Accumulate Lemon Tree Hotels Ltd for Target Rs 157 by Elara Capitals
In-line operational performance
Lemon T ree Hotels (LEMONTREE IN) reported in -line operational performance , driven by 9.5% growth in RevPAR and 10% growth in consolidated management fees. Asset addition pipeline continues to swell for LEMONTRE , driven by managed hotels (up by 1 ,855 keys in Q3 to 9 ,364 keys) , but new hotel openings have been sluggish , in our view. Growth in the next two years will be driven by mix improvement at Aurika Mumbai, opening of the 91-key Aurika at Shimla in FY27, higher management fee income and double -digit RevPAR growth for owned portfolio. LEMONTRE is the best stock to play on growth in the mid -market hotel segment but partial gains on profitability due to the industry upcycle are being eroded by recurring renovation expenses. Maintain Accumulate with SoTP-TP of INR 157.
Front-loaded investments, GST changes weigh on margins: EBITDA margin declined 145bps to 50.4% in Q3FY26, primarily on account of higher investments towards renovations, technology upgrades and the GST impact. Collectively, these cost heads accounted for 6.4% of revenue in Q3FY26. Management indicated that thes e investments are front -loaded in nature and are expected to normalize to 3.6% of revenue by FY28, which should drive expansion in EBITDA margin. GST impact accounted for 1.8% of revenue in Q3 and is expected to remain around similar levels in FY28.
Targeted rebranding to enhance rate potential: Management is pursuing selective rebranding alongside renovations, targeting assets with clear pricing upside , driven by location and product repositioning. The rebranding of Red Fox Hotel , New Delhi to Lemon Tree Hotel has already delivered a meaningful improvement in ARR, though this impact is not fully reflected in RevPAR. Similar initiatives are underway, including the planned rebranding of Red Fox Hyderabad to Lemon Tree Hotel by October CY26 and the conve rsion of select Keys assets, such as Keys Whitefield to Keys Prima following the completion of renovation in the next 6-8 months. Separately, Lemon Tree Alleppey, is being evaluated for a potential upgrade to the Aurika brand in the longer term, while Red Fox Jaipur (180-key) is being assessed for redevelopment into an Aurika -format hotel,supported by the high underlying land value.
Aurika-led development pipeline: Capex continues to be directed towards the development of the Aurika portfolio. As of 31 December 2025, capital deployed at 91 -key Aurika, Shimla stood at INR 0.66bn, with the property expected to commence operations in FY27. Aurika, Shillong (165 keys) has seen a cumulative capex of INR 0.15bn out of total INR 2bn and is slated for opening in Q3FY28. Capex for Aurika, Nehru Place , New Delhi (~550 keys) is yet to be announced and will be finalised post receipt of requisite a pprovals.
Maintain Accumulate with TP retained at INR 157: We keep our estimates unchanged. We have not factored in the impact of LEMONTRE’s restructuring in our financials due to inadequate financial data. Maintain Accumulate with SoTP -TP of INR 157.
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SEBI Registration number is INH000000933.
