Lemon Tree Hotels Limited (NSE: LEMONTREE) Q1 2026 Earnings Call dated Aug. 11, 2025
Corporate Participants:
Unidentified Speaker
Anoop Poojari — Investor Relations, CDR India
Patanjali G. Keswani — Chairman and Managing Director
Analysts:
Unidentified Participant
Archana Gude — Analyst
Karan Khanna — Analyst
Sameet Sinha — Analyst
Vaibhav Muley — Analyst
Prashant Biyani — Analyst
Pratik Oza — Analyst
Jinesh Joshi — Analyst
Sumant Kumar — Analyst
Rajiv Bharati — Analyst
Jai Chauhan — Analyst
Nikhil Poptani — Analyst
Sucrit Patil — Analyst
Vikram — Analyst
Bharat Gianani — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Lemon Tree Hotel Limited’s earnings conference call. As a reminder, we 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 this conference call, please signal an operator by pressing Star then zero on your touchtone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Anoop Pujari from CTR India. Thank you. And over to you.
Anoop Poojari — Investor Relations, CDR India
Thank you. Good afternoon everyone and thank you for joining us on Lemon Tree Hotel’s Q1FY26 earnings conference call. We have with us Mr. Patanjali Govind Keswani, CMT. Mr. Kapil Sharma, CFO. Mr. Vishwaprit Cheema, President. Mr. Sanjay Rai, Chief Revenue Officer. Mr. Saurabh Satdal, CEO Floor Hotels. Mr. Mayank Sharma, CFO Floor Hotels Ltd. And Siliket Sood, Vice President Commercial Strategy of the company. We would like to begin the call with opening remarks from the management. Following which we will 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 earnings presentation shared with you earlier.
I would now request Mr. Keswani to make his opening remarks.
Patanjali G. Keswani — Chairman and Managing Director
Thank you. Good afternoon everyone and thank you for joining us on this call. I’ll be covering the business highlights and the financial performance for Q1 this year. Post which we’ll open the forum for your questions and suggestions. In Q1. Despite the headwinds faced by the industry due to the geopolitical tensions and Covid scare, Lemontree recorded its highest ever Q1 revenue at 317.4 crores. Our revenue grew 18% compared to Q1 last year. Net EBITDA grew 23% year on year to 142 crores translating into a net EBITDA margin of 44.8% which increased 178bps year on year. Q1 26 recorded a gross ARR of 6236 which increased 10% year on year.
And the occupancy for the quarter stood at 72.5% an increase of 591bips year on year. This translated into a RevPAR of 4523 which increased 19% year on year. The company’s profit after tax stood at 48.1 crore for this quarter, an increase of 139% year on year. Cash profit for the company stood at 82.3 crores in this quarter, an increase of 51% year on year. The debt for the company stood at 1658 crores in Q1.26, a fall of 206 crores or 11% vis a vis 1864 crores in Q1 last year. The company has significantly reduced its cost of borrowing over the year to 8.01% in this quarter as compared to 8.8% in the previous year.
Slide 17 of the investor presentation demarcates the gross debt that is the borrowings from banks and the lease liabilities. The gross debt represents debt on existing properties and new strategic investments that the company has made on new developments. We continue making significant investments in renovations, business development, tech and renewable energy. These expenses are incremental in nature over and above the normal expenses and are necessary to prepare our company to LT version 2. As highlighted in our five year plan, during the quarter 350 rooms were shut for innovation, the majority of which were in Delhi, Hyderabad, in Bangalore and we shall continue to spend on renovation into FY27 until the entire portfolio of owned hotels has been fully renovated and refreshed.
Going forward, we are confident that once all these incremental investments are done with over the next 15 months then firstly the occupancy or ARRs or both will go up meaningfully across our entire portfolio leading to a very significant increase in our own hotel revenue. Number two, the renovation and tech costs will also drop significantly down to about 2 to 2.25% of the total revenue from 6% currently with the upgradations also leading to a reduction in the repairs and maintenance costs that the company incurs annually. 3. The current investments made in renewable energy have already led to a year of renewed drop in power and fuel costs from 8.7% of revenue to 6.9% of revenue in this quarter in spite of a 6 percentage point increase in occupancy over the next 12 to 18 months.
We will continue these investments to achieve our target of 50% renewable energy in our own portfolio from 40% currently leading to further savings on the asset light side in Q1. We signed 14 new management and and franchise contracts adding 1273 new rooms to our pipeline and operationalized 5 hotels adding about 400 rooms to our operational portfolio. As of June 30, 2025, the total inventory for the group stands at 226 hotels and 18,430 rooms divided into 10,660 rooms and 116 hotels being operational and the rest in pipeline. Fees from management and Franchise contracts for third party hotels stood at 16.1 crore in Q1, an increase of 29% year on year.
Fees from FLIR hotels stood at 21.3 crores, also an increase of 29% year on Year. Total management fees for lamentary stood at 37.4 crore in Q1FY26. Although there have been delays in scheduled openings of managed and franchise hotels due to factors beyond our control, we are very confident of accelerated growth in our management fees going forward. With this I come to the end of my opening remarks and would ask the moderator to open the forum for any questions.
Questions and Answers:
operator
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press STAR and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press Star and two participants are requested to your handsets while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. The first question is from the line of Archana Goodey from IDBI Capital. Please go ahead.
Archana Gude
Hi sir, thank you for the opportunity and congrats on very good set of numbers. I have three questions. First in Orica Bombay so there has been like, you know, the occupancy has been pretty robust but area looks slightly subdued. So what would be the management strategy on level of occupancy post which we should expect ADR to take the precedence.
Patanjali G. Keswani
So Archana, as far as Orica Bombay goes, our primary focus was on taking the occupancy to what we felt was a sustainable ongoing level and last year we did only about 46% and this year we did about 76% which means a 30% increase. Now typically you cannot increase occupancy and ARR in a new hotel both at the same time. So the normal strategy is build occupancy and once you hit a sustainable level then keep adding at higher rates and removing the lower rate business. So we are very much there. There has been a nearly a 50% increase in our corporate business with an increase in air in the corporate side.
The airline business has also increased because Obviously we needed a certain base occupancy there and we have also focused on the non negotiated or retail business. So that is why we have increased 30% in absolute numbers. And I expect that now going forward, once we’ve achieved what we would call stability, we will focus now on increasing the rates.
Archana Gude
Sure sir. Again on Arika, currently we have these four hotels under pipeline and they expect it to be open FY28 onwards. So is that there are, I’m sure these are the greenfield projects. So is it the conscious decision of the management to keep a check on the addition or this dearth of supply which fits the bill for us?
Patanjali G. Keswani
No, we will continue to focus on building hotels. But right now we have only two under construction and one is fairly advanced which is the hotel in Shimla which is nearly 100 rooms and the second one which is 160 rooms in Shillong we have started construction. So that too should be ready in the next two and a half years and I’m sure in the next. Well if you wait for a little time you’ll understand our strategy. Right now there are multiple things balls in the air but we are going to have a very accelerated growth in our entire portfolio whether it is owned, leased, managed or franchised.
