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. Anoop Poojari from CDR India. Thank you, and over to you, sir. Thank you. Good evening, everyone, and thank you for joining us on Lemon Tree Hotels Q3 FY2024 earnings conference call. We have with us Mr. Patanjali Keswani, Chairman and Managing Director, and Mr. Kapil Sharma, Chief Financial Officer of the company. We would like to begin the call with brief opening remarks from the management, following which we'll have the forum open for an interactive question and answer session. Before we start, I would like to point out that some statements made in today's call may be 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, Anoop. Good afternoon, everyone, and thank you for joining us on the call. I will be covering the quarterly business highlights and the financial performance for Q3 2024, post which we'll open the forum for your questions and suggestions. In Q3, Lemon Tree Hotels continued its growth momentum from the previous year. Q3 was the best ever Q3 performance in terms of ARR, revenue and EBITDA. Q3 2023 recorded a gross ARR of INR 6,333, which increased 10.4% year-on-year and 20% quarter-on-quarter. Occupancy for the quarter decreased by 163 basis points year-on-year and by 572 basis points quarter-on-quarter. This translated into a RevPAR of 4,176, which increased 7.7% year-on-year and 10.6% quarter-on-quarter. Total revenue for the company was INR 291 crores, which was higher by 24% year-on-year and 26.4% quarter-on-quarter. The net EBITDA margin for the company in Q3 2024 stood at 48.8%, which decreased by 547 basis points year-on-year and increased 325 basis points quarter-on-quarter. The decrease in EBITDA margin year-on-year was mainly owing to planned increase in payroll and renovation expenses above that spent in Q3 2023, and some impact of Aurika Mumbai Skycity, which opened on 5th October 2023, and which is not yet stable. The renovation expense for the portfolio increased by INR 5.5 crores year-on-year, and by INR 4.8 crores quarter-on-quarter, which translated into a reduction in EBITDA margin by about 2 percentage points. The Keys portfolio EBITDA margin percentage decreased by 9 percentage points quarter-on-quarter due to an increase in renovation expenses of about INR 1.8 crores over the previous quarter. Fees from managed and franchised contracts for third-party owned hotels stood at INR 15 crores in Q3, up 50% from INR 9.8 crores in Q3 2023. Total management fees for Lemon Tree, including fees from leased hotels, were up 25% year-on-year to 32.3 crores, compared to INR 25.8 crores in the last year's same quarter. Hotel level revenue from the owned portfolio increased by 18% year-on-year, and network revenue for Lemon Tree, that is the total system revenue of owned, including Aurika MIAL and managed and franchised hotels, also increased by 18% year-on-year. Excuse me. Total network revenue stood at INR 11,128 crore for nine months 2024, as compared to INR 950 crore in nine months FY 2023. During the quarter, we signed 9 new management and franchise contracts, which added 621 rooms to our pipeline and operationalized six hotels, which added 967 rooms to our portfolio. I'm happy to inform you that as of 31st December 2023, our operational inventory comprised 100 hotels with 9,687 rooms, and our pipeline comprised 55 hotels with 3,746 rooms. As of now, we expect our operational inventory to be over 105 hotels with over 10,000 rooms by end of FY 2024. The launch of Aurika Mumbai Skycity represents a major milestone in our company's journey. The hotel has already started to contribute positively to our portfolio, attracting both business and leisure travelers with its luxury facilities, prime location and exceptional service. With no major capital expenditure planned in the near future, we will now focus on strengthening our balance sheet, and starting next year, we will be reducing our debt, which will peak by the end of this year. With this, I come to the end of my opening remarks, and I would ask the moderator to open the forum for any questions that you may have. Thank you. Thank you very much, sir. We will now begin the question- and- answer session. Anyone who wishes to ask questions may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Karan Khanna from Ambit Capital. Please go ahead. ... Thanks for the opportunity, and congratulations on the Aurika Mumbai opening. My first question, part two is, I'm referring to slide number 11 of your investor presentation. Decrease in hotel-level EBITDA margins year-on-year across your portfolio, entirely attributable to planned renovation expenses, or are there any other reasons? On the same slide, you've reported flat to declining RevPAR for Bangalore and Pune, while your peers have shown much higher RevPAR. So what explains that, and how do you see these markets catching up for you with the rest of the markets going forward? Okay. So if I look at, Karan, if I look at Q3 FY 2024 and compare it with Q3 FY 2023, then one is the payroll increase. Because as you, as I think I mentioned earlier also in earlier calls, that COVID had led to a huge backlog in terms of, deferment by us in, you know, increasing salaries and so on and so forth. So what you are seeing is a catch-up to the norm. So payroll accounted for roughly 2.4%, increase, as a, as, as a percentage of revenue. Remember, revenue is still not what it should be, because as you mentioned, Bangalore is one issue, Keys is another issue, and of course, Aurika, Mumbai catching up. Because a part of this payroll increase is, directly attributable to Aurika, Mumbai. The second impact was as we move towards more and more retail, about 0.8% of our revenue cost was due to increased commissions to travel agents and to credit cards and so on and so forth. Rent rates and taxes, because of the opening of Aurika, Mumbai, and because of increases across India, these are by governments, was accounted for 0.6%. Other expenses, which is an increase in our spa and transport, accounted for 0.5, and renovation accounted for a little under 2. So if you add these four headings, which is payroll, travel agent commissions, rent, rate taxes, and other expenses, and of course, sorry, fifth is renovation, this accounts for a 6% increase over last year of revenue, as a percentage of revenue. Now, when Aurika MIAL picks up, because Aurika obviously was proportionate to its inventory and its earning capacity did much, much less than what it will do once it stabilizes, this optically appeared to be an impact on the P&L. But when Aurika picks up, which is 13% of the total inventory and over 20% of the total revenue, then this will automatically reduce as a percentage of revenue. So let me give you a very specific way to look at it. In FY 2023, hotel level expenses were 41.6% of revenue, renovation was 1.8% of revenue, and corporate expenses were 4.7% of revenue. Therefore, we closed at roughly 48% of revenue, all these three main expenses, and that's why the EBITDA margins were about 52. Now, this year, what is happening really is that Aurika is not yet contributing. So when Aurika starts contributing, it will really, you will see the impact next year. So if I looked at it very broadly, this year, our expenses will total about 51% of revenue. So our EBITDA margins will be about 49%. Next year, this, as EBITDA