Lemon Tree Hotels Limited (LTHL) has disclosed that its material subsidiary, Berggruen Hotels Private Limited (BHPL), has received a revised tax demand from the Commercial Tax Officer in Bangalore. This development comes as part of the company's ongoing regulatory compliance under SEBI regulations.

Key Details of the Tax Demand

Company's Response

LTHL has stated that based on their assessment, the demand is not maintainable. The company is currently evaluating all options, including the possibility of filing an appeal against the order. This stance suggests that LTHL is prepared to contest the tax demand through appropriate legal channels.

Regulatory Compliance

The disclosure of this information aligns with LTHL's obligations under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. This transparency ensures that shareholders and potential investors are kept informed about significant financial developments that may impact the company's operations or financial position.

Potential Impact

While LTHL has not quantified any material impact on its financial operations beyond the specified amount, the company's decision to potentially appeal the order indicates its commitment to addressing this tax issue. The outcome of any future appeal or legal proceedings related to this demand could have implications for BHPL and, by extension, for LTHL.

Investors and stakeholders of Lemon Tree Hotels Limited should monitor further developments regarding this tax demand, as it may have implications for the company's financial statements and future cash flows. However, it's important to note that the company considers the demand as not maintainable, suggesting confidence in its position on the matter.

Lemon Tree Hotels Limited , a leading player in India's mid-market hotel segment, has reported its highest-ever Q2 revenue of Rs 308 crore, marking an 8% year-on-year growth. However, the company's EBITDA margins saw a decline of 306 basis points to 43%, primarily due to ongoing renovation investments, technology upgrades, and one-time ex-gratia payments to employees.

Revenue Growth and Margin Pressure

The company's revenue growth comes despite industry headwinds, including geopolitical tensions, floods, and an airline accident. While the top line showed resilience, the bottom line faced pressure from strategic investments:

Strategic Investments and Renovations

Lemon Tree Hotels has undertaken significant renovations across its portfolio:

• Completed major upgrades in Delhi, Bangalore, and Hyderabad markets
• Renovated approximately 3,000 rooms out of a planned 4,600
• Total renovation investment of nearly Rs 300 crore over the past 2-2.5 years

The company expects these investments to yield returns in the coming quarters, with early signs of success already visible in some renovated properties.

Debt Reduction and Credit Rating Improvement

The company has made strides in strengthening its financial position:

• Reduced debt by Rs 212 crore to Rs 1,610 crore as of September 30
• Improved credit rating to A+ from A
• Lowered cost of borrowings to 7.72% in Q2 from 8.68% in the previous year's Q2

Expansion and Asset-Light Strategy

Lemon Tree Hotels continues to focus on expansion through an asset-light model:

• Signed 15 new management and franchise contracts, adding 1,138 rooms to the pipeline
• Operationalized 5 hotels, adding 272 rooms to the operational portfolio
• Won a Letter of Award for 2.25 acres of land in Nehru Place, New Delhi, for a proposed 500-550 room Aurika hotel

Technology Investments

The company is investing in technology to improve guest experience, revenue management, and operational efficiency:

• Developing an AI-driven revenue management system
• Reimagining the loyalty program and website
• Integrating Salesforce for improved sales efficacy

Outlook

While Q2 faced headwinds, the company maintains a positive outlook for H2. Management expects the benefits of renovations and technology investments to materialize in the coming quarters, potentially leading to improved occupancy and average room rates across the portfolio.

Patanjali Keswani, Executive Chairman of Lemon Tree Hotels, commented, "Our strategic investments in renovation and technology are setting the stage for long-term growth. While these investments have impacted our short-term margins, we are confident that they will drive significant value creation in the coming years."

As the Indian hospitality sector continues to evolve, Lemon Tree Hotels appears well-positioned to capitalize on the growing demand for quality mid-market accommodations across the country.