Lemon Tree Hotels: Motilal Oswal Reiterates BUY Rating, Sets INR200 Target Price for FY28

Motilal Oswal's research on Lemon Tree Hotels indicates a 8% year-over-year revenue growth for the second quarter of fiscal year 2026. This growth was primarily fueled by an increase in the Average Room Rate (ARR), which rose by 6% year-over-year to INR6,247, and an improvement in Occupancy Rate (OR) by 140 basis points to 69.8%. However, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins decreased by 330 basis points year-over-year. This decline is attributed to increased investments in property renovations, technology upgrades, and one-time ex-gratia payments to employees, which accounted for 8% of revenue in the quarter. Despite macroeconomic challenges like tariff wars, floods, and Goods and Services Tax (GST) revisions, Lemon Tree Hotels demonstrated steady growth momentum in Q2.

Outlook for 2H FY26:

The outlook for the second half of fiscal year 2026 appears robust. This is projected to be driven by an increase in operational rooms following the completion of renovations, higher Meetings, Incentives, Conferences, and Exhibitions (MICE) activities, and a healthy demand from the tourism sector. The brokerage anticipates double-digit Revenue Per Available Room (RevPAR) growth in 2H FY26, largely propelled by strong ARR increases.

Financial Projections & Valuation:

Motilal Oswal forecasts Lemon Tree Hotels to achieve a Compound Annual Growth Rate (CAGR) of 11% in revenue, 13% in EBITDA, and 35% in adjusted Profit After Tax (PAT) between fiscal year 2025 and 2028. Furthermore, the Return on Capital Employed (RoCE) is expected to improve significantly to approximately 21% by FY28, from around 11.7% in FY25.

Rating and Target Price:

Based on these projections and analysis, Motilal Oswal has reiterated its BUY rating on Lemon Tree Hotels. The brokerage has set a Sum of the Parts (SoTP) based target price of INR200 for FY28.

Impact:

This report provides a positive outlook for Lemon Tree Hotels, suggesting potential upside for investors. The reiterated BUY rating and attractive target price could influence investor sentiment and potentially drive stock performance, especially if the company meets its projected growth targets for the latter half of FY26 and the subsequent years. The planned investments in renovations and technology, while impacting short-term margins, are aimed at long-term growth.

Impact Rating: 7/10

Difficult Terms:

• YoY: Stands for Year-over-Year, comparing performance from one year to the same period in the previous year.
• ARR: Average Room Rate, the average rental income per occupied room per day.
• Occupancy Rate (OR): The percentage of available rooms that were occupied during a specific period.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a measure of a company's operating performance.
• MICE: Acronym for Meetings, Incentives, Conferences, and Exhibitions. It refers to a segment of the tourism industry focused on business events.
• RevPAR: Revenue Per Available Room, a key performance indicator in the hotel industry, calculated by dividing room revenue by the number of available rooms.
• CAGR: Compound Annual Growth Rate, the average annual growth rate of an investment over a specified period, assuming profits are reinvested.
• FY25-28: Fiscal Year 2025 to Fiscal Year 2028. These are accounting periods, usually 12 months long, used for financial reporting.
• RoCE: Return on Capital Employed, a profitability ratio that measures how efficiently a company is using its capital to generate profits.
• SoTP: Sum of the Parts. A valuation method where a company is valued by summing the estimated values of its individual business segments or assets.