Whalesbook
Brokerage Upgrades Lemon Tree Hotels, Sets Rs 185 Target
Prabhudas Lilladher has upgraded its rating on Lemon Tree Hotels to 'BUY' from 'HOLD', establishing a new target price of ₹185 per share, up from the previous ₹174. This strategic revision follows an anticipated business re-organization designed to unlock substantial value for shareholders.
Restructuring Strategy Unlocks Value
The proposed restructuring involves transferring 1,563 operating rooms from Lemon Tree Hotels to a new entity, Fleur. This move aims to transform Lemon Tree into a pure-play asset-light management company, while Fleur will function as the hotel ownership platform. Post-reorganization, Lemon Tree is expected to manage Fleur's 39 hotels (5,556 rooms), 89 third-party hotels (6,011 rooms), and its existing pipeline of 127 hotels (9,414 rooms).
Analysts believe the asset-light fee income business model is poised to command higher valuation multiples due to its capital efficiency, debt-free status, and lucrative margins, with EBITDA flow-through potentially exceeding 70%. Simultaneously, the asset-heavy ownership business, Fleur, is set to receive up to ₹9.6 billion in growth capital from Warburg Pincus.
Valuation and Outlook
Prabhudas Lilladher values Lemon Tree's fee income business at 30 times its September 2027 estimated EBITDA and Fleur's ownership business at 24 times its September 2027 estimated EBITDA. This Sum-of-the-Parts (SoTP) valuation supports the ₹185 target price, signaling a positive outlook for the hotel group following its strategic business division.