Buy Lemon Tree Hotels Ltd for the Target Rs 140 by Motilal Oswal Financial Services Ltd
Fleur’s scale-up and asset-light strategy drive growth visibility
* Lemon Tree Hotels (LEMONTRE) reported healthy revenue growth of 9% YoY in 1QFY27, led by 5%/42%/30% YoY growth in Room revenue/Management fees/FnB revenue. Average room rate (ARR) grew 2% YoY to INR6,361, with occupancy rate (OR) expanding 320bp YoY to 75.7%. ARR growth was muted in 1Q as the company prioritized occupancy through higher retail volumes amid subdued corporate demand. With demand recovering in 2Q, the company has shifted to a more balanced strategy, providing scope for stronger ARR growth in the coming quarter.
* LEMONTRE’s EBITDA margin was 43.4% in 1QFY27, which was, however, hit by higher investments in renovations (INR98m), technology, and the GST impact (INR81m), leading to a 105bp YoY contraction.
* Going forward, we expect LEMONTRE to show healthy growth, primarily led by aggressive expansion through Fleur (pipeline of 3,300 keys by FY30), accelerating asset-light management fee income, premiumization via Aurika, and improving operating leverage as renovation cost, GST, and tech-related cost pressures normalize.
* We largely maintain our FY27/FY28 EBITDA estimates and reiterate our BUY rating on the stock with our SoTP-based TP of INR140.
Healthy performance driven by OR play
* Revenue grew ~9% YoY to INR3.4b (est. in line). OR expanded 320bp YoY to 75.7%. ARR increased 2% YoY to INR6,361. Management fees grew 42% YoY to INR228m.
* EBITDA grew 7% YoY to INR1.5b (est. in line). EBITDA margin contracted 105bp YoY to ~43.4% (est. 44.5%).
* Adj. PAT grew ~20% YoY to INR460m (est. INR346m).
* Gross debt stood at INR14.8b vs. INR16.5b as of Jun’25.
Valuation and view
* The company is expected to maintain a healthy growth momentum going forward, led by:
1) Accelerated growth in management contracts (pipeline of ~13,300 rooms)
2) rebranding of existing hotels
3) expansion of the Aurika portfolio
4) strong backup from Warburg Pincus
5) increase in yield due to the completion of renovation across brands
6) the addition of owned hotels through Fleur (3,300 keys).
* We expect LEMONTRE to post a CAGR of 9%/13%/22% in revenue/EBITDA/adj. PAT over FY26-28, with RoCE improving to ~18% by FY28 from ~13.1% in FY26. We reiterate our BUY rating on the stock with our SoTP-based TP of INR140 for FY28.
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