Lemon Tree Hotels Ltd. share price target

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...

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...

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.

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).

Higher cost at new hotels impacts EBITDA growth momentum: ARR during 4QFY19 grew 4% YoY (to INR4,405) with occupancy improvement of 32bp to 77.6% (on same hotel basis, occupancy improved 330bp to 80.7%). This, along with new hotels led to 14% revenue growth. However, recently launched LTP (Pune)/RFH (Dehradun) operating at ~33%/~50% occupancy in FY19 dragged EBITDA growth; operational expenses grew 8.3% of which 8% was due to commencement of new hotels. In FY19, ARR grew 7.3% YoY to INR4,180 with occupancy improvement of 48bp to 76.3%....

Lemon Tree Hotels (LEMONTRE) is the largest hotel chain operator in the mid-priced hotel segment in India. It manages 5,342 rooms across India through its three brands: (i)Lemon Tree Premier (LTP) -catering to the upper-midscale segment, (ii) LemonTree Hotels (LTH)- for the midscale segment, and (iii) the Red Fox Hotel (RFH) -targeted towards the economy segment.

Lemon Tree Hotels Ltd. (LTH), incorporated in 1992 is the largest mid-priced hotel sector chain, and the third largest overall, on the basis of controlling interest in owned and leased rooms. Delhi based LTH is the only integrated hospitality company which operates in the mid-priced hotel sector in India, which operates with end-to-end capabilities across the value...