More Indians are checking into hotels than ever before.
It isn’t just the Taj or Oberoi.
It’s the family from Indore driving to Udaipur, or the small business owner flying to Pune for a meeting. This is mass tourism.
For two decades, Lemon Tree Hotels has built itself around this idea. Its hotels aren’t five-star palaces. But they aren’t seedy guesthouses either. They’re clean, predictable and priced for the middle class. That has made it the largest mid-market chain in the country.
But here’s where the story gets interesting.
Lemon Tree started by owning hotels.
Now, that meant borrowing big, building properties, and carrying the debt for years. It worked, but it was slow and heavy.
Around 2022, the company began to change tack. Instead of owning, it started managing other people’s hotels. Think of it as moving from being a landlord to being a brand manager. The hotels carry the Lemon Tree name, but someone else foots the construction bill.
This shift matters. When you own hotels, your growth is tied to your balance sheet. When you manage them, you can grow much faster. It’s also a model global chains like Marriott have long followed.
Lemon Tree now wants to play that game in India.
The old way: Heavy and slow
Owning hotels isn’t easy.
You buy land, build the property, and then wait years to recover the investment.
To do that at scale, you need to borrow heavily. Lemon Tree followed this model for most of its life. It built properties in Delhi, Mumbai, Bangalore and other cities, creating a strong presence.
But the debt piled up. At one point, borrowings were close to Rs 19 billion. Even today, the company carries around Rs 16.6 billion of debt. Interest eats into profits, and every new hotel slows down growth.
This was fine when India’s hotel market was small. But with demand now booming, the asset-heavy model risks holding Lemon Tree back.
The pivot to asset-light
That is why the shift around 2022–23 was so important. Lemon Tree started signing management contracts instead of building more hotels on its books. In this model, the company uses its brand, distribution and systems to run hotels owned by someone else. The revenue comes as fees, not room sales.
The advantage is obvious: faster expansion with lower risk. In Q1 FY26 alone, Lemon Tree signed 14 new management contracts, adding 1,273 rooms. It also opened five managed hotels with nearly 400 rooms. Out of the 7,770 rooms in its pipeline, almost all are asset-light.
Fee income is already rising. In the June quarter, management fees jumped 29% year-on-year to Rs 374 million. These contracts don’t need capital outlay, but they improve margins.
Fleur: Splitting the business
The company wants to take the shift one step further. It plans to move most of its owned hotels into a separate company called Fleur Hotels, which could be listed by 2026.
Fleur will remain asset-heavy, while Lemon Tree Hotels will focus on brand and management.
It’s a cleaner structure. It allows investors who want real estate to buy Fleur. And those who prefer an asset-light brand can buy Lemon Tree Hotels. Globally, asset-light hotel chains are valued more richly because they earn steady fees without carrying debt.
Renovations: Preparing for the next phase
While the future is asset-light, the owned hotels are not being neglected. About 4,300 rooms are being renovated across major cities. The idea is to refresh the portfolio, reposition some hotels under higher categories, and lift room rates.
The acquired Keys Hotels, once seen as a weak link, are being refurbished. Once complete, they are expected to generate Rs 1.5–1.6 billion in revenue and Rs 500–600 million in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation). Other properties like Lemon Tree Electronics City are being upgraded to the “Premier” brand.
Renovations are costly now, about 6% of revenue. But by FY27, that figure should drop to around 2–2.5%. The payoff will be higher rates, better occupancy and lower maintenance costs.
Demand: A structural tailwind
What makes all this possible is the demand backdrop. India’s per capita income is US$2,700 and rising. As incomes climb, more households become regular travellers.
Domestic air traffic has already surpassed pre-COVID levels and is expected to double by 2030. New airports and expressways are bringing smaller cities into the travel map. For families and small businesses, branded mid-market hotels are the natural choice.
Lemon Tree’s Q1 FY26 performance reflects both the rising demand and the benefit of renovated inventory returning to the market.
Occupancy rose to 72.5% from 66.6% a year earlier, while average room rates increased 10% to Rs 6,236. Revenue per available room (RevPAR) jumped 19%. But part of this improvement came from refurbished hotels like Aurika Mumbai, where occupancy climbed to 76% from 46% after renovation.
Profits grew even faster. Net profit was up 93% to Rs 481 million in the June quarter. The company’s loyalty programme now has 2.1 million members, with nearly half repeating their bookings.
The investor view
For investors, the story splits into two parts.
In the short term, it’s about renovations and gradual debt reduction. In the long term, it’s about fee-driven growth and the Fleur demerger.
Revenue, operating profit and net profit are all expected to grow in double digits over the next couple of years.
Margins should expand as more hotels come under management, while renovation costs are set to ease from current levels, providing an additional lift.
The refurbished Keys portfolio is expected to boost earnings, debt is projected to decline by about Rs 500 million each quarter, and with nearly all new rooms coming under management contracts, fee income should grow without adding leverage.
At the current share price of Rs 142, Lemon Tree trades at about 23 times estimated FY27 EBITDA and a PE (Price to Earnings ratio) of 62 times. Now, that’s not exactly a bargain. But if the demerger goes through, valuations could move up.
The risks
Of course, nothing is risk-free.
Hospitality is cyclical.
A slowdown, a health scare, or geopolitical disruption can hurt occupancy. Renovations could face delays or cost overruns. The managed hotels depend on third-party developers and so if projects are delayed, fees don’t come in.
Competition is intensifying, too. International and Indian chains are expanding aggressively into India’s mid-market. Domestic players like Ginger and ITC’s Fortune are also scaling up. This can possibly limit pricing power.
Why Lemon Tree matters
Despite the risks, Lemon Tree is more than just another hotel chain. It is a fantastic play of how Indian travel is changing. For years, the industry depended on foreign tourists and luxury demand. Now the growth engine is domestic mass tourism. This is the salaried family, the business traveller from a tier-2 city, the couple on a weekend break.
Lemon Tree, with its spread of brands and growing asset-light footprint, is positioning itself for this shift. The pivot that began in 2022 is now showing up in its pipeline, its fee income in tandem with its restructuring plans.
If it pulls off the transition, it won’t just benefit from mass tourism. It will become the face of it.
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
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Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
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