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Impacted by second wave; hopeful of faster recovery

About the stock: Promoted by Patanjali Keswani, Lemon Tree (LTHL) is the largest hotel chain in the mid-priced segment in India. It operates 8,300 rooms in 84 hotels across 52 destinations in India and abroad under brands like Aurika (premium), Lemon Tree premier, Lemon Tree (midscale), RedFox (economy) and Keys.

* The favourable location of its properties in prominent business and tourist districts supports revenue growth prospects and reduces concentration risk

* Post completion of expansion, LTHL will be operating ~10,400 rooms in 105 hotels across 64 destinations, in India and abroad by FY24E.

Q1FY22 Results: Lemon Tree reported weak Q1FY22 results due to lockdown.

* Revenues declined 55.7% QoQ to | 42.2 crore.

* Stringent cost control helped to maintain EBITDA positive, albeit marginally.

* Net loss of | 59.8 crore was attributable to higher interest & depreciation charge.

What should investors do?

The company remains a key branded player in the high growing mid-scale segment.

* We retain BUY rating on the stock

Target Price and Valuation: We value the stock at | 55 on an SOTP basis i.e. 23x FY23E EV/EBITDA.

Key triggers for future price performance:

* Performance likely to improve sharply from H2FY22E onwards with opening up of the economy

* Well positioned to capture the unorganised market share due to likely 15- 18% reduction in the room supply in the wake of ongoing stress along with rising preference towards branded players

* The company’s large asset base, strategic partnership and financial flexibility would continue to support liquidity profile if further need arises.

Alternate Stock Idea: Apart from Lemon Tree, in our hotels coverage we like Oriental Hotels.

* Key player in South India with a premium room portfolio of 820 rooms

* Maintain BUY with a target price of | 55/share

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