Lemon Tree Hotels Limited (LEMONTREE) Q4 FY23 Earnings Concall Transcript

Lemon Tree Hotels Limited  (NSE:LEMONTREE) Q4 FY23 Earnings Concall dated Jun. 01, 2023

Corporate Participants:

Patanjali Keswani — Chairman and Managing Director

Analysts:

Anoop Poojari — Analyst

Archana Gude — IDBI Capital — Analyst

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Adhidev Chattopadhyay — ICICI Securities — Analyst

Inder Pal Batra — Senior Vice President, Finance

Tushar Sarda — Athena Investments — Analyst

Hitesh Arora — Unifi Capital — Analyst

Sakshi Chhabra — Swan Investments — Analyst

Jaiveer Shekhawat — Ambit Capital Private Limited — Analyst

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Himanshu Shah — Dolat Capital — Analyst

Debotro Sinha — ICICI Securities — Analyst

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Ayush Dappal — Private Investor — Analyst

Prashant Shivsagar — Unived Profit — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Lemon Tree Hotels Limited Earnings Conference Call. [Operator Instructions] Please note this conference call is being recorded.

I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you. And over to you, sir.

Anoop Poojari — Analyst

Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels’ Q4 and FY ’23 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 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.

Patanjali Keswani — Chairman and Managing Director

Thank you, Anoop. Good afternoon, everyone. Thank you for joining us on the call. I’ll be covering the quarterly business highlights and financial performance for Q4 FY ’23 and then we will open the forum for discussions.

FY ’23 has been the best year for Lemon Tree Hotels. As anticipated and in line with our initial guidance, we have more than doubled our total revenue versus ’22 and have maintained more than 50% EBITDA margin for the full year. In FY ’23, our overall total revenue increased by 111% versus FY ’22 to INR879 crores with an EBITDA margin of 51.9%.

Q4 FY ’23 was also the best quarter to date with growth across all metrics. As I’ve mentioned in the last earnings call, after increasing our ARR in Q3 versus Q2 ’23, in Q4, we focused on building occupancy, which increased by 604 basis points versus Q3, and 1,259 basis points versus Q4 FY ’20.

Gross ARR stood at INR5,824, which increased by 2% versus Q3 and by 29% versus Q4 FY ’20. This translated into an improved RevPAR of INR4,287, which increased by 11% versus Q3 FY ’23 and 55% versus Q4 FY ’20. In Q4, FY ’23 versus FY ’20, Lemon Tree Hotels’ RevPAR grew by 55%, whereas according to the — according to STR, the branded hotel industry grew 41%.

The net EBITDA margin for the company in Q4 ’23 was industry-leading at 55.7%, which increased by 146 bps versus Q3 and by 1,926 bps versus Q4 FY ’20. The PAT for Q4 FY ’23 stood at INR59 crores, which increased by 22% versus Q3 FY ’23. In Q4 FY ’20, we had a negative PAT of INR19 crores.

Our cash profit stood at INR82.5 crores, which increased by 14% versus Q3 and by 845% versus Q4 ’20. As of March ’23, our gross debt stood at INR1,746 crores, and the overall average cost of borrowing stood at 9.08%, while the weighted average cost of borrowings for the full year was 8.38%.

During the quarter, we signed nine new management contracts and franchise contracts, which adds 538 new rooms to our pipeline. As of 31 March, ’23, our operational inventory comprised 88 hotels with 8,000 — about 8,400 rooms and our pipeline comprised of 42 hotels with about 3,300 rooms. This quarter onwards, we will also be reporting our total management fees received by Lemon Tree Hotels. In FY ’23, it was INR104 crores, which increased by 54% versus FY ’20.

To further explain, total management fees can be broken into 3 parts. The management fees at Carnation Hotels, which is a 100% subsidiary received from third-party hotel owners, the brand fees which third-party hotel owners paid directly to Lemon Tree Hotels and finally, the management and brand fees which Fleur Hotels, which is our asset-owning joint venture with Dutch pension fund manager APG. This management and brand fees is paid to Lemon Tree Hotels by the joint venture.

For FY ’24, I will refrain from giving specific guidance, other than saying that our growth momentum is continuing and that we will be investing significantly more than normal in renovating our hotels, especially the Keys portfolio to catch-up with the near absence of this during FY ’21 and ’22. This will increase our operating expenses by a further 2% to 2.5% on revenue basis for this year, but will position our hotels to capture better pricing and demand in H2 and in the following years.

Finally, post-COVID and with the impending opening of our largest Hotel, Aurika Sky City in Mumbai, we would now like to share the roadmap for the next five years, which has been released alongside the earnings presentation, where we have set forth clear and highly achievable outcomes for the next five years, wherein we intend to deliver superior financial performance, lighten our portfolio, be debt free and be a leader in digital and ESG.

I will request everybody to look through that presentation. And on that note, I come to the end of my opening remarks and would ask the moderator to open the forum for any questions that you may have.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] We take our first question from the line of Archana Gude from IDBI Capital. Please go ahead.

Archana Gude — IDBI Capital — Analyst

Hi. Good afternoon, sir. Thank you for the opportunity, and congrats on very robust numbers. Sir, three questions. Firstly, I do understand you said that you won’t be giving any specific guidance. Still how the trend is looking? And I heard your interview on CNBC wherein you spoke about next two years to be better for the industry. So how we should look at it from top line and margin point of view for Lemon Tree?

Patanjali Keswani — Chairman and Managing Director

See, what we are looking at is leveraging four separate revenue streams without significantly or, in fact, even — well, without really increasing our costs. So the first is, we will look at improving our occupancy and ARR in the portfolio of Lemon Tree Hotels and Red Fox Hotels. So that is one lever we are looking at, which means really we are looking at increasing the — both the occupancy and the ARR in this portfolio. Then with the — now that we have started a large-scale renovation and that includes the Keys portfolio, we expect we will be able to command significantly higher ARRs and occupancies in the Keys portfolio, which as you know, Archana, is about 18% to 19% of our total portfolio. That will see a significant uptake from H2 this year.

The third lever is management fees. We have very aggressively added hotels. And in my presentation, you may have seen that we expect to close this year with over 10,500 operating groups, which is a fairly large hike from the 8,400 rooms that we operate now. Now, this increase, about 670 rooms will come from this Aurika and Bombay and another 13, 14 rooms will come from hotels under the management and franchise contract, which we will operationalize this year.

So management fee income, we expect we’ll see a significant hike this year and even larger hikes next year as these hotels then start operating for the full year. We capture the fees for the full year rather than part year when we open it this year. So put together — and, of course, the fourth is Aurika. So put together what we see is across all these four revenue streams, there should be increasing traction. And I reckon that by the next — by this year and by the following year, you will see a, well, a material change in our revenue and EBITDAs. And as you know that we have said that we will look at maintaining the EBITDA margins at 50% at least.

Archana Gude — IDBI Capital — Analyst

Right, sir. Sir, you would like to upgrade that 50% to 55% now since there are too many growth levers for us now?

Patanjali Keswani — Chairman and Managing Director

Update you on?

