Steady Q4; Focus on restructuring to create shareholders value…
About the stock: Lemon Tree Hotels (LTHL) is India’s largest hotel chain in the mid-priced hotel sector and the third largest overall, based on controlling interest in owned and leased rooms. LTHL currently operates 11,811 rooms in India and abroad, under its various brands viz. Aurika Hotels & Resorts, Lemon Tree Premier, Lemon Tree Hotels, Red Fox Hotels and Keys etc.
Q4FY26 performance: LTHL consolidated revenues recorded 10% YoY growth to Rs.416.4cr in Q4FY26. Revenues were driven by 7% YoY growth in RevPAR to Rs.5855. ADR grew by 6% YoY to Rs.7457 while occupancies improved by 96bps YoY to 78.5%. EBITDA margins declined by 223bps YoY to 51.7% due to renovation costs, tech upgrades and GST impact. EBITDA grew by 5.5% YoY to Rs.215.2cr. Adjusted PAT grew by 9% YoY to Rs.117.9cr. Adjusted for restructuring expenses, reported PAT grew by 7.7% YoY to Rs.116.5cr in Q4FY26.
Investment Rationale:
• Revenues to grow at CAGR of 12.3% over FY26-28E: LTHL’s revenues grew 10% YoY to Rs.416.4cr in Q4FY26, led by 6% YoY ADR growth to Rs.7,457 and 96bps YoY improvement in occupancy to 78.5%. Management highlighted resilient D2C/OTA demand, while corporate and crew demand remained weak from March through April; however, demand recovered in May and is expected to remain steady if the war situation stabilises over the coming months. Q1FY27 is expected to benefit from a lower base due to Operation Sindoor, while renovated room inventory and the opening of 2 out of 3 blocks at Aurika, Shimla should support overall growth in H1FY27. Further stabilisation in the geopolitical environment could drive stronger H2FY27 growth, supported by high wedding demand, increased domestic retail demand and a healthy MICE pipeline. Management fee income is also expected to improve, aided by better performance at Fleur as GST-related headwinds reduce. Overall, we expect revenue to grow at 12% in FY27 to Rs.1,610.3cr. portfolio expansion (with premium hotels), steady RevPAR growth will help revenues to grow at a CAGR of 12.3% over FY26–28E.
• LTHL restructuring is expected to be completed over the next 15-18 months: LTHL is undergoing a restructuring with focus demerging the business into two separate entity 1) LTHL – asset light business model with high EBIDTA margin (currently 60%; targeted – ~70%), debt free and high RoCE and 2) Fluer – ownership model with strong room inventory of 5,600 rooms catering to mid-market segment Pan India. The restructure is expected to be completed over the next 15-18 months (based on NCLT approval). Restructuring is expected to value accretive for public shareholders with its effective shareholding in Fluer expected to increase to 57.5% from the current 45.8%. With primary infusion of Rs960cr from Warburg Pincus, Fleur has an opportunity for attractive asset acquisition to expand in the coming years. Further it has flexibility to partner with leading hospitality brands to scale-up operations in domestic and international market.
Rating and Target Price:
We recommend Buy with a revised price target of Rs.142 valuing it at 20x its FY28E EV/EBITDA (adjusting for 59% stake in Fleur Hotel).
