Buy Lemon Tree Hotels; target of Rs 130: Emkay Global Financial

Emkay Global Financial's research report on Lemon Tree Hotels

Lemon Tree Hotels (LTH)’s Q2 margin missed estimates owing to higher employee/other expenses on account of renovations, though revenue was broadly in line with Consensus/our estimates. We remain positive on LTH’s earnings and margin trajectory, prompted by: i) the opening of Aurika, Mumbai Skycity in Oct-2023; ii) further acceleration in the managed and franchise portfolios; iii) improvement in gross ARR and occupancy. We now incorporate Aurika’s revenue from Q3FY24 (vs. from Q1FY25, earlier). RoE is likely to reach 24% by FY26E vs. 14% in FY23. More hotels under management contracts and revenue from Aurika would help LTH to deleverage FY25 onwards.

Outlook

We cut our FY24/25 margin due to continued renovation expenses. We maintain BUY, with target price of Rs130/share (20x Sep-25E EV/EBITDA) vs. Rs141/share earlier.