Archana Gude — IDBI Capital — Analyst

Sir, earlier we were talking about 50% EBITDA margin for us. Now since Q4 we had the EBITDA margins, should that be the benchmark going ahead?

Patanjali Keswani — Chairman and Managing Director

No, that won’t — see, the benchmark is that — remember the H1 is always in revenue terms anywhere from 42% to 45% of the annual revenue, whereas the costs are more or less fixed in this and — well, your costs are allocated across the year. So the way to look at it is that EBITDA in summer, whatever EBITDA margin we report, typically in winter we do 10%, 15% better than that. And that you would have seen in the past year and that you can make safely assume for the future years.

Archana Gude — IDBI Capital — Analyst

Sure, sir. Sir on our Lemon Tree 2.0 guidance of 20,000 plus rooms and 300 plus hotels, how we should look at brand-wise growth or some color on season-wise expansion? Any particular brand to take precedence or any particular market you preference going ahead?

Patanjali Keswani — Chairman and Managing Director

So think of it this way. Effectively, management contracts capture one-sixth of the EBITDA of our hotels. So basically, if I managed 600 rooms, I basically take the EBITDA of 100 rooms, okay. Franchise, you normally take the EBITDA of one out of nine. You take about 10%, 11%, 12% of EBITDA. So in franchise, we normally, out of 900 rooms, now the issue with many hotels we looked at is that they are not coherent as far as products standard go with the Lemon Tree brand.

So in that sense, Keys is a soft brand, which means really that we provide sales, marketing, distribution, our brand and we give certain standards, which are more service-oriented to these asset owners. And therefore, we — the way we look at it is most management contracts will be signed by Lemon Tree and most franchise contracts will be signed by under the Keys brand. So while I cannot give you a breakdown, my broad expectation is that the rate of growth of franchise within the next year or two, since we have just started this, will start accelerating and will far exceed the rate of growth of the management business.

Now when I look at our portfolios, in FY ’24, we will open roughly 1,600 rooms, 26 hotels under the managed/ franchise route and another 670 rooms of Aurika. So really, that is why I said we will end FY ’24 with at least 10,600 operational rooms and about 115 operational hotels. Now up to the end of last financial year, the end of Q4, we had already signed another 1,000 rooms, which were due to open after FY ’24. And in FY ’24, we are reasonably sure we will sign another 1,500 rooms.

So put together another 2,500 rooms. So our portfolio, which is why I had shown in the first slide of our five-year roadmap that we will cross — we will hit at least 13,000 rooms by the end of this year. And this should — we have made fairly conservative estimates. We will add only 2,000 more rooms a year and therefore, cross 20,000 by ’28. So that’s how we’re looking at it. We will end this year — this FY ’24 with owned hotels will be only 54% of the portfolio. And if I include signed hotels, then it will be 45% of the portfolio.

Archana Gude — IDBI Capital — Analyst

Sir, but is there any brand preference when we go for expansion from annual contracts or it’s like as for the….

Patanjali Keswani — Chairman and Managing Director

No. See, we were earlier a little reacting when we’re letting owners reach out to us. Now that we have proactively setup a management — two business development departments in management and franchise. It is not based on a — let’s put it this way. It’s not that we say we want more Keys franchise or more Lemon Tree management. We are open to both. We just want to expand the network and achieve some level of, what we call, dominating scale in the mid-market. So it would be either, whatever is suitable for the relevant hotel.

Archana Gude — IDBI Capital — Analyst

Sure, sir. That answers. And sir lastly, if I may. Sir, how much is the capital expenditure left for Aurika Mumbai? And also given that we are now focusing on renovation of Keys portfolio, how much would be the total capex for FY ’24 and ’25?

Patanjali Keswani — Chairman and Managing Director

So about 75% of the renovation expense will be within the opex and therefore, will be expensed before we get to net EBITDA. So when I said 2.5% of increase in revenue, I really said about 2.5% — INR25 crores more we will spend than normal. So looking at it from that perspective, last year we spent about INR20 crores including capex. This year, we will spend about INR55 crores, of which about INR40 crores will be or INR43 crores will be opex and that will come pre-net EBITDA.

So in the capex sense, the capex will only be INR10 crores, INR11 crores. As far as Aurika Bombay goes, we have accelerated the deployment of capital because we are going to open it, as I said in October this year. So we closed it at how much? INR575 crores? As of 31st March, it was INR575 crores, but we have already deployed another INR80 crores, INR85 crores. So it is now about INR650 crores. So, that leaves about INR300 crores for opening that hotel.

Archana Gude — IDBI Capital — Analyst

Sure, sir. Sir, thank you so much and all the best.

Patanjali Keswani — Chairman and Managing Director

Pleasure, Archana.

Operator

Thank you. We take the next question from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Yeah. Good afternoon, sir. Thanks for giving me the opportunity and congrats for good set of numbers. Sir, my question is on the EBITDA margin front. So you just mentioned that we would be spending around 2% to 2.5% of additional on the renovation, which will be part of your opex. And normally, renovation happens during the first half of the year, largely in the quarter 2 when it is a lean business period for you. So considering that, should we expect that in H1 FY ’24, your margins would be lower on Y-o-Y despite the fact that we should expect better occupancies on Y-o-Y and ARR, the higher opex would lead to lower margins? And in the second half of the year, it should more or less normalized, so that for full FY ’24, you will be having similar kind of margins what you have achieved in FY ’23?

Patanjali Keswani — Chairman and Managing Director

So without comparing it to H1 of FY ’23, let me just say that whatever margin we do show from Q1 and Q2 is going to be 2.5% less than what we would have done if we had not done this extensive level of renovation. Having said that, let me also add that we expect this to give us much better results in H2. So as a company, on a full-year basis, the EBITDA margins will be 50% or more, number one. Number two, the other things that can affect our EBITDA margins is the opening of Aurika Mumbai.

Now when Aurika Mumbai opens, it will be opening in October and October and up to middle of November is a very light period in India for demand because it includes Dussehra and Diwali where many people do not travel. So what we expect is in Q3, Aurika Mumbai will take time to stabilize and real stability — stabilization will happen in Q4. As a result, on a standalone basis, Aurika Mumbai’s EBITDA margins will certainly not be 50% and so on, especially when we launch the hotel. And therefore, that will act as — while it will increase our revenue and our EBITDA, it will not be at the ratio of the other hotels and therefore, it will also have an impact on our EBITDA margins in Q3 and Q4 as a percentage. But obviously, in absolute terms, it will be an addition to our EBITDA.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Got you point, sir. Got your point. So FY ’24 — so whatever benefit because of the renovation and Aurika in terms of when it will be fully operationalized, the benefits would start kicking in from FY ’25 for Keys as well because of the renovation and Aurika would be fully operationalized. So, you will be having more, better revenues and margins from that particular property. Is it a right assumption?

Patanjali Keswani — Chairman and Managing Director

But Q4 may still surprise.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Okay, okay. Got your point. And sir, my second question is on debt part. So when do we expect debt to pick out and we should start seeing some bit of reduction in debt maybe from FY ’25 or ’26? Any target or guidance on that front?

