New Delhi: Lemon Tree Hotels plans to set up a company to manage hotel assets in a bid to quickly expand its footprint across the nation and double the number of rooms on offer through its own hotels.
The firm has decided to put on hold a plan announced last year to build affordable homes and will instead focus on its hotels business as it prepares to sell its shares to the public for the first time in 2014.
“We have a two-step strategy to grow. First, we want to increase our total asset ownership and second, we are setting up a management company to manage assets of other hotel owners,” Rahul Pandit, president and chief operating officer of Lemon Tree Hotels, said in an interview.
The company owns and operates 18 mid-scale hotels in the country with a total capacity of 1,970 rooms. It had entered into a joint venture with Warburg Pincus last April to launch a housing project with an investment of Rs 1,400 crore.
“The management company will be a separate entity under a new brand, which will manage the assets of deluxe and upscale properties, primarily to attain bigger channel distribution and expand the company’s reach nationally,” said Pandit.
Pasu Keswani, chairman of Lemon Tree Hotels, is in talks with investors for raising funds, Pandit said. He expects to set up the management company by May.
The management route is an easy way to grow fast, say analysts. “Hospitality firms will have to plant as many flags as possible if they want to grow. It doesn’t happen if you only own hotels, as it will take huge investments if a firm wants to expand,” said a Delhi-based analyst who did not want to be named. “These firms will have to take management opportunities for growth, which will get them market traction at low cost.”
Lemon Tree’s hotel management company will enter cities where building additional hotels may affect occupancy levels in existing ones, Pandit said. “We are addressing demand-dense markets already. However, in shallow markets, if we increase inventory, it will depress the demand and the occupancy level will go down,” said Pandit.
“Through this management company, we want to make our assets efficient without further depressing the demand. Our initial investment in the project would be a couple of crores but we expect to manage around 2,000-plus rooms by 2014,” he added.
The company plans to add 1,600 rooms by 2014, taking up its total room capacity to around 4,000 rooms. “For the purpose, we plan to invest around Rs 1,000-1,200 crore in the next two to three years, depending upon how fast we can get government clearances to build hotels,” Pandit said.
“We have put plans of our affordable housing on the back burner for now as we are focusing on hospitality sector,” said Pandit. “In the next two years, we plan to list Lemon Tree Hotels. By that time, we expect, we would have become the second-largest hospitality firm by asset ownership from our current fourth position.”
“For a hospitality company which owns assets, globally it is not unusual to go for management route, but its success will only depend on how well they are prepared to do it,” said the analyst cited earlier.