Brokerage firm Motilal Oswal has started coverage on Lemon Tree Hotels with a 'Buy' rating and a price target of Rs 140 for FY28. The outlook is supported by a strategy to boost room occupancy and plans to demerge into two distinct business units. Investors may watch how the company balances room pricing against demand and the progress of its corporate restructuring.
Motilal Oswal has initiated coverage on Lemon Tree Hotels with a 'Buy' rating and a target price of Rs 140 for FY28. The brokerage's positive view is based on the company's growth strategy, which includes plans to separate its business into two distinct units.
In the first quarter of the 2027 financial year, the company reported revenue of Rs 3.47 billion, a 9% increase compared to the same period last year. Net profit for the quarter rose by 19% to Rs 57.3 crore, reflecting the company's performance during the period.
Operational Strategy
During the quarter, Lemon Tree Hotels focused on increasing room occupancy rather than aggressively raising prices. While this approach kept the Average Room Rate (ARR) growth muted at 2%—reaching Rs 6,361—it successfully pushed occupancy levels to 75.7%, a 320 basis point improvement from the previous year. Motilal Oswal notes that the company is now moving toward a more balanced strategy, which is expected to support better room rate growth in the coming quarters as demand recovers.
The brokerage projects the company could achieve a compound annual growth rate (CAGR) of 9% in revenue, 13% in EBITDA, and 22% in adjusted profit between FY26 and FY28.
The Upcoming Demerger
A significant development for shareholders is the company's planned corporate restructuring. Lemon Tree Hotels aims to split into an asset-light management business and a growth-oriented ownership platform, Fleur Hotels. This structural change is intended to streamline operations and create value by separating the two different business models.
Risks and Monitorables
While the outlook is optimistic, investors should note potential risks. The company faces execution challenges with its expansion pipeline, and any slowdown in corporate or retail travel demand could hurt revenue and room rate growth. Furthermore, the company's EBITDA margins have faced temporary pressure due to factors including Stock Appreciation Rights (SAR) provisions and GST-related costs.
The key monitorable for investors will be the timeline and successful execution of the demerger, as well as the company’s ability to improve room rates without sacrificing occupancy in a competitive hotel market.