Patanjali Keswani — Chairman and Managing Director

See, I had given one guidance once that we think that Lemon Tree Hotels’ standalone will be debt free by ’26 — FY ’26 and in the very worst case, pure will be debt free by FY — two years later by FY ’28. However, if — we have tried to give in our five-year roadmap an indication of how we expect Aurika to perform. And I have specifically mentioned it is a conservative estimate. So Aurika in and of itself has the ability to generate INR600 crores, INR700 crores of EBITDA after fees to Lemon Tree in 4 years. So, my view is that you will start seeing significant debt reductions from next year.

See, this custom [Phonetic] is the peak of our capex. You have to keep in mind that we were deploying capital — enormous amounts of capital over the last eight years or eight years. 40% was deployed and not CWIP until one year before COVID. Another 40% 1 year before COVID and the last 20% is this year. So, from next year onwards, obviously, we have zero requirement for capital. We will only be looking at EBITDA as a way to replace — to reduce the debt.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Absolutely. Absolutely. Thanks for the explanation, and all the best for the future. Thank you.

Patanjali Keswani — Chairman and Managing Director

Thank you.

Operator

Thank you. We’ll take the next question from the line of Adhidev Chattopadhyay from ICICI Securities. Please go ahead.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Yeah. Am I audible?

Patanjali Keswani — Chairman and Managing Director

Yes, you are Adhidev.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Hello?

Operator

Yes, sir, you are.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Sir, yeah, I just wanted to — could you, sir, give us some sense for the EBITDA breakup for ’23, how much is non-Fleur and how much would be Fleur EBITDA breakup of the portfolio?

Patanjali Keswani — Chairman and Managing Director

So when we say we do INR450 crores, really, our EBITDA at the hotel level is about INR60 crores more?

Inder Pal Batra — Senior Vice President, Finance

Yes.

Patanjali Keswani — Chairman and Managing Director

So about INR510 crores. No, there is fees also transferred?

Inder Pal Batra — Senior Vice President, Finance

INR35 crores.

Patanjali Keswani — Chairman and Managing Director

Yeah. So say about INR550 crores. Now, I would say Lemon Tree on a standalone would be about INR175 crores and INR375 crores would be Fleur or INR350 crores would be Fleur. And then there is — when we report consolidated A canceled B, which is why we decided we would show this year the management fees has flown into to Lemon Tree standalone even from here because as you may have seen in our five-year roadmap, we tried to show that we would be lightening our ownership of Fleur and progressively moving more and more towards brands/manager of hotels. So, I’m asking, Inder, can you do a breakdown of this in FY ’23 and let me know? Can I answer this in a little while, Adhidev, because we just have to calculate it?

Adhidev Chattopadhyay — ICICI Securities — Analyst

Yeah. Sure, sir. Just wanted to understand. Just a follow-up. Post the buyout of the CCDs in the last quarter, so what is — for housekeeping, what is our share and APG’s stake now in Fleur Hotels?

Patanjali Keswani — Chairman and Managing Director

APG, yes, it is now at 42% and it will come down to 41%, which was our shareholding pre-COVID.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Okay. Okay. Sir, and just another question on — you have mentioned about the possible IPO or REIT, InvIT listing for Fleur Hotels subsequently a few years down the line. So in terms of timing, like would you — because considering the market scenario — sir, you mentioned INR600 crores to INR700 crores of EBITDA, right, for the Fleur portfolio or the Aurika portfolio, just to — if I’m not wrong in your earlier comments?

Patanjali Keswani — Chairman and Managing Director

See, in a broad way, look, we’re not — we have a plan. Our plan is very simple. Irrespective of anything else, we feel without any other intervention, we will be in a position to be debt free in the next five years irrespective of any external intervention. Now to come back to your earlier question, I’ve got exact numbers. So, we did a total EBITDA of about INR460 crores last year. Our share of that EBITDA was INR350 crores and APG’s share of EBITDA was about INR110 crores, okay?

So if I look it from the perspective of your question, the EBITDA of Fleur was about INR320 crores. INR60 crores went as fees to Lemon Tree, and I’m giving you approximate number for a flavor. So net EBITDA of Fleur was about INR260 crores. Lemon Tree’s owned assets did INR100 crores of EBITDA — net EBITDA. They did another INR60 crores of fees from Fleur and another INR40 [Phonetic] crores of management fees. Therefore, Lemon Tree did INR200 crores. Fleur did INR260 crores. And APG’s share of that INR260 crores was INR110 crores.

Does that answer the question?

Adhidev Chattopadhyay — ICICI Securities — Analyst

Yes, sir. So broadly, it’s a 75-25 breakup, right, if I just look at Lemon Tree and APG’s share, right, if I look at it that way at the overall level?

Patanjali Keswani — Chairman and Managing Director

So now let’s go forward. The maximum debt is in Fleur. So if I look at it from the debt perspective and say, we have INR1,700 crores odd of debt, about 70%, 75%. Okay. So, let’s assume in a scenario that AP — sorry, this Aurika opens, we expect that Aurika, net of fees, will be at least INR150 crores of EBITDA. So the earnings on a standstill basis, if we just went by INR260 crores of EBITDA here today, we are sure that this will obviously go up fairly significantly with Aurika MIAL and the increase of the current portfolio and the increase of the Keys’ portfolio. So put together, when we look at listing it, the net EBITDA should be north of INR500 crores.

So if we list this company hypothetically, and you can apply whatever multiple you want, we are currently — we are going to be 59% shareholders. If we do a fresh issue of, say, 18% and come down to 51%, then the 18% means really that’s fresh money on a company that has an EBITDA north of INR500 crores. We feel that in and of itself may be enough to write-down the debt of Fleur. So there are multiple levers. We have not started exploring those routes.

Right now, we are saying, on our existing portfolio, we will be debt free even if we don’t list Fleur, but obviously, we would like to list Fleur, we would like to reduce our ownership in Fleur. We would like to increase our fee-based interims. So, there is an entire plan and that’s the real plan which I cannot share with you. You will just have to keep seeing it play out with the five-year plan that we have given out. So, we will do an Annual Report as to where we are in this five-year plan, so you see the path that we are following.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Okay, sir. All this was very helpful. Yeah. Thank you, and all the best.

Patanjali Keswani — Chairman and Managing Director

Thank you.

Operator

Thank you. We’ll take the next question from the line of Tushar Sarda from Athena Investments. Please go ahead.

Tushar Sarda — Athena Investments — Analyst

Yeah. Thanks. Thank you for the opportunity. Am I audible?

Operator

Yes, you are.

Patanjali Keswani — Chairman and Managing Director

Yeah, I couldn’t hear your name. I’m sorry. Can you repeat it?

Tushar Sarda — Athena Investments — Analyst

Yeah. I’m Tushar Sarda.

Patanjali Keswani — Chairman and Managing Director

Tushar, okay.

Tushar Sarda — Athena Investments — Analyst

So thanks for the opportunity. I had two questions. One you said that on Keys, you are going to spend money and bring them up to standard. If I remember in the past calls, you also were mentioning that these hotels are in cities which probably are not conducive for running, I mean, in terms of demand and ARR and all that. So where do we stand on that?

