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Higher occupancy drives QoQ growth

* Revenue grew 39% QoQ in 4QFY21, led by 38% RevPAR growth, aided by a 16.9pp improvement in occupancy. EBITDA grew 42% QoQ due to lower flow-through, as the onset of a second COVID wave was sudden, which impacted demand. The company was unable to reduce expenses immediately.

* We have lowered our FY22E EBITDA estimate by 43% and have maintained our FY23E EBITDA estimate. We have a Buy rating on the stock with a TP of INR52 per share.

Broadly in line performance

* Revenue fell 46% YoY to INR951m (est. INR889m) in 4QFY21. ARR declined by 45% YoY (to INR2,498) and occupancy fell 170bp (to 59.3%). RevPAR fell 46% YoY to INR1,481.

* RevPAR grew 38% QoQ on the back of a 17pp improvement in occupancy rate, marginally offset by a 1% decline in ARR.

* EBITDA fell 55% YoY to INR285m (est. INR302m; v/s INR201m in 3QFY21).

* On a QoQ basis, revenue/EBITDA grew 39%/42%.

* Adjusted loss stood at INR168m v/s a loss of INR179m in FY20.

* In 4QFY21, Keys Hotels generated a revenue of INR83m (+30% QoQ), with an EBITDA of INR8m (+14%). It operated at 53% occupancy (+23pp QoQ), with an ARR of INR1,209 (-35%). RevPAR grew 15% QoQ to INR640.

* In FY21, revenue/EBITDA declined 62%/75% YoY

Highlights from the management commentary

* About 40% of overall branded rooms in India are likely to shut due to COVID-related disruptions. Part of the supply is expected to return, and a small part is expected to see a change in ownership or shut down. Regional standalone Hotels are expected to shut down primarily due to a cash crunch and difficulty in raising funds.

* In FY22, the management plans to maintain its capex run-rate at INR50m/month. After the complete lifting of lockdown-related restrictions, it plans to revise its capex plans.

* Reduction in expense normally takes a few months. Post the onset of the second COVID wave, the company was not able to reduce expenses immediately, thereby leading to an increase in expenses in 4QFY21.

* The total cost of operating a hotel for LEMONTRE will reduce by 20% at 70- 75% occupancy after the pandemic ends.

Valuation and view

* The second COVID wave delayed the recovery in the Hospitality sector by a couple of quarters. However, the impact this time around is unlikely to be similar to that of last time as some parts of India remain under partial lockdown, and a vaccination drive is underway and is expected to accelerate further.

* A revival in corporate demand would remain a key trigger to watch out for going forward. Demand revival would push up occupancies, post which ARR growth would follow.

* LEMONTRE operates in the mid-priced market and has a higher share of domestic customers (85%), which is likely to witness a faster demand recovery. It is also benefiting from higher share of SME and retail customers, which have witnessed a faster demand revival.

* We have lowered our FY22E EBITDA estimate by 43% (considering the current demand scenario on account of the second COVID wave) and have maintained our FY23E EBITDA estimate.

* We have a Buy rating on the stock with a SoTP-based TP of INR52/share (assigned 18x one-year forward EV/EBITDA multiple).

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