Detailed Narrative
Q2 FY26 Performance Overview
Lemon Tree Hotels reported its highest ever Q2 revenue at ₹308 crore, an 8% YoY increase, despite industry headwinds🌐. Profit after tax grew 20% YoY to ₹41.9 crore, and cash profit rose 9.2% YoY to ₹76.3 crore. Gross ARR increased 6% YoY to ₹6,247, with occupancy at 69.8%, up 139 bps YoY, leading to an 8% YoY RevPAR growth to ₹4,358.
Renovation Strategy and Margin Impact
Net EBITDA grew only 1% YoY to ₹132.4 crore, with margins contracting by 306 bps to 43%. This was primarily due to increased investments in renovation, technology, and a one-time📎 ex-gratia payment. The company has renovated 3,000 out of 4,600 rooms over the last 2-2.5 years, spending approximately ₹300 crore, mostly classified as OPEX. Management expects renovation expenses to reduce to 5% of revenue next year and stabilize at 2% by FY28, leading to margin expansion.
Aurika, Nehru Place Development
Lemon Tree secured a Letter of Award through an auction for 2.25 acres of land in Nehru Place, New Delhi, for a proposed 500-550 room Aurika hotel. This project, on Fleur's balance sheet, is expected to yield an IRR north of 15% with a lease rent of ₹27 crore escalating at 5% annually over 55 years. The hotel is projected to achieve ₹11,000-12,000 ARR once stabilized, significantly contributing to future revenue.
Technology and Digital Initiatives
The company is investing in AI/ML-driven revenue management systems, expected to be fully operational by next winter, enabling dynamic pricing. Other digital initiatives include reimagining the loyalty program and website, and using Salesforce for sales efficacy. These investments aim to improve guest experience, revenue generation, and operational efficiency, with tech spend expected to reach ₹20-30 crore in the next 2-3 years.
Asset-Light Growth and Pipeline
Lemon Tree signed 15 new management and franchise contracts in Q2, adding 1,138 rooms to its pipeline, and operationalized 5 hotels with 272 rooms. The company aims to grow its managed rooms pipeline to 35,000-40,000 rooms in the next 2.5 years, with openings targeted at 5,000 rooms next year and 7,000 the year after. This strategy leverages the brand and management capabilities in a fragmented hospitality landscape.
Industry Demand and Supply Outlook
Q2 FY26 experienced muted demand due to various headwinds including geopolitical tensions, floods, and GST revisions. However, management expects mid-teens RevPAR growth in Q3 FY26, driven by demand recovery post-festivities. The company believes demand will grow at 15-18% annually, supported by airline industry expansion and increased airport connectivity, while supply growth is not expected to match this pace, creating a favorable demand-supply gap.
Capital Allocation and Debt Management
The company's debt fell by ₹212 crore YoY to ₹1,610 crore as of September 30, 2025. Its credit rating improved from A to A+, leading to a reduced cost of borrowings at 7.72% in Q2 FY26, down from 8.68% last year. The company plans to spend ₹130-140 crore on renovations in FY26 and a similar amount next year, with the majority being OPEX, aiming for a 2-year payback on these investments.