Patanjali Keswani — Chairman and Managing Director

Okay. Good point, Tushar. So let me break this down into this portfolio into two parts. Roughly, 50% of the portfolio, about 430, 470 rooms are in locations where we feel we have a significant ability to use them. So, this includes Whitefield, Bangalore, where we have 222 rooms; Hosur Road/Electronic City in Bangalore where we have 159 rooms; Pune, Pimpri where there is about 100 rooms; and Vishakhapatnam where there is about 100 rooms. So you add this up, this is actually — I have added Vishakhapatnam because that city is showing signs of high demand. This is nearly 60% of the portfolio.

So in this part of the portfolio, we will invest maybe INR5 lakhs a room in order to bring it up because we see that our payback in incremental EBITDA will be less than one year, just with this investment. That leaves the portfolio of 150 rooms in Cochin, 100 rooms in Trivandrum and another 100 rooms in Ludhiana. Here we will basically invest INR1.5 lakhs a room, where our intent is to really bring them up to standards. Because when we acquired this portfolio, it was just 3 months before COVID.

And we had certain plans to upgrade it. In fact, in the summer of ’20, which we could not do obviously because of COVID, but we see even with this marginal intervention to bring that brand up to what we would like to be minimum standards, we will be able to increase the EBITDA and occupancy there too. But really, there will be a much larger opportunity in the earlier hotels and a smaller opportunity in these hotels. So it is basically, we’ve done capital allocation and renovation on that basis. What do we expect? We expect we’ll be able to increase the EBITDA of these hotels by a minimum of INR40 crores once we renovate them. INR40 crores, maybe even INR50 crores. It depends on how Whitefield and Vishakhapatnam play out.

Tushar Sarda — Athena Investments — Analyst

Okay. Okay. You’ve also answered my second question because I was going to ask you on capex in different Keys hotels, but you’ve already mentioned that. Thank you very much and all the best.

Patanjali Keswani — Chairman and Managing Director

Thank you.

Operator

Thank you. We take the next question from the line of Hitesh Arora from Unifi Capital. Please go ahead.

Hitesh Arora — Unifi Capital — Analyst

Actually, my question was on Keys hotels, which you have answered — you just answered. Thanks.

Operator

Thank you. We take the next question from the line of Sakshi Chhabra [Phonetic] from Swan Investments [Phonetic]. Please go ahead.

Sakshi Chhabra — Swan Investments — Analyst

Yeah. Hi, sir. Congratulations on a good set of numbers. Sir, I wanted to understand that in the roadmap, where you are saying that you are going to be only doing management contracts, are you also looking at adding any hotels on a lease or on a revenue share model? Or is it only going to be management and franchise?

Patanjali Keswani — Chairman and Managing Director

We are completely open to any format, which does not require capital deployment. So really, lease is an intermediary — if you look at risk-reward trade-offs, ownership of assets is obviously the highest risk and highest reward. Franchise is the lowest risk and actually, a fairly interesting reward. Management is low risk, relatively high reward. Lease is potentially — based on the kind of lease you charge, it is potentially, I would say, low-ish risk and potentially high reward. The downside of a lease contract is basically the amount of minimum guarantee that you give. So, I think as a company, we are quite open to leases, but we would like leases to be more oriented towards revenue share because we have a certain cost structure we think we can monetize rather than minimum guarantees.

Sakshi Chhabra — Swan Investments — Analyst

So is there any percentage of additional rooms that you’re looking at on the lease — on the revenue share model?

Patanjali Keswani — Chairman and Managing Director

I told you this is a question of what is available and whether we want what is available. So Sakshi, very difficult for me to answer. It is quite likely we will sign some hotels on lease. But as I said, when we do our sensitivity analysis, we will look at worst case EBITDA and say that our committed lease rentals must be less than that with some buffer built in. So the way we think of lease is very simple that in good times we take 70% of the upside. In bad times, we may make only 5% because the balance is going to the asset owner. So it is in that sense more volatile. Are you getting me? But also less risky. More volatile on earnings, but close to zero risk on capital deployed.

Sakshi Chhabra — Swan Investments — Analyst

Yes. But going forward, I mean, higher amount of growth can come if you go by the lease model rather than only on management contracts, right?

Patanjali Keswani — Chairman and Managing Director

I totally agree. So it’s not a one size fits all, but typically, we would look at leasing an asset [Phonetic], where we would really perhaps look at putting — we would have put up our own hotels if we had the capital. So, that’s where we would look at leasing an asset. Otherwise, we will only do management or franchise.

Sakshi Chhabra — Swan Investments — Analyst

Okay. All right. And sir, in terms of the renovation that you were talking about, so how long — like in the next six months, how many rooms would be renovated?

Patanjali Keswani — Chairman and Managing Director

Well, think of it this way. We have a three-year renovation plan for Keys and for a bunch of our older hotels. Put together, they would be about, I would say, about 3,500 rooms. So, we plan to spend about INR115 crores, about INR50 crores each year, INR50 crores, INR55 crores. So, this renovation will happen in H1 of this year, next year and probably a little less in the following year. So, this is how we planned it. But the renovation of the public areas will happen this year, which I will show.

Sakshi Chhabra — Swan Investments — Analyst

Okay. So not particularly — you don’t have a fixed number as to how many rooms you will be doing in H1 of this year?

Patanjali Keswani — Chairman and Managing Director

Okay. So not particularly — you don’t have a fixed number as to how many rooms you will be doing in H1 of this year?

Sakshi Chhabra — Swan Investments — Analyst

Okay. 1,000 rooms. And the rest will happen in the subsequent years?

Patanjali Keswani — Chairman and Managing Director

That is right. Because the newer hotels don’t really require renovation for another three years, four years. And that will be what we call the routine renovation. So, you take Bombay, take Pune, take Calcutta, Udaipur, certainly Aurika MIAL, take Dehradun and so on. These are over 1,000 rooms, which will not require renovation. So the balance 3,500 rooms, 4,000 rooms, we will renovate over the next few years.

Sakshi Chhabra — Swan Investments — Analyst

Okay. I got that. And sir, in terms of the franchise model, do you think that the hotels are ready for, I mean, the ones that you give out for franchise, so what are the criterias that you look at? Because in a management contract, you still have a lot of control, right, but in a franchise that doesn’t happen. So how do you make sure that they maintain the quality standards that Lemon Tree Hotels require?

Patanjali Keswani — Chairman and Managing Director

Okay. So, you see we’ve hired the top management team of Choice Hotels in October last year. Choice, as you may know is the world’s top two franchise operator. It’s a US company. So the CEO, the Head of Franchise and Legal and the Head of Commercial and Operations came on board. That’s why we have started at an early stage signing a few contracts. But here’s the way we look at it. You’re absolutely right that in a franchise model you have no control over the service, the experience your customers are getting on this in these franchise hotels. So, we have a three-step model. One is before we sign a franchise, we give a minimum what is called an improvement plan. It includes training. It includes product improvements. So basically, it’s fitting it into the Keys brand.

Number two is we have an ongoing audit by third-party sources like TripAdvisor, MakeMyTrip. And there is a minimum marks that you must get. Otherwise, you will be given a one-week notice. And if you do not make the necessary changes, then you will be out of the network. Third is that, we have what is called mystery audits, which are paid by the owner of the hotel, where we will, on a random basis, start auditing hotels in a cycle so that we have also onsite eyes with eyes an assessment of the product and service.

