ICICI Direct's research report on Lemon Tree Hotels
Lemon Tree’s (LTH) business was severely affected by lockdown in Q1FY21. Revenues fell 71.1% YoY to Rs 40.7 crore (vs. I-direct estimate: Rs 43.7 crore) as only 71% of its inventory was operational. Occupancy in operational hotels was at 40.4%, leading to average occupancy of 28.9% for the quarter. Average room rates were also down 34.4% YoY to Rs 2626/room. Key demand segments for business were Indians returning from abroad, global IT majors for their business continuity and on duty doctors & paramedical staffs. Total expenses were at Rs 36.3 crore in Q1FY21, down 62.2% YoY vs. Rs 96.2 crore in Q1FY20. EBITDA fell 90.2% YoY from Rs 44.8 crore in Q1FY20 to Rs 4.4 crore in Q1FY21 (vs. I-direct estimated EBITDA loss of Rs 3.9 crore). Resultant EBITDA margin was at 10.7% vs. 31.8% reported last year. With a sharp increase in interest costs (up 57.5% YoY to Rs 48.7 crore), net loss was at Rs 60.5 crore (vs. I-direct estimated net loss of Rs 50.2 crore).
The outlook would remain challenging with recoveries not expected before FY22E. LTH’s management expects the ongoing crisis to lead to 15-20% 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 HOLD rating with revised target price Rs 26/share (SOTP based valuation).