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Lemon Tree Hotels (LTH) clocked its best-ever quarter in Q3FY23, and with thecompany having achieved 9MFY23 revenue and EBITDA of Rs6.2bn and Rs3.1bn respectively, we believe that it is on track to meet its FY23 guidance of revenues
growing 100% YoY to Rs8.0bn at an EBITDA margin of 50%. While FY23 has been the year of recovery, the focus from FY24 will be on: a) industry demand CAGR over FY23-27E of over 10% vs. supply CAGR of 4-5%, b) company’s plans to add another
~2,800 keys by Mar’25 to take total operational keys to over 11,000, c) opening of the 669 keys owned Aurika Mumbai Airport hotel in H2FY24 and d) focus on organic debt reduction from FY25E as pending capex of ~Rs5bn largely for Mumbai Airport
hotel is completed by Mar’24. We retain our FY23-24E estimates and raise our FY25E revenue and EBITDA estimates by 18% factoring in faster occupancy ramp-up for Aurika Mumbai Airport hotel and maintain our BUY rating with a revised SoTP-based target price of Rs132/share (earlier Rs125) based on 20x Mar’25E EV/EBITDA. Key risks: Prolonged impact of Covid on occupancies and room rates and cost inflation.

* Well on track to achieve FY23 guidance: At the beginning of FY23, the company management had guided for FY23 consolidated revenue to grow 100% YoY to ~Rs8.0bn at a net EBITDA margin of 50%. Based on the strong 9MFY23 performance,
where the company has clocked revenue of Rs6.2bn and EBITDA of Rs3.1bn, it appears well on track to achieve its stated guidance.

* Industry demand tailwinds and room expansion to drive medium-term growth: The company plans to add another ~2,800 operational keys by Mar’25, of which ~74%will be through the asset light management contract/franchise route which will take the
company’s operational keys to over 11,000 by Mar’25. Further, with industry demand expected to grow at over 10% CAGR over FY23-27E as per our estimates vs. room supply CAGR of 4-5%, ARRs are expected to continue to rise across hotel categories.

* Aurika Mumbai Airport hotel opening in H2FY24 to be incremental earnings driver: The Aurika, Mumbai Airport hotel is expected to see a soft opening in Oct’23 (pending capex of ~Rs4.5bn as of Dec’22) which is expected to be a key driver for
earnings from FY25E. Depending on how quickly it scales up, the hotel can deliver annual EBITDA ranging between Rs1.0-1.4bn in its first full year of stabilised operations assuming ARRs of ~Rs12,000 and occupancy of ~60% in FY25 (the existing Lemon
Tree Premier at Andheri East, Mumbai is currently clocking ARRs in excess of Rs10,000). Post the opening of the Mumbai Airport hotel in H2FY24, the key monitorable going forward is operating

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