picks up in Aurika, our EBITDA margins will again cross 50%. Now, coming... Yeah. Yeah. Now, coming specifically to two key markets. See, when you look at our hotels, I would urge you not to compare our RevPAR growth and so on and so forth with the luxury hotel operators, because their segments are different, the price sensitivity and elasticity is different and so on. About one-third of our inventory is still in markets which have not really done as well as they should have, as they did pre-COVID. So let me give you specific examples. Bangalore, Hyderabad, Pune and so on, are enormously dependent on the IT sector and hiring in that sector. And as I think all of us are aware, the IT sector, instead of hiring, has been laying off. So till that picks up and obviously we are looking at other sources of demand, but till that picks up, some of them, like you mentioned very specifically, Mumbai and Pune, these have been affected. Sorry, Bangalore and Pune, these have been affected fundamentally because there has been a drop in demand from the, probably the largest demand generator for our hotels in these markets. Sure. This is helpful, Patanjali. Just, continuing on Aurika MIAL, so how are the ADR and occupancy levels tended on a month-on-month basis, and how has been the customer mix for third quarter, and how do you expect that trending, during fourth quarter and possibly in FY 2025? And as a follow-up, there's also a 130-key Hilton Garden Inn that's being built right next to the hotel. So how do you think of that, perhaps impacting occupancies more so for Lemon Tree Premier, and also the Aurika MIAL? So, Hilton Garden will have zero impact. It's in a completely different category. In Q3, we did sub-40%, okay, in Aurika, which means we did, you know, about, what is 40%? About 200... We did less than 280 rooms. I think we did 250 or something like that. So, that was in Q3. In Q4, we are over 60%. So obviously, as I had mentioned earlier, and I think I said this very categorically, even in, the last two, calls, that Aurika will optically have a big impact on our P&L, because its depreciation, and as an example, its depreciation and its interest costs, because it is a leased asset, the land is leased from the government, is, going to have a big impact on below-the-line expenses. So Aurika is a 19+ crore below-the-line expense every quarter. In cash terms, in real interest on debt on it, it's only INR 6.6 crore, but there is another INR 13 crore, which is the depreciation and the interest costs of even the lease, because of these new accounting standards, as you are all aware. Number two, Aurika, with 13% or 14% of the total inventory, when it does under 40%, it deflates the entire picture. But I would urge you to look at the company excluding Aurika, and after Q2, after Q3, and look at it now from Q4 onwards, because that is when you will see its stabilization. So what we'll do is, at the year-end, we will give a separate presentation on Aurika, Mumbai, how we are looking at it in Q3, Q4, and for the following year, in broad terms, so you get a better fix. Because my expectation is next year, Aurika will meet the company average in occupancy and roughly where we target the ARR, which I mentioned to you earlier, and I think both will be doable. Sure. Thanks, Patanjali. The last question: if you look at your portfolio, ARR's growth has been around 8%-10%. Do you believe that you will be able to reprice at mid-teens next year, when you have mid- to late-seventies, sort of occupancies? That would be my last question. Obviously, Karan, if Aurika does what I think it will do, you will see the first impact in this quarter, Q4. And then certainly, that will give you a guideline to see what will happen next year. So I don't want to give specific guidance, but, let me put it this way, that when Aurika starts firing, it will add 20% to our revenue. And, it has already, in terms of cost structure, I think it is quite clear that it will do a hotel next year, a hotel operating gross margin of 60%. So it will be an enormous contributor, and that alone will take the averages up. The rest, frankly, I think Delhi will do much better because Delhi had a, you know, when I said we are renovating, we are renovating with two strategies in mind. One is wherever we think we can reprice enormously, we are putting a disproportionate amount of renovation expenses there, and where we need to, basically renovate to maintain brand standards. So Keys, some hotels across India are getting a much smaller allocation to refresh them, but some hotels like Delhi, Bombay, not Bombay, sorry, Hyderabad, Gurgaon, these will get a very large investment made in them, in order to reprice them more. So if all that works, then I think you are not far off the mark when you say we will be looking at, mid-teens. Sure. This is... Thank you and all the best. Thank you. Thank you. The next question is from the line of Archana Gude from IDBI Capital. Please go ahead. Hi, sir, good afternoon, and thank you for the opportunity. I have three questions. Just follow up on Aurika, Mumbai. Any update on any major contracts signed during last quarter or maybe Jan this Jan of this quarter, and some color on rates and the number of rooms signed with the corporates? See, when a hotel of this size opens, think of it this way: it is like opening three hotels in Bombay, one one next to the other. Normally, it takes us six months, nine months, to stabilize one 220-room hotel, but here we have opened a single 670-room hotel. Mm-hmm. So in order to make sure that we covered our costs in Q3 and continuing in Q4, we have a very large crew base, airline crew base. This is a, well, opportunistic measure, and obviously it gives us the breathing space to build demand. Really, our strategy is to build demand in Aurika, Bombay, across all segments. We would ideally not like more than 100 crew rooms, which is 15% of the inventory, and 150 corporate rooms, including meetings, incentives, conferences, and then another 200-250 retail rooms. So that is broadly our strategy for next year. Coming specifically to Q4, we have one. So while this crew business will continue, we do have one large conference, and I think it is Miss World or Miss Universe or something. Miss World, which has been booked with us. So we are getting, I think, over 100 rooms. Yeah, over 100 rooms for about 14 days. So that will give some visibility to our hotel, and it will obviously add to the occupancy. So I think the room nights promise are about 70 rooms. Sure, sir. So on this, renovation of hotels, how many hotels you have already completed or renovation, and, how many are left to be done? Any timelines for the hotels? ... So Archana, so Archana, the deal is like this: this year, I think we will spend—how much will be our total renovation spend this year? About INR 30 crores in OpEx and about INR 10 crores in CapEx? Ten, yeah. So what, we will spend about INR 40 crores this year. Obviously, when we renovate, we shut inventory. So as of right now, I think about 200-300 rooms are shut as we speak and are really not operating. For example, over 100 rooms in Keys Whitefield has been shut to upgrade the Keys hotel there. So renovation is not that we do one hotel first and another hotel second. We do all the hotels. We shut parts of the inventory and renovate. And it's a