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Healthy revenue momentum led by strong RevPAR growth

In-line operating performance

• Lemon Tree Hotels (LEMONTRE) reported healthy revenue growth of 18% YoY in 1QFY26, led by a significant improvement in the occupancy rate (OR) to 72.5% (up 590bp YoY) and healthy growth in the average room rate (ARR) to INR6,236 (up 10% YoY). Operating leverage led to a 160bp YoY expansion in EBITDA margin despite renovation-related expenses.
• LEMONTRE maintained a healthy growth momentum in 1QFY26, and we expect this trend to continue through FY26. Growth will be supported by the ramp-up of Aurika Mumbai (~72% occupancy in 1Q, expected ~80% in FY26), favorable demand-supply conditions, renovation-led improvements in ARR and occupancy, the upgraded Infinity 2.0 loyalty program (2.1m members with 45% repeat business), and retail demand initiatives (which contributed ~45% of 1QFY25 room revenue).
• We largely maintain our FY26/FY27 EBITDA estimates and reiterate our BUY rating on the stock with our SoTP-based TP of INR185 for FY27.

Operating leverage supports margin expansion despite higher renovation spends

• Revenue grew 18% YoY to INR3.2b (in line), OR rose 590bp YoY to 72.5%, and ARR increased 10% YoY to INR6,236. Management fees grew 29% YoY to INR161m.
• EBITDA rose 22% YoY to INR1.4b (est in line). EBITDA margin expanded 160bp YoY to 44.5% (est. 44%) on account of favorable operating leverage. Adj. PAT increased 93% YoY to INR383m (est. INR294m).
• During the quarter, LEMONTRE signed 14 new management and franchise contracts, which added 1,273 new rooms to its pipeline, and operationalized five hotels, which added 392 rooms to its portfolio.
• As of 31st Jun’25, the total operational inventory comprised 116 hotels with 10,661 rooms, and the pipeline included 110 hotels with 7,770 rooms.
• Gross debt as of Jun’25 stood at INR16.6b vs. INR18.6b as of Jun’24.

Highlights from the management commentary

• Guidance: The company is well on track to exceed its Lemon Tree 2.0 target of ~20,000 rooms (including pipeline) by FY28. Management expects to achieve this milestone ahead of schedule and aspires to expand to ~30,000- 40,000 rooms in the longer run.
• Aurika MIAL: The hotel achieved an OR of ~76% vs 45.8% in 1QFY28. The significant improvement is driven by higher growth in the corporate and crew business, with a marginal increase in ARR. Management expects a strong 2HFY26 for this hotel.
• Renovations: The company is in the last leg of renovation, which is expected to be completed in the next 15-18 months. In FY26, renovation spending is estimated at ~INR1.3b (~65% is opex), which will decline by 30% in FY27 and further drop to an annual run rate of ~INR200m.

Valuation and view

• LEMONTRE is expected to maintain a healthy growth momentum in FY26, led by: 1) the stabilization of Aurika Mumbai, 2) accelerated growth in management contracts (pipeline of ~7,770 rooms), and 3) the timely completion of the portfolio’s renovation (by mid of FY27), leading to an improved OR, ARR, and EBITDA margin for the company.
• We expect LEMONTRE to post a CAGR of 13%/16%/34% in revenue/EBITDA/adj. PAT over FY25-27, with RoCE improving to ~18% by FY27 from ~11.7% in FY25. We reiterate our BUY rating on the stock with our SoTP-based TP of INR185 for FY27

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