And we are going to try and do it in a very risk mitigated fashion. So I can only give this level of guidance right now.
Archana Gude
Sure. So, but so my question was more of on the management contract side I’m sure there are many hotels up for migrant contract and is that there are lesser options for us which fits the bill of Orica for us.
Patanjali G. Keswani
What my question, so Orica we have. Right now got four managed Oricas in the pipeline which is in Kasoli, Rishikesh, Sasangir and Surat. But obviously we are going to look at getting more and more. But we are very finicky also about the quality of the hotel we would brand Orica. So here is the problem. In India there are very few upscale or upper upscale hotels which are unbranded. Most of the unbranded hotels are in the upper mid scale, mid scale and economy segments. So the Runway for branding more Oricas would really come from Greenfield or Brownfield projects because most hotels of that quality are already branded by either an international or a domestic brand of high quality.
Archana Gude
Right, Right. As my last question, when I look at the ADR for rest of India, it has underperformed the blended adr. So. Markets which underperformed and how we should look at it going forward, See.
Patanjali G. Keswani
Rest of India is basically a combination of, you know, 100, well, not 100, but maybe 60, 70 hotel markets where we are present. And each of them has a distinct characteristic. So it’s a function of demand supply in each of those. Those markets. So technically if I break rest of India down, there are markets that have grown, you know, 15% in ADR and there are markets that have grown zero in ADR. It’s entirely a function of that micro market. So I would not really specifically, you know, be able to give you an idea of why it is.
This is a weighted average that you see. Obviously our intent is to increase. But if you notice that if you look at the ARR increase in Gurgaon, it has not been very high. In Bangalore, it has not been very high. Mumbai, it is actually just 2% above because you know, our focus was on stabilizing the occupancy of orica. Pune is 7% and the rest of India is 4%. But I am not unhappy with this because we have achieved this with a significant increase in our occupancy. And I think what one must look at is overall the revpar that we have grown by, which is 19%.
Archana Gude
Right sir, sure. So thank you so much and all the best. Thank you.
Patanjali G. Keswani
Thank you.
operator
Thank you. The next question is from the line of Karan Kanna from Ambed Capital. Please go ahead.
Karan Khanna
Yeah. Hi, good afternoon and thank you for the opportunity. And congrats on the strong Revpar outperformance during the quarter despite external headwinds. Firstly, Patu, congrats on strengthening the senior management team. If you can just start with some thoughts on the recent senior management appointments and how this will change the growth orbit for Lemon Tree moving forward. And also if you can share some thoughts on your long term aspirations for the company. And as executive chairman, how would you be looking to work closely with Nalindra and Saurabh in helping Levantry move in that direction.
Patanjali G. Keswani
Hi Karat. So let me explain. You may have also seen that we have said that a committee of directors sectors has been set up in Lemon Tree and in FLIO to evaluate how we can possibly look at a transfer of assets from Lemon Tree into Flow through a demerger scheme and then automatically look at how we can list floor. So the intent is that Lemon Tree will then become asset Light, a significant shareholder in Fluor and will focus on management brand and technology as a company which is I think quite common to what has been global trends in this space.
FLIO will become independent asset company a propco and the Intent of the leadership change was to get two very good people who would then run these two companies independently on a day to day basis. If you observe my role in Lemon Tree since Nilendra will be taking over from October 1st, I have just taken an 18 month extension beyond that as Executive chairman as a, as a, as a executive Director. The reason is I obviously want to settle in Nilendra. It is a listed company and although he has run a very large operation Adidas, he’s been with Adidas for over 20 years and his experience is interestingly just the kind of experience we need for growing Lemon Tree.
However, he needs I’m sure some level of hand holding which is my job so that he settles in quickly and understands firstly the industry which is quite different from the shoe industry or the athletic shoe industry. And number two is to help him navigate how a listed company in India operates, what are the compliances, the regulatory oversights required and so on. So really my focus is transitioning over the executive role to Nilendra and then focusing on strengthening Lemon Tree’s expansion and asset light growth and providing just generally a high level strategic oversight and governance through the board now coming to floor.
Since the committee of directors has been set up in both companies flow we hope to will become a listed company in the next by the end of next calendar. So Saurabh who has worked extensively in transactions and in structuring of real estate across multiple asset classes and has great experience in that Sourabh’s role will be driving the asset heavy growth once Flio lists or even before. And my job then in that is besides of course strategic oversight and long term governance is to also ensure a smooth transition and to guide and strengthen Fluor Hotel’s expansion plans through a very structured capital allocation strategy using technology to identify high demand areas where there is serious well, there is less risk and potentially high returns.
So we will be focusing there on asset development or asset acquisition leases and with a very disciplined risk management framework. So that’s the overview then to support Nilendra we’ve got outstanding set of three colleagues. There is Vishwaprit who was running Intercontinental Hotels in India. There were 45 such hotels, 8,000 rooms with a very high degree of quality and he is there as president to run the operations and the revenue function. To support him there is Sanjay Rai who was formerly executive Vice president Sales and marketing over Broadway Hotels who is the chief Revenue officer and his deputy Niket Sood who was running revenue for Accor Hotels.
And I’m pretty confident with these four supported by existing teams. Specifically Kapil Sharma who is now also becoming an executive director. I think we will position Lemon Tree, you know for its version two and while we said we want to have 20,000 rooms that is absolutely going to be exceeded in our five year plan and I’m very pleased that there is this team in place to take this company forward as far as this floor is concerned with the proposed listing hopefully end of next year. We also have Mayank Sharma who has worked with Lemon Tree for over 10 years and he as the CFO working with Saurabh and with Sanjeev Jain who was who has great experience in development and in projects.
I think we are positioning both companies for as I said, you know, very, very accelerated growth.
Karan Khanna
Sure. This is quite helpful. Just a follow up on this if we talk about the pipeline of assets. Right. So most of the hotels are Asset light currently with this 2 pipeline hot on your balance sheet in similar and the Warren Sikim, how should one think about let’s say future expansion within Fleur? Do we see that those announcements coming let’s say after 18 months or whenever FLIR gets listed independently? That’s the right time to think about more announcements on the AssetB front?
Patanjali G. Keswani
No. Once we are going through this scheme, I think you will get a very clear idea of how we intend Floor to be as a standalone listed company with its investors who will be focused. We are actually even offering two options for any potential investors. One is the asset light side of the business, the brand business which is lamentary and the asset heavy side of the business which is FLIR. I don’t think you need to wait another 16 months. I think we will be making enough interesting announcements in the next one year which will give a very clear idea of where we think Fluor will go and really look at how we can increase its inventory enormously in the next three years.
Karan Khanna
Sure. My second question is on Orica Mumbai which seems to have done quite well over the last two quarters given that we’ll start seeing T1 shutting down soon. And you spoke about taking price hikes here as well help us reconcile how the demand would look like for this Property in seasonally strong 2s. And what sort of an impact are you expecting owing to the shutdown?
