PL Stock Report - Lemon Tree Hotels (LEMONTRE IN) - Q2FY24 Result Update - Aurika begins operations; performance eyed - BUY

Lemon Tree Hotels (LEMONTRE IN) – Jinesh Joshi – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs113 | TP: Rs140

Q2FY24 Result Update – Aurika begins operations; performance eyed

Quick Pointers:

§ Aurika, Mumbai begins operations on 05th Oct 2023.

Lemon Tree’s operational performance was marginally weaker with EBITDA margin of 44.8% (PLe 47.4%) due to higher renovation and pre-operative expenses pertaining to operationalization of Aurika, Mumbai. In October, Aurika operated 100 rooms and by end of 3QFY24, 200 rooms are expected to be operational and the hotel is expected to turn EBITDA positive. We expect Aurika, Mumbai to report revenues of Rs2.4bn/Rs2.7bn with EBITDA margin of 55%/60% in FY25E/FY26E respectively. Backed by opening of this new hotel and addition of 4,808 managed rooms we expect revenue/PAT CAGR of 19%/36% over FY23-FY26E. We broadly maintain our estimates and value Lemon Tree on SOTP basis. The standalone business is valued at 21x FY26E EBITDA while Fleur, an asset owning subsidiary with 59% stake, is valued at 22x FY26E EBITDA to arrive at a per share value of Rs140. Retain ‘BUY’.

§ Revenue up 15.5% YoY: Revenue increased 15.5% YoY to Rs2,272mn (PLe Rs2,307mn) as against Rs1,967mn in 2QFY23 and Rs2,223mn in 1QFY24. ARR increased 7.1% YoY to Rs5,268. RevPAR grew 15.9% YoY to Rs3,775 while occupancy stood at 72%.

§ EBITDA margin at 44.8%: EBITDA increased 8.8% YoY to Rs1,019mn (PLe Rs1,094mn) with a margin of 44.8% (PLe 47.4%) as compared to 47.6%/47.0% in 2QFY23/1QFY24 respectively. Margin contraction on YoY basis was led by increase in renovation cost and pre-operative expenses of Aurika, Mumbai. PAT after MI increased 35.1% YoY to Rs226mn (PLe Rs268mn) with a margin of 10.0% (PLe 11.6%) as against 8.5%/10.6% in 2QFY23/1QFY24 respectively.

§ Con-call highlights: 1) Bookings from Lemon Tree’s own portal increased to 7% due to revamping of website and introduction of loyalty program. 2) Power & fuel cost is expected to be at 7.5% of revenues. 3) Aurika, Mumbai to turn EBITDA positive from 3QFY24. 4) In October, Aurika, Mumbai operated 100 rooms which is 15% occupancy; however, ARR was low due to low retail traffic. By the end of 3QFY24, management expects to operate 200 rooms at an ARR of Rs8,500. ARR is low as most of the business initially will come from airline sector but pricing is expected to improve as share of corporate and retail increases in future. 5) Debt increased to Rs19bn in 1HFY24 due to buyback of CCPS from APG to ensure Lemon Tree’s stake remains intact in Fleur. 6) Renovation capex is pegged at Rs500mn/Rs1,000mn for FY24E/FY25E respectively. 7) Rs300mn has already been invested in construction of Lemon Tree Mountain Resort, Shimla, and an additional capex of Rs200-250mn will be spent on the same. 8) For 2QFY24, there was a one off expense of Rs44mn, of which Rs14mn was pertaining to pre-operative expense towards Aurika, and Rs30mn was spent on renovations. 9) Employee costs were higher sequentially due to new hires and larger bonus payments. 10) Employee cost for Aurika stood at Rs40mn for 2QFY24. 11) By FY26, ~70% of the portfolio will be managed/franchised.

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