Introduction and Macroeconomic view of Indian Tourism
FY24 was pivotal for the Indian hospitality sector as it continued to grow fuelled by favourable demographics, robust domestic demand, increased investments and hosting international events. Despite the slowdown in the world economy due to rising interest rates, elevated inflation, monetary policy tightening and the geopolitical conflict between certain countries, the Indian hospitality sector showed massive resilience and grew further from the previous year. This resurgence is highlighted by significant strides in key performance metrics, with the sector rebounding from the clutches of the pandemic and laying a strong foundation for sustained future growth. As the government invests more into infrastructure development, building roads, railway networks and airports, the Indian hospitality industry will grow and thrive as one of the most important sectors contributing to the GDP of the country.
The contribution of the tourism and travel industry to GDP for India is expected to be $512 billion by 2028 with 53 million new jobs by 20 2 977.Historically, there has been high correlation between increase in foreign tourist arrivals and hotel occupancies. According to the Ministry of Tourism, Foreign Tourist Arrivals (FTAs) in India in CY23 were 92 Lakhs, with a positive growth rate of 49% as compared to 61 Lakhs in CY22, and was 15% lower compared to CY19. With FTAs increasing every month and nearing pre-COVID levels, there is further room for occupancies to rise in the hospitality industry and surpass pre-COVID levels. The total air traffic in CY23 grew by 26% over CY22 due to the increase in domestic and international air traffic, which increased by 24% and 36% over CY22 respectively78. This surge in traffic can be attributed to the hosting of international events such as the G20 summit and the ICC Mens World Cup, which increased the visibility of the country in the international stage and set the industry up for sustained growth in the future.
Before the pandemic, the travel and tourism industry accounted for 1 in 4 of all net new jobs created across the world (direct and indirect), which had reduced drastically during the COVID-19 lockdown. The industry is now moving towards hiring of diverse talent and upskilling existing employees to overcome the manpower crunch amid a post-COVID boom in hotel demand. A positive outlook for the Indian hospitality industry has been projected, which is set to grow at 8.4% over the next decade and generate a further 19.4 million jobs in the process79.
Travel and tourism remains an important driver for job creation across the world and a dynamic engine of employment opportunities80
Industry Outlook
FY24 has been a game-changer for the Indian hospitality industry. Indias G20 presidency and the ICC Mens World Cup enhanced Indias international visibility and placed it as a destination for hosting international events. The development of big convention centres like Pragati Maidan and Yashobhoomi International Convention Centre in New Delhi and the Jio World Convention Centre in Mumbai have positioned India as a country for hosting large-scale corporate events. The government is dedicated to making India a top 5 global tourist destination by 2030 and aims to catapult the country into a $1 trillion tourism economy by 2047.
Indian Hotel Sector: Performance Outlook81
Furthermore, industry reports anticipate the following trends in the years ahead
While global hotel operators increasingly adopt contactless check-in, India lags due to high initial investment costs for the technology. However, to mitigate delays and guest frustration from manual procedures, it is crucial that Indian hotels embrace contactless check-ins.
Technology will help augment the overall guest experience and improve guest satisfaction as the hospitality industry embraces the use of artificial intelligent and machine learning, which will enable hyperpersonalisation along with better and faster data-driven insights.
New regions and segments have emerged that will help create significant growth to tourism in India. Kashmir and the North Eastern states have shown substantial growth due to an increase in tourist footfalls in these regions, owing to the unique cultural and natural heritage. Faith tourism is another segment where cities like Amritsar, Varanasi, Rishikesh, Katra, Kedarnath, Ujjain, Ayodhya and Tirupati will benefit immensely from the surge in spiritual and religious tourism.
Bleisure travel is gaining popularity in India, with a significant number of Indian business travellers extending their trips for leisure purposes. As international business travel and MICE events return, there is a growing opportunity for the hotel sector to cater to this trend by offering special packages and incorporating leisure elements into the guest experience, which will foster loyalty amongst corporate travellers.
In India, hotel development was traditionally focused on business destinations due to the dominance of corporate travellers. However, there is now a shift towards boutique hotels and lifestyle brands to cater to the growing demand of experiences by the customer, rather than just a hotel with a huge lobby and spacious rooms. Luxury wellness resorts are transforming beyond spa and fitness experiences to incorporate personalised and culturally enriching wellness programs, along with cutting- edge therapies such as light & sound therapies and touchless treatments.