little bit of a painful project also, let me tell you, much more than building a new hotel. So we will continue. We have renovated aggressively. Now, this coming summer, we will renovate an even larger part of the portfolio. Our intent is broadly by the end of H1, this coming year, we will have renovated most of the Keys portfolio. We will have renovated most of Lemon Tree Premier Delhi, a large part of Red Fox Delhi, a large part of Lemon Tree Premier Hyderabad, parts of Red Fox Hyderabad, and done freshening up in various other hotels across India. So this will be an ongoing project. And let me also add that this will continue into the following year. But the single largest effort will be put this coming year, because our capital requirements now are, you know, close to zero. So we will obviously be putting money into renovation because we think we can reprice some of these hotels and increase occupancy in the Keys portfolio if we improve these hotels. So that is broadly the strategy. Am I clear to you? Yes, sir. Yeah, thank you much. And then lastly, you know, you also spoke about repayment of debt. If you could help us with the scheduled debt repayment for FY 2025, 2026, as well as any CapEx requirements, you know, your satisfied for- Archana, I'm sorry. Can you repeat the question? Sure, so my question was more on the repayment of debt. Ma'am, your audio is not clear. May we request to use your handset, please? Is it better now? Yes, please continue. Yeah. So I was asking about this repayment of debt. If you could help us with scheduled debt repayment for FY 2025, 2026, as well as some CapEx guidance for these two years. So I'll give you a broad viewpoint, okay? So I don't want to be too specific. We will close this year, and the way we look at it is debt by EBITDA. So on a consolidated basis, we will close FY 2024 with a debt by EBITDA of roughly 3.7. Based on our expected performance next year, our debt by EBITDA by the end of next year will be under 2.5. And in the following year, it will be under one point... It will be around 1.5. Sure. So as I had mentioned earlier, we plan to get debt-free, at least right now, over the next four years. So I think that is, that is very likely. This is after the renovation expenses, which will be significant, which we will incur next year. And of course, the cost that will go into building the— We have renewed the hotel in Shimla, and, it is, it is looking so beautiful that we've decided to make it an Aurika. So in Naldehra, Shimla, we will be launching a close to 100-room Aurika in the next, I think 12-15 months. So it includes that expense also. Right, sir. Sure. Thank you so much, and all the best. Thank you. Thank you. Thank Thank you. Thank you, sir. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead. Yeah, hi, sir. My question regarding ARR. Considering lower supply in luxury segment and down trading towards, say, our hotel ranging from INR 5,000-INR 7,000, number one. Number two, the renovation of the current portfolio and any other dynamics we can consider to have our ARR in lower double digits, ex of Aurika. I'm not including Aurika. Yeah, so see, actually, Sumant, if you could give me a very specific question. Broadly, once we renovate the Keys portfolio, we will take the average rate up and try and target the current rates of Red Fox, which means I'm saying we'll try and take the rates up by INR 800-INR 1,000. However, this will not happen instantly because we have to build an entirely new customer cohort for that. It will take some time, but I think we are pretty confident that once we upgrade these hotels, we will be able to take the average rates and the occupancy up. Right now, my bigger concern with Keys, and I'm talking brand-wise, is that the occupancy is low. It is... I mean, while the occupancy has gone up, it has gone up very marginally versus last year. Part of the reason, as I had mentioned earlier, is the demand you know, IT hiring and IT business, because there is a large part of Keys, like in Pimpri, in Pune, and in Whitefield, which and in Hosur, which is dependent on the IT sector. But I am pretty confident that when we finish this renovation, we will start getting a significant increase in occupancy, followed by an increase in average rate. As far as Red Fox goes, we think it will continue to increase its ARR every year by, you know, 8 to 10 to 12 percentage points. Remember, it operates in the lower end of the mid-market segment. Lemon Tree, well, we are focusing on renovating a large part of the Lemon Tree and Lemon Tree Premier portfolio, and that will obviously lead to a far more significant increase in price once this renovation is over. But I don't want to give specific numbers. Let me just say this, that Lemon Tree Hotels, I feel there is some juice in further increasing occupancies, and in both Lemon Tree and Lemon Tree Premier, there is some juice in increasing rates. Okay. How is the supply scenario in these categories? Well, supply is growing, I think nationally, I think about 5% a year. That's what I read and hear. It's very difficult for me to personally know what is happening like that. But consulting firms are saying it is like a 5% growth, and demand, it is true, is growing faster on an all-India basis, but different markets have different demand parameters. So we—like, you will find in Bombay, you know, there is very high demand. In, in, in Hyderabad, there is now very high demand. Gurgaon has really picked up, so we expect that this coming year we will do much higher occupancies in Gurgaon. But my bigger concern is Bangalore and Pune, and these are two markets I need to push up. In these two markets, supply is higher? No, not supply. It is actually demand. Okay, and the category of demand-wise, then the price point I'm talking about, luxury, we have a lower supply, but when you see the budget hotels and mid-scale hotels, we have a higher supply. So can you comment on that? That is impacting your ARR growth? Not really. Actually, as a brand, we are quite strong in these segments. We do get very preferred choice by customers. It is very clear. That is why we are confident about growing the retail side. But till we grow the retail side, we don't want the corporate side to shrink. But unfortunately, in Bangalore and Pune, it has not been the increase in supply, it has been the drop in demand. And that I'm talking about as a market in the mid-market segment. Okay. Thank you so much. Thank you. Thank you. The next question is from the line of Parth Agrawal from Bastion Research. Please go ahead. Hi, thank you for the opportunity. You know, my question is regarding my understanding, and please correct me if I'm wrong, is that the corporates likely have been paying the retail rates because of no negotiation that has happened post-COVID. Is that the case with Lemon Tree as well? Sorry, I... It's not, Parth, the question are not clear to me. Can you speak a little bit louder? Sir, may we request you to kindly use your handset to ask questions, please? No, I'm using my handset. Am I clear now? Yes, sir. Please continue. Okay. So, you know, my understanding is that corporates have been paying retail room rates lately, and they have not yet negotiated, you know, basically the discount that they generally get. So is that the case with Lemon Tree as well? Because we almost