Fleur Hotels Ltd, the hotel ownership and development arm of Lemon Tree Hotels Ltd, plans to deploy about $1 billion over the next four to five years to acquire land, develop hotels and buy hotel assets, as it prepares for a separate listing by the end of 2027.
The planned separation will allow Lemon Tree to focus on asset-light hotel management, franchising and branding, while Fleur takes on the capital-intensive business of owning and developing hotels.
In an exclusive interview with Mint, Patanjali G. Keswani, executive chairman of both Lemon Tree and Fleur, said that Fleur has begun the process of demerging from Lemon Tree Hotels and is likely to complete the listing of its shares by the end of 2027. Fleur will serve as the group’s hotel ownership and development arm, while Lemon Tree will focus on asset-light management, franchising and digital services, he added.
The separation will also define how Lemon Tree expands going forward. “Worldwide, there are four parts to the hotel business: who buys the land, designs and develops the hotel; who owns it; who manages it; and who brands and distributes it. Globally, the highest return is always on the asset-light side, which is distribution and brand,” Keswani said.
To be sure, many hotel companies in India, including Lemon Tree until now, have traditionally combined hotel ownership and management.
At 1:20 pm, the stock of Lemon Tree traded 3% higher at ₹107.45 on the BSE.
Warburg Pincus acquired APG's 41.09% stake in Fleur in January through its affiliate Coastal Cedar Investment. Separately, Warburg Pincus has committed up to ₹960 crore in primary capital to Fleur, to be infused in tranches to support the company’s future growth.
Keswani said Warburg Pincus is investing roughly ₹1,000 crore in Fleur, while the company has ₹300 crore in internal accruals, taking its immediately available equity to ₹1,300 crore. Fleur generated ₹550 crore in Ebitda (earnings before interest, taxes, depreciation and amortization) last year, which Keswani expects to rise to ₹600 crore this year. He said Fleur could deploy up to $1 billion over four to five years in new assets. Its expansion will focus on hotel and chain acquisitions and new developments in India and destinations within a five-hour flight of the country. Fleur currently has more than 5,500 rooms and plans to add about 3,500, taking its portfolio to more than 9,000 rooms.
The company has four to five hotels at various stages of development, including projects in Shimla, Shillong, Delhi’s Nehru Place and Mumbai’s Bandra East. Last week, it announced the acquisition of land in Mumbai for ₹120 crore to develop a 170-room hotel in Bandra East. Keswani estimates the total project cost at ₹350 crore, including the cost of land, government premiums and construction. The hotel will be the group’s seventh property in Mumbai, catering to business travellers, meetings, incentives, conferences and exhibitions (MICE), leisure travellers and social events.
Fleur's development in Nehru place is a mammoth 610-room hotel project. “This hotel would be the biggest single hotel in North India with an inventory of over 600 rooms and will have a project cost ₹750-800 crore," he said.
Lemon Tree to sharpen management fee game
As Fleur takes over the capital-intensive business, Lemon Tree will earn management fees from Fleur-owned hotels as well as third-party properties.
Keswani expects the management fee income of Lemon Tree to more than double over the next three to three-and-a-half years and cross ₹500 crore. “With all the development of Fleur and third-party contracts that we are signing, the management fee income of Lemon Tree will start compounding at over 20% annually,” he said.
The strategy will also give Fleur and Lemon Tree different roles geographically. Fleur is looking at large metros like Delhi, Mumbai, Gurugram, Bengaluru, Hyderabad, Pune, Kolkata and Chennai, where high land prices and development costs make new hotel supply difficult. Lemon Tree, on the other hand, can expand its management network into smaller cities without committing large sums of money.
Building a network of hotels
The group's larger ambition is to build a hotel network that can cater to different types of travellers, rather than simply a chain concentrated in major business markets. “Our aspiration is to be the largest hotel network which will require us to expand through the franchise route to capture the unbranded small hotels segment which is over 10x of current branded supply in India.”
Lemon Tree currently has about 24,000 rooms across its operational and pipeline portfolio with the company adding roughly 5,000-6,000 rooms a year. Typically, it opens as many rooms annually as it has signed three years prior. “The other huge opportunity is franchise to formalize unbranded hotels,” he said. Instead of acquiring these hotels, Lemon Tree would provide the brand, distribution and operating standards while the owners retain the assets.
Red Fox to get a rethink
The expansion is also prompting a review of Lemon Tree’s brand portfolio. The company does not plan to develop any new Red Fox hotels, Keswani said, while some existing Red Fox properties are being converted to the Lemon Tree brand as their markets mature. “Over time as the economy grows, more Indian households can afford to pay for a higher brand. This is why over the last three years, we have invested over ₹300 crore in upgrading our hotels,” he added.
Follow Indian travellers overseas
Keswani sees the company's next growth opportunity extending beyond India's borders. India’s outbound travel market is growing rapidly, and Lemon Tree is looking at destinations where Indian travellers are increasingly spending time, including the Maldives, Nepal, the UAE, Sri Lanka and Thailand. This is partly to protect the domestic customer base as Indians become more familiar with international hotel brands. “Indians are travelling overseas, they’re going to see other brands. So, we will also export our brands there,” he said. The company is considering acquisitions as well as partnerships in some markets, but Keswani said it would not pursue an international tie-up simply for the sake of having one.