As income levels rise in India, the young millennial population of India will play a crucial role in expanding the wedding market. Due to its rich natural heritage of mountains, deserts and beaches and the cultural heritage such as palaces, forts and luxury resorts, India has the potential to be a leader in the global wedding tourism sector.
The Indian hotel industry is urged to expand sustainability initiatives beyond operational practices to address environmental concerns and change public perception. Incorporating green technologies and resources in hotel construction for net zero consumption and employing gig workers while promoting multi-skilling among employees can optimise costs, enhance efficiency, and improve the overall competitiveness of the tourism and hospitality industry.
Key Demand Drivers Business Travel
Business travel comprises inbound and domestic visits for business-related purposes. This includes travel on corporate accounts, MSME, and individual business travelers. This segment is a predominant source of demand for hotels located in business- oriented locations such as Delhi NCR, Bengaluru, Hyderabad, Pune and Mumbai. Even though corporate demand remains subdued, relative to pre-COVID levels, due to demand from large tech companies not fully returning, FY24 saw good MSME travel rebound and extensive corporate travel from other industries.
Leisure Travel
Leisure travel comprises vacation travel, including short-duration vacations. Greater affordability, changing attitudes towards lifestyle, and improved road and air connectivity have materially encouraged short-stay vacations, including those taken on weekends and extended weekends. Leisure travel demand will primarily be in destinations like Goa, Udaipur, Jaipur, Dehradun, etc. Business-oriented locations also attract staycation business over the weekend or even leisure business if the city is also a tourist destination, like Delhi NCR. FY24 saw continued demand for leisure travel and travel to drivable destinations. In the long term as peoples income rise the demand for leisure travel will grow exponentially as people increase their discretionary spends and spend more on experiences and lifestyle brands.
MICE Demand
The MICE segment is mainly corporate drive, i.e. conferences, training programmes, and other events that are customer-facing and interactive. The demand tends to arise during the working week and occurs across all months of the year, barring the main holiday periods and the months from March through June. MICE demand tends to come wi th pri ce sen si ti vity. Hotels in predominantly business locations will generate MICE demand for training and corporate seminars, which could be a day or residential events. Conferences that include recreational elements choose city-centre locations and resort destinations. FY24 has seen high demand in the MICE business due to the hosting of multiple international events in the country.
Weddings and Social Travel
Weddings and social travel mainly involve domestic travel for family weddings, destination weddings, and other family celebrations like anniversaries or birthdays. Such demand will likely gravitate to hotels that have the required function areas, guest room capacity, and also the quality to host such events at a level consistent with the status of the host. In FY24, India witnessed a record growth in weddings. To give perspective, ~3.8 million weddings took place between 23rd November and 15th December, 2023, up from ~3.2 million weddings in the same period last year82.
Airlines and Airline Crew
This demand set helps create a core of demand for hotels, albeit at significantly discounted pricing. Crew demand could arise from international and domestic carriers. While the major international airlines will use upper-tier hotels, more price-sensitive airlines are open to using upper-midscale hotels. This demand is relatively nominal and mainly occurs at hotels that are closer to the airports. This segment witnessed sustained demand and is set for further growth as airline companies expand operations in India.
Transit Demand
Travellers in overnight transits between cities also need to use hotel accommodation, which is typically located close to the point of the onward journey. Transit demand could occur on the inward and outward leg of international travel between cities connected through a regional hub.
Growth in Supply by City
According to Hotelivate Trend & Opportunities Report, 2023, the midmarket and upper midmarket hotels are favoured by investors with 55% of the existing proposed supply under these segments. An increasing number of hotel developers and operators are exploring opportunities in the Tier 3 markets (~44% of the proposed future supply), identifying the unaccommodated demand in these cities and entering virgin markets. Additionally, North and West India continue to be the preferred locations for hotel development with about 73% of the proposed supply, while Mumbai is the city with the most proposed supply over the next 5 years.
