Recasting the past, reshaping the future
Dear Shareholders,
It gives me great pleasure to present to you the first Integrated
Report of Lemon Tree Hotels (LTH). In an effort to be future-ready, we have been building
on a key strategic aspect of our company - our ESG approach. Sustainable management of
resources as well as transparent and responsible management processes are crucial for the
success of businesses in the future. We have already made a great beginning and are happy
to share our progress in FY22 with you through this Integrated Report.
The hospitality sector is making a strong comeback
After two years of the pandemic and the resulting downturn, occupancy
levels in March 2022 nearly recovered to pre-pandemic levels and the Average Room Rate
(ARR) saw an uptick despite the 3rd wave of CoVID in Q4 FY22. LTH focused on
improving revenue while tightly controlling costs, thereby expanding k profitability.
Consumer preference for high i hygiene standards has led to a clear shift from unbranded
to branded hotels. While i leisure travel recovered first, business travel i is showing
signs of getting back to normal with sectors like IT resuming work from office.
Today occupancy is closer to pre-COVID ^ levels and ARR is expected to
'normalise' during FY23.
As we emerge out of two difficult years, our focus remains firmly on
variablising our fixed costs together with a recovery in occupancy and in ARR, so that we
can run a leaner and more agile operating model. During the year, we successfully turned
the corner as revenue from operations increased by 60%. Our strategy of going asset-light,
that is, managed/franchised/ manchised hotels has served us well and this year our total
revenue from managed hotels increased by 128%.
Boosting growth through expansion, variabilized costs and a lean
operating model
This year had its fair share of reversals and new beginnings.
With a comprehensive vaccination program me and the dwindling impact of
COVID waves, we saw a revival in destination weddings, staycations and to some extent in
Meeting, Incentives, Conferences and Exhibitions (MICE) demand. Corporate travel is being
redefined and will build back to a new level of demand in FY23 and beyond. LTH now focuses
on the retail segment i.e. those who book directly (and not through a company or travel
agent) based on a few important criteria, including location, hygiene and safety, pricing
and more.
During the 2nd wave in Q1 FY22, demand for hotel rooms came
to a sharp halt. We sought alternate demand and functioned as a surrogate medicare
facility through our tie-ups with hospitals and with corporates to cater to quarantine
requirements for mild and asymptomatic cases. Such arrangements also helped the nation
tide over the oxygen crisis, particularly in cities with very high caseloads.
Our agility in making the best of a difficult situation led to a
recovery of some of our fixed costs through these bulk bookings.
As we emerge out of two difficult years, our focus remains firmly on
variablising our fixed costs together with a recovery in occupancy and in ARR, so that we
can run a leaner and more agile operating model. During the year, we successfully turned
the corner as revenue from operations increased by 60% from ' 251.7 crore for FY21 to '
402.2 crore for FY22. This revenue recovery was driven by a growth in ARR, which increased
by 32.2% YoY. Our strategy of going asset-light i.e. managed/franchised/ manchised hotels
has served us well and this year our total revenue from managed hotels increased by 128%
from ' 7.7 crore in FY21 to ' 17.6 crore in FY22. Over the next few years, we will
continue to focus on expanding our presence across India and addressing demand across the
upper upscale, upscale, midscale and economy segments - through our portfolio of seven
brands.
Increased domestic leisure travel, staycations, work-from-anywhere,
road tripping, fast growing demand from tier-2, tier-3 and tier-4 locations are new
realities that demand a recast of the business model."
32.2% YoY improvement in ARR leading to higher flow through to
EBITDA
Evolution of consumer preferences
The return to 'normalcy' that is underway brings with it changed
consumer preferences that are an outcome of the lockdown and its associated uncertainties.
Increased domestic leisure travel, staycations, work-from-anywhere, road tripping, fast
growing demand from tier-2, tier-3 and tier-4 locations are new realities that demand a
recast of the business model. Our asset- light growth strategy is helping us straddle both
worlds, through greater presence in traditional growth centres where we want to have a
multi-brand presence, as well as in emerging cities and towns that are relevant either as
a business hub, a religious destination or a leisure location. In FY22, we opened four new
properties at Bhubaneshwar, Dehradun, Neelkanth and Coorg.
Despite a slowdown over two years, we focused on expansion through
hotel openings and signing of management agreements. As of 31st March 2022, our
management contract pipeline, with openings till FY25, stands at 1,441 rooms. Our
operational inventory as on 31st March 2022 comprises 87 hotels and 8,489
rooms, of which 4,517 are owned, 675 are leased and 3,297 are on management contract. When
the current pipeline becomes operational by FY25, we will operate ~10,700 rooms in 109
hotels across 65 destinations.
Integrating sustainability into hotel operations, for a more impactful
future
Under Vision 2026, we aim to achieve:
• 15% reduction in energy consumption (intensity based)
• 50% of our energy needs to be fulfilled through renewable energy
sources
• 40% reduction in GHG emissions (intensity based)
• 10% reduction in water consumption (intensity based)
• 100% certification of our hotels as green buildings (Indian
Green Building Council certification)
• 30% Opportunity Deprived Indians (ODIs) i.e. our Employees with
Disability and Employees from Economically and Socially marginalised backgrounds
• 15% women in the workforce
With occupancy expected to return to pre-COVID levels of 70%+ by mid
FY23 and with rapid expansion underway in the industry, we are now at the cusp of the next
upward cycle. The increasing traction in corporate travel will benefit us to a great
extent. We expect to deliver strong growth in revenue and a significant net EBITDA margin
expansion on the back of improved ARRs, higher occupancy and favourable cost
dynamics."
With a detailed sustainability strategy and an ESG taskforce in place,
we are confident of making significant progress each year and creating measurable impact.
Our (hotel) buildings are designed as per green building specifications and we have
adopted innovative approaches to reduce our resource usage and consequently our carbon
footprint. We have been monitoring our Scope 1 and 2 emissions on an organisation-wide
basis and in the current fiscal over 15% of our total electricity consumption was
fulfilled by renewables.
Lean, excellence driven and more productive: Our distinctive workforce
The hospitality industry is a people-intensive business and we have
always promoted a flat organisation with very few layers separating the junior-most
employee from higher management. This helps build a culture of closeness, informality and
creativity. Our ODI initiative drives the inclusion of opportunity deprived people into
our daily operations, thereby demonstrating new opportunities and impact.
Future outlook
With occupancy expected to return to pre-COVID levels of 70%+ by mid
FY23 and with rapid expansion underway in the industry, we are now at the cusp of the next
upward cycle. The increasing traction in corporate travel will benefit us to a great
extent as more than 85% of our inventory is in business hotels. Consequently, we expect to
deliver strong growth in revenue and a significant net EBITDA margin expansion on the back
of improved ARRs, higher occupancy and favourable cost dynamics. The opening of Aurika,
Mumbai in CY23 will further drive our performance.
As an Indian brand we are proud of our journey over two decades and we
can see an exciting road ahead. We feel our deep-rooted Indian ethos uniquely qualifies us
to serve the needs of a growing population of travellers who are financially able, no
longer restricted to metro limits and aspire for the better things in life.
With warms regards,
Patanjali Govind Keswani
Chairman and Managing Director