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Lemon Tree Hotels (LTH) reported a 1QFY25 EBITDA of INR 1.15bn, which was lower than our estimates (JMFe: 1.25bn) as well as consensus. Revenue grew 20.6% YoY to INR 2.7bn (in-line with JMFe, down 18% QoQ) aided by room count increase of 12% and an ARR growth of 9% YoY. Occupancy was down 360bps YoY due to shutdowns for renovation and the impact of temporary headwinds related to election restrictions and heat waves. EBITDA margins declined on a YoY basis due to planned renovations, increase in employee expenses due to wage inflation and expansion of the business development team. We expect LTH to deliver Revenue/EBITDA/PAT CAGR of 15%/17%/30% over FY24A-27E aided by low doubledigit RevPAR growth over the same period. We reiterate BUY with a Mar’25 TP of INR 155, valuing LTH at 24.0x EV/EBITDA.

* Inline revenues, aided by higher room count: LTH reported an inline growth (21% YoY; down 18% QoQ) in consolidated revenue for 1QFY25, which came in at INR 2.7bn (JMFe: INR2.7bn. ARRs were healthy at INR 5,686 (+9% YoY; down 14% QoQ), led by Mumbai (+9% YoY) and Pune (+7% YoY). LTH reported occupancy of 67.0% (down 360bps YoY; down 540 bps QoQ) due to shutdowns for renovation and the impact of temporary headwinds related to election restrictions and heat waves. Fees from O&M business (3rd party hotels) stood at INR 125mn in 1QFY25 (+21% YoY) and total management fees came in at INR 291mn (+22% YoY).

* EBITDA margin declines as expected, but came in lower than JMFe: LTH’s 1QFY25 EBITDA came in at INR 1.2bn (10% YoY, down 33% QoQ) with EBITDA margin declining to 43% (47% in 1QFY24 and 52% in 4QFY24), which came below our estimates of 47%. The significant decrease in EBITDA margin QoQ was due to planned increase in renovation expenses. Further, the management indicated that the margin was further impacted by increase in payroll expenses (down 10bps YoY, +380bps QoQ) and power & fuel cost (+10bps YoY, +270bps QoQ). Due to renovation and associated shutdowns, EBITDA margin for the Keys portfolio decreased by 10pps YoY as renovation expenses were c. INR 18mn over 1Q 2024 levels which is an increase of 100% YoY.

* Portfolio update: Total network revenue stood at INR 4.2bn (+20% YoY) in 1QFY25 vs. INR 3.5bn in 1QFY24, similar to 19% YoY growth for the LTH owned portfolio. During the quarter, LTH signed three new management and franchise contracts which added 187 rooms to the pipeline and operationalized four hotels adding 331 rooms to its portfolio. The LTH portfolio has 107 operational hotels with 10,125 keys and a development pipeline of 4,036 keys across 61 properties. The Aurika, Mumbai operated at an occupancy of c. 46% in 1QFY25, with ARR of c. INR 9,000. By 2027, the management plans to have 20, 000 rooms in the portfolio (30% owned, 70% managed).

* Maintain BUY with a Mar’25 TP of INR 155: We have revised our EBITDA/PAT estimates downwards by an average of 2%/2% respectivley. We maintain BUY with a Mar’25 TP of INR 155, valuing LTH at 24.0x EV/EBITDA.

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