The following table sets forth the growth of supply (no. of rooms) across major cities83
Market | 2023 (Existing Rooms) | 2028 (Projected Rooms) |
Agra | 2,231 | 3,487 |
Ahmedabad | 4,350 | 5,787 |
Amritsar | 1,808 | 3,795 |
Bengaluru | 15,351 | 19,709 |
Chandigarh | 2,791 | 3,081 |
Chennai | 9,761 | 10,491 |
Dehradun | 803 | 1,867 |
Goa | 8,805 | 11,967 |
Gurugram | 6,662 | 8,358 |
Hyderabad | 7,465 | 8,671 |
Jaipur | 6,557 | 9,898 |
Kochi | 2,677 | 3,180 |
Kolkata | 5,028 | 6,316 |
Lucknow | 1,902 | 3,526 |
Mumbai | 13,718 | 18,384 |
Navi Mumbai | 1,222 | 2,048 |
New Delhi | 14,917 | 16,544 |
Noida | 1,649 | 3,209 |
Pune | 6,789 | 7,517 |
Udaipur | 2,122 | 3,628 |
Other Cities | 49,104 | 84,855 |
Barriers to Entry
The development of hotels in India faces several roadblocks, the most challenging among those are
Land: Availability of land at an appropriate location and the high cost of available land create limitations on hotel development and viability. Limited development rights and end-use restrictions on available sites create further challenges. Shortage of prime real estate in Tier 1 cities, which are preoccupied by well established brands, is a huge barrier of entry for new entrants.
Regulatory Approvals: Hotels require several approvals and licenses starting from land approval for end-use to the opening of the hotels. The process of obtaining approvals is time-consuming and uncertainties associated with it led to delays in the opening of hotels. Project delays lead to cost escalation, difficulty in servicing the debt obligations, and sometimes impact the project quality. Furthermore, compliance with local zoning laws and land use regulations is essential, which can vary significantly across different states and municipalities.
Financing and Capital Requirement: In the backdrop of several hotel projects which are in debt default, bankers are extremely selective in providing development finance for hotel projects.
Further, interest rates tend to be high. In addition, hotel projects require sizeable equity capital for project development and to meet cash shortfalls during operations. Shortage of suitable equity capital is a significant constraint towards the development of hotels, particularly a portfolio of assets or hotels with a large inventory of rooms and other facilities. Further, an increase in interest rates poses a threat to the expansion plans of the hotel developers as the cost to fund new projects goes up.
Competitive Barriers: The presence of well- established domestic and international hotel chains makes it difficult for new entrants to compete, especially in prime locations. Furthermore, established brands enjoy strong customer loyalty, making it challenging for new hotels to attract and retain customers round the year.
Key Risks to the Business Seasonality Risk
Seasonality is a significant risk factor for the hospitality industry in India, impacting various aspects of hotel operations and profitability. The seasonal nature of tourism affects occupancy rates, revenue generation, and overall business stability. Leisure hotels experience peak seasons during holidays, festivals, auspicious wedding periods and favourable weather conditions, while off-peak seasons see a slight drop in visitor numbers and relatively lower room rates from the peak season. This leads to fluctuating demand, making it challenging to maintain consistent RevPAR throughout the year. Business hotels experience peak demand during the weekdays when business travel is robust while the same reduces during the weekends which again leads to fluctuating demand.
Mitigation: Lemon Tree has a diverse portfolio of 100+ business and leisure hotels with presence in 65+ cities. The diversification allows Lemon Tree to capture various demand segments of both business and leisure travellers. To solve for the seasonality of the business Lemon Tree takes various steps of minimising the risk such as dynamic pricing, semi-annual contracting with leading corporates for its business hotels, leveraging its strong loyalty programme and running targeted marketing campaigns for high- intent travellers.
Economic and Industry Risk
A slowdown in Indias economic growth could hurt the hospitality business, affecting both operational and financial performance. Indias GDP has grown at a good pace in the past quarters and may find it difficult to sustain the same growth owing to international slowdown and geopolitical risks. An increase in power and fuel costs pose a huge threat to the hospitality industry. As prices for airline tickets rise, it may affect Lemon Tree Hotels due to its strong presence in the mid-market category which has price-sensitive customers. A rise in procurement costs due to an increase in the price of commodities might pressure the expenses of the Company and might take a further hit in case of a high inflationary environment.
