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ARR-driven growth

Occupancy down 160bps; RevPAR up 11%

Lemon tree Hotels (LEMONTRE IN) reported largely in-line results, with topline growth of 30% to INR 3.3bn versus INR 3.1bn expected. Occupancy was down 150bps to 72% due to lower occupancy in the recently-inaugurated Aurika Skycity hotel in Mumbai. ARR grew 13% to INR 6,605, driven by organic ARR growth of 6-11% and better portfolio mix with the commencement of Aurika Skycity. Management fees was up 48% YoY to INR 412mn, whereas indicative management fees per room per quarter rose 19% YoY to INR 0.1mn. EBITDA grew 23% to INR 1.7bn but margin contracted 297bps to 52.4%. Other expenses rose 53% YoY to INR 657mn, led by higher renovation expenses for Keys portfolio.

Aurika Skycity: Occupancy to scale up in FY25

Room revenue for the Aurika brand came in 16% higher than our estimate, given better-than-anticipated occupancy at 66% versus 54% estimated. The ARR dip in Aurika was marginally lower than our estimate of INR 10,553, down 35% YoY. FY24 blended ARR stood at INR 9,000 due to a large base of airline crew rooms. LEMONTRE plans to gradually take out the crew base and replace it with corporates, retails, conferences, and events. FY25 will be the first full year of operation for Aurika Skycity and we expect occupancy to scale up to 65-70% in FY25E.

Valuation: Reiterate Accumulate with a higher TP of INR 160

The full-scale benefit from better occupancy and higher ARR may get contained by continued renovation of Keys portfolio and will be truly reflected only H2FY26 onwards. LEMONTRE’s plan to list its subsidiary, Fleur Hotels, may bear fruit within a similar timeline, in our view. Hence, we expect significant rerating FY27 onwards but before that, there may be an overhang of higher renovation expenses. We reduce EBITDA and PAT estimates by 7% and 10% for FY26E but assign a higher EV/EBITDA of 19x (17x earlier) on FY26E EV/EBITDA to partly factor in potential gains from the listing of Fleur Hotels. So, we raise TP to INR 160 (INR 154 earlier) – Reiterate Accumulate.

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