Strategy in place, but execution remains key
LEMONTRE hosted an analyst meet at its recently launched hotel – Lemon Tree Premier in Mumbai. The company shed light on its execution strategy and addressed investor concerns regarding debt. Key insights highlighted below:-
Besides synergies, Keys’ acquisition to help add rooms via management contract
* While LEMONTRE’s acquisition of ‘Keys Hotel’ brings with it synergistic benefits (both on cost and revenue front), the deal is also expected to aid room addition under management contract. Hotel enquiries that did not qualify under LEMONTRE’s existing brands can now be considered under the Keys brand; thus, paving the way for LEMONTRE to add hotels in a slightly lower category without diluting its existing brands.
* Post-acquisition, while most Keys hotels would operate under the existing brand name, a few will get rebranded as LEMONTRE hotels, which management believes would require capex of INR150m.
* LEMONTRE is confident of achieving an immediate 4% revenue improvement coupled with 2% cost decrease (of sales) post acquisition.
* Synergies on the cost side include rationalization of corporate expenses, sales & marketing costs and other costs like decreasing commission to Online Travel Agents (OTAs). Currently, LEMONTRE pays just 2/3rd of the commission rate paid by Keys Hotels to OTAs; thus, it plans to leverage its negotiating power with OTAs.
* Company expects acquisition of Keys Hotels to generate EBITDA of INR600m in FY21.
‘Aurika’ brand – spreading its wings in the upscale segment
* ‘Aurika’ was launched in the upscale segment to target the existing customer base (>1.1m) of its loyalty program. Also, the company was earlier unsuccessful in converting inquires for managing upscale hotels as it lacked a brand operating in the segment. Thus, its new brand ‘Aurika’ will enable the company to target upscale hotels as well.
* Company plans to launch two hotels under the ‘Aurika’ brand, one each in Udaipur and Mumbai. The Udaipur property with 134 rooms should commence operations in Oct’19, while the Mumbai property with 669 keys should get operational by Nov’21.
* The company has already received pre-booking for 1,000 room nights with an average ARR of INR16,000 for the Udaipur hotel. Incremental room addition under the brand will be through the management contract route only.
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