Patanjali G. Keswani
See, as you have seen Karan, we hit about 76% in Q1. Now what I want to actually tell everybody who’s listening in on this call is that all I was happy to see on our all our other hotels and the listed space had also good results. But one reason for that Was that last year it was due to some level of a base effect last year. Last year in Q1 it was very significantly affected due to elections and the heat wave. You know, Q1 last year should have been at least 5 or 6% better than what it ended up being because of this, these deflators of demand.
Now in spite of that, this year it was actually the. It is going to be the reverse because Q2 will see a moderation. The base effect of last year. There was no base effect in Q2 last year. And this year, in fact we have July has not been so good. Festivals. All the festivals which affect demand for business hotels or city hotels will happen in Q2 this year. And I know I’m not directly answering your question. I just want to put certain things in perspective, which is Q1 last year was very affected by multiple events.
Q1 this year was slightly affected by the geopolitical tensions and the COVID scare, but Nowhere near as Q1 was last year. In fact, this year some of the stuff that did not happen in Q2 has flown into Q2 this year. So there will be number one, a moderation. But in spite of the moderation, what we are seeing is in markets like where Orica operates and I am aware that there will be some shift of demand to Navi Mumbai and so on. I am very sure that Orica Bombay and in fact that micro market of Bombay we’ll continue to do 80 occupancies north of 80%.
Because if you look at the distribution of demand that is still growing. So you know, maybe some massive incremental demand will occur in Navi Mumbai with more and more passengers there. But keep in mind there are 1800 planes that are going to be operating in India in the next few years. So I just see growth in demand. I don’t see a loss of demand in where Orica operates.
Karan Khanna
Sure. And my last question given you spoke about the trends in second quarter and also what’s the outlook for seasonal?
Patanjali G. Keswani
Very positive.
Karan Khanna
Great, thank you. Thank you. I’ll come back in the day. Thank you. And all the best.
operator
Thank you. The next question is from the line of Vaibhavchain from Acquire Capital. Please go ahead. Mr. Vaibhav, your line has been unmuted. Please go ahead with your question.
Sameet Sinha
Yes, actually this is Sameet Sinha here. So question for you. This, you know, it’s interesting. You’re already pretty close to the 20,000 rooms that you have been talking about for the last few quarters and you kind of whetted Our appetite by talking about how you see how we should expect to see some accelerated growth and rooms and pipeline. So what I mean, in that five year plan that you mentioned, what are we thinking about? Are we thinking about 30,000 rooms? 40,000? Is that within the realm of possibility? That’s my first question that I’ll ask the couple of follow ups.
Patanjali G. Keswani
Yes, it is in the realm of possibility.
Sameet Sinha
Okay, got it. Okay, so the luminous hiring was interesting. Can you talk about how his experience with retail and footwear, athletic footwear, fits in with your, with your thought about Lemon Tree? Are we talking about more branding? I’m just gonna stop there and let you answer that question.
Patanjali G. Keswani
Okay, good. So Sameer, let me go back for a minute. Lemon Tree is basically morphing into an asset light company, of course with a significant shareholding and floor, but it will be basically focusing on brand, on management, on technology as an enabler and of course business development to grow this portfolio. So one of the biggest markets, in fact not one in my best guess, it is probably the single biggest market today in the world. It is the two to three star market of unbranded hotels in India. So let me give you some numbers. If I go to make my trip and look at their platform, There are roughly 14 or 15 lakh rooms in the platform.
If I look at the cities where most of these hotels are, they are in about 180 to 190 cities in India where about 85% of personal consumption expenditure occurs. These are cities of typically 5 lakh or more population. And while some of them are not so well connected, if you look at the plans for Vande Bharat trains, you look at the plans for the growth in airports in India, which we have a list of and then if you look at the connections through highways and I was very, I was delighted to read that Mr. The Gadkari says that our target is now to build 100 km of highways every day.
If you put all these together, India is going to be super well connected. And I think there is, we are at the early stages of a structural shift of demand into discretionary. Nilendra has been in this, in this specific area of branding franchising. He was earlier the senior, senior vice president franchise globally in Germany for Adidas. So he’s run owned stores, he’s run franchise stores. He has a very structured way of looking at managing scale. So if Lemon Tree is to scale up in an area which is currently totally unstructured, which is about 1.2 million rooms, which are completely unbranded, we need Somebody with that kind of mindset and experience.
So while he may not specifically have hotel experience, he certainly has the competencies required to lead Lemon Tree to its next phase.
Sameet Sinha
That’s certainly some out of the box thinking. Thank you for the explanation. So final question. If you can talk to us about the rooms that have been renovated over the last year or so, what sort of an increase in occupancy and ARR are you seeing in those rooms?
Patanjali G. Keswani
So, you know, before COVID we used to renovate 1/6 of our hotel rooms every year. So it was a structured process by which every six years a hotel would be renovated and we would try and close inventory such that it would not significantly affect our ability to fulfill demand. Unfortunately, in 2019, two things occurred. One is we acquired another thousand rooms which was Caius. And we opened three hotels. Four hotels in Lamentary, Premiers in Bombay, Calcutta, Pune, and one Red Fox in Dehradur in our own portfolio. So that added another 700 rooms. So really, you know, our inventory increased from 4,000 rooms to 5,800 rooms straight away.
Now Covid completely disrupted the renovations we would have done to the older hotels, excluding these three and the renovation we planned for Cayes. So the next three years, or actually I should say four years, really went towards surviving Covid and then repairing our balance sheet. Once all that happened, of course opening Orica Bombay and stabilizing Orica Bombay. Now once all that happened, we had to do what is called a catch up. So typically we spend 1.5 to 1.8% of our revenue every year in this one six of the hotels renovation. But in order to do a catch up, we had to practically triple the amount invested, though our revenue went up.
Still, from a revenue basis we are spending, I think this year we’ll be spending how much? Couple about 100 plus crores. So when you see, interestingly when you see our EBITDA margins, they have shrunk by another 4% because of the investments other than normal, because of the investments we are making in technology, in business development and in renovation. All this will be over by next year, October, then we will go back to normal. So really in the next 15 months we are going to continue renovating very large numbers of rooms. Now coming to the specific numbers of rooms we if, if I take out Orica Bombay and the new hotels pre Covid, which together account for about 14, 1500 rooms, we have to rent, renovate 4300 rooms, we have completed about 65 to 70% of that in the last two, two and a half years.
And by next year, as I said October, we will have completed all these and then what you will see is a huge expansion in our EBITDA margins because you will have new rooms and wherever. Even in Keys portfolio, the first fully renovated hotel was the key. The ARR went up by I think 13, 1400 rupees and the occupancy went up by 10%. Now you’re going to see it with Keys Whitefield, which is, it is a large hotel. It is 220 rooms. I think we’ve renovated about 170 rooms and we will finish the other 50 in the next one year.