rented close to one third of our room inventory from corporates. So, you know, Parth, that's an interesting question, so let me explain. Traditionally, our pre-COVID, our retail was much higher than corporate. That was because we had large corporate clients who would negotiate hard, and they would give us business across India or across a region. And while there was stability in demand, the overall impact was they would want rooms in, in peak times in all our hotels, when we could have sold those rooms, and at lower rates. So as a conscious strategy last year, we took our prices up for corporates, and we reduced somewhat our prices for retail. This was because, A, we wanted corporates who were paying us a fair price, and, B, we wanted to expand our retail base, and therefore, we wanted to make our pricing more competitive. So this has continued, and if you notice in our segment report, if you look at it, which is slide 10, I think, corporates as a percentage of room nights sold has reduced somewhat. But interestingly, the revenue that we have got, which used to be, last quarter, Q3 last year, we would have 38% of the room nights, but only 36% of the revenue. We are now still negotiating with corporates, and we want to effectively say that, maybe by the next 6-9 months, you will see corporate room nights contribution will be equal to corporate revenue contribution, which we have not yet achieved.... If you look at retail, there used to be a premium that retail OTAs were 31% of our room nights, but 33% of our revenue. Now it is 30% of our room nights and 31% of our revenue. So the premium is only 3%, 1 on 30. Now, if you look at Lemon Tree Hotels.com, that is the segment we are—which is our direct segment we are trying to build. It has doubled as a percentage of room nights, and it is exactly equal to our, it is parallel to our room revenue. So 3% has become 6% in both occupancy and rate. Others, which are FITs, has reduced, again, because we found that we were outpricing it a little bit. So this is under, let me put it, part of our digital transformation, our central reservation systems, our hotel upscales, and so on. So this, too, is a work in progress. Basically, you will see, one reason why this is a little lopsided is because 13% of the inventory, which is Aurika, has actually changed some statistics. And actually, other FITs is a larger number, but because it is very low in Aurika, it has brought the overall thing down. So, this is not really a same store thing. I am talking more just, anecdotally, but broadly, we will continue to build our retail business and only keep those corporates with us who are willing to pay what we feel is a fair price. Okay, got it. So, in case of repricing opportunity that comes up with corporate, chances of your ADR going down is very, very unlikely. Is that a fair assumption? Absolutely. There is no chance. There is zero chance of our ADR going down. Got it. You highlighted the renovation expense for FY 2024 to be around INR 40 crore, INR 10 crore CapEx and INR 30 crore of OpEx. What is the figure for FY 2025 and 2026, if you can help me with that? We will spend at INR 100 crore next year. 100 crore in FY 2025. And FY 2026, any figures that you have in mind? It will be less than that, maybe INR 40-INR 50 crores. Just one final question. We want to reprice significantly, you know, somewhat aggressively from this year, October, which is why we are investing this money. We think it will, from H2 of FY 2025, we will be able to significantly then build demand in the Keys portfolio, because these are all now new hotels. Keep in mind that Keys as a portfolio has not been renovated for 12 years. Mm-hmm. So it's really those hotels were really shabby. We will renovate those hotels of ours in the portfolio with a higher effort, where we see a very significant increase in cost in rate. Okay. Just one final question from my side. Actually, I wanted to understand the arrangement with Fleur Hotels. So, Lemon Tree standalone actually gets management fee from Fleur Hotels. And so the inventory that the Fleur Hotels own, is it part of the management contract inventory or is it part of the owned property? You know, what happens is that, this year, what will be our total fees from Fleur? Yes, sir. So, like, 98. So this year we will earn INR 100 crore of fees as a standalone Lemon Tree from Fleur. Okay. Now, because we report consolidated results, it is netted off. Okay. Hypothetically, if our ownership of Fleur, if we... I mean, I'm just speaking aloud. Suppose we raised an enormous amount of capital in Fleur, and we listed it. Fleur next year will do maybe over INR 600 crores of EBITDA. We list it, and we bring our shareholding down to, say, 40%, something like I think some companies have done, which is they have deconsolidated it. One is, we will be able to raise a very large amount of capital in Fleur. Number two is, our management fee income of Fleur will then become visible, which it is not currently visible. And, third is the capital that we raise in Fleur will enable us to go into the next phase of growth of, owned assets. Really, if I look at it strategically from the long term, we should actually keep growing the Fleur portfolio and reducing our stake in it, obviously, have a meaningful skin in the game and simply build hotels there and manage them on behalf of that portfolio. Which means really, over at some point in time, Lemon Tree will morph into a pure management, brand and digital services supplier company. Got it. But, I'm yet not clear. So currently, whatever, ownership of Fleur Hotels are there, is it, you know, part of owned hotels or it is part of management inventory, which is around 4,000 inventory that we have? It is owned, it is consolidated. We own 59% of Fleur. Right. Okay, sure. Okay. That's all from my side. Thank you. This way, we own 1,700-1,800 rooms in Lemon Tree, and I think over 4,000 rooms in Fleur, where we own a 59% stake. That's actually it. Okay. Thank you. Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead. Yeah, hi, good evening. Thanks for taking my question. Sir, I wanted to understand the unit economics of, like, you know, refurbishing or renovating the room... the hotel in terms of, you know, per key cost and you know, what kind of repricing they've had. If you can, you know, illustrate that with maybe an example of a hotel that you've achieved something with that? So I'll give you an example. In, Lemon Tree Premier, Delhi, we have now renovated about how many rooms? About half the portfolio, right? About 130, 140 rooms. 