Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lemon Tree Hotels Ltd (BOM:541233, Financial) recorded its highest ever revenue at INR268.4 crores in Q1 FY25, a 19% increase year-on-year.
- Gross ARR increased by 9% year-on-year to INR5,686.
- Sales from managed and franchise contracts from third-party hotels grew by 21% year-on-year.
- The company signed three new management and franchise contracts, adding 187 rooms to its pipeline.
- The inventory for the group stands at 107 operational hotels with 10,125 rooms, with an additional 4,000 rooms in the pipeline.
Negative Points
- EBITDA margin decreased by 4.56 percentage points year-on-year to 43%, primarily due to increased investments in renovation and digital transformation.
- Occupancy for the quarter stood at 66.6%, a decrease of 360 basis points year-on-year.
- 25% of the total Keys portfolio was shut for renovation, impacting occupancy and revenue generation.
- The case portfolio EBITDA margin decreased by about 10 percentage points year-on-year due to increased renovation expenses.
- Food and beverage costs saw a significant increase despite lower banquet activities, impacting overall profitability.
Q & A Highlights
Q: You spoke about 5% to 10% price hikes in the last call. How do you see the RevPAR growth for FY25 and FY26?
A: We are doing 10% better ARR as a group and about 7% for same-store. This will improve significantly post-renovation by mid-September. I prefer to answer this question on a full-year basis.
Q: Can you elaborate on the ARR, occupancy levels, and customer mix for Aurika Mumbai during Q1?
A: Aurika Mumbai did 45.9% occupancy with an ARR just under INR9,000. We reduced the crew base from 200+ to about 115 rooms. Real results for Aurika will start coming out in Q3 and flow into Q4.
Q: On the expenses side, why did the cost of food and beverages and power and fuel costs increase despite a soft quarter?
A: Food costs are typically 29% to 30% of revenue. Banquets, which have a lower food cost, were less significant in Q1. As banquets pick up in Q3 and Q4, the food cost percentage will drop.
Q: Given the renovation of Keys, how should we look at the margin profile for FY26 and '27?
A: Once the portfolio is fully renovated, we expect an EBITDA of about INR60 crores from Keys. The increase in rate in the Keys portfolio is already evident and will go up 15% to 20% over pre-COVID levels.
Q: What was the ARR excluding Aurika Mumbai in Q1?
A: Excluding Aurika Mumbai, the ARR was around INR5,400. The lower occupancy due to renovation impacted the weighted average ARR.
Q: Can you elaborate on the debt repayment plan considering significant renovation expenses over the next two years?
A: Our free cash flow in winter is typically 2 to 2.5 times that of summer. Last year, our free cash flow was INR300 crores. We plan to use winter free cash flow for debt reduction and summer cash flow for renovation.
Q: How do you see the hotel industry's growth trajectory over the next two to four years?
A: We expect a 10% annual growth in demand with a 6% supply growth. We are hopeful for a structural shift in demand due to high-frequency indicators like growth in airline traffic, airports, and highways.
Q: How many rooms were shut for renovation at peak, and will the entire inventory be available in Q3 and Q4?
A: At peak, about 700 rooms were shut. Renovation takes 2.5 months, so we will renovate in summer and cash in winter. The entire inventory will be available in Q3 and Q4.
Q: Do you see the need for a rights issue given the current capital structure?
A: No, we are cash positive and can write down our debt. Barring another COVID-like situation, there will be no need for a rights issue.
Q: Can you provide a ballpark estimate of the consolidated revenue and EBITDA margin for FY25 and '26?
A: We should be north of INR1,250 crores in revenue. We aim to achieve a 20% return on capital, trending towards INR900 crores net EBITDA in the next year or two. Renovation and digital transformation expenses will normalize, improving EBITDA margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