Trivandrum, Cochin are undergoing renovation. Vishakhapatnam will undergo renovation and Ludhiana is complete. So that was the CAIUS portfolio. As far as the rest of the hotels go, we looked at so out of those balanced 3,005, 300 rooms excluding the CAIUS portfolio we really looked at where should we put in the maximum money to get the maximum return. So Bombay, sorry, Delhi, Hyderabad and Bangalore were identified as where we have large inventory hotels which needed this uplift. I think we have completed about 70%. No, not 70, 80% in Delhi we have completed I think about 60, 70% in Hyderabad where we have about 700 rooms and we have completed about 30% in Bangalore.
So this is going to just go nonstop. At any given time, you know, 350 rooms are shut. We typically take two to three months to renovate them. So on an ongoing basis, say in six months we would renovate, you know, this year maybe 1200 rooms or 1300 rooms and this will happen next year also. And then it’s an entirely new portfolio.
Sameet Sinha
Got it. Thank you very much.
Patanjali G. Keswani
And interestingly, just let me add, if you look at the increase in ARRS also, it is direct. You can see directly it occurring, for example Delhi now that we have managed to renovate so many rooms, the error went up 15%, Hyderabad 19%. So you can see the direct linkage that when we finish then one of three things will happen. In certain markets where demand, where we felt from a brand perspective we needed to upgrade the rooms anyway, we did not spend as much as because we just wanted to ensure that the brand quality standards were maintained.
But in some markets where we felt there was a possibility of significantly increasing ARR and occupancy, we spent double the amount per room. So it’s a mix and match. But the intent is ultimately to increase revpar and increase guest satisfaction stickiness.
Sameet Sinha
Got it. Thank you very much.
operator
Thank you. The next Question is from the line of Vaibhav Mule from yes, securities. Please go ahead.
Vaibhav Muley
Hi team. First of all, congratulations on a very strong set of numbers. My first question was on our management contracts pipeline. So we have a very strong pipeline and as just sir mentioned, there’s a potential to reach 30,000 to 40,000 rooms in the long term. Do you think there can be an execution challenge while adding such aggressive amount of inventory? Especially given many industry participants are highlighting that there are challenges on the manpower front. So do you think that can pose a challenge in future and would that affect the flow through to ebitda? That’s my first question.
Patanjali G. Keswani
So I. So let me go back. Challenges are always there when you are talking hyper growth and we want hyper growth. So if you notice the rate of signings is much more than the rate of openings currently. But surely in the next couple of years the reverse is going to, I mean, well, the openings are going to also accelerate because many, about 70, 75% of the hotels we are signing are brown fields or green fields. We are very keenly aware that we need trained staff for this. So we are trying to combine an approach which is both technology oriented and, you know, identifying the future leaders of all these new hotels within our system.
So that process is ongoing. We have multiple learning and development programs for general managers, for, you know, for heads of department and so on and so forth. So while there will be challenges based on our rate of growth, you know, we have also grown 30% a year or I think more than 30% a year for the last 10, 15 years. Keep in mind that we were, you know, 1,000 rooms 12, 13 years ago. So I think we are quite familiar with that challenge. Now as far as the flow through goes, it is, there is no risk to the flow through management fees will keep accelerating.
And as I had, I think we specified in our lemon tree version two when we said we’ll be 20,000 rooms including pipeline by 2028. I think we will achieve that in the next six months. By the way, I think that question that I was asked earlier, I think by Karan or Sameer, 30,000, 40,000. It could be any of these numbers. I hope. Of course it is, it is much more than what we have targeted. We are quite sure we will be able to manage the growth. There will be hiccups, but I think our entire approach was first, let’s finish with our own portfolio.
Let’s get it cleaned out, renovated, fully staffed, improve the occupancies, as you can see, it is happening. Improve the ARR still more once the renovation is over and then our entire focus will be on the asset light growth and once floor lists also on the asset heavy growth where fluor will raise capital and also go debt free I’m sure in the next one, one and a half years. So basically the way I see it is Lemon Tree will be more or less debt free in another as a group in the next 18 months it will also have a large, it will raise, I’m pretty sure flow will raise a large amount of capital, it will expand in the asset heavy side and we will focus on managing hotels across the spectrum in Lemon Tree.
Vaibhav Muley
Got it, sir. My second question was on your tie up with BCG for revamping your technology website and your loyalty program. So has that exercise been completed and have you started seeing any material benefit in terms of higher bookings from your website or from, you know, benefit of your loyalty program? So can you share some color on that?
Patanjali G. Keswani
So the BCG assignment was towards a digital transformation and it was building a foundation of using technology to enable hyper growth. So once BCG finished it was more of a strategic level intervention. They moved on. And then we had actually moved this entire IP we created into 100% subsidiary of Lemon Tree called Totally Fox Solutions, which is now fully manned. We’ve got data scientists, we’ve got, you know, user experience engineers. We have people, including two people, amusingly from BCG themselves. We also have Ernst and Young working with us in this and we have created a bunch of products.
They are what we call MVP means minimum viable products. Some of them have been launched in revenue management, some have been launched at early stage in loyalty, but it’s an ongoing process. So my best estimate is that the fruits of these entire investments in technology, which will include customization, personalization, loyalty program, predictive revenue management rather than, you know, prescriptive revenue management rather than predictive, using chatbots, agentic AI, so on and so forth, which will help also reduce staffing and reduce training costs. All these will start rolling out I think I’m told from October this year, going forward into September next year.
So the MVPs have been prepared. We are piloting it at multiple hotels. In fact, at any given time two, three hotels have one MVP in place. So we are refining it and I’m pretty sure that in the next 12 months, as far as our loyalty program goes and our revenue management will be best in class. Now loyalty, I think we have already increased the number of members, we are enrolling them very fast. So I think we have over 2 million members now, 2.1 million members already in the loyalty program. Our repeat usage is about 43, 44%.
So that’s very encouraging for us because what it really means is that if you open a new hotel, we are very rapidly able to move customers there who are part of our who are repeat members and make that hotel break even very quickly. And that I think is an attractive proposition for any hotel owner from the asset life side. So all this is work in progress and I think you will see a completely new lemon tree and floor in the next 15 months.
Vaibhav Muley
Got it sir. Lastly, on keys portfolio, so we have seen stable quarter on quarter numbers for keys. I believe this is on the back of benefits from the renovated portfolio. So I just wanted to check what kind of headroom do you see from the current levels of 63 odd percent occupancy and around 3,800 ARR in the QIES portfolio itself. And what is the contribution of overall renovation expense? We are expanding into Kees portfolio currently.
Patanjali G. Keswani
So Caius is 930 rupees. We have identified high value investments specifically in Lemon. In Caius Pimpri Pune which is over, we spent 1012 crores. We have already spent I think 1012 crores in keys Whitefield and we still need to spend another 8, 10 crores. We have done completely renovated Ludhiana at 3 lakhs a room. So as I told you, if I split the Keys portfolio, the what is called the Bangalore and Pune portfolio is about 500 rooms and the other 500 are in 400 and something are in these other markets. So what we are really doing is in the markets like Trivandrum, Cochin, Vishakhapatnam and Ludhiana intent was to.