Sakshi Chhabra — Swan Investments — Analyst

Okay, okay. That’s very helpful, sir. And the franchise will be only for Keys Hotels, not the other brands?

Patanjali Keswani — Chairman and Managing Director

No. Where we have some degree of confidence on the operator, he has hotel experience, he has asked us, so that’s like a quasi manchise where the owner asks us to help get the General Manager, maybe the Head of Housekeeping and so on where we have closer eyes. We don’t mind giving Lemon Tree, but there will be even stronger scrutiny in Lemon Tree than in Keys in terms of the minimum net promoter score we need. So Keys might be 3.5 on 5, but Lemon Tree will be 4 on 5.

Sakshi Chhabra — Swan Investments — Analyst

Okay. All right, sir. Thank you.

Operator

Thank you. We’ll take the next question from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.

Jaiveer Shekhawat — Ambit Capital Private Limited — Analyst

Sure. Thanks a lot. Good evening, Mr. Patanjali. Firstly, on your capex. Given that you are still left to incur almost INR300 crores for Aurika, so do you expect any further delays in commissioning of the property beyond the October stated timeline?

Patanjali Keswani — Chairman and Managing Director

No.

Jaiveer Shekhawat — Ambit Capital Private Limited — Analyst

And do you expect that run rate is likely to increase on the capex front?

Patanjali Keswani — Chairman and Managing Director

See, understand one thing [Foreign Speech]. Capex, when I say capex, we still have to — we have hit nearly INR650 crores. We need INR300 crores more. About INR100 crores of this capex is not required to be paid when the hotel opens. There are performance guarantees. There are payment terms, etc. So really, this entire capex will continue. I mean, the payment will be made until maybe the end of the financial year. And a little bit, in fact, will go into the following year because it’s even more than six months of performance guarantee. So we really require about, I would say, INR250 crores, okay. Maybe even less. We are working the numbers out.

So, we will open this hotel, we are certain in October and we expect this hotel to be EBITDA positive by mid-November, latest end November. So what we are not able to estimate, obviously, we have ranges, is exactly how quickly this hotel will stabilize. The only good news is that the Bombay hotel, which we opened in the first full year of operation really, in fact, even if I remember right, we opened it in July, about six months, seven months before COVID. By November, it was doing very well, okay. And, of course, then in March, it collapsed.

So when I look at Bombay and say Q4 — Q1 this year, let me give you an amazing thing. Bombay in Q1 this year has a higher occupancy than Q4 last year. It’s amazing how it’s doing. So Aurika, in our opinion, could be a showstopper for us. I have given very conservatively that we will do INR170 crores of EBITDA and that’s guidance in the second year of operation, but I would not be at all surprised if we did both a better EBITDA in the first year of operation. So, we’ll have to wait and see.

Jaiveer Shekhawat — Ambit Capital Private Limited — Analyst

Sure. Sure. And secondly, on Fleur itself, I mean, given the intention of listing it over the next five years, on APG front, are they also looking to monetize stake? Or will they still hold their stake post listing as well given — I mean, given the long association they’ve had with Lemon Tree as well?

Patanjali Keswani — Chairman and Managing Director

See, we’ve had conversations, but I cannot speak for them. A pension fund manager could, for example, once we list, we will be 51%. There will be obviously multiple other shareholders. So APG, they’ve lightened its ownership. They may look for some yield return because it will be very significantly cash flow positive. So as you know pension funds, you look for yields. So, I cannot speak for them. It will be, I presume, some combination of it.

Jaiveer Shekhawat — Ambit Capital Private Limited — Analyst

Sure. Sure. That’s helpful. Thanks a lot.

Operator

Thank you. We take the next question from the line of Jinesh Joshi from Prabhudas Lilladher. Please go ahead.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Yeah. Thanks for the opportunity. I have a question on Aurika mainly. You mentioned that it could be a showstopper for us. And given that the hotel is likely to be operational in October itself, if you can just help me understand what are the micro market dynamics in that particular area? Is there anything hotel using [Phonetic] supply, which is coming up over there, which can potentially deepen any impact in ARR than our guidance, which we’re kind of giving currently?

Patanjali Keswani — Chairman and Managing Director

Okay. So let me just give you some flavor, Jinesh, and it’s just flavor. When we opened our hotel in Delhi, we opened a total inventory of 500 rooms in a market that was near the airport. And within a year and a half, there were 5,000 rooms in this micro market. Delhi is the second deepest market in India after Bombay. Within two years, the average occupancy in this micro-market was 70% plus.

So, that’s flavor of a market which is not as good as Bombay. Now we come to Bombay. We opened our hotel, as I’ve said — in fact, part opened the hotel in July. It got fully operational, I think, in three months or three and a half months. It was a soft opening. Within three months, it was doing phenomenal occupancy. Not at very high rates because we were trying to penetrate the market, but it was doing super well. Our current assessment because we are now physically present in that market is the Andheri-Kurla market caters to demand from every possible segment, meetings, incentives, conferences, tourist, transit travelers, business travelers, long stays and across multiple micro markets in North Bombay.

So when you look at this market and you look at Smith Travel Research report on it and if you talk to any hotelier who has a hotel company that has assets in that market, you will find all supply has always been absorbed. We added 300 rooms and in three months it was absorbed. Now we are adding 670 rooms. But if you look at passenger traffic, it has increased enormously there. So from the risk perspective and ultimately, you are asking me a question of what is the risk, we are very sanguine that this hotel will be, as I said, a showstopper for our company. You see, think of it as simply, we did INR450 crores EBITDA this year, we feel Aurika alone can be 40% of that.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Got it, sir. That was pretty much elaborative. And I just have one follow-up question. I guess in the opening remarks, you mentioned that you will probably refrain from giving any guidance for FY ’24. But if I recollect properly in the last earnings call, you had mentioned that you seem to grow revenues by about 20% and our net EBITDA margin in FY ’24 will be higher than what it is in FY ’23. Now in FY ’23, we are already at 52 odd percent and you also mentioned that we have some renovations lined up. So do you kind of still hold down on to that guidance that our margins will be higher? And also on the revenue side, if you can just throw some light?

Patanjali Keswani — Chairman and Managing Director

[Foreign Speech] I can’t give, as I said. Let me put it slightly differently to you. Aurika will deflate the — so the way you should look at it is apple-to-apple, which is Lemon Tree as a group without Aurika MIAL, because in Q3 that will deflate our EBITDA percentage, not the EBITDA number, but the EBITDA percentage, okay, because it will operate both at numerator and denominator. But if I look broadly, what do you see if you look at our company?

Aurika is kind of a hotel that does INR30 lakhs EBITDA per key. Lemon Tree Premier does anywhere from INR15 lakhs to INR16 lakhs a key. Lemon Tree does INR10 lakhs to INR11 lakhs a key. Red Fox does INR7 lakhs to INR8 lakhs a key, and Keys should do about what Red Fox does. So if you added together into inventory, you get a rough idea in a year, a year and a half what our EBITDA will look like. You get a picture of that. And then the management fee income is a simple number. You simply look at the number of rooms we are operating multiplied by the fee per room and you get to an EBITDA, which is a very interesting number within the next two years.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Sure, sir. This helps. Thank you, and all the best.

