Lemon Tree Hotels Stock Research Report

Strong bounce back; demand outlook remains robust…..

Lemon Tree Hotels (LEMONTRE) reported Q2FY25 consol. revenue of INR 2.8bn (up 25% YoY) in-line with I-Sec estimates, as portfolio ARRs (including Mumbai Aurika) grew 12% YoY. Occupancy for the quarter stood at 68.4%, shrinking 328bps YoY (8–9% of overall room inventory closed due to renovations). Further, 25% of Keys’ portfolio remained shut during the quarter for renovation – expenses for renovation rose INR 80mn YoY. Hence, Q2FY25 EBITDA of INR 1.3bn was up 28% YoY at an EBITDA margin of 46%, which could have been 48% adjusting for the rise in renovation expenses above that spent in Q2FY24. Given a robust medium-term demand outlook, we maintain our estimates and BUY rating. SoTP-based TP is revised to INR164 (from INR 149) based on 23x Sep’26E EV/EBITDA (earlier Mar’26E). Key risks: Demand slowdown in occupancies and room rates.

Strong bounce back along expected lines

After a tepid Q1FY25, which was impacted by India’s general elections, heatwaves and the company’s commencement of renovations at owned hotels, the company reported Q2FY25 consol. revenue of INR 2.8bn (up 25%/6% YoY/QoQ) in-line with I-Sec estimates, as portfolio ARRs grew 12% YoY (including Aurika) in line with sector trends. Occupancy, for the quarter, stood at 68.4% slipping 328bps YoY. This translated into a RevPAR of INR 4,035, which increased by 7% YoY. Further, 25% of Keys’ portfolio remained shut during the quarter for renovation – expenses for renovation rose INR 80mn YoY. Hence, Q2FY25 EBITDA of INR 1.3bn was up 28% YoY at an EBITDA margin of 46%, which could have been 48% adjusting for the rise in renovation expenses above that spent in Q2FY24.

Renovation/scale up of Aurika Mumbai Airport hotel in focus

In addition to the Keys portfolio renovation, management has decided to upgrade select hotels across its brand portfolio. This may result in short-term margin pain, but it expects the premiumisation trends in mid-market segment to benefit the company in the medium term. Key monitorable is the company’s ability to scale up Aurika Mumbai Airport hotel ARRs and occupancies in H2FY25. As per the company, the Aurika Mumbai Airport is exhibiting higher ARRs and occupancies since Oct’24, which is encouraging. LEMONTRE expects debt levels to ebb over the next 3–4 years (debt of INR 19.1bn, as of Sep’24) as renovations drive higher ARRs in owned hotels and scaleup in Aurika Mumbai airport hotel. Key risks: Demand slowdown in occupancies and room rates.