Because the hotels were so tired and old, our intent was from a brand standards perspective to just renovate them to minimum standards at 3 lakhs a key. And the others we would spend 8 to 10 lakhs a key which is like Pune and Whitefield. So the average would be 5 lakhs across, you know, 900 plus keys. So we would spend about 45, 50 crores over three years in the key keys portfolio. What is our intent? Our intent is, and I have said this before, is that we want to take the EBITDA of keys to between 60 to 80 crores which means that we will need to take the EBITDA margin to about 50% which means we need a revenue of 120 to 160 crores in keys and that would require if you work back occupancy is moving to 75 to 80% and the ARR is moving towards red fox levels which is 4 and a half to 5000.
So keys wide field, the renovated part is already doing 4,500 rupees ARR. The Pimpiri is doing 5,000 plus ARR. I think 5,500. So that is why you’re seeing this gradual shift in. In in keys and this EBITDA doubling is nothing. The base was very low and our intent is basically to to make 60 to 80 crores out of keys by next year as a run rate.
Vaibhav Muley
Perfect. Sir, thank you so much for the comprehensive answers and all the best.
Patanjali G. Keswani
Thank you.
operator
Thank you. The next question is from the line of Prashant Biani from Elara Capital. Please go ahead.
Prashant Biyani
Yeah, thank you for the opportunity. I saw a question on renovation again. So by when are we going to complete the renovation for LTP High Tech City Then Whitefield Delhi Airport LT Gachiboli, Key select and Key Select Horseshoor and Whitefield.
Patanjali G. Keswani
Okay, sorry I didn’t write it down. So let me start with Lemon. Lemon Tree Delhi. Lemon Tree Premier Delhi will be done by somewhere in the middle of next year. So maybe July, August. We have also renovated all the public areas including the lobby, restaurants, banquets, etc. Now we get to Red Fox Delhi which is also a very high earning hotel. I think we have done about 60% so this will should get over by next year. And we are going to. We are looking at converting it into a Lemon Tree hotel because our colleagues in our revenue department say that if you rebranded Lemon Tree the possibility to increase rates by 15, 20% will become very visible or likely.
Then we go to Electronic City in Bangalore. We are going to rebrand it. Elementary Premier renovation is underway but this will take about a year and a half to two. So we will renovate 75% of the hotel by next year. As far as Hyderabad goes, there were two issues. One was the renovation of Hyderabad in public areas. We have completed 80% of that and then were the rooms. I think we have done about 60, 70% of the rooms and I expect that we will finish it all by next year. Red Fox Hyderabad is also likely to be converted into a Lemon Tree Hotel.
It is Also I think 50% renovated. We have to finish the rooms and the public areas as a Lemon Tree Hotel again. We will look at significantly raising the average rate once it is rebranded. Lemonary Gachiboli is going to be completed by 18 months. It is going, it has very high demand. We are not sure because of the room size whether we will call it elementary Premier or retain it as a lamentary hotel. But either way it will happen in the next 18 months. As far as Keys Khosur goes, we will, this will continue. So this I think as I said 80, 90% of the portfolio will be renovated.
Some parts like Keys Hosur would probably go into early 2028 calendar. But the point is the major investments in renovation will be over by H1 next year and after that we will revert back to that 1 1/6th of the hotels. So and, and a huge drop in renovation expenses by about, I think what would it be? It will be about 3% of revenue or 3, 3.5% or revenue.
Prashant Biyani
Is there some delay in renovation due to high demand? Because previously we were about to complete major renovations by H1 of this year.
Patanjali G. Keswani
Never that. I don’t think that was ever the case, Prashad. I always said it’ll take three years. See we, it’s, it’s a balancing act. Like I’ll give you an example, Red Fox Hotel, we are innovating, I think 30 rooms at a time. It takes about two and a half months. Now when we release those 30 rooms about two, three weeks ago, suddenly there was a spike in demand for Redfox. So we said okay, we’ll defer it for two weeks and we’ll do try and do a catch up. So it’s a balancing act. Sometimes we defer renovation when we have a very large block or some very exciting demand opportunities.
But, but by and large we obviously look at the trade offs. That is if I delay renovation, you know, will it go into season? Will I have a loss there versus what is my benefit here? So this is basically displacement in revenue management it’s called displacement. What am I displacing by doing this now versus later? And I think we are quite, we’ve done a pretty good job and I must say our renovation team has, you know generally always delivered on time.
Prashant Biyani
Right. You have announced key management changes. What could be the flow through of events for the parent entity as well as for floor which can happen between now and listing of your. One thing which you highlighted was slew of signings of floor. Apart from that, anything else?
Prashant Biyani
See the thinking is very simple Prashant. Let me say we owns, I’m just speaking, this is speculative but let’s assume we own 60% of floor but our management fee income is typically 17 to 20% of the EBITDA. So when we own 60% of flu it means we really get about 60, 66 to 68% of the economic return. The 7, 8% more we get is the management fees from the other owner, so to speak. Or to put it another way, we earn a hundred bucks of EBITDA. We take fees of 17 bucks. The remaining 83 is distributed to the shareholders which is 60 lemon tree and 42 APG.
Now the larger the amount of capital we raise in Sinclair, while our shareholding may come down, our economic interest increases disproportionately. So it’s really a return on equity that we get through management fee contracts in Floor itself. So obviously it is in the interest of both. Floor and our fees by the way are very, very common. I mean are very standard. I mean whether it is Lemon Tree or any other management company, the fees are generally at the same level. So it is not that we charge disproportionate fees but our view is that the more we dilute in fuel and the larger the capital raise.
And assuming it is deployed successfully, the management fees of Lemon Tree from Floor will explode. It is already about. It is this year it is over. It will be over. It will be 150 crores this year. But there will be a time when it could easily be. If we do three what we want to do then it could be 300 to 400 crores just from Flir in the next three years.
Prashant Biyani
Sure, sir. Thank you for answering the questions and congrats to the new management team at both Lemon Tree and Floor.
Patanjali G. Keswani
Thank you, Prashant.
operator
Thank you. The next question is from the line of Pratik Oza from Systematics Group. Please go ahead.
Pratik Oza
Yeah, thank you for the opportunity. So just one question first on your international strategy. I guess in the previous call you had stated that your international strategy is opportunistic and asset light one which is targeting Indian diaspora. So first is could you share some. Learnings from your first international story. How is that property performing and is it serving as a successful template for future ventures?
Patanjali G. Keswani
Oh yes, Pratik, it is doing very well. We have a hotel in Dubai to give you an idea. Six million Indians go to Dubai every year. Six million. So I was reading, I don’t know was it today or yesterday in one of the financial newspapers, maybe Economic Times or Mint, that last year FY20, calendar year 24, I think the government meant there were 9.9. Sorry, I think 9.9 million arrivals into India inbound and they said 3 crore 30 million Indians traveled overseas. So here is the very interesting statistic. The number of foreign guys who come into India.
