The Delhi-based company has three brands - Red Fox (budget), Lemon Tree (mid-scale), Lemon Tree Premier (upper mid-scale).
Budget and mid-market hotel brand Lemon Tree will raise Rs 1,000 crore through an initial public offering (IPO), which will see one of its private equity investors Warburg Pincus offload half its stake in the company.
The offer for sale of upto 185 million shares represents 23.59 per cent of the equity share capital of the company. The offer, which opens on March 26 in the price band of Rs 54 to 56 per equity share, is for the private equity company Warburg to off-load half of its 25 percent stake in Lemon Tree. The promoter entity, which holds about 30 percent, will not dilute any stake.
Lemon Tree is India’s largest mid-market hotel brand with about 45 operational properties having a room inventory of nearly 4700 rooms spread across 28 cities. The Delhi-based company has three brands - Red Fox (budget), Lemon Tree (mid-scale), Lemon Tree Premier (upper mid-scale).
A majority of its properties are owned and run by itself while the balance is a mix of managed, leased back and branded. As of last financial year its average daily rate across three brands has been Rs 5,745 with an occupancy rate of 65 per cent.
Patanjai Keswani, Chairman and Managing Director, Lemon Tree Hotels, said, “By 2020-21, as per predictions made by Howarth, there will be a complete shortage of branded hotels rooms and more so in the mid-market space. The Indian traveler is fast moving to mid-market segment where he seeks quality and value-for-money stay.”
Lemon Tree has slightly more than 3000 rooms under development which are likely to come up between now and 2021. Nearly a third of this will come up in Mumbai close to the airport. A 370 room Lemon Tree will come up by January next year followed by a massive 577 room hotel by 2021.
Besides there are other properties coming up in Pune, Udaipur, Kolkata and Shimla. Lemon Tree intends to expand to be present in 50 cities by FY2.
When asked if there could be a space for an addition brand, Keswani added: "We may add another brand if required at a later stage and that could be in the resort space. We already have the Lemon Tree Resorts brand with an operational hotel in Goa. This brand may get developed later."
Of the 4700 operational rooms the company owns 3200 and the balance is managed by it. From the under construction 3000 rooms about 1600 are owned or leased and the balance is managed. This makes the company an asset heavy firm while its peers are steadily shifting to asset light model having burned their fingers servicing debt raised to build the properties.
However, the Lemon Tree management states that it presently has just Rs 1000 crore debt on its books and a debt to equity ratio of 0.79. “Our long term intention in to get into management and brand model and become asset light," added Keswani.As of December-end, India’s branded room supply stood at just 0.2 million whereas China has 3.8 million branded rooms. There are just 0.2 rooms available for a population of 1000 in India whereas the US has 15.7 rooms for every 1000. India is still far behind the world average of 2.2 rooms for every 1000 people.
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