Lemon Tree Hotels Avoids Pre-Approved Fundraising Options For Now

Despite a sharp drop in revenue in fiscal 2021, Lemon Tree Hotels is avoiding availing its two pre-approved fundraising options – the second tranche of Rs 125 crore from the Dutch pension fund APG and the Rs 150 crore rights issue for now. It also plans to add around 2,000 rooms by 2023, which will bring its hotel portfolio to 108 hotels in 67 cities.

“This pipeline will grow steadily as we add more leased / managed hotels in the future,” Chairman and CEO Patanjali Keswani said in the company’s annual report.

Until March 31 of this year, the chain operated 8,294 rooms in 84 hotels in 51 cities.

Most of its developing hotels will be managed hotels. During fiscal year 2022, Lemon Tree intends to open 8 new hotels in 8 cities with 511 rooms.

“As Lemon Tree Hotels still owns a large number of hotels, we intend to continue our asset monetization strategy and our capital recycling plans to reduce debt and free up capital for more productive uses,” he said. Keswani writes to shareholders.

APG had approved a two-tranche Rs 300 crore investment in the assets of Lemon Tree, owner of JV Fleur Hotels, where Lemon Tree is the majority shareholder. In addition, its board of directors had given its approval to increase to Rs 150 crore in additional cash. There was also an option to profit up to Rs 490 crore as part of the ECLGS facility for Lemon Tree.

“Current cash flow and monthly free cash flow allow the company to avoid having to avail of both fundraising options. During the year, the company only used Rs 25 crore on a total of Rs 490 crore from the ECLGS facility as of March 31, 2021, “Keswani said in the report.

In FY21, Lemon Tree’s operating income declined 62.4% year-on-year to Rs 251.70 crore from 669.40 crore in FY 20. Mixed ADR decreased by 40% from Rs 4,347 in FY20 to Rs 2,615 in FY 21. Mixed channel occupancy for the entire year stood at 39.8% versus 70 , 3% in fiscal year 20.

Keswani said the protracted pandemic resulted in the temporary closure of 50% of inventory of branded hotels in India in FY21, and the industry’s occupancy rate fell from 65 to 68 % to a staggering low of 35%.

“This collapse in demand has resulted in a sharp correction in average room rates, with the industry average ADR falling to around 50-60% of the previous year’s level,” he said and added : “This combined impact has resulted in heavy losses for the industry … The lack of major aid measures from the government, unlike most other countries, to a sector which provides 8% of the Total employment in India did not help. As a result, our primary goal was to make our fixed expenses as variable as possible. We were successful in keeping our overall operating expenses below our operating income over the course of of financial year 21. ”

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