Mitigation: Lemon Tree receives about ~85% of its business from domestic travellers. The Company has been able to build a strong brand name, which is synonymous with quality and trust. The expanded brand portfolio with 7 brands now addresses a wider spectrum of hotel consumers. As the leader of the midpriced hotel segment, the Companys goals are aligned with the aspirations of the expanding middle class. In FY24, the Company focused on increasing RevPAR in line with increasing demand to maximise profitability. Leveraging its network effect and an agile sales network, Lemon Tree Hotels has been able to maintain a leading position in the industry. Along with this, our team focused on bringing in operational efficiencies by rationalising all cost and operating metrics, to achieve the EBITDA expansion strategy. We have made material effort to bring down our raw material costs by negotiating with suppliers. Lemon Tree also undertakes constant renovation of its hotels to keep up with market standards and provide a high-quality product and service to its customers. All efforts combined, we have been able to record high hotel-level operating profits at the group level. With our leaner structure and improved operating metrics, we are well- positioned to register better operating margins on a stable basis.
Financial Risk
Being a capital-intensive industry, players in the industry who are leveraged may find a challenge servicing their interest and principal repayment obligations if interest rates keep rising. Inflation is another key risk as high costs of procuring raw materials will put pressure on the P&L and might force companies to further borrow to meet working capital needs.
Mitigation: Lemon Tree Hotels focus on optimising costs and focus on growing in an asset-light way by leveraging its brand to manage and franchise third-party-owned hotels is a key risk mitigator. Due to stable EBITDA margin generation and access to unutilised credit lines (in case needed), Lemon Tree is able to meet its financial obligations with ease and on time. The Company also has a detailed risk mitigation and business continuity plan in place in case of black swan events to help it meet its debt obligations.
Operating Results
Year Ended | |||
Particulars | March 31, 2024 | March 31, 2023 | % change |
(Audited) | (Audited) | ||
INCOME | |||
Revenue from operations | 1,07,112 | 87,499 | 22% |
Other Income | 564 | 358 | 58% |
Total income | 1,07,676 | 87,857 | 23% |
EXPENSES | |||
Cost of food and beverages consumed | 6,278 | 4,990 | 26% |
Employee benefit expenses | 18,775 | 14,973 | 25% |
Other expenses: | |||
- Power and fuel | 7,805 | 6,871 | 14% |
- Stamp duty expense | - | 478 | (100%) |
- Others | 21,930 | 15,429 | 42% |
Total expenses | 54,788 | 42,742 | 28% |
Profit before depreciation and amortization, finance cost, finance income and tax | 52,888 | 45,114 | 17% |
Finance cost | 20,847 | 18,235 | 14% |
Finance income | (685) | (517) | 32% |
Depreciation and amortization expense | 11,213 | 9,660 | 16% |
Net Profit before tax and share of associates | 21,513 | 17,737 | 21% |
Add: Share of Profit/(loss) of associates | 70 | 87 | (19%) |
Profit before tax | 21,583 | 17,824 | 21% |
Tax expense: | |||
- Current tax | 3,351 | 2,693 | 24% |
- Deferred tax | |||
- For current year | 1,436 | 1,077 | 33% |
- Deferred tax asset not recognized in earlier years | (1,374) | - | |
Net Profit after tax | 18,170 | 14,054 | 29% |
Re-measurements of defined benefit plans | (40) | 23 | -273% |
Income tax effect | 4 | (7) | -168% |
Total Comprehensive Income | 18,134 | 14,071 | 29% |
Cash Profit | 29,383 | 23,714 | 24% |
Income
The Companys total income has increased by 23% from Rs. 87,857 Lakhs during FY23 to Rs. 1,07,676 Lakhs during FY24.
