Buy Lemon Tree Hotels Ltd For Target Rs.160 by Prabhudas Liladhar Capital Ltd
Margin recovery expected in 2HFY27E
We increase our EBITDA estimates by ~3% over FY27E-FY29E as we fine-tune our RevPAR growth assumptions. Despite GST-related headwinds (2.4% of sales) and provision on SAR (0.8% of sales), LEMONTRE IN’s operational performance was ahead our estimates with EBITDA margin of 44.2% (PLe 42.8%). PAT beat was driven by net exceptional gain of INR221mn arising from lease termination of a hotel in Gurgaon. As renovation intensity tapers (1.9%/1.3% in FY27E/FY28E respectively) and pricing actions mitigate GST impact, we expect EBITDA margins to improve to 48.6%/49.7%/51.0% in FY27E/FY28E/FY29E, respectively. Led by inventory addition at Aurika, Shillong (165 keys in FY28E), Aurika, Shimla (90 keys in FY27E) and Aurika, Varanasi (47 keys in FY29E) coupled with renovation led repricing, we expect 11% revenue CAGR over FY26-FY29E (two marquee assets at Mumbai and NCR are expected to operationalize after FY29E). We maintain BUY on the stock with an SoTP based TP of INR160 (valuing the fee business/asset heavy business 22x/20x Sep-28E EBITDA; no change in target multiple).
RevPAR increased 17.9% YoY:
Revenue increased 18.0% YoY to INR3,614mn (PLe INR3,389mn, CE INR3,476mn). ARR increased 8.1% YoY to INR6,751 in 2QFY27. RevPAR grew 17.9% YoY to INR5,137 while occupancy stood at 76.1%.
EBITDA margin stood at 44.2%:
EBITDA increased 22.2% YoY to INR1,597mn (PLe INR1,451mn, CE INR1,510mn) with a margin of 44.2% (PLe 42.8%) as compared to 42.7% in 2QFY26. Beat at EBITDA level was driven by higher-than-expected revenue. PAT after MI increased 63.7% YoY to INR566mn. However, after adjusting for gain on termination of lease contract and other nominal expenses, adjusted PAT after MI remained flat YoY at INR346mn (PLe INR425mn, CE INR520mn) with an adjusted PAT margin of 9.6% (PLe 12.5%) as compared to a margin of 11.3% in 2QFY26. Elevated tax expense at INR311mn (PLe INR192mn) and higher than expected minority interest of INR231mn (PLe INR150mn) led to PAT being flat on YoY basis.
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SEBI Registration number is INH000000933