130, 140 rooms. The average rate we are getting in those rooms is over INR 10,000. We are also, I think we are going to continuously renovate this hotel till all the rooms are done, but because it is a high demand hotel, we do not shut more than 25, 30 rooms at a time, which doesn't disturb guests and it, you know, it doesn't take away too much from the inventory. So our view is very simple: when LTP Delhi is fully renovated, on a current basis, the RR would have been 10,000 instead of the current rate of 8,000. So think of it this way, when we renovate a hotel in a high demand market, we feel we can price it up by INR 2,000. And if it's a 80%, 85% occupancy hotel, then really the RevPAR goes up INR 1,500-INR 1,600, and if the flow-through is 5-6 lakhs a year, and the total investment we make in that renovation per room is about 7-7.5 lakhs. So on an incremental basis, it is very compelling. Is that clear, Kunal? Correct, correct. Well illustrated, sir. Very well. Yeah. So basically, any incremental spend we do in a renovation, in our internal capital allocation, we expect to earn it back within two years. Understood. Understood. My second question was on, on expansion, and actually just what you responded to the earlier question. I've always had this question around, like, you know, in an upcycle, why are we not adding capacity in terms of like, you know, in terms of own capacity, not just management contract, right? What you said about Fleur earlier, is that something that you would look at pursuing in terms of, you know, getting it listed and on getting it deconsolidated and then listed and then, you know, look at that entity as an asset-heavy entity, and, and what could be the timeline of something like that? You know, Kunal, there are—I think you have three questions, so let me answer them in the one after the other. We are not yet in an upcycle, no matter what people tell you. Occupancies in India are still in the 60s. Do not go by one or two companies that might report 75%. Even the Lemon Tree portfolio, excluding Aurika, Bombay, and excluding, what is it called, Keys, is in the mid-70s. But I don't consider this an upcycle. It has not yet happened, because an upcycle is where the entire market crosses 70, 75%, and that has not happened yet. What do I think will happen? See, I think India is at a very interesting point as far as its consuming classes go. If we continue on this path of 6%-7% growth, then in the next three years, a very, very large percentage of the population in India, which is, A, aspirational, B, young, C, fueled by credit, will move into what we consider will be consumption, non-discretionary consumption of branded mid-market hotel rooms. Now, I know everybody is tired of comparisons with Malaysia and China and so on, but that's what happened at about $3,000-$3,500 per capita. So that is not actually an upcycle or a downcycle. That is a structural shift from treating for a very large cohort of the consumers, a structural shift in treating consumption of that kind of earlier discretionary item into a non-discretionary. So really, if you ask me, should we build supply? I totally agree with you, because I think this structural shift in consumption, where, instead of it being optional, it becomes default, and that you can already see, by the way, in the airline sector, I think is going to happen in the next 3-4 years in India. So keeping that in mind rather than cycles, I would say there is a strong case to create or acquire supply. Now, the only question is, how much risk should we take on the balance sheet? So obviously, we need a company whose main job is to be an asset owner. Which is why strategically, it may make sense to spin Fleur into a separate listed entity, have a smaller stake in it, raise fresh capital, which is why your stake comes down, and, A, raise this capital, B, have a totally separate set of investors there, because obviously these are investors who will be looking at, Fleur more as an asset-owning company. And Lemon Tree continues as a brand owner, manager, and digital services provider. So long term, we have to do that, in my opinion. And when, when you say long term, like next three months? I don't want to comment, because that is something I think the board has to debate and decide. But I think sooner or later, we have to do it, and the capital that we raise should go into acquisition of supply or creation of supply, which, where the fees flow to Lemon Tree, and, that asset company becomes, you know, the largest owner of assets in the mid-market and upper upscale space in India. ... That sounds like a good strategy, sir. I mean, absolutely understood. All right, sir. Thank you, and all the best. Thank you. Thank you. The next question is from the line of Dhruv Agarwal from Niveshaay Investment Advisors. Please go ahead. Yeah, sir, good afternoon. Thanks for the opportunity. So my first question would be: so currently, the occupancy levels we are, like, seeing in quarter three is around 65%. Going forward say next two to three years, what kind of occupancy we can expect and what kind of growth in ARR one should be able to expect, sir? I wish I could look at a, a fortune ball and tell you, Dhruv, but it is very difficult for me to give you any answer. But broadly, I would expect RevPAR growth in our segment to be mid-teens. Whether it is led by occupancy or price, I cannot comment, but that is the kind of growth I think we would expect. And since our cost structure is now stabilized fully, with payroll at the right place, the staff per room at the right place, I think that, you know, we will then look at any growth in RevPAR as really driven, with a 70%-75% flow-through operating leverage to the bottom line. Okay. Like, sir, any percentage that you would like to comment on the occupancy levels, sir? Just for the guidance, like we can expect. You know, rest of India, till the, if I break it down, if I look at Delhi, we are already over 80%. Gurgaon, I think, we should be in the mid-70s, hopefully. Hyderabad, well, it is nearly 80%. Bangalore is where we have to catch up. Mumbai, well, if I remove Aurika, we are already, well north of 80%, and I'm pretty sure Aurika itself will get there. Pune is another area where we need to focus on replacing, IT demand with other segments. Rest of India is a function of whether we move into an upcycle, because I think currently, last year, all India occupancies were 63%. Maybe this year they will be 65. So till it goes to 70, rest of India will be subject to the vagaries of local micro markets. But if I look at it broadly from that perspective, I would say when Aurika is fully stable, our occupancies as a company should be north of 73%. Okay. Okay, sir, fair enough. Sir, like, what kind of what would be the percentage of repeat business, sir, on year-on-year basis like? What business? Repeat business, sir, like repeat customers. What, what would be the percentage of repeat customers, sir? Well, in our stable hotels, normally it is north of 30%, but in our new hotels, it takes time to build up. So if I was building no more, no more hotels, and it was all stable, then one-third of our customers should be repeat. Okay. And sir, just last one question on the industry itself, sir. Right now, sir, in the hospitality industry, everyone is trying to add their rooms capacity, either by, like, adding things in the same hotel or by constructing new hotels, in order to cater to the demand that they are facing. So, sir, don't you think in coming, like, four, five years or, like, there would be an excess supply of rooms? So, like, can you give some color on how would be the demand-supply growth with regard in coming two to three years, sir? See, post-COVID, there was a complete reset, so there was a shrinkage in demand, and it is catching up now. So going forward, what I read, and I... This is not my data, it is, I guess, a combination of what I read from various travel consultants in the hospitality industry, is that demand will exceed supply by 3-5 percentage points every year. So if that is the case, then an all-India occupancy of 65% should hit 70% in the