Lemon Tree will sell stake in all its hotels in 3 to 5 years: Chairman
Apr 2, 2019, 08:50 IST
- India's largest budget hotel chain is looking to go asset light going forward.
- The company will either retain a part stake or to manage the same hotels, Chairman Patanjali Keswani explained.
- The stake can be sold to pension funds, insurance companies, or sovereign funds that seek assured returns.
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Lemon Tree Hotels was already the largest Indian chain in the mid-market segment when the stock listed on the Indian stock exchanges just about a year ago. In the next five years, the business may look very different what it is today, according to revelations by founder and Chairman Patanjali Keswani, in an exclusive chat with Business Insider.The goal is to unlock value. "Broader point is, in the next three to five years, I will sell every hotel I own and then, either own a part stake in it or I will sell it and lease it back for a very long period with assured returns," said Keswani, who is an alumnus of Indian Institute of Technology (Delhi) and Indian Institute of Management (Kolkata).
How will the business make money?
In some cases, the company will continue to own a part of the original stake. In the ones that are fully sold, the company will make money from the management of these hotels. "The new hotels, which are managed, I only charge a management fee. I, typically, get a seventh of the owner’s profit. Being asset light means seven hotels under management is the same as owning one hotel. It is a risk-free approach. We are right now very asset heavy," Keswani revealed.
So who will buy this- people like pension funds, or insurance companies or even a sovereign fund- those guys who want a long-term assured returns.
But he is not in a hurry to sell. "The question is the right price. If I am willing to sell my hotels today, I am sure I will find a buyer but I want a certain price, which is a return on my risk for developing hotels. When you develop a hotel there are multiple risks -- there are land title issues, government approvals, financing, my equity-- and so, I want a return. Therefore, I will not sell it cheap," Keswani explained, adding that the stake sale will happen only when the business cycle turns around.
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