Lemon Tree Expects Better Margins In Second Quarter Despite Renovation Costs

Lemon Tree Hotels Ltd.’s chairman and managing director, Patanjali Keswani, expects the hotel chain to improve its September quarter margins despite the investments on renovation work.

“In Q2, we will do a few percentage points better than Q1. You will see us go back to similar margins as Q2 in the previous year despite massive investments, which means without renovation we would have done much better than Q2FY24,” he told NDTV Profit.

Keswani added there was a revenue squeeze in the three months to June, which is why the company's margins were also expected to improve sequentially in the ongoing quarter.

“Occupancies and average rates were less. But we invested a lot of money in renovation. If you take that money out, we actually did not do so badly,” he said.

Explaining the reason for aggressive renovations across the owned-hotels portfolio, Keswani said that Lemon Tree had stopped renovating its rooms in 2019 due to Covid-19 and subsequent recoveries.

“We decided to very aggressively renovate this year, and we will do it next year too. In total, we are investing about Rs 270 crore, of which 40% will be capex, but about Rs 160 crore will be opex,” he said.

Keswani expected to complete the renovations of about 4,500 rooms by the next calendar year.

On Lemon Tree Hotels signing a slew of deals in September to increase its capacity, Keswani said this was just the beginning.

“In H1, we signed 21 hotels and about 1,500-1,600 rooms. We have at least an equivalent amount of plans for H2 and it is accelerating,” he revealed.

He said that these deals mostly concern managed hotels, where Lemon Tree provides the brand and the management.

“We are also going to aggressively expand our franchised properties through the Keys (Select) brand. That is going to be the big play for us in the next three to four years,” he said.

Keswani expects the average room rates to grow by 5-10%.

Shares of Lemon Tree Hotels Ltd. were trading 1.41% lower at Rs 122.05 apiece on the BSE around 3 pm. The stock opened marginally lower at Rs 126.65 before hitting an intraday high of Rs 124.90 per share on the BSE.