IGI Logo

We assume coverage on Lemon Tree Hotels (LTH) with an ADD recommendation and upside of 14.9%. LTH’s Q1FY25 results were a mixed bag, with revenue broadly in line with consensus estimates, while margin was lower. EBITDAM fell by 460bps YoY to 42.9%; half of this decline is attributed to a one-off increase in investments in renovation and digital transformation. RevPar growth (3.6% YoY) moderated from prior Quarters, with occupancies down by 360bps YoY, hit by shutdown of 25% of the Keys portfolio. The entire renovation is expected to continue till FY26-end (open in winters), after which the entire portfolio will be available. The management sees stabilization of Aurika Mumbai, accelerated growth in management and franchisee contracts, and timely completion of renovation as key growth levers. We cut FY25E/26E EBITDA by ~6%, factoring in the Q1 performance and continued elevated renovation expenses. We maintain ADD, with TP of Rs145/sh (roll over to 21x Jun-26E EV/ EBITDA).

Results Summary

LTH revenue grew 19.5% YoY to Rs2.7bn in Q1FY25, broadly in line with consensus estimates. ARR grew 8.6% YoY to Rs5,686, while occupancies declined by 360bps YoY to 66.6%. RevPar grew by 360bps YoY to Rs3,788. EBITDA grew 8% YoY to Rs1.2bn. EBITDAM declined by 457bps YoY to 42.9%, partially impacted by higher one-time renovation and digital transformation expenses. Fees from the management and franchised contracts for third party-owned hotels stood at Rs125mn, up 21% YoY. Cash profit for the quarter was Rs547mn, up 9% YoY. During the quarter, the company signed 3 new management contracts to add 187 new rooms, and operationalized 4 hotels that added 331 rooms to the portfolio. The current portfolio stands at 107 hotels with 10,125 rooms.

Earnings Call KTAs

1) Q1 is typically a seasonally-weak quarter, with the general elections and heatwaves also impacting performance in this quarter. Going ahead, supply-demand mismatch, tailwinds for the tourism industry, and the company’s own initiatives should position LTH as the preferred brand of choice in the mid-market segment. 2) 700 rooms were shut for renovation this quarter. The entire renovation for the Keys portfolio would be complete by FY26-end, after which renovation expenses would drop to 1.5-1.6% of the revenue. The company expects EBITDA of Rs600mn for the Keys portfolio, once renovation is complete. 3) Along with the large-scale renovation, LTH has created a new sales system led by digital capabilities. It iscurrently re-imagining its loyalty program and website. LTH has also ramped up its Business Development team by 4x. 4) Aurika Mumbai reported occupancy of 45.9% in Q1, with ARR of

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354