Revenue from operations increased by 22% from Rs. 87,499 Lakhs for FY23 to Rs.1,07,112 Lakhs for FY24. This was driven by the opening of Aurika, Mumbai Skycity and continued strong performance in the hospitality industry constituted by:
- ARR led revenue growth. ARR of the Company saw an increase of 10% in FY24 as compared to FY23
- The revenue from food and beverages increased by 22.4% from Rs.11,440 Lakhs for FY23 to Rs.14,006 Lakhs for FY24
- Occupancy increased by 179bps from 68% in FY23 to 70% in FY24
The Companys total revenue from managed hotels also increased by 40% from Rs.3,581 Lakhs for FY23 to Rs. 5,007 Lakhs for FY24
Lastly, other income increased by 58% from Rs. 358 Lakhs for FY23 to Rs. 564 Lakhs for FY24
Expenses
Total expenses increased by 28% from Rs. 42,742 Lakhs for FY23 to Rs. 54,788 Lakhs for FY24
The cost of food and beverages consumed increased in line with the increase in food and beverages revenue from Rs.4,990 Lakhs for FY23 to Rs. 6,278 Lakhs for FY24. Moreover, the cost of food and beverages consumed as a percentage of food and beverages revenue has marginally increased from 43.6% for FY23 to 44.8% for FY24
Employee benefit expenses increased by 25% from Rs.14,973 Lakhs for FY23 to Rs. 18,775 Lakhs for FY24 owing to adding of manpower for Aurika, Mumbai Skycity and normal yearly increment in salaries.
Power and fuel expenses increased by 14% from Rs.6,871 Lakhs for FY23 to Rs. 7,805 Lakhs for FY24; due to operationalisation of Aurika, Mumbai Skycity.
Other expenses increased by 42% from Rs.15,429 Lakhs for FY23 to Rs. 21,930 for FY24; which is due to an increase in overall business activities and increase in renovation activities
EBITDA
The Companys EBITDA increased by 17% from Rs. 45,114 Lakhs for FY23 to Rs. 52,888 Lakhs for FY24. EBITDA margins decreased by 223 bps from 51% for FY23 to 49% for FY24. This was majorly due to opening of Aurika, Mumbai Skycity which operationalised on 5th October, 2023 and renovation of the existing hotels to bring them up to market standards.
Depreciation and Amortisation
Depreciation and Amortisation expenses increased by 16% from H9,660 Lakhs for FY23 to Rs.11,213 Lakhs for FY24 primarily due to addition of Aurika, Mumbai Skycity.
Finance Costs
Total debt increased by 8.2% from Rs. 1,74,573 Lakhs for FY23 to Rs. 1,88,912 Lakhs for FY24. The finance cost increased by 14% from Rs.18,235 Lakhs for FY23 to Rs. 20,847 Lakhs for FY24. The finance cost increased due increase of the Companys weighted average cost of debt by 48 bps from 8.38% for FY23 to 8.86% for FY24 and additional debt taken for construction of Aurika, Mumbai Skycity.
Profit After Tax (PAT)
The Companys PAT for the year FY24 is Rs.18,170 Lakhs up from a PAT of Rs.14,054 Lakhs for FY23. The improvement is due to uptick in the operational performance of the Company and lean cost control measures deployed by the Company.
Cash Profit (PAT+Depreciation)
The Companys cash profit for the year FY24 is Rs. 29,384 Lakhs up from cash profit of Rs. 23,714 Lakhs in FY23.
Performance of Owned/Leased Hotels by Brand - FY24 vs. FY23
Parameters | Occupancy Rate (%) | Average Daily Rate (Rs.) | Hotel Level EBITDAR/ Room (Rs. Lakhs) | Hotel Level EBITDAR Margin % | ||||||||
By Brand | FY24 | FY23 | Change (bps) | FY24 | FY23 | Change (%) | FY24 | FY23 | Change (%) | FY24 | FY23 | Change (bps) |
Aurika* | 53% | 49% | 382 | 10,643 | 14,639 | -27% | 10.0 | 23.6 | -57% | 60% | 64% | -383 |
Lemon Tree Premier | 79% | 76% | 287 | 6,929 | 6,464 | 7% | 14.1 | 13.2 | 6% | 57% | 59% | -256 |
Lemon Tree Hotels | 73% | 69% | 401 | 5,531 | 5,154 | 7% | 9.3 | 8.5 | 9% | 49% | 51% | -258 |
Red Fox Hotels | 71% | 70% | 89 | 4,426 | 4,025 | 10% | 6.9 | 5.8 | 18% | 53% | 55% | -227 |
Keys Hotels | 56% | 54% | 262 | 3,518 | 3,332 | 6% | 2.5 | 2.8 | -12% | 29% | 37% | -827 |
*Aurika includes Aurika, Mumbai Skycity which was operationalised on 5th October, 2023
Aurika
Aurikas numbers include the numbers for Aurika, Mumbai Skycity which operatiionalised on 5th October, 2023 and is not representative of full years performance. ADR decreased by 27% from H14,639 for FY23 to Rs.10,643 for FY24. Occupancy increased by 382 bps from 49% for FY23 to 53% for FY24. EBITDAR/room decreased by 57% from Rs.23.6 Lakhs for FY23 to Rs.10 Lakhs for FY24. EBITDAR margin decreased by 383 bps from 64% for FY23 to 60% for FY24.
