Buy Lemon Tree Hotels, target Rs 70: Sumit Bilgaiyan

Sumit Bilgaiyan

Lemon Tree Hotels is India's largest chain in the mid-priced hotels sector and third largest overall, on the basis of controlling interest in owned and leased rooms. It operated around 4700 rooms in 45 hotels including managed hotels across 28 cities in India. The hotels are located across India, in metro regions as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad.

Lemon Tree has many levers to improve capital efficiency led by much higher growth in management contracts, where Lemon Tree scores over competitors on operating performance. With occupancy rates rising and supply moderating, price recovery could be around the corner. Impact of tech disruptors like OYO should be nominal due to difference in segment and potential decline in bargaining power.

Joint Venture with APG is also value-accretive as fee income gives Lemon Tree higher  revenues/profit share. We have a buy rating with target of Rs 70.

Disclaimer: The author is Founder, Equity99. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.