Lemon Tree shares: 5 reasons why this hotel stock is SBI Securities' top pick of the week
At the close on Friday, Lemon Tree shares inched up 0.14 per cent to Rs 175.10, giving the company a market capitalisation of Rs 13,872 crore.
- Sep 13, 2025,
- Updated Sep 13, 2025 11:35 AM IST
SBI Securities has identified Lemon Tree Hotels Ltd as its ‘Pick of the Week’, maintaining a ‘Buy’ call on the stock. The brokerage has set a 12-month target price of Rs 201, indicating an upside potential of about 15 per cent from current levels.
The hospitality chain, which operates a portfolio spanning upper-upscale to midscale brands under Aurika, Lemon Tree Premier, Lemon Tree Hotels, Red Fox, and Keys, had an inventory of 18,431 rooms across 226 hotels as of June 2025. Of these, 10,661 rooms in 116 hotels are operational, while the rest remain under development.
Here are the five key reasons why SBI Securities sees Lemon Tree as a top pick:
1) Renovation-led margin expansion SBI highlighted the company’s ongoing renovation programme as a major growth driver. “Renovation drive to aid margin expansion and reduce annual repair/maintenance cost,” the brokerage said. Around 350 rooms were under renovation in Q1FY26, with about 65–70 per cent of older rooms already revamped. The entire owned portfolio is expected to be fully renovated by October 2026. Management has indicated that renovated properties are witnessing ARR gains of Rs 1,300–1,400 and occupancy improvements of nearly 10 per cent, alongside lower maintenance costs. Lemon Tree derives nearly 88 per cent of revenues from owned hotels, making this uplift significant.
2) Asset-light expansion The hotel chain continues to scale up without heavy capital expenditure. In Q1FY26 alone, it signed 14 new management and franchise contracts (adding 1,273 rooms) and opened five hotels with 392 rooms.
3) Path to near debt-free status Lemon Tree is preparing for a restructuring that includes a planned demerger and separate listing of Fleur Hotels, its material subsidiary. SBI said, “Lemon Tree group to reach closer to debt-free status in 1-1.5 years.” The demerger is expected by end-CY26, with Fleur positioned as a pure-play asset company.
4) Lemon Tree 2.0 strategy The company’s long-term plan — dubbed Lemon Tree 2.0 — focuses on technology adoption, asset-light growth, mid-market dominance, and cash-flow generation to pare down debt. Lemon Tree is targeting EBITDA margins of 50 per cent (vs. 49 per cent in FY25) and an inventory of 20,000 rooms by 2028. Management has already indicated it could reach the 20,000-room milestone within the next six months.
5) Reasonable valuation SBI Securities believes the stock is attractively priced. “At CMP of Rs 175, the stock trades at FY26E/FY27E Bloomberg consensus EV/EBITDA of 20.2x/17.4x respectively which looks reasonable given the company’s asset-light focus, margin expansion via renovation and debt reduction over medium term,” the brokerage said.
Key risks flagged include demand slowdown, slower-than-expected growth in ARR and RevPAR, and delays in renovation.
At the close on Friday, Lemon Tree shares inched up 0.14 per cent to Rs 175.10, giving the company a market capitalisation of Rs 13,872 crore. The stock is currently at 58 per cent above its 52-week low of Rs 110.55.
SBI Securities has identified Lemon Tree Hotels Ltd as its ‘Pick of the Week’, maintaining a ‘Buy’ call on the stock. The brokerage has set a 12-month target price of Rs 201, indicating an upside potential of about 15 per cent from current levels.
The hospitality chain, which operates a portfolio spanning upper-upscale to midscale brands under Aurika, Lemon Tree Premier, Lemon Tree Hotels, Red Fox, and Keys, had an inventory of 18,431 rooms across 226 hotels as of June 2025. Of these, 10,661 rooms in 116 hotels are operational, while the rest remain under development.
Here are the five key reasons why SBI Securities sees Lemon Tree as a top pick:
1) Renovation-led margin expansion SBI highlighted the company’s ongoing renovation programme as a major growth driver. “Renovation drive to aid margin expansion and reduce annual repair/maintenance cost,” the brokerage said. Around 350 rooms were under renovation in Q1FY26, with about 65–70 per cent of older rooms already revamped. The entire owned portfolio is expected to be fully renovated by October 2026. Management has indicated that renovated properties are witnessing ARR gains of Rs 1,300–1,400 and occupancy improvements of nearly 10 per cent, alongside lower maintenance costs. Lemon Tree derives nearly 88 per cent of revenues from owned hotels, making this uplift significant.
2) Asset-light expansion The hotel chain continues to scale up without heavy capital expenditure. In Q1FY26 alone, it signed 14 new management and franchise contracts (adding 1,273 rooms) and opened five hotels with 392 rooms.
3) Path to near debt-free status Lemon Tree is preparing for a restructuring that includes a planned demerger and separate listing of Fleur Hotels, its material subsidiary. SBI said, “Lemon Tree group to reach closer to debt-free status in 1-1.5 years.” The demerger is expected by end-CY26, with Fleur positioned as a pure-play asset company.
4) Lemon Tree 2.0 strategy The company’s long-term plan — dubbed Lemon Tree 2.0 — focuses on technology adoption, asset-light growth, mid-market dominance, and cash-flow generation to pare down debt. Lemon Tree is targeting EBITDA margins of 50 per cent (vs. 49 per cent in FY25) and an inventory of 20,000 rooms by 2028. Management has already indicated it could reach the 20,000-room milestone within the next six months.
5) Reasonable valuation SBI Securities believes the stock is attractively priced. “At CMP of Rs 175, the stock trades at FY26E/FY27E Bloomberg consensus EV/EBITDA of 20.2x/17.4x respectively which looks reasonable given the company’s asset-light focus, margin expansion via renovation and debt reduction over medium term,” the brokerage said.
Key risks flagged include demand slowdown, slower-than-expected growth in ARR and RevPAR, and delays in renovation.
At the close on Friday, Lemon Tree shares inched up 0.14 per cent to Rs 175.10, giving the company a market capitalisation of Rs 13,872 crore. The stock is currently at 58 per cent above its 52-week low of Rs 110.55.