Published on 12/06/2020 1:06:44 PM | Source: Motilal Oswal Financial Securities Ltd

Buy Lemon Tree Hotels Ltd For Target Rs. 25 - Motilal Oswal

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Cost rationalization to support operating performance

In-line revenue; EBITDA above estimates

* Lemon Tree Hotels (LEMONTRE)’s revenue grew 17% YoY, with like-for-like EBITDA (adj. for Ind-AS) growing 13%, largely driven by new hotel additions (absent in the base quarter) and the Keys Hotels acquisition. COVID-19 dented performance, reflected in decline in occupancy by 13pp YoY (to 65%) during the quarter. This led to decline of 13% in RevPAR; thus, on a samehotel basis, EBITDA declined 22% YoY, restricting consolidated EBITDA growth.

* MoM improvement at LEMONTRE’s operational hotel is quite impressive; operational hotels generated hotel-level GOP of INR22m in May’20 (v/s INR1m in April’20).

* Factoring in near-term weakness in demand, we cut our revenue estimates by 28%/24% for FY21/FY22 and EBITDA estimates by 1%/16% for FY21/FY22


EBITDA performance driven by new hotels and Keys acquisition

* Revenue stood at INR1,761m (est.: INR1,837m) in 4QFY20, up 17% YoY, led by a 45% increase in owned/leased room inventory (to 5,192), 3% YoY increase in ARR (to INR4,530), and the Keys Hotels acquisition. On the other hand, this was offset by 16.5pp decline in occupancy (to 61%).

* On a same-hotel basis (excluding hotels commissioned in the past 12 months), ARR grew 4.5% YoY (to INR4,604), offset by 12.7pp decline in occupancy (to 64.9%); thus, RevPAR declined 13% YoY (to INR2,988).

* Reported EBITDA stood at INR639m (est.: INR552m), up 31% YoY. However, like-for-like EBITDA (adj. for the Ind-AS 116 impact) stood at INR552m, up 13% YoY. Like-for-like EBITDA margins contracted 120bp to 31.4%.

* On a same-hotel basis, EBITDA declined 22% YoY (to INR380m), EBITDA from new hotels (RFH Chandigarh, LTP Mumbai, LTP Kolkata, and Aurika Udaipur) stood at INR124m, and EBITDA from Keys Hotels was INR46m, thus totaling pre-Ind-AS EBITDA of INR552m.

* Keys Hotels generated revenue of INR175m, with EBITDA of INR46m (operated at an occupancy of 52.4%, with an ARR of INR2,571 during the quarter).

* Of the 5,183 owned/lease rooms of LEMONTRE, 66% were operational in April’20, which increased to 78% in May’20. Occupancy (on operational room inventory) for April declined 43.9pp YoY (to 33.4%), with 28% YoY decline witnessed in ARR (to INR2,881). This translated to 76% decline in revenue (to INR108m), with hotel-level GOP of INR1m (down 99.5% YoY).

* However, in May’20, occupancy improved 611bp MoM to 39.6% (down 38pp YoY), but ARR declined 9% MoM to INR2,625 (down 34% YoY). This translated to MoM revenue growth of 25% to INR135m (down 71% YoY). In May, the company generated hotel-level GOP of INR22m, up 22x MoM (16% margin v/s 0.9% in April), which is quite impressive, in our view. This is primarily driven by cost-cutting measures deployed.


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