Tourism was the first sector that took a hit due to outbreak of the pandemic and is expect to be among the last to recover. Business in April was down 76% YoY and 70% YoY in May. Business and Leisure travel are not expected to normalize for few quarters. Occupancies in the lockdown came from rooms occupied by quarantine or corporate guests, doctors and healthcare workers. We model occupancy of 52%/63% and ARR of |4080/|4410 in FY21E/FY22E. LTH has taken measures to curtail costs, by taking salary cuts, re-negotiating contracts, reducing repairs costs, reduction in power costs,...

Revenue growth of 17% YoY in 4QFY20 was primarily driven by 48% YoY increase in number of rooms to 8,006 rooms. RevPar at Rs2,764 declined by 19% YoY. However, the RevPar for Lemon Tree (excluding the RevPar of Keys Hotels) declined by 11% YoY. While reported EBITDA and EBITDA margin rose by 31% and 381bps, respectively YoY, the comparable EBITDA (adjusted for changes due to Ind As 116) rose by 12% YoY and the comparable EBITDA margin declined by 127bps YoY to 31.2%. We however remain concerned about the rising debt level. In 4QFY20, the net debt to equity stood at 1.79x as compared to 1.33x in 4QFY19....

The ongoing coronavirus outbreak has had a severe impact on the hotel bookings in India from Feb-20 onwards with massive forward booking cancellations across cities. This in turn has eroded the ability of hotels across India with heavy loss of business during this peak season time. The extent of this lost business has primarily been seen across all major tourist and business destinations and we expect the situations to remain severely weak with individuals cancelling or deferring their travel plans and thousands of companies adopting the work from home' and no travel' policies. This...

Lemon Tree Hotels Ltd.'s (LTH) Q3FY20 result was a mixed bag as net sales was muted owing to weak performance of new hotels, while cost saving aided healthy margins improvement. Net sales increased by 39.2% YoY to Rs 1,996 mn mainly driven by 4% increase in ADR. EBITDA came in at Rs 812 mn, up by 65.7% YoY and EBITDA margin stood at 40.7%, improved by 649 bps YoY. The company reported net profit of Rs 122 mn down by 2.2% YoY. The company's new acquired venture Keys Hotels performance...

RevPar growth of 2% YoY post Keys acquisition and 8% YoY pre Keys acquisition Revenue growth of 39% YoY in 3QFY20 was primarily driven by 49% YoY increase in number of rooms to 7,979 rooms. Inorganic increase in the number of rooms because of the acquisition of Keys Hotels stood at 1,591 rooms and the organic growth in number of rooms of Lemon Tree stood at 1,046 rooms (20% YoY). RevPar at Rs3,311 grew 2% YoY. However, the RevPar for Lemon Tree (excluding the RevPar of Keys Hotels) grew 8% YoY. However, the 3QFY20 results show 2% YoY decline in adjusted net profit at Rs122mn. The reason for decline in earnings is attributable to the increase in depreciation and interest costs because of:...

Lemon Tree Hotels reported a strong set of Q3FY20 numbers. Revenues for the quarter increased 39.2% YoY to | 199.6 crore (I-direct estimate: | 189.6 crore). The strong topline growth was driven by ~45% increase in the number of owned/leased rooms and 58% rise in managed room portfolio. While RevPAR growth, on an overall basis, was at 1.9% for the quarter, RevPAR growth for the Lemon Tree portfolio (ex-keys) was at a healthy 7.5% YoY. Reported EBITDA for the quarter was at | 81.2 crore (I-direct estimate: | 64.1 crore) with EBITDA margins of 40.7% (I-direct estimate: 33.8%). On a...

17 February 2020 LEMONTRE reported a strong performance at its existing hotels, where RevPAR growth of 7.5% YoY led to a 19% YoY increase in EBITDA. EBITDA performance was mainly driven by new hotels (absent in the base quarter) as they formed 46% of incremental EBITDA. For FY20, we cut our revenue estimate by 6% (to factor in the 16% miss to our estimate in 3QFY20) but maintain our EBITDA estimate. For FY21/22, our estimates remain unchanged. inventory addition (absent in base quarter), contribution from Keys Hotels acquisition, and ARR growth. Reported EBITDA grew 66% YoY to INR812m 48% YoY to INR725m. Adj. PAT declined 2% YoY to INR122m. For 9MFY20, revenue/like-to-like EBITDA/PAT growth stood at 24%/25%/(59%). ARR was up 4% YoY at INR4,644 in 3QFY20; occupancy declined by ~150bp YoY to 71.3%. However, on a same-hotel basis, ARR grew 5.4% YoY with occupancy up ~150bp YoY at 76.

