Lemon Tree Hotels crash 7% amid market fall, brokerage see up to 34% upside

Shares of Lemon Tree Hotels Ltd tumbled about 7 per cent during the trading session on Tuesday amid the sell-off in the broader markets after the company announced its quarterly earnings. However, the brokerage firms are mostly positive on the hotel chain operator, suggesting about 34 per cent in the stock.
 

Lemon Tree Hotels posted a profit after tax (PAT) of Rs 83.9 crore in the March 2024 quarter, up 42 per cent on a year-on-year (YoY) against Rs 59 crore during the same period a year ago. The hospitality chain reported a total income of Rs 331 crore in the fourth quarter, up 30 per cent YOY from Rs 254.73 crore in the corresponding period in FY23.
 

Shares of Lemon Tree Hotels tumbled 6.75 per cent to Rs 131.10 on Tuesday, commanding a total market capitalization of below Rs 10,500 crore. The counter had settled at Rs 140.60 in the previous trading session on Monday
 

"We expect the strong momentum to continue going forward, led by further improvement in occupancy and ARR on the back of a resilient demand scenario; an increase in ARR with the addition of Aurika MIAL and room renovations; and strong addition of hotels under management contracts," said Motilal Oswal Financial Services.
 

"We expect Lemon Tree to deliver a CAGR of 23 per cent, 27 per cent and 51 per cent in revenue, Ebitda and adjusted PAT over FY24-26 and RoCE to improve to 17.8 per cent by FY26 from 10 per cent in FY24. We largely maintain our FY25 and FY26 Ebitda estimates and retain our 'buy' rating on the stock with a target price of Rs 175," it said.
 

4QFY24 was a strong quarter for Lemon Tree Hotels led by strong traction at Aurika, Mumbai, and a better-than-expected margin performance. EBITDA margin declined YoY due to planned renovations, increase in employee expenses due to wage inflation, and expansion of the business development team, said JM Financial which has a 'buy' rating with a target price of Rs 160.
 

Lemon Tree’s operational performance was better than estimates, despite higher renovation expense and deflationary impact of Aurika, Mumbai, which opened in October 2023, but is not yet stable. Nonetheless, Aurika’s 4QFY24 KPIs are encouraging with occupancy of 66 per cent and ARR of Rs 9,000, said Prabhudas Lilladher, with a 'buy' call and target price of Rs 155.
 

However, Kotak Institutional Equities, which has a 'reduce' rating with a fair value of Rs 130 said that Lemon Tree had an eventful year as it commissioned Aurika, its marquee hotel in Mumbai. Consequently, it closed FY2024 with 5,759 owned-keys, revenues up 22 per cent YoY and Ebitda up 17 per cent YoY —earnings growth was aided by the addition of new keys and ARR improvement.
 

"4QFY24 earnings were in line, with revenue up 30 per cent YoY and Ebitda up 23 per cent YoY. Blended occupancy improved to 72 per cent, although ARR was a tad subdued, impacted by slower-than expected improvement at Aurika. Slower ramp-up of the new hotel coupled with underperformance of markets such as Bengaluru and Pune could weigh on earnings expectations," it said.