And this includes, I presume Indian diaspora is one third the number of Indians who go outside of India. So if we, you know, it makes complete sense for us to follow where Indians go. And we have a hotel in Dubai which is doing very well. We have, I think now we have a hotel in Nepal also. We have, you know, so we are going in the neighboring countries where there are a large number of Indians and where we feel we can provide a revenue uplift to those hotels by capturing loyalty members of our program who travel to these cities.
So the long answer which I have given you is that it makes complete sense for us to go where Indians go without losing focus on capturing obviously the Indian market in India.
Pratik Oza
I’ve got it. Got it. The second question is I think on the other expenses which I am seeing there is this delta of 8.9 crores. So just wanted a breakup of this. I mean how much of this would be a discretionary spending like marketing for Launch of infinity 2.0 and new website website versus a non discretionary or inflationary cost pressure. Just wanted to get an idea on this.
Patanjali G. Keswani
Just show me this. So we are doing two things, let me explain which are also one offs. Our technology opex is pretty significant right now. This year it will be 10 crores alone or 12 crores. We are also during COVID you know, in order to ensure we did not lay off anybody as a company, we took a call that the top 20% of the company would take a big salary cut in order to enable us not to lay off anybody. So it started with me. I took 100% cut. Senior leaders and colleagues like Kapil and so on took 75, 66 at different times based on Covid over two two and a half years there was a very large amount of salary cut from the top leaders.
So basically last year, well this year we are returning it to them. It is a part of the other expenses that you are seeing. And our intent is very simple that by the end of this year more or less we will have returned to every employee of our company whatever money we deducted from them in those two and a half years of COVID it. So again this is an extraordinary one off expense and next year onwards you will see it fall back to normal. Does that answer your question?
Pratik Oza
Yes. Yes. Thank you. Thank you so much, sir. Thank you.
Patanjali G. Keswani
Thank you.
operator
Thank you. The next question is from the line of Janesh Joshi from PL Capital. Please go ahead.
Jinesh Joshi
Thanks for the opportunity. Sir, my question is on Orica Mile. I think you mentioned in the opening remarks that there was a 50% increase in the corporate business this time around and the contribution from airline has also increased. So in that context, if the share of negotiable business has increased, do you foresee any kind of challenges in increasing the rate from here on? And also if you can share what was the contribution of negotiable business in 1Q and the ERR for Orica Miles.
Patanjali G. Keswani
I don’t want to get into specifics because it is competitive information. I’ll give you an overview on ENGINESH we did 512 rooms per day which is 76.6% occupancy in Orica in Q1 this year versus 307 rooms a day which was 45.8% last year. So that is why I said it increased by 30 percentage points. Actually it increased by nearly 31 percentage points. When I look at the increase in occupancy, the increase in occupancy was roughly 65% through the negotiated business, which is say 20 percentage points and 35% through the non negotiated business which is 10 percentage points.
And these percentage points were on the entire occupant entire inventory. So the 30% increase was 20% because of negotiated and 10% because of non negotiated. Now when you increase negotiated business, the increase in rate you get is very is marginal. In the non negotiated we were focusing basically on filling the hotel during times when rooms were not full. So Orica Bombay is already demonstrating the characteristic which many of our business hotels have, which is in the weekdays it goes full, in the weekends it goes light, which is why the average of 76 is an average.
And for example on a Tuesday, Wednesday, Thursday the hotel is full and then on a weekend it could be 60% or 50%. So our target is that when demand is light from the negotiated side of the business, which is specifically corporate and some travel trade, then we look at filling it through OTAs and through our own website and other direct channels. And that does not enable us to increase prices in a low demand period. So broadly that is the current situation.
Jinesh Joshi
Understood. And sir, if I heard you right, you also mentioned during the call that you have about 2.1 million loyalty members. I think in the last quarter this figure was approximately 1.5 million. So we have basically seen a considerable jump over here. But, but can you, can you share what proportion of your business basically comes from this loyalty member?
Patanjali G. Keswani
So here is what we discovered. You know, we also during COVID a lot of our systems and processes became more desultory, less managed. So we found that about 44, 44, 45% of our hotels occupancy is repeat members. But of them only 65% are loyalty members. So one third are actually using us repeatedly but have not been enrolled. So what you are seeing is a catch up in the last, in fact three, four months. Nikit came on board about three, four months ago. One of the challenges he took on board was that he would focus on increasing enrollment.
And he and Vishwaprit and our leaders and operations have been focusing across all our hotels across India including manage on enrolling more and more with a specific focus on enrolling anybody who has already stayed with us before. So this 2.1 million number is nothing. In fact we think based on our database we could hit 3 million in the next one year and they will all be enrolled.
Jinesh Joshi
Understood. One last question from my side and if I heard you right you mentioned that in FY26 our renovation expense will be about 100 crores. And some bit of renovation is expected to flow through in, in FY27. So can you call out what can that number be?
Patanjali G. Keswani
So this year see renovation is of two parts. One is opex, one is Capex. So most of the renovation of our non keys hotels is opex. Most of the renovation of the Keys hotels finally is Capex because there we are doing things of a long term nature because these hotels are so run down. So the number typically I think 60, 65% of our total expenditure is OPEX and balance, one third is Capex. So this year actually we will spend close to 130 crores and our OPEX would be I would reckon about 80, 90 crores. Yeah.
I’m giving you rough numbers, huh? And next year it will probably be about 70% of this and after that it will drop to about 20 crores a year in Opex. 20 to 30. Yeah.
Jinesh Joshi
Got it sir, got it. Thank you. Thank you so much and all the best.
Patanjali G. Keswani
Thank you.
operator
Thank you. The next question is from the line of Sumanth Kumar from Motilal Oswell Financial Services Ltd. Please go ahead.
Sumant Kumar
Yeah. Hi Batu. So my question, when we see the growth strategy we are adding room through management. So do plan for adding rooms through lease and rental basis also.
Patanjali G. Keswani
See that is going to be a part of the floor mandate. Floor is going to. So, so let me go back for a minute. See when we manage a hotel we take 17% of EBITDA. If we franchise a hotel we take 10% of EBITDA. If we lease a hotel we typically put in 10, 20% of the capital value and we take 50, 60% of the EBITDA. And when we own a hotel 100% then obviously we take 100% of the EBITDA with 100% of the risk. Fiores mandate will be to focus on at the right value building buying or leasing hotels.
Lemon Trees will only be to manage or franchise. We will not, Lemon Tree will not lease hotels. Once floor, you know, the floor demerger happens.
Sumant Kumar
So currently whatever the pipeline we have. Are going to excel or increase our. The lease and rental model in coming years under fluor. And what is the mix currently?
