Shares of Lemon Tree Hotels closed at their 10 percent upper circuit at Rs 29.35 on BSE on August 12, extending the gains into the third straight session.
Shares of the company have been witnessing traction after brokerages showed faith in the company's cost-saving endeavours and expressed that green shoots are emerging for the company even as recovery is away by at least 2-3 quarters.
Brokerage firm Motilal Oswal Financial Services has a buy call on the stock with a target price of Rs 33.
As per the brokerage, the company's June quarter earnings were significantly above the estimates.
"Lemon Tree's cost-saving initiatives have aided in achieving positive EBITDA. This is commendable in our view, especially at a time when hotel players have either reported or are likely to post EBITDA loss. Although EBITDA was above our estimates, we have maintained our FY21/22E estimates as Q1 FY21 is not expected to contribute materially to FY21 EBITDA," Motilal Oswal said.
The company plans to spend Rs 8-10 crore in FY21 toward CAPEX. It currently has cash and cash equivalents of Rs 225 crore. Debt repayment in FY21/FY22E would be nearly Rs 50-105 crore, Motilal Oswal said.
Kotak Institutional Equities also has a buy call on the stock with a target price of Rs 35.
The brokerage highlighted that the impact on the hotel sector due to the current COVID-19 linked lockdown will likely have a longer-lasting impact even post easing of travel restrictions with some structural loss of demand as well.
However, the brokerage added that the cost reduction endeavours, limited occupancy and positive EBITDA achieved by the company, and capital infusion by a long-term investor such as APG Real Estate fund are positive for Lemon Tree.
ICICI Direct, on the other hand, has a hold call on the stock with a target price of Rs 26.
"The outlook would remain challenging with recoveries not expected before FY22E. The company’s management expects the ongoing crisis to lead to 15-20 percent of room inventory getting wiped out, auguring well for the company in the long run. However, near-term challenges w.r.t. weak industry dynamics, high D/E and expected equity dilution compel us to maintain a 'hold' rating with revised target price Rs 26 per share (SOTP based valuation)," ICICI said.
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