Patanjali Keswani — Chairman and Managing Director

Thank you.

Operator

Thank you. We take the next question from the line of Rajiv Bharati from DAM Capital. Please go ahead.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

Good afternoon, sir. Thanks for the opportunity. Sir, in the [Speech Overlap]

Operator

I’m sorry to interrupt, Mr. Rajiv. Your audio is not very clear. Please use the handset and speak a little close to mic, sir? Thank you.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

Yeah. Is it better now?

Operator

Yes. Please go ahead.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

So, your current ownership in Fleur is 59% and when you say that you will be settling at 51%, is there OFS from the Lemon Tree side as well in that or is largely due to the fresh?

Patanjali Keswani — Chairman and Managing Director

I’m sorry. I couldn’t get the question. Can you repeat it?

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

So, your current ownership will be close to 59%, right, after you do the remaining buyback of CCPS. And from there, you are saying that we will settle at 51% after, let’s say, whatever route you choose to exit. So in that from 59% to 51%, is there an OFS from the LT side, which is planned here? Or this 14% dilution is largely due to fresh?

Patanjali Keswani — Chairman and Managing Director

You see we will not need any cash. Actually, we will only be generating cash. We feel that on a standalone basis, Lemon Tree will be able to settle its own debt within the next two years, two and a half years. So, there is no reason for us to do an offer for sale. This will be — when I said we will come from 59% to 51% or 50.1% or whatever, it will be due to a fresh primary issue of capital. However, I think somebody — one of the listeners asked a question. I cannot speak for APG. APG may also decide to do a small monetization if and when we list.

So, I cannot speak for that. So basically, what I’m saying is that we will do a primary issue of probably 15%, 17%, and that should hopefully take care of the entire debt of Fleur, after which Fleur will be a large cash-generating company and so will Lemon Tree. So, one possibility is that in the next two, two and a half years, because if you notice, I’ve written by or before 2028. If market conditions are ripe and right, we will list Fleur, especially after Aurika MIAL starts showing the kind of results we expect it to and in which case by, in the next 24 months, the whole group will be debt free.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

Sure. And in terms of — just to get a size of the ballroom in Aurika Bombay to versus, let’s say, the competition in nearby area, what is the size of area you can cater to versus, let’s say, what we have in the nearby districts.

Patanjali Keswani — Chairman and Managing Director

So right now, Lemon Tree Premier really competes with the Radisson, where 2 Radisson. It competes with the Courtyard and it competes, I think, with the Holiday Inn and to some level with The Leela. They are all similar in average rates, okay, which is say INR8,000 to INR9,000. The higher-rated hotels are JW Marriott and ITC — ITC Grand Maratha. So really, we will be competing with them. And the product, you see what I intend to do is somewhere in October or November, once the hotel is open, I’m going to have an Investors/Analyst Meeting in that hotel because I would like people to see what we mean about — what Aurika is all about. And I think it will be quite an eye-opener.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

Sure. And lastly, in terms of the journey we had so far, if you can quantify the number of the hotels we have lost to competition, whichever has come for end of tenure? Is there a number there?

Patanjali Keswani — Chairman and Managing Director

We have not lost any hotel. We have given up two hotels. One for brand standards and one because the owner went into a criminal case. And I don’t think we’ve lost any hotels that we have taken under management or franchise, except for two as I said. One was a lease and one was a franchise.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

Sure. And the length of the contracts, which you are signing as of now, are they in the historical ballpark of 10 years to 12 years? Or they are getting longer or shorter because the competition is higher now?

Patanjali Keswani — Chairman and Managing Director

See, we do not sign any contract less than 10 years. And the average is, I think, closer to 15. Number two, we are very clear that we do not sign contracts for cash flow. We signed contracts for NPV of the management fees till the end of the contract. So since we make investments in time and effort and lend our brand, we are very clear that if you sign a management contract with us, you cannot terminate it. And if you terminate it, then there is a very significant amount of penalty or catch-up on fees that you have to pay.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

And in the Red Fox data what you shared in terms of room count, there is one hotel, which is lesser on a Q-on-Q basis and I think 111 rooms which are there. So this is the criminal thing — criminal case hotel, which you’re talking about?

Patanjali Keswani — Chairman and Managing Director

Yes. So we got into a court — I mean, we got into a case. There were a bunch of issues there. I don’t want to go into specifics, but let’s put it this way that it was for us more than anything else an ethics issue. It was not a financial decision as much as an ethics issue.

Rajiv Bharati — DAM Capital Advisors Limited — Analyst

Sure. Thanks a lot and all the best.

Patanjali Keswani — Chairman and Managing Director

Thank you.

Operator

Thank you. We take the next question from the line of Jayesh Shah from Ohm Portfolio Equi Research. Please go ahead.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Hello, Mr. Keswani. Congratulations again for a grand result. My questions would again be more on the FY ’24 guidance. I was left a bit confused [Phonetic] in terms of [Indecipherable] and overall terms. If I understand you correctly, there is going to be higher occupancy and perhaps higher prices on a Y-o-Y basis. So if I break this up, on occupancy basis, do you think the industry can register a top line growth of, say, 15%, 20%? Or is it going to be 10% to 15%? And where would Lemon Tree meet? I’m asking for a broad range, not a specific number.

Patanjali Keswani — Chairman and Managing Director

I think for industry growth, I’m the wrong person. As far as we are concerned, certainly, we would like to be, on a real basis, north of, I would say, 14%, 15%. This excludes Aurika. And this would be a combination and an improvement of ARR and an improvement in occupancy. So really, RevPAR is what I would look at. And yes, we would target around those numbers if not more.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Right. So occupancy and ARR together would give you around 15% top line growth on a like-to-like basis, not accounting [Technical Issues]?

Patanjali Keswani — Chairman and Managing Director

And excluding management fee income, so we are talking those hotels which are operating.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Right. And fair to say that the management fee income should also grow between 10% and 15%?

Patanjali Keswani — Chairman and Managing Director

That would be crazy under performance.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Okay. Got it. Got it. So in that case, very simple math would be that your bottom line growth should exceed your top line growth, even after Aurika’s interest depreciation and additional capex, opex that you want to write-off broadly?

Patanjali Keswani — Chairman and Managing Director

I would be a little careful saying that. So if you want it to be disaggregated, let’s put it this way, that if my EBITDA is — suppose my revenue is INR100 and my EBITDA is INR52, and I have said quite clearly that we will be spending INR2.5 to INR3 more in terms of renovation. So the costs, which used to be INR47, INR48 on INR100 will obviously hit INR50. So the challenge for us now is that if we want to hit a 50% EBITDA as a group, we have to make sure that we do better in the existing portfolio and the management fees and through Keys to compensate for the deflation in margin percentage due to Aurika while it stabilizes.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Got it. So the big jump in earnings and revenues and all will come in FY ’25?