Patanjali G. Keswani
Yeah, 100%. See the only thing is, by the way, you may have noticed Suman that we decided this year, this quarter to explain what is. You know I noticed that some analysts were saying our debt to EBITDA is some, you know, very large number. And I think they were just blindly adding the lease liability. Actually the real number one should look at is our free cash flow. And the fact is that, you know, our debt, only 60% or 65% of our debt is bank debt. The other is lease liability. And if we go forward and keep leasing hotels, then under the new accounting standards 116, you will see a big increase in our lease liability.
The depreciation and interest that will also be applied on it. But this is all non cash. So this will go to Fluor. The advantage of a lease I have personally found since we have a few leased hotels is we take the capital risk we take is anywhere from 5% to 20% in some cases. If we lease a building which is a shell, then the capital risk we take is 50%. Whatever the amount of capital we put, our share of EBITDA is disproportionately higher. So we have hotels, I can tell you in our system where we have put in 1 crore or 2 crores, like lemon Tree, Banjara Hills, I think we put 2 crores totally and we get 5 crores a year out of it.
So it makes 10 crores. We take 5 and or 6 I think. And it is obviously a very attractive model for, for us and owner is interested in, you know, what we try and negotiate. It is the minimum that the least possible minimum guarantee. And we are happy to share the upside of revenue share. So this is the way we see leases. We are going more and more aggressively towards revenue share and less and less towards minimum guarantee because as I said, it adds to our liabilities or appears to add to our liabilities. So that that is how floor will go forward.
And in fact that is one of Saurabh’s strengths is the leasing transactions he has done across India.
Sumant Kumar
Okay, thank you.
operator
Thanks. The next question is from the line of Rajiv party from Navama. Please go ahead.
Rajiv Bharati
Sir. Thanks for the opportunity. So with regard to Orica Mumbai. So a couple of years back you had called out that your EBITDA margin would largely move in tandem with your occupancy. I just want to get, if you can call out what is the ebitdar margin for data set. Currently.
Patanjali G. Keswani
It is about 60%.
Rajiv Bharati
And sir with regard to keys we see that you know incremental margin is close to 100% on a Y o y basis. But pre Covid we used to see that the non room revenue used to be you know close to 35, 40% which is now 20% odd. Is there a plan to go back to those levels or these are let’s say the new levels at which it will work.
Patanjali G. Keswani
This is the new levels because see a heck of a lot of customers today order food from Swiggy Zomato, you know, so on and so forth and our focus is to actually maximize revpar and if you maximize revpar the flow through is as you can imagine Raju, it is you know 85%, 90%. So if I look at keys and I say that the total revenue in Q1 was 24.4 crores typically our revenue for a full year is about four, about five times the, the, the Q1 revenue because of seasonality. So if this number is you know in an indicator then Keys hotel based on Q1 should do 120 crores and that EBITDA margin if it becomes 40% should do 40.
So I, I mean this is, I’m. I want to be clear this is just an estimate by me, it’s not a guidance but the bitter margin will be north of 40 crores. So when we finish the entire renovation what I am interested in as in Lemontree is what is the EBITDA we do. I am not particularly bothered about how much F and B revenue we do because we are not really a five star kind of company. This is more of a mid market hotel company. And the main focus is to maximize revpar and therefore maximize EBITDA and therefore maximize return on capital providing your asset turn is right.
Rajiv Bharati
So with regard to this retail rate versus negotiated rate now again the retail rate is lower than the negotiated rate and this used to be the reverse sometime back. Is there a catch up which is going to happen on this piece or because the proportion has gone higher, it will take some time.
Patanjali G. Keswani
So I’ll tell you what is happening. Our focus on earlier we had a focus on building retail and changing the mix. See our long term strategy remains the same which is as more and more cohorts of Indian customers move into what we would call the consuming segment in India consumers or branded mid market hotels then presumably there would be an increase in demand and therefore an increase in pricing. However, what’s happened is a lot of corporate customers today book through OTAs for example and like my biz of make my trip I mean there are multiple such, you know, channels through which they bid.
So when we are defining it as OTX actually it has also got corporate customers. So one reason is this but the second reason is our focus is actually on filling our valleys which is more in. We found that because we’ve increased our corporate and at good rates we are able to fill the weekdays but we are not able to fill the weekends. So to get the weekends you have to focus on staycations, you have to focus on you know, know nice offers, so on and so forth in order to bring customers to you on the time at the time when you need them.
So one reason is also and I think it is, you know it varies year on year. This time it is a bigger focus on filling our trust. After all if we have grown from, you know, if you look at our growth of occupancy it is partly led by some we can demand growth and that is driven by lower prices. So this is an overview. I mean I’m sure there are many reasons for this which you know we look at but I am trying to give you an overview of why this is happening. But the good news for me is that overall the ARR grew 10%.
Okay. And the negotiated business ARR grew 9% and the non negotiators which is OTA LT and other fits grew 10%.
Rajiv Bharati
Thanks a lot.
operator
Thank you. The next question is from the line of Chai Chauhan from three Netra asset managers. Please go ahead.
Jai Chauhan
Hello, I’m audible.
Patanjali G. Keswani
Yes you’re audible.
Jai Chauhan
Sir and thank you for this opportunity. I just have one question while I can see company focuses is clearly on expanding the core hotel brands. Could you share your long term persuade on growing trend of villas and alternative accommodations?
Patanjali G. Keswani
So currently I am not convinced that we have the see we are in the mid market villas alternate accommodations is an asset class where we don’t personally currently have the competence. So we don’t want to lose focus. We are very clear we want to Focus from two and a half star to four and a half star. That means basically mid scale, upper mid scale and upscale. We think the opportunity is so big in India that we don’t want to go and start dabbling in other areas of pivoting our business model. So for the time being I do not see any us at all focusing here though I know that many people are.
We will not.
Jai Chauhan
Right sir? Right sir. Understood. And. And so what I understand from a local market perspective like for. Like for example Uttarakhand, there are some type of. Some type of asset structure. Like resorts work well there. Or maybe you know like this is something that I’ve heard. So what are your views on it?
Patanjali G. Keswani
Well, resorts certainly discretionary travel into vacation, leisure, leisure. All that is taking is doing well. We don’t have. We don’t own hotels there. But in that see we have very few owned hotels in the leisure segment. But a majority of our managed hotels or at least 50% are are in the leisure segment. So we are interested in it. We are interested in managing resorts. We are interested in managing any vacation destination. But we don’t other than Orica, Udaipur or Goa hotels and what we are building in Shimla we will. We are not currently looking at putting any capital at resorts currently.
Jai Chauhan
Got it sir. Understood. That’s from my side. Thank you.
operator
Thank you. The next question is from the line of Nikhil from Kizuna Wealth. Please go ahead.
Nikhil Poptani
Thank you for giving me the opportunity and congratulations on a good set of numbers. So my first question is like how much debt are we targeting to reduce this year?
Patanjali G. Keswani
If we list your will be debt free otherwise we reduced by 250 crores a quarter.
Nikhil Poptani
That’s great to hear. And so when we’re transferring our assets to flow so will there be any kind of consideration on the cash basis or any kind of stock where our percentage of shareholding increases in flow that.
