IGI Logo

Lemon Tree Hotels (LTH) reported a slight miss on margins (down 80bps YoY; adjusted for renovation expenses, and pre-operative expenses for Aurika MIAL) in 2QFY24. Occupancies recorded a strong uptick (+542bps YoY) and portfolio ARR grew 7% YoY, resulting in a robust RevPAR growth of 16%. On 5th Oct’23, LTH commissioned operations at its flagship Aurika, MIAL hotel (669 keys). LTH remains well poised to deliver superior earnings growth led by Aurika (MIAL), rapid scale up of the O&M (fee) business and ARR growth on the back of continued strength in hotel room demand. We expect LTH to deliver a Revenue/EBITDA/PAT CAGR of 20%/20%/33% over FY23A-26E and ROE to improve from 14% in FY23 to 20% by FY26E. We maintain our estimates for FY24E/FY25E, and roll forward to a Mar’25 TP of INR 125.

* Robust RevPAR growth led by strong uptick in occupancies: In FY24, LTH has focused on increasing occupancies across its portfolio. In 2QFY24, occupancies grew by 542bps YoY and 143bps QoQ to 71.7%. Portfolio gross ARR came in at INR 5,268 which increased by 7% YoY and 1% QoQ (lowest amongst our coverage universe). Consequently, RevPAR stood at INR 3,775 with YoY and QoQ growth recorded at 16% and 3% respectively. Occupancies improved across regions except for Delhi due to the shutdown during G-20 Summit. ARR growth was led by the cities of Delhi (+17% YoY) & Mumbai (+10% YoY).

* Inline quarter, with slight miss on margins: LTH, in 2QFY24, reported inline revenues of INR 2.3bn (+16% YoY; +2% QoQ) with lower-than-expected EBITDA of INR 1.0bn (4% miss on JMFe; 45% margin; +9% YoY; down 3% QoQ). EBITDA margins declined 276bps YoY and 218bps QoQ due to increase in renovation expenses above that spent in 2QFY23, pre-operative expenses of Aurika, MIAL and higher employee costs. Adjusted for renovation and pre-operative expenses, EBITDA stood at INR 1.06bn with margins of 46.8% (down 80 bps YoY). Fees from management & franchised contracts for 3rd party owned hotels stood at INR 104mn in 2QFY24 (+58% YoY) and total management fees came in at INR 240mn (+29% YoY).

* Portfolio update: Total network revenue stood at INR 6.9bn (+17% YoY) in 1HFY24 versus INR 5.9bn in 1HFY23, with the managed and franchised portfolio recording a YoY revenue growth of 21% (compared to 15% for the LTH owned portfolio). During the quarter, LTH signed 11 new management and franchise contracts which added 639 rooms to the pipeline. The LTH portfolio has 95 operational hotels with 8,760 keys and a development pipeline of 4,092 keys across 52 properties. The management expects the operational inventory to cross 100 hotels and 10,000 rooms by FY24E. The Aurika, MIAL was opened on 5thOct’23 and is expected to operate at occupancies of 200 rooms per day with an ARR of INR 8,500 in 3QFY24, before improving further in 4QFY24.

* Maintain BUY, Mar’25 TP of INR 125: We expect LTH to deliver a Revenue/EBITDA/PAT CAGR of 20%/20%/33% over FY23A-26E and RoE to improve from 14% in FY23 to 20% by FY26E. We maintain our estimates for FY24E/FY25E, and roll forward to a Mar’25 TP of INR 125; valuing LTH at 20.0x Mar’26 consolidated EBITDA.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361