next two years, at which point there will be some significant level of repricing with nearly every hotel across India. So that is the broad observation. Whether it takes two years or three years, I have no idea. But somewhere along, because supply is known for the next five years, I think this, this transition into upcycle, as Kunal had earlier mentioned, will happen in the next two to three years. Sir, just one clarification. You said in the, with the previous participant, that upcycle is when the occupancy level is around, or all over the industry, is around 70%-75%. So, sir, when do you expect such kind of upcycle coming in, and, like, where we stand right now, sir? See, right now, if I made a broad guess, I would say industry average occupancy would be about 65% across India. I think that is what the consultants will report for FY 2024. FY 2025, it should be, if this demand-supply imbalance continues, should be 67, and then maybe by FY 2026, it will be 70. Now, what does 70% or 72% mean? It really means that there are 3-4 days in a week where you are full, and 1 or 2 days in a week where you are doing half, you know, 50% occupancy, because that is the nature of this business. So even if you take any business hotel in a city on a Monday, on a Tuesday, Wednesday, Thursday, they are at a 75% occupancy, they are sold out. Monday and Friday, they might be doing 70, 75, and Saturday, Sunday, they do 50%. So it, that's how it averages to 75. When that happens, pricing for Tuesday, Wednesday, Thursday goes up at least 20%-25%. And that is how the ARR goes up. The ARR does not go up on a daily basis. It goes up on those days where when you have more demand than supply, and obviously, you keep increasing your pricing till such time your demand equals supply. So that is what happened in the last, upcycle in 2005, 2006, 2007, and that is what will likely happen this, in the next two, three years, across India, after a very long period. Thank you, sir. Thank you so much, sir. Thank you. The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Limited. Please go ahead. Yeah, thanks for the opportunity. Sir, if my understanding is right, I believe Aurika, Mumbai resides in Fleur. But if I look at the management fee received from Fleur Hotels in this quarter, it is up by just 8%, despite our Mumbai hotel starting operations and registering an occupancy of 40%. So is there anything which I'm missing out over here in this 8% growth number? Yeah. So the first thing is that our fees from Bangalore came down because a large part of our fees with Fleur comes because of what is called incentive fees. Incentive fees is we get paid based on the EBITDA of the hotel. So if I say I earn INR 10 from a normally performing hotel in the Fleur portfolio, only about INR 4 is fixed, and INR 6 is variable. So we had a drop in fees from Bangalore. We had a small drop in fees from Pune, and Aurika did not give us any significant fees because it did not do 40%, it did under 40%. But we only got fees from Aurika, Mumbai, on the fixed side, and the fixed fees is a function of revenue. The revenue was, you know, much less obviously, because it was the first quarter. So these fees, you are absolutely right. The minute Aurika, Mumbai picks up, like it is already picked up to some level this quarter, you will see a significant hike in fees. Similarly, when Bangalore picks up and Pune picks up, you will see another hike in fees because those will be the variable fees. Whereas in Aurika, Mumbai, there will be higher fees because the revenue increases and hopefully the EBITDA increases. Do I make sense? Yes, sir. Sir, my second question pertains to bookkeeping. Now, if I look at our finance cost, it has gone up sequentially to about INR 53 crore. So, has there been any change in debt levels, or does it pertain to that lease accounting standard, which you mentioned in the opening commentary? So, well, two things. Our debt will peak this quarter. Most of Aurika—You see, what happened is, this year we paid off a large amount of debt, and then we borrowed back a little more than that in order to finish Aurika, Mumbai. So, I think our peak debt this quarter will be what? INR 1,900-INR 1,950 crores, somewhere around that? Yes, 1950. Yeah. So our debt will be INR 1,900-1,950 crores this quarter. And if you look at it from the previous year, what is the debt at the end of the previous year? About 1,600-1,500? 16, 16.40, something like that. So our debt has gone up INR 300 crore, but we built Aurika, which is over INR 900 crore. So effectively, Aurika was built with INR 600 crore of equity and INR 300 crore of debt. Now, what happens is from this coming quarter, Q1 onwards, we will start paying down the debt. So you will find that the debt at the end of this following year will come down, and our EBITDA obviously will go up, which is why I said the debt to EBITDA next year will be under 2.5. Got that. One last question. I think you mentioned, to, one of the questions raised from, the earlier participant, that, Aurika, Mumbai, is, built on a leased land from the government. So can you, can you just, call out, if possible, what is the annual, lease cost, over here, and how are the escalations, built in? Think of it this way: What is the current in INR 7 crores? No, current is INR 3 billion. So this Aurika is, the rentals, the lease rentals are escalating. So that, you know, we basically quoted a lump sum and an NPV for Aurika, of the fees that we plan to pay. So, if I look at it this year, the fees are very low, they are INR 3 crore. And, if I look 5 years out, they will be much higher and 10 years out, they'll be still higher, and so on and so forth. What we tried to do was, we said we will pay lower fees cash out in the, in the beginning, till we stabilize the hotel, and once the hotel is stable and operational, then our affordability of paying fee will be that much, better. So the NPV of all these fees put together is what? INR 50 crore? INR 60 crore? Yeah. Uh? No, it will be, INR 177.50 17,750, yeah. If I look at the fees over the next 30 years, the NPV in today's term is about INR 50 crore. INR 50 crore. That's right. NPV, but it is discounted. What is the rate of discount we took? The rate of interest. Rate of interest, it is coming. Got it, sir. Got it. Thank you so much, and all the best for Aurika going ahead. Thank you. Thank you. The next question is from the line of Meet Jain from Motilal Oswal. Please go ahead. Mr. Jain, I have unmuted your line, kindly proceed. Am I audible? Yes, you are. Hi. Just one clarification. You mentioned that you are launching 100 rooms Aurika in Naldehra, Shimla, right? That is in the management contracts, right? No, no, that's our own asset. We have already one property being built in Lemon Tree Premier, Shimla, 69 rooms, and this is in addition to that? No, it is a conversion- Okay. because we felt we would be able to use it because of its location. It's built on top of a mountain. It's a beautiful hotel. So when we went and saw it, we did an assessment, and said that we would be able to cream much more of the market. So why not spend a little more money, but build an Aurika? What is the approximate total CapEx on this you are spending? We will spend another INR 40-odd crore. Over INR 27 crore already spent on Shimla, so- No, total will be closer to INR 80. We'll