses go up only by 25% of the incremental revenue. If you do 430, your expenses in H2 will be INR 107 or INR 108 rupees. If you do 460, your expenses will be INR 115-INR 116, you know, or something. Which is why the flow-through to EBITDA is much higher in winter than in summer, purely because of the increase in rate and occupancy. Sure, sir. My question actually was slightly different. So I was asking, like let's say in 2H, like sitting today in terms of general expectation, in 2H if we do, like, closer to 15%, I mean 115% of 1H revenue in 2H, that will be a negative surprise sitting today? Or I mean because we are also we can also do like a 140% of first half in second half. No, it's actually a function of two things here. Frankly, it's difficult for me to give a clear number for Q2. I can only give you a range for H2. I am saying that the broad numbers which I have given you are true for the industry. As I said upfront, guidance I have given is for the full year we will do more than double of last year's revenue and we will do a net EBITDA north of 50%. That's all. The rest depends on how Q3 and Q4 play out, how much is the impact of this war continuing impact in terms of, for example, a lot of charter traffic to Goa has been affected. There are negatives there. How will G20, what will that play out in Q4? That will be a positive. These are the imponderables I cannot give specific guidelines on. Sure, sir. My second question is on costs. Are there any pent-up costs in the system which we foresee? No, we are very transparent. We don't defer any costs. We are audited by a Big Four, so there are no surprises, negative or positive, in our costs. The only point I would urge you to look at is, we are not sure what our final tax will be, so we have been conservative in our tax. Perhaps there might be a little positive in the PAT. Sure, sir. These are my questions. Thank you and all the best. Thank you. Thank you. Next question is from the line of Rajiv from DAM Capital. Please go ahead. Yeah. Welcome, sir. Thanks for the opportunity. Sir, on your ROI, which is rest of India, the price increase from Q2 versus the base quarter Q2 2020, there is an INR 1,000 increase, which we see. The similar number is what we see in case of INR 1,100 in Hyderabad. While the occupancies are, I mean, down in rest of India. Is this an experimentation you are trying to do on the pricing side to test the ROI market, possibly because the supply of good hotels there is lower or is this an established trend already? No. One is, again, you will have to separate the performance of rest of India between Keys and Lemon Tree. First point, Lemon Tree, which has got about 1,200 of those rooms out of those 1,660 rooms, the occupancy was about 60% and the ARR was north of INR 4,500. Okay. It is the Keys portfolio which underperformed. Now, the pricing that we are doing, the most of the pricing changes that you are seeing, in fact all of them are with the Lemon Tree portfolio. The Keys portfolio is not yet giving us any change from pre-COVID, because pre-COVID we didn't have it actually. Really Keys is the portfolio that will give us the maximum upside next year. This year, because we are in the middle of our digital transformation, we are focusing heavily on revenue management and the exercise has just started. We will continue to reprice to where we maximize RevPAR and therefore hotel level EBITDA per room. We are personally, at this point, a little indifferent to occupancy. We are only focused on maximizing the revenue per room, so if we increase the rate by 10% and it has a drop in occupancy of 5%, we are quite okay with that. We are trying to discover the right pricing to maximize EBITDA. The whole purpose of this digital exercise in revenue management is to maximize EBITDA. It's an ongoing process, and I think it will continue even into Q4, which is why I say I would urge you to look at the RevPAR growth in our company and the EBITDA growth in our company rather than the occupancy versus ARR. Because ARR has gone up 19%, but if you notice our ARR grew 31% in rest of India, but the occupancy went down 15% and therefore RevPAR only changed by one. That change is what you should track because that is going to flow through to the RevPAR to the EBITDA. It's not a pricing strategy or an occupancy strategy, it's a combo of the two. Sure. Referring to your slide 15, where you have given the market share. Per the pre-COVID number, the market share in terms of room revenue and the nights were largely similar, so the rates apparently are similar. Now you have basically the room revenue market share on the retail side is higher. The pre-COVID, the retail should be paying you. I mean, my basic understanding, the retail is traditionally higher than the corporate, right? You are able to slightly higher margins. Absolutely right, Rajiv. If you look at revenue share pre-COVID in corporate, it was nearly the room night share. The room night share of corporate pre-COVID was 48% and revenue share was 47%. But because we increased the ARR, you have to look at it not as a percentage but as an ARR number. We increased the ARR of retail more, as I said. If you look at pre-COVID to post-COVID, our retail ARR has gone up over INR 1,000 and our non-retail, that is corporate, airline and travel trade, has gone up only INR 600. Which is why the revenue share of corporate now is 3% less than the room nights share. The revenue share of non-corporate, so which is OTAs and web and others, which is the FIT, is higher than the room night share. That's what you will see playing out. In pre-COVID if you notice, OTAs was 29%, room nights 29%. Revenue share is now 34%-36%. Even in the, like web you can't tell, 2%-2%, but actually it's 2%-2.5%. Sure. I was under the impression that pre-COVID also the behavior should have been same, right? The market share versus room night market share, there should be difference in the retail versus corporate, which is No, if you aggregate all. As you aggregate all, it was about 3-4% because you have to look at the columns, the three columns on the right and the three columns on the left. Remember, this is again including Keys. You are not really getting the full picture. If you want to see the full picture, we haven't given it in that form. If you go to slide 21, you get a very clear idea of what's happening, and then you can break it backwards. Sure. My last question is on, I don't know whether this is correct way of looking at it. Incremental EBITDA margin on a quarter-on-quarter basis by brand. I'm looking at, let's say, Lemon Tree Premier, if you do- Which slide, yeah? It's not there in a slide. I'm just basically Q2 minus Q1 I am doing in terms of EBITDA differential and divide by the revenue differential Q2 minus Q1. The incremental flow through in terms of EBITDA margin. Lemon Tree Premier looks like it's 33% versus historically of, you know, incremental margin has come 75, 80%. Go to slide 