Lemon Tree Hotels jumps 5% after CLSA sees 34% upside

Share price of Lemon Tree Hotels was up 5 percent on Tuesday after brokerage firm CLSA recommended a buy rating on the company at a target price (TP) of Rs 102 apiece implying an upside of 34 percent over yesterday’s closing price of Rs 76.

The brokerage firm expects the company’s demand to grow at 12 percent CAGR (Compounded Annual growth rate) and believes it will scale up to 25,000 rooms in five years.

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The company recently signed a license agreement for two new properties in Maharashtra under its brands ‘Lemon Tree Hotel’ and ‘Keys Lite by Lemon Tree Hotel’ with 50 and 20 rooms respectively, which will be operational by October 2023. Last month, it also entered into two license agreements, one for a 110-room property in Himachal Pradesh, under its brand ‘Aurika’ which is expected to be operational in November 2024 and another for a 47-room property in Madhya Pradesh to be operational by December 2023.

Lemon Tree Hotels is a hotel chain in the mid-price segment, and currently operates around 8,300 rooms in 87 hotels across 53 destinations, in India and abroad, under its various brands such as Aurika, Lemon Tree Premier, Lemon Tree Hotels, etc.

Low upcoming supply will drive ARR (Average Room Rate) growth to 10-15% CAGR, and EBITDA (Earnings before interest, taxes, depreciation & amortization) margin is expected to remain above 50 percent, the brokerage said. The company also aims to be debt-free within four years, it added.

In Q3FY23, the company’s total income increased 60 percent YoY to Rs 234 crore as against Rs 146 crore for the period ended December 31, 2021. It stood at Rs 197 crore for the September 2022 quarter. It also reported a positive net profit which jumped significantly to Rs 40 crore compared to a net loss of Rs 2 crore reported in the year-ago period. Net profit stood at a positive Rs 17 crore in September 2022 quarter.

The company’s market capitalization has increased 41 percent in the last 1 year however it has declined 5 percent in the last 6 months.

At 10.38 a.m., the scrip was trading 4.64 percent higher at Rs 78.90 apiece while the benchmark index Nifty 50 was down 0.40 percent at 17,086.25 points.