Lemon Tree Hotels Stock Research Report

Keys to success: Strong room pipeline; demand outlook remains robust……

As of Sep’24, Lemon Tree Hotels (LEMONTRE) has 10,318 operational keys across 112 hotels. The company has an aggressive room expansion plan for H2FY25–FY29 with an incremental 5,220 keys–  should take overall operational keys to 15,538 by FY29–30E. In the near term, FY25E operations may remain constrained by ongoing renovations in its Keys portfolio and other owned/leased hotels. We expect LEMONTRE to deliver revenue and EBITDA CAGRs of 22% over FY24–27E as Aurika, its Mumbai airport hotel, fully stabilises, and renovated rooms and management contract revenues see an uptick. As earnings scale up in the medium term, the company expects debt levels to gradually dip over the next 3–4 years (debt of INR 19.1bn, as of Sep’24). Retain BUY; SoTP-based TP of INR164 (based on 23x Sep’26E EV/EBITDA) unchanged.

Focus remains on renovation/scale up of Aurika

In addition to the ongoing Keys portfolio renovation, management has decided to upgrade select hotels across its brand portfolio. This may result in shortterm margin pain, but it expects the premiumisation trend in the mid-market segment to benefit LEMONTRE in the medium term. Key monitorable is its ability to scale up Aurika’s ARRs and occupancies in H2FY25. As per the company, Aurika is exhibiting higher ARRs and occupancies since Oct’24, which is encouraging. LEMONTRE expects debt levels to gradually decline over the next 3–4 years (debt of INR 19.1bn, as of Sep’24) as renovations drive higher ARRs in owned hotels and scale-up in Aurika.

Strong room pipeline to take operational keys to over 15,000 keys by FY29–30E

As of Sep’24, the company has 10,318 operational keys across 112 hotels. LEMONTRE has an aggressive room expansion plan over H2FY25–FY29E with an incremental 5,220 keys across 75 hotels, which should take overall operational keys to 15,538 rooms by FY29–30E. A large portion of these incremental keys (~5,150 keys) is expected to be through the asset-light management contract route. Hence, we expect the company to deliver revenue and EBITDA CAGR of 22% over FY24–27E as Aurika fully stabilises and renovated rooms and management contract revenue sees an uptick.

Key risks: Demand slowdown in occupancies and room rates.