ICICI Securities has maintained its 'Buy' rating on Lemon Tree Hotels with a revised target price of ₹151. While the hotel chain reported a 9% revenue increase in Q1FY27, profit margins faced some pressure. Investors are closely watching the company’s planned demerger into two separate entities to unlock value.
ICICI Securities continues to view Lemon Tree Hotels positively, reiterating its 'Buy' rating on the stock. The brokerage firm has slightly adjusted its target price to ₹151, down from the previous ₹156. This minor revision comes after a 2-3% cut in the company’s estimated earnings before interest, tax, depreciation, and amortization (EBITDA) for the fiscal years 2027 and 2028.
In the first quarter of fiscal year 2027, Lemon Tree Hotels reported a revenue of ₹3.47 billion, marking a 9% increase compared to the same period last year. However, the company faced a sequential decline in net profit. The brokerage noted that in the first quarter, the company prioritized keeping hotel room occupancy high rather than pushing aggressively for higher prices. Early data for July 2026 suggests a better trend, with improvements in average room rates.
A major point of interest for shareholders is the upcoming demerger. The company plans to separate its business into two distinct listed entities. The first will be an asset-light management company that focuses on branding and operations, aiming for stable profit margins between 70% and 75%. The second entity, Fleur Hotels, will act as a growth-oriented platform dedicated to owning hotel assets. This strategic split is being backed by a ₹960 crore investment from Warburg Pincus, which is intended to support the expansion plans of the ownership-focused entity.
While the long-term strategy focuses on expansion, investors should consider several risks. Profit margins are currently experiencing pressure due to higher costs related to hotel renovations, increased technology spending, and the impact of GST. Additionally, there are broader industry risks, such as geopolitical tensions that could affect travel demand and potential delays in the demerger process, which may take 12 to 18 months to complete. Seasonality in the hotel industry also remains a factor that can impact quarterly performance.
Looking ahead, the next steps for investors will be to monitor the progress of the demerger, as it is a significant shift in the company's business model. Market watchers will also be tracking whether the company can successfully manage its renovation costs and improve profit margins in the coming quarters.