Lemon Tree Hotels surges 9% to record high on strong earnings expectations

Shares of Lemon Tree Hotels surged 9 per cent on the BSE to hit a record high of Rs 129.30 in Tuesday’s intra-day trade amid heavy volumes driven by expectations of strong earnings.

In comparison, the S&P BSE Sensex was down 0.43 per cent at 71,958 at 09:56 AM.

The stock surpassed its previous high of Rs 126.80 touched on September 15, 2023. The average trading volumes on the counter more than doubled today.

A combined 17.23 million equity shares, representing 2.17 per cent of total equity of Lemon Tree, changed hands in the first 40 minutes of trade on the NSE and BSE. 

Lemon Tree Hotels (LTHL) is one of the largest hotel chains in India on the basis of controlling interest in owned and leased rooms, the sixth largest by consolidated inventory, and the largest in the mid-market hotel sector.

LTHL operates across the upscale, upper-midscale, midscale and economy segments, and delivers differentiated yet superior service offerings, with a compelling value proposition.

According to the management, the outlook for LTHL remains promising with healthy occupancy rates and higher average room rates (ARRs).

As the economy revives, the management anticipates a sharp demand rebound and as the largest branded hotel player in the mid-segment, the company is well positioned to benefit and gain market share, it said in the FY23 annual report. 

Brokerage Motilal Oswal Financial Services (MOFSL) expects strong momentum for Lemon Tree Hotels to continue going forward, led by further improvements in occupancy and ARR on resilient demand and a boost from recently opened convention centers in key markets.

An increase in ARR with the addition of Aurika Sky City Mumbai and room renovations and addition of hotels under management contracts will aid this, it said. 

LTHL has established a niche for itself in the growing mid market 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. MOFSL thus believes it will 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 per cent/17 per cent of FY23/FY26E consolidated revenue as per our estimates) and Mumbai (excluding Aurika Sky City, (10 per cent in FY23 and 29 per cent in FY26 including Aurika MIAL)," its report read. 

Rising demand in these cities and slower supply (2-6 per cent CAGR over FY23-28E) should propel the growth trajectory of existing players, the brokerage said. It maintained a buy rating on the stock with a target price of Rs 150.

Key risks to rating and estimates are decline in business/MICE activity leading to adverse impact on occupancy and ARR, any negative impact on the tourism/travel sector, inability to ramp up Aurika Sky City Mumbai due to lower-than-expected traction in the Mumbai market, it noted.