We initiate coverage on Lemon Tree Hotels Ltd (LTH) with a BUY rating and TP of Rs85 based on 26x EV/EBITDA on FY22E. We believe LTH's 1) Leadership in mid-market hotel segment in the domestic market, 2) Robust pipe line of inventory addition, 3) Focus on asset light business model, 4) Inorganic expansion through acquisition of Keys Hotels and 5) Foray into upscale segment through Aurika brand would be key catalysts for earnings growth. We expect the company to clock net sales/EBITDA/PAT CAGR of 19.4%/22.6%/36.8% over FY19-22E. Our earlier thesis of domestic hotel industry to benefit from increasing occupancy owing to demand-supply mismatch, which will lead...

Change in our financial statements post application of Ind AS 116 ACCUMULATE Ind AS 116 replaces existing standard on leases i.e. Ind AS 17, Leases with effect from accounting periods beginning on or after 1 April 2019. Ind AS 116 will affect primarily the accounting by lessees and will result in the recognition of almost all leases on balance sheet. The standard removes the current distinction between operating and finance leases and requires recognition of an asset (the right-of-use the leased item) and a financial liability to pay rentals for virtually all lease contracts. An optional exemption exists for short-term and low-value leases. The statement of profit and loss will also be affected because the total expense...

Flat RevPar, weakening cash flows and rising debt raise concerns The 2QFY20 results show adjusted net loss of Rs22mn as against a net profit of Rs57mn in 2QFY19 despite revenue growth of 19% YoY. Revenue growth was primarily driven by increase in number of rooms by 17% YoY to 5,828 rooms. RevPar at Rs3,091 remained flat YoY. While reported EBITDA and EBITDA margin rose 35% and 372bps, respectively YoY, the comparable EBITDA adjusted for changes due to Ind As 116 rose 12% YoY and the comparable EBITDA margin declined 153bps YoY to 26.5%. This was mainly because of increase in employee expenses by 24% YoY on account of minimum wage revisions and increase in other expenses by 23% YoY. (Refer Quarterly...

Flat RevPar, weakening cash flows and rising debt raise concerns The 2QFY20 results show adjusted net loss of Rs22mn as against a net profit of Rs57mn in 2QFY19 despite revenue growth of 19% YoY. Revenue growth was primarily driven by increase in number of rooms by 17% YoY to 5,828 rooms. RevPar at Rs3,091 remained flat YoY. While reported EBITDA and EBITDA margin rose 35% and 372bps, respectively YoY, the comparable EBITDA adjusted for changes due to Ind As 116 rose 12% YoY and the comparable EBITDA margin declined 153bps YoY to 26.5%. This was mainly because of increase in employee expenses by 24% YoY on account of minimum wage revisions and increase in other expenses by 23% YoY. (Refer Quarterly...

However, like-to-like EBITDA (adjusted for Ind-AS 116) was up only 12% YoY at INR404m, with the margin down 150bp YoY to 26.5%. The 13 November 2019 company reported a loss of INR22m in 2QFY20, as against a profit of INR57m in 2QFY19 due to lower other income and higher depreciation/interest. ARR increased 4.9% YoY to INR4,133 in 2QFY20; occupancy declined 350bp YoY to 74.8%. However, on a same-hotel basis, ARR was up 2.9% YoY, while occupancy was constant at 78.2%. Despite 19% revenue growth, like-to-like EBITDA (adjusted for Ind-AS) was up only 12% YoY as the recently commenced hotels are yet to stabilize and incurred additional cost amounting to INR22m (of which INR8m is non- recurring expense relating to training of employees, while the balance is attributed to wage increase and provident fund). During the quarter, although ARR of new hotels was higher (by 15%) than the old hotels, occupancy at the former was relatively low at 58.8%, restricting overall EBITDA growth.

We met the management of Lemon Tree Hotels Ltd (Lemon Tree) recently where the management highlighted aggressive expansion strategy of owning 40% of the rooms in the mid market segment to gain pricing power. It was mentioned that even in case of economic downturn, after owning 40% of the hotels, the pricing power would limit the downside to revenue growth. Further, on the Keys acquisition, the management was confident that after the acquisition is complete, the ARR of Keys could be increased on par with Lemon Tree. Therefore, the EBITDA...

