Buy Lemon Tree Hotels Ltd For Target Rs. 175 By JM Financial Services
Strong performance aided by healthy scale-up in Aurika
Lemon Tree Hotels (LTH) continues to deliver healthy performance as revenue grew 16% YoY to INR 3.8bn, aided by 7% YoY growth in ARR and a c.560 bps YoY increase in occupancy. EBITDA came in at INR 2bn (19% YoY; 11% QoQ) with EBITDA margin improving to 54% (+154bps; +206bps), led by the improved occupancy at Aurika, Mumbai, and positive operating leverage. The operational portfolio currently stands at 10,270 keys and the management remains confident of achieving the ~20,000-key mark (including pipeline hotels) in the current financial year. We expect LTH to deliver Revenue/EBITDA/PAT CAGR of 11%/13%/14% over FY25-28E aided by low double-digit RevPAR growth and healthy pace of room additions. We have revised our FY26E/FY27E EBITDA estimates by 3%/6% respectively and reiterate BUY with a Mar’26 TP of INR 175, valuing LTH at 24.0x EV/EBITDA
* Robust performance, small beat on JMFe: LTH reported healthy performance with revenue of INR 3.8bn (+16% YoY; +7% QoQ), 2% above JMFe estimates. Lemon Tree delivered a RevPAR of INR 5,462 (+15% YoY; +9% QoQ) driven by 7% YoY increase in ARR to INR 7,042 and higher occupancy of 78% (+560bps YoY; +340bps QoQ). In terms of markets, the Delhi and Pune portfolio outperformed others with 15% and 10% YoY growth in ARR respectively. Also, the Hyderabad portfolio witnessed 7% YoY growth in ARR despite 18% inventory being (especially in premium market) shut due to renovation. Revenue came in at INR 12.9bn (+20% YoY) and EBITDA stood at INR 6.4bn (+20% YoY) with steady margin of 49.4%. Fees from the O&M business (3rd party hotels) stood at INR 160mn in 4QFY25 (+11% YoY) while the total management fees also recorded healthy growth and stood at INR 444mn (+16% YoY). In FY25, ARR grew by 9% YoY to INR 6,381 with occupancy of 71.7% - up 200bps, resulting in revenue growing 20% to INR 12.9bn.
* EBITDA margin poised to improve gradually: In 4Q, EBITDA was INR 2bn (+19% YoY; +11% QoQ) – 2% above JMFe estimates with margin of 54% (+154bps; +206bps). The company benefited from positive operating leverage (as expenses grew 12% YoY) and healthy improvement in Aurika, Mumbai, where occupancy increased to over 83% in 4QFY25, with ARR of c.INR 10,560. The management believes that the Aurika portfolio has reached optimal occupancy and is poised to witness healthy growth in ARR. Margin for the year came in at 49.4%, and as renovation expenses declines to 1.2-1.4% of revenue (vs. 2.7% in FY25), margin is poised to increase to 53-54% over the next 2-3 years.
* Portfolio update: During the quarter, the company signed 15 new management and franchise contracts, adding 833 keys to the pipeline, and operationalised two hotels with 121 rooms. The company currently has an inventory of 212 hotels and 17,116 rooms and the management is confident of adding 3,000 keys to the portfolio in FY26, taking the total inventory to over 20k rooms, thereby achieving its 2028 target 3 years in advance.
* Roadmap on Fleurs listing soon: During the earnings call, the management highlighted that, by the next board meeting, it would have a definitive plan for Fleurs listing. The subsidiary would be the asset development and owning entity with final say on the key aspects of portfolio expansion (location, brand mix, financing, etc.) and LTH would be the management platform.
* Maintain BUY with a Mar’26 TP of INR 175: We expect LTH to deliver Revenue/EBITDA/PAT CAGR of 11%/13%/14% over FY25-28E aided by low double-digit RevPAR growth and healthy pace of room additions. We have revised our FY26E/FY27E EBITDA estimates by 3%/6% respectively and reiterate BUY with a Mar’26 TP of INR 175, valuing LTH at 24.0x EV/EBITDA. Conference call Highlights
* The company is targeting to get into 200 towns and cities in India and, within them, the priority is to focus on markets that have good connectivity, and where GDP is growing at higher rates compared to the national average
* It has relaunched its loyalty programme and intends to take the share of loyalty business from 30-35% currently to over 60% in the next few years, which is in line with that of large global hotel companies
* LTH witnessed 21% growth in Apr’25 but the business was impacted in May’25 due to early cases of Covid and geopolitical tensions – resulting in just 14% growth during the month.
* While the Keys portfolio has achieved healthy margin of 40% in 4Q, the management believes that the portfolio will deliver a strong performance on a sustainable basis once the refurbishing is complete. It is confident of achieving INR 600mn of EBITDA from Keys portfolio by FY27
* The investments made in renovation/technology are being treated as opex, and as these expenses decline to 1.2-1.3% of revenue (v/s 3% now), margin will surely increase to 53- 55%
* Most of the upcoming pipeline is in Tier 2/3 cities as company is focused on the midsegment, which is poised for significant growth going ahead
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SEBI Registration Number is INM000010361
