Lead Story

Is Patu Keswani's back-up plan hospitable enough?

Premium midscale chain, Lemon Tree, may be among the few that could survive when the dust settles down 

Vishal Koul

After losing 97% of his money two decades ago while trading in stocks, Patu Keswani learnt to never bet the bank. And more importantly, to always have a Plan B, Plan C and Plan D. But sometimes, all your contingency plans cannot make up for the disruption unleashed by a pandemic; especially, if it spooks the biggest influencer. For Dalal Street, it is foreign institutional investors. They have always swung the momentum with their hefty dollar investments. While their presence can attract more cool kids from the neighbourhood, their spurning can burn. So, when they sold nearly $8.5 billion worth of equity in March and April, many — including mid- and small-caps — were left bruised, with their valuations completely decimated. None of Keswani’s plans (B, C or D) seemed to have worked.

The founder of one of India’s premium mid-priced hospitality chains, Lemon Tree Hotels, is not too thrilled about a group of foreign portfolio investors (FPIs) liquidating their holding of close to 7.5% in his company. Aberdeen Investment and Kuwait Investment Authority collectively held 3.34% stake at the start of the year. But they, along with other foreign investors, continued to offload, pushing Lemon Tree’s valuation to its all-time low as the stock price plummeted to Rs.14 on May 20. “At least for courtesy sake, they could have sought us out prior to the sale and we could have found a way out for them to offload their holdings to a local buyer,” bemoans Keswani. Thankfully, none of his strategic partners, Warburg Pincus and Dutch pension major APG, sold any shares. But for an entrepreneur who has passionately built a business for the past 15 years and competes with legacy players such as Taj Hotels and East India Hotels, the fire sale came as a rude shock. “A couple of these funds held stake in 15-20 mid-caps and they were probably in a hurry to offload their positions instead of awaiting feedback from each promoter,” he opines.

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Editor's Note

Why Lemon Tree is unlikely to be a lemon

Patu Keswani’s agility in managing the business along with its positioning should help the midscale chain overcome these extraordinary times

While COVID-19 has wreaked havoc on a lot of businesses, none has been hurt as much than the travel and hospitality business. Given that people were literally locked up meant that these businesses bore the brunt of the pause in spending. And it is not as if the situation is back to normal now and these businesses are set to recover what they have lost in potential revenue and opportunity. The existing fear psychosis of infection means that it will be a while before people really start living their lives like they did in the pre-Covid era.

The collateral damage on the hospitality business is much more because of the multiplier effect the industry has in terms of employment creation. Revenue going to zero meant