I am pleased to present the Annual Report of your company for thefinancial year 2020. This year was important for the company with several strategicinitiatives being undertaken. This includes: new inventory added to the owned portfolio inthe key destinations of Mumbai and Kolkata; the launch of a new upscale brand AurikaHotels & Resorts with the opening of the first resort in Udaipur; our maideninternational hotel in Dubai followed by Bhutan and the acquisition of Berggruen HotelsPrivate Limited - Keys Prima Hotels Keys Select Hotels Keys Lite Hotels expanding ourportfolio by ~1600 rooms 17 hotels and 8 new cities. All these growth initiatives addedto the top and the bottom line of the company as well as to the geographical spread inIndia and abroad.
The current pandemic has had a far-reaching global impact on the hotelsector and the overall economy since ; February this year. The travel and hospitalityindustry across the world has been among the most severely impacted sectors. The fear ofthe virus spreading is going to persist with people minimizing travel until therapeutictreatment protocols reduce mortality (already happening) and/or herd immunity with orwithout an effective vaccine (expected within the next 12-18 months). Besides the loominguncertainty in the near term around the financial impact on the hospitality businessthere is also the big challenge of simultaneously revising our operational practices toensure zero chances of transmission of the virus amongst our guests and staff.
Lemon Tree has kept more than 50% (now ~70%) of its operating inventoryopen during the pandemic and has partnered with state governments to serve as quarantinecenters for Indian nationals returning home from abroad. We have also partnered withhospital chains (Apollo Hospitals and Medanta) to provide specific hotels as centers forasymptomatic/mild symptom patients under the hospital's care. These hospitals have set up24x7 nursing stations at our hotels along with regular oversight by their doctors.
Our approach to handle this recalibration of revenue has been to alignour costs - fixed and variable - to match this reduced revenue and thereby minimize thenegative impact on profitability. Special attention was paid to large and fixed costcontributors like manpower costs (through substantial pay cuts for the leadership team androtational leave without pay for other team members while ensuring no job losses); powerand fuel (by reducing energy consumption to match the lower occupancies) lease rentalsetc. We have focussed on strengthening our employee morale through retention of all ourteam members regular interactions (a hybrid of online-offline) reinforced onlinetraining redefined standard operating procedures and very clearly defined hygiene andsanitization processes to ensure the health and safety of our employees and guests.
If we review the history of the previous three pandemics/ : epidemics(all influenza based) of the past century
(Spanish Flu of 1918 Asian Flu of 1958 and Hong Kong Flu ; of 1969)the evolution has been identical: the numbers rise in the first phase with one to threewaves after which
they decline as the population develops herd immunity. This thenarrests and ends the pandemic/epidemic. The economic recovery and return to normalcyusually takes 2-3 years from the start. In our assessment we feel that this currentpandemic which has resulted in enormous short-term destruction of demand may also resultin long term reduction in supply due to hotels permanently shutting down because ofsignificant operating losses and/or an inability to service debt obligations. While thiswill be a very unfortunate outcome it would also lead to a reversal of demand-supplydynamics with a shortage in surviving supply once demand recovers to pre-Covid19 levels.So while there may be some permanent reduction in business demand due to increased virtualmeetings this is more than likely to be matched or even exceeded by reduction in supply.
Your company is currently channelizing its efforts on building demandfrom any and all segments including new ones (quarantine guests health careprofessionals etc.) and on tightly controlling/reducing costs - many of which will bepermanent in nature leading to a permanent improvement in EBITDA margins once thesituation normalizes. Simultaneously we are seeking business development opportunitiesthat are asset light. Hotel supply is currently shrinking and there are/will be multipleopportunities to reflag distressed hotels in the next 12 months.
From an industry perspective 2019 was the best year for thehospitality industry in the past decade. The occupancy for branded hotels grew to 69% in2019 from 67% in 2018 and ADR increased by 4.7% on a like-to-like basis.
This positive trajectory has been temporarily halted by COVID-19. Goingforward we expect that the demand segment to first recover will be the retail/onlinesegment which has already seen a slight recovery in the last few months. The MSME sectorshould recover next. These two segments normally account for over 50% of your company'stotal revenue. On a broad basis we expect domestic travel to recover first (within 9months) followed by international travel (after 18 months). This will be beneficial foryour company as nearly 90% of our guests are domestic.
In FY20 Lemon Tree's revenue from operations increased by 21.8% y-o-yfrom Rs. 550 crores in FY19 to Rs. 669 crores in FY20. The blended ADR increased by 4%from Rs. 4180 in FY19 to Rs. 4347 in FY20. On the same hotels basis our ADR increasedby 3.6% from Rs. 4179 in FY19 to Rs. 4328 in FY20. Our full year blended occupancy stoodat 70.3% as compared to 76.3% in FY19 which was mainly due to the opening of a largenumber of new rooms which were initially at low occupancies. On the same hotels basis ouroccupancy in FY20 stood at 75.0% as compared to
77.6% in FY19 the decline being due to an enormous fall in occupancyin March 2020. Fees from managed hotels stood at Rs. 20 crores in FY20 as compared to Rs.17 crores in FY19. Our cost control focus led to an EBITDA increase of 21.6% on the oldaccounting basis from Rs. 169 crores in FY19 to Rs. 205 crores in FY20. Our EBITDA marginremained flat at about 31%.
Since April 2019 we have added about 2600 rooms in 26 hotels across16 cities and now we operate 8006 rooms in 80 hotels across 48 cities. With these newhotels we have expanded our geographical presence to Amritsar Mumbai Kolkata UdaipurVijawada and Rishikesh in India and Dubai and Thimpu internationally.
We currently have a strong pipeline of hotels under
development - most of which will be managed hotels i.e. asset lightexpansion. In the next 6-9 months we will open 7 new hotels across 7 cities with ~460rooms. Based on our current pipeline we expect to operate 10765 rooms across 109 hotelsin 67 cities by the end of a calendar year 2022. This pipeline will constantly increase aswe add more hotels under leased/management contracts in the future.
In June 2020 we raised Rs. 175 crores in Fleur Hotels Private Limiteda material subsidiary of our company. Over the next 18 months and if the situationrequires we may raise an additional Rs. 125 crores from our joint venture partner: APGStrategic Real Estate Pool N.V the Dutch Pension Fund Manager. Furthermore we are alsoplanning to raise Rs. 100-150 crores in Lemon Tree Hotels Limited through either a RightsIssue or a Preferential Allotment/Qualified Institutional Placement. This will improve ourliquidity strengthen our balance sheet further and help us to easily tide over thiscrisis.
Going forward our focus is to grow asset-light by expanding ourmanaged hotels portfolio. This will lead to an expanded network/more choice for ourcustomers increased fees and a further distribution of costs cheaper sourcing of rawmaterials and minimal deployment of our capital. We also intend to continue our assetmonetization and capital recycling efforts to reduce debt and free up capital.
On behalf of the Board I thank all our stakeholders includingshareholders investors bankers creditors and employees for their continued support. Iexpress my sincere gratitude to all the members of our Board for their continued insightsand invaluable guidance as we explore new opportunities and move ahead with confidence inthis unprecedented situation.
Patanjali G. Keswani Chairman & Managing Director