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Scaling new heights

Lemon Tree Hotels (LEMONTRE) has established a niche for itself in the growing midmarket hospitality segment and is now expanding its wings by improving its presence in the top (upscale/luxury) segment and increasing its inventory through management contracts. We believe the company is set to benefit significantly from the sectoral tailwinds and emerge as a larger and stronger player.

? The company is expected to benefit from the changing dynamics in its key markets such as NCR (~24%/17% of FY23/FY26E consol. Revenue as per our estimates) and Mumbai (excluding Aurika Sky City, ~10% in FY23 and 29% in FY26 including Aurika MIAL). Rising demand in these cities (which is accelerated by significant traction from new convention centers) and slower supply (~2-6% CAGR over FY23-28E) should propel the growth trajectory of existing players.

? Aurika Sky City Mumbai, which is positioned as an upper upscale hotel, will be a key beneficiary of the trickling down of demand from the luxury segment. The hotel is expected to contribute to ~21%/23% of consolidated revenue/EBITDA by FY26.

? LEMONTRE has a strong pipeline of ~3,354 managed rooms (~91% of operational managed rooms), which are expected to become operational by FY27, taking the share of managed rooms to ~55%. We expect LEMONTRE to clock management fees of INR943m by FY26 (~38% CAGR over FY23-26E).

Re-ignition of convention centers to boost growth trajectory

? NCR/Mumbai (excluding Aurika) are some of the key markets for LEMONTRE, accounting for ~24%/10% (as per our estimates) of the company’s consolidated revenue in FY23.

? These markets are expected to witness a significant change in dynamics with the recent opening of mega convention centers in those cities.

? In NCR, Bharat Mandapam (inaugurated in Jul’23) and Yashobhoomi Convention Center (Sep’23) have a combined capacity of hosting ~18,000 people and are already witnessing significant traction.

? In Mumbai, Jio Convention Center (inaugurated in Mar’22) hosted ~800 events in FY23, with cumulative footfalls of over 1.9m.

? While demand is on the rise in these cities, hotel room supply is expected to be much slower (~2%/6% CAGR for room addition in Delhi/Mumbai over FY23-28E).

? Accordingly, we believe the hospitality players should benefit from such a favorable demand scenario (indicating higher occupancy and room rates in the region going ahead).

Aurika Sky City – Unveiling the Crown Jewel

? In Oct’23, LEMONTRE launched Aurika Sky City, a 669-room owned hotel (largest in the country by rooms) near the Mumbai International Airport.

? With a prime location and upscale offerings, Aurika MIAL is likely to generate ARR of ~INR12,000-15,000 with occupancy of over 70%. EBITDAR margin for Aurika hotels is also much higher (~64% in FY23) compared with other brands (~18-41%).

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