We met the management of Lemon Tree Hotels Ltd (Lemon Tree) recently where the management highlighted aggressive expansion strategy of owning 40% of the rooms in the mid market segment to gain pricing power. It was mentioned that even in case of economic downturn, after owning 40% of the hotels, the pricing power would limit the downside to revenue growth. Further, on the Keys acquisition, the management was confident that after the acquisition is complete, the ARR of Keys could be increased on par with Lemon Tree. Therefore, the EBITDA...

Weak profit due to low RevPar growth and rising costs Lemon Tree Hotels (LTHL) has reported weaker than expected results, primarily due to the combined impact of national elections, closure of Jet Airways and NBFC crisis. The 1QFY20 results show adjusted net loss of Rs17mn as against a net profit of Rs23mn in 1QFY19 despite revenue growth of 11% YoY. Revenue growth was primarily driven by increase in number of rooms by 19% YoY. The loss was primarily on account of rising employee expenses and other expenses, increasing our concerns about the company's ability to rationalize costs. The company expects to integrate Keys from 3QFY20. We remain concerned about the impact on...

Consequently, we have reduced our valuation multiple from 26x FY21E EV/EBITDA to 23x FY21E EV/EBITDA and recommend Accumulate with a revised target price (TP) of Rs72 (earlier Rs97). Increase in total number of rooms; Estimated room strength in FY22E is 8,686 rooms: Out of the total increase of 3,275 rooms during FY20E - FY22E, 1,240 rooms are owned / leased and 2,035 rooms are under management contracts. The company is aiming for an asset light model of business, and accordingly the owned rooms are being added at a three year CAGR of 16% (FY19 FY22E) and the management contracts are being added at three year CAGR of 45% (FY19 FY22E). In FY22E, number of owned rooms is expected to be 4,810 rooms and number of managed rooms is expected to be 3,876 rooms. Room revenue is expected...

Lemon Tree Hotels Limited (LTHL) has acquired 100% stake in Berggruen Hotel Private Limited (Keys Hotels) for an enterprise value of Rs6.05bn with cash consideration of Rs4.7bn and debt of Rs1.34bn. The acquisition is made through a 58% subsidiary company Fleur Hotels Private Limited. The acquisition is made at a FY19 EV/EBDITA multiple of 29x. Keys Hotels operates 21 hotels, 1,911 rooms in 19 cities through 3 brands (Refer Exhibit 1). Acquisition benefits highlighted by management: 1) Acquisition of management contracts, which earlier would not qualify according to Lemon Tree's standards, 2) LTHL expects to capture outbound guests traffic from presence in 11 new cities through Keys Hotels, 3) The acquisition is economically lucrative and...

8 July 2019 Hospitality The LEMONTRE board has approved the acquisition of Keys Hotels, owned by Berggruen Hotels Pvt. Ltd, for a cash consideration of INR4,710m (enterprise value INR6,050m) through its subsidiary Fleur Hotels. The acquisition will increase LEMONTREs managed rooms by 50% and owned/leased rooms by 24%, taking the total to ~7,800 rooms, which constitutes 15% of the mid-market room supply in the country (up from 11%). Currently, occupancy/ARR of Keys Hotels is 10%/25% lower than LEMONTRE. Therefore, post-acquisition, the company would control a significant chunk of the supply in the respective micro-markets (Whitefield & Electronic City in Bangalore and Pune), which would further aid ARR increase. Common corporate expenses for Keys Hotels in FY19 stood at INR150m, which management intends to reduce to INR20m in FY21. Thus, on an overall basis, management estimates Keys Hotel to generate EBITDA of INR510-590m (base and target case) in FY21 v/s INR203m in FY19. Thus, based on managements estimates, acquisition cost stands at 11.9x-10.3x FY21 EV/EBITDA.

Healthy room growth, geographic diversion and improving mix of keys in demand dense higher ARR markets to drive strong growth. Led by the above factors, EBITDA is set to triple over FY19-23E from Rs 1.7bn to ~Rs 5bn. That said LTHL's rich valuation at 30/24 x FY20/21E EV/EBITDA leaves limited margin of safety. Valuation would look more expensive on proportionate ownership basis in subsidiaries (~75%). Lemon Trees (LT) 4QFY19 performance was in-line but weak with moderate 4% ARR growth. Reiterate Neutral with TP of Rs 72 (30x FY21E EV/EBITDA).

Revenue growth of 14% YoY driven by rising ARR, improved occupancies and addition of rooms: Revenues at Rs1,505mn increased 14% YoY through: 1) 4.7% YoY rise in ARR to Rs4,405 in 4QFY19. According to the Research Analyst management, the relatively lower growth in ARR was due to: a) lower corporate travelers due to elections b) High amit.agarwal@nirmalbang.com...