Buy Lemon Tree Hotels Ltd For Target Rs.65 - ICICI Direct
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Strong retail demand; corporate travel to recover soon…
About the stock: Promoted by Patanjali Keswani, Lemon Tree is the largest hotel chain in the mid-priced segment in India. It operates 8,497 rooms in 87 hotels across 54 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 ~10,462 rooms in 105 hotels across 64 destinations, in India and abroad by FY24E
Q2FY22 Results: Business reached 62% of pre-Covid levels during Q2FY22.
* Revenues were up 103.6% YoY, 130% QoQ to | 96.9 crore
* EBITDA was at | 33.9 crore (i.e. 70% of pre-Covid levels) vs. I-direct estimate of | 28 crore
* Net loss of | 33.2 crore remained in-line with our estimates due to tax adjustments
What should investors do? The company remains a key branded player in high growing mid-scale segment.
* We retain BUY rating on this stock.
Target Price and Valuation: We value the stock at | 65 on an SOTP basis i.e. 30.0x FY23E EV/EBITDA
Key triggers for future price performance:
* Performance likely to improve sharply from Q4FY22E onwards with a pickup in corporate travel
* Well positioned to capture the unorganised market share due to likely 15- 18% reduction in room supply in the wake of ongoing stress. Also, rising cost of land and input to slow down the launch of new hotel projects
* Mumbai hotel property to get commissioned by end of 2023
* Company’s large asset base, strategic partnership and financial flexibility to continue to support liquidity profile if further need arises
Alternate Stock Idea: Besides Lemon Tree, in hotels coverage we like Oriental Hotels.
* Key player in South India with premium room portfolio of 820 rooms
* Maintain BUY with a target price of | 55/share
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