Buy Lemon Tree; target of Rs 150: Motilal Oswal

Motilal Oswal is bullish on Lemon Tree recommended buy rating on the stock with a target price of Rs 150 in its research report dated January 02, 2024.

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January 02, 2024 / 07:53 IST

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Motilal Oswal's research report on Lemon Tree

Lemon Tree Hotels (LEMONTRE) has established a niche for itself in the growing midmarket hospitality segment and is now expanding its wings by improving its presence in the top (upscale/luxury) segment and increasing its inventory through management contracts. We believe the company is set to benefit significantly from the sectoral tailwinds and emerge as a larger and stronger player. The company is expected to benefit from the changing dynamics in its key markets such as NCR (~24%/17% of FY23/FY26E consol. Revenue as per our estimates) and Mumbai (excluding Aurika Sky City, ~10% in FY23 and 29% in FY26E including Aurika MIAL). Rising demand in these cities (which is accelerated by significant traction from new convention centers) and slower supply (~2-6% CAGR over FY23-28E) should propel the growth trajectory of existing players. Aurika Sky City Mumbai, which is positioned as an upper upscale hotel, will be a key beneficiary of the trickling down of demand from the luxury segment. The hotel is expected to contribute to ~21%/23% of consolidated revenue/EBITDA by FY26. LEMONTRE has a strong pipeline of ~3,354 managed rooms (~91% of operational managed rooms), which are expected to become operational by FY27, taking the share of managed rooms to ~55%. We expect LEMONTRE to clock management fees of INR943m by FY26 (~38% CAGR over FY23-26E).

Outlook

We expect LEMONTRE to deliver a revenue/EBITDA/Adj. PAT CAGR of 21%/22%/38% over FY23-26 and improve RoE to ~22% by FY26 from 14% in FY23. We reiterate our BUY rating on the stock with our SoTP-based TP of INR150.

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