spend INR 40 in this year, and we would like, maybe it will be INR 50. We are not sure, because it depends on the speed at which we can finish it. It's there in the investor presentation, you'll see it's like a shell. But we will try very hard to get it open by the first quarter of next year. Next to next year. One clear for 27, 26. Okay. Okay, and next is on one clarification on the management fees from Fleur. You mentioned that our Fleur arrangement is partly based on revenue and partly on the operating performance, right? That's right. Is there any threshold, like, as you mentioned, Aurika, we didn't reach the 40% kind of margin, so we booked the revenue part, like, fixed fees on revenues and the margins as we improve, we'll start getting fees from Fleur on that as well. Well, think of it this way, that if Aurika today, in Q3, gave me a revenue of INR 25, then my fees from that will be, say, say INR 2. If Aurika gives me INR 50, then my fees will not double. They will become INR 5, INR 5.5. They will nearly triple. And when Aurika stabilizes at INR 100, then I will take INR 10 or INR 11. So 40% will come from the revenue, 60% will come from the EBITDA, and that EBITDA, as it grows, as the hotel stabilizes, and I think I mentioned that the EBITDA will be in the range of 60%, at which point our fees will become disproportionately higher. Got it. Noted. Thank you for the clarification. Thank you. Thank you. The next question is from the line of Rajiv from DAM Capital. Please go ahead. Yeah, thanks for the opportunity, sir. Sir, with regard to your Mumbai asset, so you—for the Aurika thing, you did what, 8, 8.5 kind of ARR this time on Q3? Yeah. That's right. The Andheri one, we have seen close to INR 1,000 rent there. Andheri one is closer to 9,000 because it has. I'll tell you. Just let me look at it, I'll tell you right now. Andheri is INR 9,152 at 82% in Q3. So, that particular hotel, in terms of, let's say, like-for-like pricing versus the rest of the market, I think this was asked earlier, do you think it was a little under par in terms of the rate hike? Which one? The Andheri one, the 303 Andheri. No, on the contrary, in its, in the Smith Travel Research report, it is outperforming the market completely. It did. It's a Lemon Tree Premier. It did over INR 9,000 ARR, over 80% occupancy, and, as a, it's an outperformer. And keep in mind that what we are doing is we are keeping all the channels open so that any bookings we get in LTP, which we are not able to accommodate in the hotel, we move to Aurika. So till Aurika builds its own supply and demand base, we will use, you know, we have 1,000. We are treating it as a 1,000-room inventory in Mumbai, which is this 300-room hotel and that 670-room hotel. And Aurika Mumbai's RevPAR was below INR 3,500. So-... That's why you would see the average of Bombay, you know, RevPAR and hotel level EBITDA, significantly down because Aurika brought it down. But now what I have been saying all along is that as Aurika stabilizes, obviously Aurika will do a much higher ARR, and hopefully a similar occupancy to LTP Mumbai, and we hope to achieve that in the next 6-9 months. At which point, Aurika will have its own segment, LTP Mumbai will have its own segment. Well, your pricing in in Andheri is has no influence from Aurika. In the sense, it's not like that you cannot charge, I mean, you wanting to not charge LTP Andheri higher than Aurika. Not at all. That's not correct. The point is that Aurika has not yet built its demand segment. Whatever little demand it gets is at a price of over INR 11,000. But because a very large portion of it is with crew, which is priced at, I think a little under INR 8,000. I think crew is what? INR 7,700? Seventy. So the crew is 7,700, which is what is deflating the ARR of Aurika. But as I had mentioned last two calls, that we will use the crew as a filler to cover our costs and ultimately obviously replace the crew. I mean, bring down the crew to only 100 rooms as a base and replace the crew with corporate and retail clients. Sure. And, in Hyderabad, do we have anything under renovation because of which your, you know, rates are up by only, let's say, INR 400, let's say, versus what we see in case of, let's say, Indian Hotel going up by, what, INR 3,000 or. And why I'm saying is the gap between you and Indian Hotel used to be something like INR 2,000, INR 2,500, now it's gone to close to INR 5,000. I mean, I know it's not a strict comparison. In Hyderabad, Hyderabad, the markets are very different. Indian Hotel is firstly a five-star deluxe hotel, and it is in the city center. We are in HITEC City and in Gachibowli. There is no Taj there. And number two is that, there are about, I think, 30 rooms shut in Aurika, in Lemon Tree Premier, and another 25-30 rooms shut in various other hotels where we are renovating. But please don't compare economy rates with, premium economy rates and business class rates. That's an incorrect comparison. No, the idea was that, you know, if the luxury picks up, eventually the gap between... I mean, it'll help you, your case, right? The gap has to bridge slowly. Yeah, but they are separate segments, Rajiv. Don't look at it from that perspective. There will be times when our segment picks up more than, say, luxury. So it is not, actually, how do I say? Don't do a regression analysis and correlate the two. They are not the same. Perfect. Yeah. Great, thanks a lot. That's all from my side. All the best. Thank you. Thank you. The next question is from the line of Ramesh Rajagopalan, an individual investor. Please go ahead. Good evening. Can you hear me? Yes, I can hear you, Ramesh. Yeah. A couple of questions. One is, what was the impact of World Cup matches, you know, on your revenue in quarter three? Second, in terms of, you know, again, the revenue related aspect, whether you have further plans of expansion in tourism centers like, you know, Bangalore, Goa, Kerala, Trivandrum, you know, because tourism is being taken as the next, you know, big thing in terms of revenue. World Cup teams normally only stay in five-star hotels, okay? So they don't impact. They impact us indirectly, which is if there is a World Cup match somewhere in a city, we get the sightseers, the guys who want to see the match; we get their demand. We don't get the teams, number one. So, in the during World Cup, for one or two days, we did a very high ARR because a lot of people came to see the match, but we didn't get any team members. As far as, I think your other question was relating to which markets we want to go to. I didn't actually get clarity on that. What was the question, Ramesh? Yeah. So basically, we are, you know, talking about tourism in a big way, as a pro-tourism travel. So obviously, you know, accommodation will also be in huge demand. So are we planning, for example, Goa Airport has been, you know, inaugurated about a year, a year and a half back. So has there been any significant, you know, increase there? So similarly, are we talking about, you know, Trivandrum, Kerala, then Bangalore, where, you know, tourism may be a big attraction apart from north. Of course, I didn't mention specifically about Ayodhya, because Ayodhya is too early to comment about, but in terms of other existing tourism destinations. So, see, can we- Sorry to interrupt. Can we increase the share of, you