Buy Lemon Tree Hotels; target of Rs 159: Prabhudas Lilladher

Prabhudas Lilladher's research report on Lemon Tree Hotels

Lemon Tree Hotel Ltd’s (LTHL) operational performance was subdued with EBITDA margin of 42.9% (PLe 44.9%) led by 1) higher renovation expense and 2) under-absorption of fixed overheads amid weak occupancy at Aurika, Mumbai. Occupancy at Aurika stood at 45.9% as LTHL decided not to lock itself with the low-ARR crew business for long term. We believe foregoing the low-yielding airline business reflects confidence of strong retail demand in 2HFY25 that comes with better pricing. In addition, as renovation exercise is typically a 1H phenomenon, occupancy is likely to improve in 2HFY25. Amid anticipation of a strong recovery in 2H, we keep our estimates broadly unchanged and expect sales/EBITDA CAGR of 17%/22% over FY24-FY26E.

Outlook

We believe the current knee jerk reaction provides a good entry point, and retain BUY on the stock with a TP of Rs159 (24x FY26E EBITDA; no change in target multiple).

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