Lemon Tree Hotels Ltd. share price target

We are now compelled to downgrade LTHL to Neutral with a TP of Rs 68 (30x EV/e on Dec-20E on proportionate ownership). Lemon Trees (LTHL) 3QFY19 performance was in-line but weak. Revenue/EBITDA grew by 8.3/14.5% YoY to Rs 1.43/0.49bn. PAT of Rs 125mn was up by 34% YoY owing to higher other income. Modest 4.8% ARR growth and flat RevPAR YoY were key negatives.

Reiterate BUY with a TP of Rs 86, 30x Sep-20E EV/EBITDA Lemon Trees (LTHL) 2QFY19 performance was in-line. Revenue/EBITDA at Rs 1.3/0.4bn grew by 15.3/26.5% YoY. PAT jumped to Rs 57mn (vs. loss of Rs 33mn in 2QFY18) owing to higher other income.

We believe that the industry leaders like Indian Hotels (IHCL) in luxury segment (five star and above) and Lemon Tree (LTHL) in mid-market segment (2-star to 4-star) with their superior execution capabilities are best placed. Initiate BUY on Indian Hotels with TP of Rs 150 @ 20x Sep-20E EV/EBITDA in-line with its historical average and Lemon Tree with TP of Rs 86 @ 30x Sep-20E EV/EBITDA owing to its superior growth. Notable trends are evolving in the Indian Hospitality sector that are likely to provide attractive opportunities for long term investors. These include (a) robust demand with occupancies at ~64-66% in FY16-18 vs. 59% over FY09-15. Demand in the near term is projected to outpace supply thereby improving occupancies to 68-70%.

Leading mid-priced hotel chain with a differentiated business model Strategically positioned in key geographical areas Present across the value chain Focus on brand excellence, providing a value-for money proposition...

IPO Note - Lemon Tree Hotels Limited Issue Open: Mar 26 - Mar 28, 2018, Price Band: Rs 54 - 56, Issue Size: 185,479,400 Equity Shares, (Entirely Offer for sale )

Lemon Tree Hotels is largest mid scale hotel chain by owned rooms in India. It is managed by Mr. Patanjali G. Keswani, who is chairman and managing director of the company and has 30 years of experience in hotel and hospitality industry. The business operations are spread across value chain from owing, leasing, developing, managing and marketing of hotels. It operates in mid priced hotel sector consisting of upper-midscale, midscale and economy hotel segments to carter large middle class population of India. As on 31st January 2018, Hotel portfolio comprises of 19 owned hotels, three owned hotels located on leased or licensed land, five leased hotels and 18 managed hotels, while 28...

Lemon Tree Hotels (LTH), started in 2004, is one of the largest hotel chains in the mid-priced hotel segment with a total room inventory of around 4,697 rooms across 28 cities with 45 hotels. The key major cities/regions include NCR, Bengaluru, Chennai and Hyderabad that accounts for 60% of total room inventory. LTH operates through three brands catering to upper middle class (Lemon Tree Premier), middle class (Lemon Tree Hotels) and the economy segments (Red Fox by Lemon Tree...