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Mirae Asset Sharekhan Bullish on Lemon Tree Hotels, Foresees Strong Growth
Mirae Asset Sharekhan has issued a positive report on Lemon Tree Hotels, projecting significant double-digit growth for the hotel chain. The brokerage attributes this optimistic outlook to the company's aggressive expansion strategy involving room additions, favourable industry trends, and its efficient asset-light business model.
Driving Double-Digit Growth
The company has demonstrated robust performance, with revenue and earnings before interest, tax, depreciation, and amortisation (Ebitda) growing by 13 per cent and 10 per cent year-on-year, respectively, in the first half of the fiscal year 2026 (H1FY26). This strong foundation sets the stage for continued expansion.
Mirae Asset Sharekhan anticipates further acceleration in the upcoming quarter. Management has guided for mid-teens revenue growth in Q3FY26, driven by a robust wedding season, a surge in meetings, incentives, conferences, and exhibitions (MICE) activities, increased contribution from its Aurika, Mumbai property, and the incremental revenue from newly opened hotels.
Industry Tailwinds Boost RevPAR
Analysts expect the Revenue Per Available Room (RevPar) to see a healthy increase in the range of 12 to 15 per cent year-on-year for Q3FY26. This growth is primarily expected to be led by an increase in Average Room Rates (ARR). The broader Indian hotel industry is poised for strong performance in Q3FY26, supported by healthy demand across various segments including MICE, corporate travel, and domestic tourism. The favourable demand-supply dynamic is expected to boost room rates.
Looking ahead, Mirae Asset Sharekhan forecasts that long-term industry tailwinds, coupled with the renovation of Lemon Tree's owned portfolio and the planned addition of approximately 10,500 rooms to its existing inventory of 11,600 rooms, will drive substantial growth. The brokerage projects revenues and profit after tax (PAT) to grow at a Compound Annual Growth Rate (CAGR) of 13 per cent and 29 per cent, respectively, over the fiscal years 2025 to 2028.
Attractive Valuations and Upside Potential
The brokerage maintains a Positive view on Lemon Tree Hotels Limited (LTHL), estimating a potential upside of 29 per cent from current trading levels. Mirae Asset Sharekhan notes that the stock is trading at attractive valuations. Current estimates place its Enterprise Value to Ebitda (EV/Ebitda) multiples at 17 times for FY26E, 14 times for FY27E, and 13 times for FY28E.
Market Reaction
On Wednesday, December 31, Lemon Tree Hotels' stock experienced a minor dip, falling over 1 per cent to an intraday low of ₹159.89 on the National Stock Exchange (NSE). Around 02:00 PM, the stock was trading at ₹159.9, a slight decrease of 1.1 per cent from its previous closing price. In comparison, the benchmark NSE Nifty50 index was trading higher, up by 221 points or 0.85 per cent.
Strong Room Pipeline and Margin Expansion
Lemon Tree concluded H1FY26 with 10,956 operational rooms across 121 hotels. The company also boasts a pipeline of 9,118 rooms in another 121 hotels. Recent additions in Q3FY26 include the signing of 17 new hotels (1,855 rooms) and the opening of 9 hotels (646 rooms). The robust pipeline of about 10,500 rooms across approximately 130 hotels is largely expected to materialise through management contracts, which minimizes balance sheet stress.
Furthermore, Lemon Tree anticipates Ebitda margins to expand in the long run. While margins declined slightly in H1FY26 due to elevated spends on renovations, technology upgrades, and a one-time ex gratia payment, these costs are projected to decrease significantly in the coming years. Management expects these expenses to fall from around 8 per cent of revenue in FY26 to about 5 per cent in FY27 and further to 2 per cent from FY28 onwards. This reduction, combined with improved operating leverage and contributions from new properties like Aurika, is expected to support Ebitda margin expansion.
Impact
The positive outlook from a reputable brokerage like Mirae Asset Sharekhan could influence investor sentiment towards Lemon Tree Hotels. If the company meets its projected growth targets, it could lead to significant stock price appreciation, benefiting shareholders. The expansion plans and industry tailwinds suggest a positive environment for the Indian hospitality sector overall, potentially lifting other players as well. The projected growth could also spur further investment in the sector.
Impact Rating: 7/10
Difficult Terms Explained
- Ebitda: Earnings Before Interest, Taxes, Depreciation, and Amortisation. It's a measure of a company's operating performance.
- RevPar: Revenue Per Available Room. A key performance indicator for hotels, calculated by dividing room revenue by the total number of available rooms.
- CAGR: Compound Annual Growth Rate. The average annual growth rate of an investment over a specified period longer than one year.
- ARR: Average Room Rate. The average rental income per paid occupied room in a hotel.
- MICE: Meetings, Incentives, Conferences, and Exhibitions. A segment of business tourism.
- EV/Ebitda: Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortisation. A valuation ratio used to determine a company's value relative to its operating profit.