Patanjali Keswani — Chairman and Managing Director

That would be due to Aurika and management fee and Keys. But I am not — you see I gave basically a — you are right, up to a two-year roadmap that Aurika should do INR30 lakhs a key, LTP should be doing maybe INR16 lakhs a key, LTH INR11 lakhs, Red Fox INR7 lakhs to INR8 lakhs, Keys INR7 lakhs to INR8 lakhs. So, you multiply it and look at management fee income increasing significantly, you get, as I said, and I used this word carefully which is an interesting number, but that is what we expect to get there.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Right. Right. Right. And in terms of overall business, you still think that this is not the best year as you’ve said on TV and you think we are not into the mid-cycle in terms of the hotel industry upswing?

Patanjali Keswani — Chairman and Managing Director

We’re now somewhere in the mid-cycle. So to me, India occupancy of 66%, 67% is mid-cycle. If you go to top cycle that is really 2004 to 2008 where India occupancy was 72% to 74%. When India occupancy crosses — well, market occupancy crosses 72%, 73% typically, price goes up 20% and operating leverage that’s playing in a significant way. So let me give you an example of operating leverage. So if you go to our earnings presentation on a certain slide, I’ve forgotten the slide. Well, I have to look at it. Just give me a moment. There is a slide where we showed our increased — yes, so if you go to Slide 6, this is how the hotel industry looks like.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Sorry, which slide?

Patanjali Keswani — Chairman and Managing Director

Slide 6.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Okay.

Patanjali Keswani — Chairman and Managing Director

Now if you look at it, we just talked about FY ’23 performance highlights. Now if we just look at the rate of growth of revenue from operations in Q3 ’23 to Q4 ’23, the revenue grew about INR20 crores, the EBITDA grew INR15 crores, right? So here is operating leverage playing out. My view is that going forward with the focus all hotel companies have on costs, as rates go up — see, rates will — see, where will occupancy go? It is currently, say, 66%, 67%. It will go up another 10%. So that will be variable cost improvement — increase.

But the rate increase of 20%, which I expect will happen in the next 12 months to 14 months, I expect that will flow straight through to the bottom line. So now if you look at industry — and we are a good exemplar of that. Just look at the full year — look at the Q4 performance of FY ’23 to Q4 of FY ’20 in the same slide. So, our revenue went up INR77 crores, but our EBITDA went up INR78 crores. That tells you that the cost structure has fundamentally changed. I know there has been lot of skepticism among many people that will this cost structure maintain. But if you see it quarter by quarter by quarter by quarter, I don’t think there should be any doubt on it.

Jayesh Shah — Ohm Portfolio Equi Research Private Limited — Analyst

Understood. I think that’s abundantly clear. So, thank you very much. That answers all my questions.

Patanjali Keswani — Chairman and Managing Director

Thank you.

Operator

Thank you. We’ll take the next question from the line of Himanshu Shah from Dolat Capital. Please go ahead.

Himanshu Shah — Dolat Capital — Analyst

Hello? Hello?

Operator

Yeah. Please go ahead.

Himanshu Shah — Dolat Capital — Analyst

Thank you. Thanks for the opportunity, and congrats for good set of numbers. Sir, can you just let us know for FY ’24, what proportion of rooms would be under renovation? And will there any [Speech Overlap]

Patanjali Keswani — Chairman and Managing Director

Well, listen, it will be over 1,000 rooms but we don’t renovate all at one time. Our renovation schedule typically is that we rotate it over two months for six months. So when I say 1,000 rooms or 1,200 rooms, it means that any given time 400 rooms are checked [Phonetic] across the entire group.

Himanshu Shah — Dolat Capital — Analyst

Okay. And the room renovation takes almost two months or less than this?

Patanjali Keswani — Chairman and Managing Director

Two months.

Himanshu Shah — Dolat Capital — Analyst

Two months. All right. Okay. And this will be largely under Keys portfolio, the entire renovation or across the line, sir?

Patanjali Keswani — Chairman and Managing Director

Well, about one-third will be Keys. Maybe about 35% to 40% of the balance will be the older Lemon Trees and Lemon Tree Premiers and Red Foxes.

Himanshu Shah — Dolat Capital — Analyst

Sure sir. Thanks. That is very helpful. And all the best.

Patanjali Keswani — Chairman and Managing Director

Thank you.

Operator

Thank you. We’ll take our next question from the line of Debotro Sinha from ICICI Securities. Please go ahead. Debotro Sinha, your line is unmuted. Please go and ask your question.

Debotro Sinha — ICICI Securities — Analyst

Yeah. Good afternoon, sir. Sir, congratulations on a very good set of numbers. So if I see sequentially like our revenue has increased by 8.2% and our occupancy has increased by 600 basis points. So like, if I see the expenses, the cost of food and beverages has decreased by 2% — 1.9%. So could you shed some light on that?

Patanjali Keswani — Chairman and Managing Director

Yes. So what it means is the mix has changed. Our food cost on a weighted average basis is about 30% to 31% of our food revenue. So if you see food cost at INR30, you can safely assume the revenue was INR100. Now suppose from Q3 to Q4, the number of guests have remained more or less the same, maybe from 69%, it has gone to 73%. So guests have gone up by 6%. So the food revenue would have gone up by 6%, but the room revenue may have gone up by 15%. So the weighted average may be 9%, 10% and the cost structure reflects it, because food has a much higher variable cost than rooms. That’s the way to look at it.

Debotro Sinha — ICICI Securities — Analyst

Okay. Okay. Thank you so much, sir.

Operator

Thank you. We’ll take the next question from the line of Nikhil Agarwal from VT Capital. Please go ahead.

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Hello. Good afternoon, sir, and thank you for the opportunity. Sir, I had a question on the capex. Like last quarter you had guided for INR5 lakhs per room and INR1 lakhs per room for 50% of the Keys portfolio. You have increased it to INR6.5 lakhs and INR1.5 lakhs. So is this only for Keys? Or is it for the — for your full renovation plan of 3,500 rooms which includes Keys?

Patanjali Keswani — Chairman and Managing Director

Keys will be INR5 lakhs for — earlier it was for about 52% [Phonetic] of the portfolio, now it will be closer to 60% of the portfolio because Vizag is doing well. And that is about 10% of the inventory. So, we are deploying capital or capital allocation is happening based on expected return when we increase it beyond INR1 lakhs, INR1.5 lakhs a key. Now to maintain — remember when we acquired Keys, it was a very old and tired brand. No investment had been done in it. So in the following two years, again, it became, in fact, even more tired because obviously, we did nothing with it.

So to maintain what we consider minimum hygiene levels of brand standards, we will upgrade even Keys Hotels in Cochin, in Trivandrum and in Ludhiana because these, we feel by upgrading this, we will be able to increase the occupancy, but not the price very much. In the other cities, we are spending more because we think we will be able to increase both occupancy and ARR.

Number two is, in the balanced portfolio, we feel there is an enormous opportunity to increase pricing in Hyderabad, which you have seen already in our Q4 results how it is doing. We feel there is enormous opportunity in the 2 Delhi hotels; Lemon Tree Premier and Red Fox. We feel there is opportunity in Lemon Tree Electronic City and Lemon Tree LTT — Lemon Tree Premier Bangalore. So, we have looked at each hotel. We have looked at the micro market. We have looked at demand.

