Lemon Tree - Best Placed To Ride The Industry Upcycle: Prabhudas Lilladher Initiates Coverage With A 'Buy'

Prabhudas Lilladher Report

We initiate coverage on Lemon Tree Hotels Ltd. with a ‘Buy’ rating and target price of Rs 140. We believe the company is well poised to capitalise from impending uptick in the Indian hospitality industry given-

1. leadership position in midscale/economy segment with ~19% market share,

2. aggressive plans to rapidly expand via asset light management contract route that is expected to improve balance sheet strength and uplift margin profile and

3. operationalisation of Aurika hotel in Mumbai with 669 rooms.

Aurika is expected to be a crown jewel for Lemon Tree as it is strategically located in dense micro-market of Mumbai (near airport) and we expect the hotel to generate revenues of Rs 2,764 million in FY26E (second full year of operations with an Ebitda margin of 60%).

Backed by opening of Aurika, Mumbai in Oct-23 and addition of 4,808 managed rooms by FY26E, we expect revenue/profit after tax compound annual growth rate of 19%/36% over FY23-FY26E. We Lemon Tree on SOTP basis.

The standalone business is d at 21 times FY26E Ebitda while Fleur, an asset owning subsidiary with 59% stake, is d at 22 times FY26E Ebitda to arrive at a per share of Rs 140.

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