know, retail especially, because as you said, you know, in terms of World Cup matches, there was no much of impact. So can we not, you know, focus more on retail in terms of, you know, attracting, globally, especially for the retail part of it? And then, of course, corporate, they might have, you know, our own strategies in terms of how do we go about. And second thing is, do we have, seasonal tariffs, instead of, you know, annual tariff, with especially corporates? Do we have a seasonal tariff, based on, for example, Christmas season or the New Year's season or, you know, other typical seasons, different part of the country? So, Ramesh, I wish corporates would agree to seasonal tariffs, then we would charge high in high demand and low in low demand, but unfortunately, they want a single price for the full year... As far as tourism goes, we already have a Keys in Thiruvananthapuram. We have, you know, we have signed many hotels in many tourism locations. We are now looking at doing maybe one or two small Aurika palace hotels in Varanasi on the ghats directly. But if you look at us broadly, we have a twin approach. One is we get two to three queries every day, so that is a reactive approach where owners reach out to us to convert their hotels into our brands. And then we ourselves focus specifically on markets where we think there is juice and value to our network. So if you look at the hotels that we have in our pipeline right now, they are all in cities where most of them are in cities where we do not have hotels, and these will simply improve our network and will lead to our ability to acquire more customers in markets where we do not exist and customers are not really familiar with Lemon Tree. Keep in mind, we are a relatively new brand, and therefore, it's important for us to saturate cities where there are customers who will come and visit us in our hotels, in other cities. Proactively, we are looking at specific markets where we feel there is an opportunity for us to, A, plant a flag, B, acquire customers, and C, grow our managed network. So that is the broad strategy. I don't want to get into specific destinations, but you can see that in our investor presentation on slides 21 and 22, where we have already signed. One related question: Do we have any kind of frequent guest tariff, this thing where the same customer, for example, I might visit Delhi, I might visit Bombay, I might visit Goa, you know, where I become a frequent customer of yours, so wherever I go, I'll go only for Lemon Tree? So what we are doing is—As I had showed earlier, I think in, in—I mentioned earlier in this call, our direct bookings from our website are increasing quite rapidly. We have close to... Well, we have over 1.5 million loyalty members. We are now revamping the entire website and loyalty program as a part of our digital transformation, and hopefully, by October this year, we will have micro sites where you as a loyalty member, if you visit our website- Yeah. I think it's already there to some extent, but we are upgrading it, so you will get a specific personalized offer to any hotel which you want to visit. Okay. And, sorry to take me this thing. One, one question on, cost and, one question on the payroll cost. Payroll cost, you said, it has gone up, this quarter because of, different reasons. I just want to understand, in terms of, you know, your, payroll cost, is it not a factor of your, variable pay or your, revenue, so which you have obviously provided for the previous year? And if the current year, if it is going to go up, obviously, your revenue also would have, proportionately gone up. No, you see, our revenue didn't proportionately go up. The revenue hike will really be visible from this coming year when Aurika comes in. So we really look at payroll as a percentage of revenue on an operational basis. So the revenue, which we will get next year, from... You see, there were three revenue impacts this year. One was Aurika obviously did not contribute, to what it will contribute from this coming year onwards, because it's a very large inventory hotel and it will take some time to stabilize. So that when it did not stabilize, the payroll cost of Aurika alone was, was a deflator, so to speak, in our P&L. Then, because of Aurika, we set up a corporate sales office in Bombay, and that had an impact on both our corporate expenses and to a minor extent because they came from the hotel and from corporate office, and on our payroll in Aurika. Third was that Bangalore and Pune still have a lot of catch-up to do. So when they do that, payroll as a percentage of revenue will drop to the mean, to the normal, at which point, as I mentioned, our EBITDA, net EBITDA will again go to 50% and perhaps if things work out, even over 50%. So, that means, this is more of an investment, which you are calling as payroll cost rather than an expense, which is being made now? It is a mix of both, Ramesh, because a bunch of people, a lot of people who stayed with us during COVID, we did not give any increments over the last 3-4 years. You know, with inflation being what it is, we felt it was necessary. Okay. Okay. And the last question, do we have—I mean, now that everybody is talking about renewable source of energy and power, power, cost of power reduction, do we have a renew source of revenue, I mean, renewable energy in any of your hotels? Or are we planning for any cost reduction in that area? So we have renewable, roughly, roughly we have reduced energy based on the FY 2019 baseline. Energy consumption per room has reduced by 10%. Our target is that by FY 2026, it should be 15% on FY 2019 baseline. Right now, about only 11% of our energy consumption is renewable. There is only one problem. Since we run smaller hotels, unlike large five-star hotels, we do not get renewable energy from the grid, because there are certain norms on this. So I believe that the new power bill is going to change that, and we will also get the ability to get energy from the grid. If we really want to go fully renewable, then in the large markets like NCR, like Maharashtra, like Bangalore and Hyderabad, we will have to put up our own renewable energy plants, which will be high CapEx. We are re-reviewing that, but we'll have a payback within 4-5. So it's a combination of many things. We are very interested in having maximum renewable energy, and I think in the next 2-3 years, you will see that as becoming an increasing focus for us. So whatever we have discussed so far, it is purely based on our operational and revenue performance of Lemon Tree as a group. So whatever external factors which are going to further benefit us, it will be in aggregate or maybe, you know, adding revenue to your bottom line. That's what you're saying? That is correct. Thank you so much for your, you know, clarification. Thank you so much. Nice talking to you. Thank you. Thank you, Ramesh. Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir. Thank you, everybody, once again, for your interest and support. We'll continue to stay engaged. Please be in touch with our investor relations team for any further details or discussions, and I look forward to interacting with you again in the next quarter. Thank you, members of the management. Ladies and gentlemen, on behalf of Lemon Tree Hotels Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.