Lemon Tree Hotel

Lemon Tree Hotels achieved its best-ever financial year in FY26, with total revenue reaching ₹1,452.7 crore, a 13% YoY increase. PAT grew significantly by 19% to ₹288.3 crore, and Cash Profit increased by 16% to ₹443.1 crore. The company reported its highest-ever gross ARR of ₹6,875 and an occupancy rate of 73.5% for the full year. Q4 FY26 also demonstrated strong performance with revenue at ₹419.5 crore (up 11% YoY) and PAT at ₹116.5 crore (up 8% YoY).

Despite strong top-line growth, Net EBITDA margins for FY26 contracted by 126 bps to 48.1%, and Q4 margins were down 198 bps to 52%. This was primarily due to a 580 bps impact from significant renovation expenditure, investments in technology, and GST-related changes. Management expects these three expense heads to reduce to approximately 3.7% of revenue by FY28, leading to EBITDA margin expansion. Additionally, ₹25-30 crore in one-off^📎 costs (ex-gratia, property tax, Labour Code) are expected to disappear from FY27, contributing to further savings.

The company's combined operational and signed pipeline inventory now stands at 22,581 rooms across 268 hotels, with 11,811 rooms already operational. In FY26, Lemon Tree opened 20 managed and franchised hotels (1,523 rooms) and signed 55 new managed and franchised hotels (4,912 rooms). The strategy is to continue signing 55+ hotels and opening around 25 hotels annually, with a focus on deep urban markets, leisure markets, and international destinations for greenfield investments.

The demerger scheme is progressing, with Warburg Pincus completing its purchase of APG's stake in Fleur. Lemon Tree will transfer 17 hotels and development capabilities to Fleur, leading to Fleur's separate listing. The transaction is now expected to take 12-18 months due to NCLT approvals. Fleur aims to be India's largest hotel platform by inventory (5,600 rooms, 39 operational hotels) and plans to deploy up to ₹3,000 crore in the next 12-18 months for 2,500 additional rooms, focusing on upscale Aurika and Lemon Tree Premier brands.

The Indian hospitality market remains structurally favorable, with demand outpacing supply in the mid-market segment. However, Q4 FY26 saw some impact from geopolitical tensions, airline disruptions (e.g., Indigo shutdown), and micro-market supply gluts (e.g., Mumbai Aurika). Corporate travel slowed, leading to a strategic shift towards prioritizing occupancy growth over ARR growth, with tactical pricing adjustments to maintain occupancy premiums. The company aims for 65% of its business to be direct retail bookings as it scales to 20,000-25,000 rooms.

Lemon Tree Hotels has successfully reduced its total borrowings to ₹1,500 crore from ₹1,699 crore, with the cost of debt falling to 7.42%. Post-demerger, Lemon Tree (standalone) is expected to be a debt-free, asset-light company focused on distributing profits to shareholders through dividends or buybacks. Fleur Hotels, conversely, will prioritize reinvestment of capital for growth, aiming to enhance shareholder value through business expansion rather than immediate distributions.

The company is making significant investments in technology, which currently impacts margins but is crucial for future growth and operational efficiency. These investments include revenue management systems, market tools, and sales force automation. Future focus areas include transforming legacy systems, developing a robust loyalty engine, and enhancing the website and booking engine to drive direct customer acquisition and strengthen the brand's competitive position.