Home > companies > news > Lemon Tree Hotels plans to go asset-light, monetize brand

Mumbai: Lemon Tree Hotels Ltd plans to lease and operate hotels under its brand rather than build new ones on its own, a top executive said, as the hospitality company aims to become India’s second largest hotel operator by the end of next year.

Over 60% of Lemon Tree’s rooms are company-owned, while the rest are owned by others and managed by Lemon Tree.

It plans to gradually reduce the proportion of hotels it owns and focus on managing hotels under its brand, on the lines of global hotel chains such as Marriott International, AccorHotels and Radisson Group. 

“The real return in our business is in terms of management and brand returns," the company’s chairman and managing director said Patanjali Govind Keswani said. “Going forward, we want to go asset-light, monetize our brand and management. So, the percentage of rooms that we own is going to keep falling. Unless there are some compelling reasons, we do not intend to invest in the asset creation side," Keswani added.

Lemon Tree, the third-largest domestic hotel chain after Indian Hotels Ltd and ITC Ltd, recently listed on the stock markets after a Rs1,039 crore initial public offering (IPO). It operates 4,900 hotel rooms across 28 cities now, and plans to add another 3,000 rooms in the next three years to reach a total of 51 cities. Half of these are being developed by Lemon Tree for Rs1,700 crore. Around Rs1,000 crore has already been invested, Keswani said. 

“By 2019-end, we will become the second largest hotel chain in India. We created these assets to build the brand so that we could have a standardised product... We now want to extend our business model (and brand) to other owners," he said, adding only two to four star hotels will be opened. 

With rising occupancies and room rates, the company also expects an improvement in its business. Keswani said room rates across all Lemon Tree hotels were raised by around 14% in September-October, the first such hike in eight years.

“Our hotel occupancy stands at around 77%. We are confident that India will reach its peak cycle for the next four years. As demand exceeds supply, hotels will reprice their average room rates (ARR) and this will further push our growth," he said. 

In a 23 March report, Kotak Securities said Lemon Tree’s approach of owning and leasing hotels has enabled it to build a portfolio of proprietary brands “with uniform quality and operational parameters." However, it also warned that the company is into a risky business as an economic slowdown could hurt. So far, it operates in the mid-priced hotel sector, where consumer demand is highly dependent on the general economy.

Lemon Tree Hotel operates three brands. While Lemon Tree Premier primarily targets the upper-mid-scale hotel segment, Lemon Tree Hotels targets the mid-scale segment and Red Fox by Lemon Tree Hotels targets the economy segment.

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