11. Yeah. If you go to slide 11, it's all there. The hotel level EBITDA margins. No, I get it, but this is why you... I mean Q2 versus Q2. I'm talking about Q2 versus Q1. Because your prices are going up, have gone, our RevPAR in fact has gone up. But the incremental flow through in Lemon Tree Premier portfolio in terms of EBITDA divided by the incremental revenue you have made is 33% flow through. I mean, maybe I'll take this offline. I'm not getting the question. Yeah, I would be happy to answer it, I think. Sure. I would urge you just look at a simple number, which is slide 11. There you will find although Keys is an underperforming portfolio, it has still done an EBITDA margin of 52%. You know, what you are seeing right now is still a work in progress. Across the board you will find that our EBITDA are actually at the hotel level, the EBITDA margins are 51%. What we are reporting at 48, that 3% is due to basically corporate expenses. Of course there is an add flow through of management fee. The column you should look at for whichever question you want to ask is the last one on slide 11. Sure. Thanks a lot, Sudeshna. All the best. Thank you. Our next question is from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead. Yes, sir. Thank you for taking my question. Just wanted to understand what would be this ratio of outsourced employees to your total employees. outsourced to total? Yes. Well, I would. You mentioned about some. I would reckon that permanent are like 70% and outsourced would be 30, or maybe 75%-25. Roughly that. Right. Sir. This. Cutting terms and costs. Yes. I think a bigger question is the variable cost. In terms of cost, it may be 25% of our staff, but it will be only 15% of cost. Because obviously the permanent employees include managers and senior staff, so that cost is higher per employee. Right. Sir. This ratio, how would it move, like, after this Mumbai property is opened up? Would you be looking at more of Very similar, Pallavi. It'll remain the same. Because certain departments are outsourced and certain are, you know, permanent. Yes. That does not really change. Okay. Right. Sir, secondly on this Social Security code, any estimate on, you know, what kind of provision may be required on that end? On which end? For the Social Security Code. Impact on the employee expenses, parts of pension provisions. I didn't get the question. Are you saying, I'm alluding to, you know, the notes to accounts mention about the Code on Social Security, 2020 that has yet to be implemented, and we are examining the Kapil, can you answer that please? Hi, Kapil Sharma. As you rightly mentioned in your notes, we are doing an assessment on this, and probably by next quarter we will be completing this exercise, and we'll get back to you the exact number. What impact would be there if it is? We feel that it's not going to be very significantly high. All right, sir. Thank you, sir. That's all from my side. Thank you. Thank you. Our next question is from the line of Kushal Shah, an individual investor. Please go ahead. Hi. Thank you for the opportunity. My question was on the industry, room supply additions. If I see your return on capital for the quarter or the projections for the year, it is still low double digits. That too, which is on a historical cost of land and historical cost of construction. If I were to calculate the return on capital for constructing a new hotel on today's cost of land and cost of construction, I believe it would be low single digits. Also, we are one of the most efficient players with some management fee income as well, which flows through our bottom line. In this context, can you help me understand that, how much does ARR have to go up from here, where that will become lucrative for an institutional investor or an HNI investor to invest in building a new hotel? Are you seeing any new supply additions being planned already? That's a very big question, Kushal. Supply, what you do know for a fact is future supply growth up to five years out, because there are enough agencies in India, professional agencies who track it and, you know, supply takes three to five years to anyway operationalize. Future supply growth has really slowed down. There are different estimates, but it would be low single digits. Between, I would reckon, my best guess is it will be 3.5%-5% supply growth on an annualized basis for the next three to four years, number one. Number two, replacement cost of hotels, you're absolutely right, has gone up enormously. If pricing doesn't catch up, then it does not make rational sense to build new hotels. Now, traditionally, Lemon Tree's problem has been that unlike most other players in India, we have been operationalizing new supply at much higher book value per room or cost per room than all the other players. In our case, for example, roughly 50% of our capital deployed was operationalized in the 15, 18 months before COVID, which didn't really give a return. That return is now starting to play out. In our case, I expect that our ROCEs will show on a quarterly basis an enormous improvement from H2 onwards. This will continue, in my opinion, for the next 3 years, because demand typically grows at 12% or 1.6%-1.7% of GDP growth for branded hotels on a secular trend basis. If that plays out, then my guess is that if India's GDP grows on a real basis at 6-7%, then demand will grow at 11-12% and supply will grow at 5%, which means year-on-year there will be a significant improvement in occupancy and automatically an improvement in rate for the next three years, certainly. There is no doubt that the industry is at the cusp of an upcycle. When that happens, ROCEs will change very dramatically. I'll give you an amazing number. 70% of a hotel's return in a cycle, a cycle can be seven to 10 years, occurs in two years. It's a Pareto principle that in the two years of top cycle hotels make two-thirds of their returns. You know, top 20% of the cycle, the hotel makes 60-70% of the capital. That's where we are at today. I have no doubt that new supply will be planned in the next year or two or three, but it will take five years to come out. In that period the hotel industry will do very well, including the new hotels that we have opened, which have much higher cost per room than the old hotels, because as you correctly said, the book value is very much lower of the old hotels. That's how I expect it to play out. Yes, HNIs and institutional investors will plan to build hotels probably from next year onwards. Yes, that answers my question. Thank you. Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Yeah. Thank you everybody for your interest and support. We'll continue to stay engaged. Please be in touch with our investor relations team or CDR India for any further details or discussions. I look forward to interacting with all of you soon. Thank you. On behalf of Lemon Tree Hotels Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.