"At current market price, after this rally, we believe it is fairly valued and would wait for Q4FY18 result and management commentary to take a call in this company," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
We believe Lemon Tree Hotels has witnessed significant rally post its listing from its IPO price of Rs 56 to around Rs 82 in less than one month owing to improved sentiments in the Indian Hospitality sector. At current market price, after this rally, we believe it is fairly valued and would wait for Q4FY18 result and management commentary to take a call in this company.
It was loss making since FY15 and has turned around only in M9FY18, hence limited track record of profit does not instill confidence in company at present level. The company is on an expansion mode with significant capex ahead and has registered 18 percent CAGR in total operating revenue due to improved occupancy, average daily rate and increased hotel room capacity. According to us, industry occupancy levels and average room rate are on an uptrend owing to a demand – supply gap. Expectations of the holiday season bringing in robust demand which will result in higher room rates and increased occupancy also supported the rally.
The company’s business model is unique as compared to peers in Hotel industry. Its operations range from acquiring land to owning, developing, managing and marketing hotels. Incorporated in 1992, Delhi based Lemon Tree Hotels is India's largest hotel chain in the mid-priced hotel sector, and the third largest overall, on the basis of controlling interest in owned and leased rooms, as of June 30, 2017. As of January 2018, it has a portfolio of 19 owned hotels, three owned hotels located on leased or licensed land, five leased hotels and 18 managed hotels. It also has project design, management and development capabilities through subsidiary, Grey Fox Project Management Company Private Limited.
The company operates in the mid-priced hotel sector and its hotels are located across India, in metro regions, including the NCR, Bengaluru, Hyderabad and Chennai, as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad. As of January 31, 2018, it operated 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India. It is backed by a dynamic founder promoter Mr. Patanjali Govind Keswani, Chairman and Managing Director of the company.
The company has created three brands in order to address these three hotel segments: 'Lemon Tree Premier' which is targeted primarily at the upper-midscale hotel segment catering to business and leisure guests who seek to use hotels at strategic locations and are willing to pay for premium service and hotel properties;'Lemon Tree Hotels' which is targeted primarily at the midscale hotel segment catering to business and leisure guests and offers a comfortable, cost-effective and convenient experience; and'Red Fox by Lemon Tree Hotels' which is targeted primarily at the economy hotel segment.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. 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.