We have looked at how we feel we can reprice post renovation. And the entire capital allocation decision has been done on that basis. So, I can’t take you through 40-odd hotels. But what I can tell you is, it has been done with some rational basis and we expect that in all cases, any investment, the payback should be maximum 18 months, but normally 12 months of the increase of this investment.

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Okay. Got it. Sir, the INR6.5 lakhs is for the full renovation plan, right? And it’s not only for Keys, it’s for Keys plus the older hotels, right?

Patanjali Keswani — Chairman and Managing Director

No, no. It is not that much. It is — as I said, it is about INR53 crores, INR54 crores for over 1,000 rooms. So you average it out, it is less than that. It is closer to INR5 lakhs.

Nikhil Agrawal — VT Capital Market Private Limited — Analyst

Okay, sir. Got it, sir. Thank you so much.

Operator

Thank you. [Operator Instructions] We’ll take our next question from the line of Ayush Dappal [Phonetic], an Investor. Please go ahead.

Ayush Dappal — Private Investor — Analyst

Hi, sir. Thank you for the opportunity. My question is on Delhi hotel. I’m looking at Slide number 15 in the presentation. So your RevPAR from Q3 FY ’23 to Q4 FY ’23 is from INR4,941 to INR5,559. But I’m looking at the EBITDAR number, which has gone down from 73% to 62%. So what would be the reason for that?

Patanjali Keswani — Chairman and Managing Director

Slide 15, Delhi?

Ayush Dappal — Private Investor — Analyst

Yes. Last quarter, the EBITDAR was 73% and now it’s 62% while the RevPAR has grown.

Patanjali Keswani — Chairman and Managing Director

I am just looking at that. Which number is he talking about?

Inder Pal Batra — Senior Vice President, Finance

He is talking about quarter-on-quarter. This is FY ’24. It’s not the right number. He is using the previous year — previous quarter.

Patanjali Keswani — Chairman and Managing Director

Okay. So just repeat the question because I think it’s — only one data point is on Slide 15. You are saying…

Ayush Dappal — Private Investor — Analyst

Sir, last quarter, quarter three, FY ’23, the RevPAR as per the last presentation was INR4,941 for Delhi. Now that INR4,941 has gone to INR5,500 approximately, while the EBITDAR number has gone down from 73% EBITDAR margin to 62% EBITDAR margin.

Patanjali Keswani — Chairman and Managing Director

What is the answer to that? Was it some change in — I’m sorry. I don’t have the data. What you can do is drop me an email. We’ll try and get back with specifics. I don’t have it right here.

Ayush Dappal — Private Investor — Analyst

Okay. Fine. How do you see the outlook for Delhi, sir?

Patanjali Keswani — Chairman and Managing Director

Very good, especially now that we’re renovating. So in Q3 last year, we started renovating some rooms. We renovated about — I think about 30 rooms, 40 rooms, about 10% of our inventory. We are planning to renovate about another 90 rooms this year in Lemon Tree Premier and another 80 rooms in Red Fox. And we feel we will be able to capture a significant price hike while maintaining high levels of occupancy in these two hotels. So the demand is very robust and sustainable.

Ayush Dappal — Private Investor — Analyst

And sir, what do you see as a sustainable EBITDA margin for the Delhi hotels?

Patanjali Keswani — Chairman and Managing Director

See, these are EBITDARs, Ayush. So Delhi, my view is that we should be in the early 60s in Delhi. But if we manage to take the price up significantly, then it might hit 65%.

Ayush Dappal — Private Investor — Analyst

Okay. Right. Thank you for that, sir. That’s the only question I have.

Operator

Thank you. We’ll take the next question from the line of Prashant Shivsagar [Phonetic] from Unived Profit [Phonetic].

Prashant Shivsagar — Unived Profit — Analyst

Good afternoon, sir. Just wanted to ask you about foreign tourist arrival in India, what is your expectation? When should they be — today, they are on the slightly lower side, but I mean when we should [Speech Overlap]

Patanjali Keswani — Chairman and Managing Director

I read some statistics that foreign tourist arrivals to India are still — see, when we talk about arrivals to India from foreign travel — foreigners, I think a large percentage is the Indian diaspora. So, we are speaking purely of what are called FTAs, which are foreign tourist arrivals. I’m given to understand it is still less than 50% of pre-COVID.

I can’t actually tell you, but I’m hoping that, obviously, in winter, it will pick up. And even if the tourist arrivals to India from sub-50% go to sub-25% in terms of drop, if there is only a catch-up to halfway levels, pricing will again go up by another 5%, 7% or maybe even 10% for the branded sector because all foreign tourists typically, 90% stay in branded hotels. So it will be a large number and it will have a large impact. But I have no line of sight on when and how that will happen.

Prashant Shivsagar — Unived Profit — Analyst

But as you — in one of your conference call, you’ve said that the room rates may double if the foreign tourist really…

Patanjali Keswani — Chairman and Managing Director

Not double. I said over two and a half years, I said it will double and I mean it by the way. See, it is already 30% up in one year. So over three years, why should it not double? Look, make it very simple. Our rates today, today, if you look at Lemon Tree as a group and you just go to this Slide — if you go to Slide 19, Lemon Tree excluding Keys, the ARR was INR6,237 crores in Q4 ’23. The same Lemon Tree, half of it which was operational 14 years, 15 years ago, the ARR was INR8,000 crores. So, why should there not be a catch-up? We are very, very cheap as a — I mean, luxury hotels are for $200, $250 here.

A friend of mine in the travel business told me in Europe now it is EUR900 to EUR1,000 per room and we are at $250. So, the runway is enormous. I understand, of course, that affordability is an issue, but my view is broadly, India is at close to a tipping point. And one very interesting indicator is the increase in demand of mid-size SUVs. If you look at China and look at Taiwan, look at Indonesia, look at Malaysia, three years after mid-size SUVs took off, hotel demand took off. So, I do see a tipping point.

Prashant Shivsagar — Unived Profit — Analyst

But for the room rates to really move up — increase sharply, is the foreign tourist arrival will be an important criteria or it won’t be?

Patanjali Keswani — Chairman and Managing Director

[Foreign Speech] Let me give you a number. Foreign tourist in and of themselves are about 3 million, 3.5 million. I don’t have the exact number, but it’s roughly in that range. What is 3.5 million? It is 10,000 a day. Each of them stay for between five days to 10 days. So if you look at it on the room night basis, it is like 30,000, 40,000, 50,000 room nights a day. Now if 80%, 90% of them are staying in branded hotels, then just take a simple number, that’s 25,000 rooms over 175,000. It’s a 15% improvement in occupancy. Now if occupancy goes up by 50%, I can guarantee you prices will go up by 30%.

Prashant Shivsagar — Unived Profit — Analyst

Okay. That answers my question. Thank you, sir. Thanks, sir.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.

Patanjali Keswani — Chairman and Managing Director

Well, thank you once again for your interest and support. We will 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 all of you soon.

Operator

[Operator Closing Remarks]