Lemon Tree looks to open 20 hotels, add 2,000 rooms in FY24, here’s how much prices may rise

Hospitality firm Lemon Tree Hotels expects to open over 20 hotels in the 2023-2024 financial year and add about 2,000 rooms during the fiscal and expand it to 20,000 by 2026, Patanjali Keswani, Chairman and MD said on May 2.

“If we include that single hotel of ours which we are ourselves putting capex in Mumbai, which is the Aurika, then we will open about 2,000 rooms, 20 hotels, and any capital investment by us will only be confined to the Bombay Aurika,” he told CNBC-TV18.

Keswani noted that when Lemon Tree Hotels started the part of business, which is managing hotels, it was accelerating very slowly but now that COVID-19 is over, he expects to add an even higher number of rooms next year. “Going forward is still a higher number because the broad target I have mentioned earlier in public was that we will be over 20,000 rooms by 2026,” he added.

Reflecting more on the managing hotels business, Keswani explained that management fee is typically one seventh of the hotels profits. So if the hotel makes Rs 7 crore of EBITDA, the manager would take one crore. Currently, about 45 percent of Lemon Tree’s hotel inventory is managed by the firm itself and it owns the remaining 55 percent.

“But in the next three to four years, the managed part will be 70 percent at least of the total inventory. So let's put it simply, after we open the Aurika Bombay, we will own about 6,000 rooms and we intend to manage another 14,000 at the least in the next four years. So it's 70:30,” he said.

Lemon Tree Hotels’ Chairman further said in the hotels business, pricing has nothing to do with anything other than demand. He said demand in India has a direct correlation — the rate of growth of the economy in real terms multiplied by 1.5 is demand growth for branded hotels.

“So if the economy grows at 6 to 7 percent or we achieve our target of a $5 trillion economy in the next seven years, then demand in India will grow at least at 10 percent a year,” he explained.

Keswani added that supply is going to grow at four to five percent so pricing will all obviously move north in the next four years. On a CAGR or an averaged out basis, he expects prices in hotels in India in the branded sector will grow at 15 percent a year, averaged out over the next four or five years.