Patanjali G. Keswani
Is subject to the committee of directors. There is one committee of directors in Lemon Tree, one committee of directors in Florida. So if you are. If you are patient like I am being then you will get to know I think in a. In a few months perhaps by the next call.
Nikhil Poptani
That’s great to hear. And so like managed network. Managed total network. Sir. How’s the occupancy and ads in that space? In that setting.
Patanjali G. Keswani
It is well if you look at the business hotel side it is similar to us. If you look at the leisure hotel side it is a little lower.
Nikhil Poptani
That’s it from myself, thank you for giving the opportunity and Congratulations and all the business.
Patanjali G. Keswani
Thank you. Thank you Nikhil.
operator
Thank you. The next question is from the line of such the patil from Eyesight Fin Trade Private limited. Please go ahead.
Sucrit Patil
Hi, good afternoon. Am I, am I audible?
Patanjali G. Keswani
Yeah, you are. Good afternoon.
Sucrit Patil
Yes, hi, my name is Sukhruv Bhajan. Good afternoon. As Lemon Tree is thinking about scaling over the next few years, especially with the mix of owned and managed properties, how are you planning growth between new geography segments or formats that may not. Have been core to your plan before? And if some of These say tier 2 or tier 3 cities or the premium cat category do not play out as you had planned, what kind of contingencies or backups do you have in place to protect margins and maintain growth momentum? Yes, thank you very much.
Patanjali G. Keswani
So sukrit to tier 2 and 3. We are not investing capital, just FYI. Our general approach to capital allocation is we will invest capital where we see high demand today and where we see a return on capital which meets a hurdle rate. So we are happy to compete in an area where there is high demand and high supply. But we will not go and invest in markets where there may be future high demand which has not yet materialized in which case if it comes then we will be happy to consider investing there. So capital allocation will be very disciplined.
It will be in markets where we feel with a competitive advantage and our modes of, of expenditure and so on cost control. We feel we will be able to give a return basically of capital within once it stabilizes of 20%. So we are very, very clear on that. Now let’s come to tier two and tier three. The way we look at it is we have an opportunistic approach and a strategic approach. Opportunistic is any owner who comes to us. And right now let me say that I’m told there are 8, 900 hotel owners who are in talks with our business development team.
And obviously there will be drop offs at different levels but we have a very healthy pipeline of potential growth in the asset light side we do not have such a healthy pipeline and the growth of franchise which is what we are wanting to activate now, which are smaller hotels across many tier 2, tier 3, tier 4 cities. As far as strategic growth goes, as I had mentioned earlier, there are 180 to 200 cities which have currently high connectivity or will have high connectivity in the next two, three years based on the plans that have been announced.
And these cities are where we want to have a hotel, although not our own hotel, but a hotel that we manage in order to make customers familiar with the Lemon Tree brand across India. Our general view has been that once we put a hotel in a city, the number of customers from that city who travel to other cities where we have hotels, they increase. So if you know, before we had a hotel in Calcutta, we were getting 100 guys from Calcutta every day. After we put up a hotel in Calcutta, we were getting 200 guys every day staying in hotels.
So basically it’s a visibility and network strategy we are focusing on and we will basically drive it through an asset light strategy.
Sucrit Patil
Okay, does that make sense? Yes. Just to close the loop, would I be right to assume from what you have just done, given through a guidance that a franchisee model would would be in the cards of Lemon Tree in the couple in the next coming quarter?
Patanjali G. Keswani
No. It will be our focus for, for the keys brands, not the lemonary brands which are far more coherent. Keys will be a soft brand. If you know, if you have noticed, many of our, many of the listed companies in the brand space have launched what are called soft brands. Interestingly, even Marriott has launched a soft brand called Serious. So all most of the hotel companies of some scale operating in India have launched soft brands. This is to cover for those hotels that have been built by individuals and there are 1.2 million such rooms which have been built, built tiny, that means it’s 30 to 40 rooms.
It does not make sense to manage them because while you manage, you get 17% of EBITDA, but if you franchise, you get 10, 11% of EBITDA and you don’t have to actually do anything more than just distribute and sell that product. So when you have disparate hotels, you cannot brand them coherently. You have to have a soft brand which, which makes a commitment on quality, security, safety and hygiene with the umbrella brand of Lemon Tree. But it will not be branded lamentary. And yes, we want to hypercharge that part of the business and go after franchise branding franchising in a very big way.
And that’s one of the reasons somebody asked me earlier that is one of the strengths that Nilendra has.
Sucrit Patil
Thank you very much for your guidance and best of luck for all your business ventures.
Patanjali G. Keswani
Thank you.
operator
Thank you. The next question is from the line of Vikram from Vikram securities. Please go ahead.
Vikram
Hello. Namaste. Congratulations on a great set of numbers. This is about how the shareholding will look after the demergers are done. So how much of floor will Lemon Tree hold and what is the plan of the listing? Will you demerge it first or will we get a one on one stock for each share. I think the last time you had spoken about this, you had that there will be a massive value unlocking. But I’m just curious on how the shareholding would look like. And.
Patanjali G. Keswani
Vikram, that is more the road. That is why we have set up two committees of directors in Lemon Tree and in Flow. I think clarity will come once they come back with their recommendations. And obviously we are looking at, we have said at a potential demerger. So how it works, how will the demerger work is something that they have to come back with their recommendations to the board too. And one it is approved by the board and we file such a scheme, then I think everybody will be aware of it. And you know, then this will answer your question then, sir, do we expect.
Vikram
Some sort of announcement this financial year?
Patanjali G. Keswani
Definitely.
Vikram
Oh, fabulous. And lastly, sir, what will the. What is left the asset heavy business maximize out? Like in terms of rooms, will they ever keep expanding or will they top out at 4,000, 3,000 rooms?
Patanjali G. Keswani
FLIR already has 6,000 and our intent is obviously to cross 10, 15,000. You. It happens, you will see it.
Vikram
Okay, thank you. Thank you very much.
Patanjali G. Keswani
Thank you.
operator
Thank you. The next question is from the line of Bharat Giannis from Money Control Pro. Please go ahead.
Bharat Gianani
So thanks for the opportunity. Just one clarification before the floor listing happens. Any property that we start to acquire. On the own or lease basis, that. Will be under wholly on Lemon Tree subsidiary or the 60, 40% lemon tree and Floor. So just one clarification on that.
Patanjali G. Keswani
I think it will be, I mean it is subject to obviously discussions with boards, but I would expect it would all be in floor.
Bharat Gianani
Okay, thanks. Thanks for all the best.
Patanjali G. Keswani
Thank you.
operator
Thank you, ladies and gentlemen. That was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Patanjali G. Keswani
Thank you 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. And we look forward to interacting with you soon and answering many of these questions also very soon. Thank you.
operator
Thank you. On behalf of lemontree Hotels. That concludes this conference. Thank you for joining us and you may now disconnect your lines.