Lemon Tree Premier
ADR increased by 7% from Rs.6,464 for FY23 to Rs.6,929 for FY24. Occupancy increased by 287 bps from 76% for FY23 to 79% for FY24. EBITDAR/room increased by 6% from Rs.13.2 Lakhs for FY23 to Rs.14.1 Lakhs for FY24. EBITDAR margin decreased by 256 bps from 59% for FY23 to 57% for FY24.
Lemon Tree Hotels
ADR increased by 7% from Rs.5,154 for FY23 to Rs.5,531 for FY24. Occupancy increased by 401 bps from 69% for FY23 to 73% for FY24. EBITDAR/room increased by 9% from Rs.8.5 Lakhs for FY23 to Rs.9.3 Lakhs for FY24. EBITDAR margin decreased by 258 bps from 51% for FY23 to 49% for FY24.
Red Fox Hotels
ADR increased by 10% from Rs.4,052 for FY23 to Rs.4,426 for FY24. Occupancy increased by 89 bps from 70% for FY23 to 71% for FY24. EBITDAR/room increased by 18% from Rs.5.8 Lakhs for FY23 to Rs.6.9 Lakhs for FY24. EBITDAR margin decreased by 227 bps from 55% for FY23 to 53% for FY24.
Keys Hotels
ADR increased by 6% from Rs.3,332 for FY23 to Rs.3,518 for FY24. Occupancy increased by 262 bps from 54% for FY23 to 56% for FY24. EBITDAR/room decreased by 12% from Rs.2.8 Lakhs for FY23 to Rs.2.5 Lakhs for FY24. EBITDAR margin decreased by 827 bps from 37% for FY23 to 29% for FY24.
Key Financial Ratios (On Consolidated Basis)
S. No. Ratio | Year ended March 31, 2024 | Year ended March 31, 2023 |
1 Current Ratio (in times) |
0.57 | 0.37 |
2 Debt Equity Ratio (in times) |
1.22 | 1.24 |
3 Debt Service Coverage Ratio (in times) | 1.34 | 1.24 |
4 Return on Equity (in %) | 12.28% | 9.99% |
5 Inventory Turnover Ratio (in times) | 14.72 | 16.45 |
6 Trade Receivable Turnover Ratio (in times) |
16.68 | 20.58 |
7 Net Capital Turnover Ratio (in times) | (6.91) | (3.74) |
8 Net Profit Ratio (in %) |
17.10% | 16.06% |
9 Return on capital employed (in %) | 12.25% | 11.23% |
10 Interest Coverage Ratio (in times) - (i) |
3.28 | 3.19 |
11 Operating Profit Margin Ratio (in times) - (ii) |
49.24% | 51.15% |
(i) Interest Service Coverage Ratio equals Profit before Tax + Interest on Borrowings + Depreciation and Amortisation divided by Interest on Borrowings.
(ii) Operating Profit Margin equals Profit before Depreciation and Amortisation Expenses, Interest and Tax less Other Income divided by net sales
(iii) Net Sales equals to Revenue from Operations less Government Grant.
(iv) Refer Note 38 of the Notes to Standalone Financial Statements for definitions of other ratios.
The Current Ratio of the Group has improved from 0.37 in financial year 2023 to 0.57 times in financial year 2024. Net Capital Turnover Ratio for financial year 2024 was (6.91) as compared to (3.74) in financial year 2023 on account of higher revenue during the year.
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