Midcap Buzz: Rs 140/Share Hotel Stock Nears 52-Week High; JM Financial Reiterates BUY, TP Rs 155/Share

Lemon Tree Hotels' shares were seen riding high on a three-day winning streak. The stock opened at Rs 137 per share on Wednesday and closed at Rs 136.8 on the last trading day (Tuesday), fueled by positive market sentiments. The company's strategic expansion plans and robust financials continue to drive investor confidence.

The hotel chain, known for its vibrant and refreshing accommodations, recently announced a significant milestone on February 13. Lemon Tree Hotels signed a license agreement for a new property in Marpalle, Vikarabad district, Telangana, under its Lemon Tree Resort brand. The stock had a minor setback on February 16, witnessing a decline of just over 1%, but swiftly rebounded, showcasing its resilience in the market.

The upcoming hotel, sprawled over five acres, is set to be managed by Carnation Hotels Private Limited, a wholly owned subsidiary and the management arm of Lemon Tree Hotels Limited. The establishment will boast 50 rooms, including 14 villas, and will feature a restaurant, bar, banquet hall, meeting rooms, a swimming pool, fitness center, and other public areas. Anticipated to be operational in FY27, the resort aims to cater to destination weddings with its spacious lawns.

This expansion in Marpalle marks Lemon Tree Hotels' commitment to broadening its portfolio in Telangana, adding to the four existing properties and one upcoming project in the state. The move aligns with the company's strategy to tap into diverse markets and capitalize on the growing demand for quality hospitality services.

However, the company did face a slight dip in net profit during the December quarter, with a 9.8% YoY decrease to Rs 43.79 crore. The primary reason cited for this decline was the increase in renovation expenses, amounting to Rs 5.5 crore YoY and Rs 4.8 crore quarter-on-quarter. This uptick in renovation costs led to a 2-percentage point reduction in the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin.

Despite this setback, Lemon Tree Hotels reported robust total income of Rs 290.8 crore in Q3, marking a significant increase from Rs 230 crore in the previous quarter. In Q3 FY23, the company had reported revenue of Rs 234 crore. The growth was attributed to a 13% addition in room inventory, with the Aurika, Mumbai property commencing operations in October 2023.

Brokerage firm JM Financial acknowledged the strong revenue growth but noted that the EBITDA came in at INR 1.4 billion, slightly lower than expectations. The contraction in margins was primarily attributed to higher renovation expenses and the deflationary impact of Aurika, Mumbai. Despite these challenges, JM Financial expressed confidence in Lemon Tree Hotels' ability to deliver superior earnings growth, driven by the Aurika property, rapid scale-up of the O&M (fee) business, and Average Room Rate (ARR) growth, fueled by sustained strength in hotel room demand.

JM Financial's report stated, "We expect LTH to deliver Revenue/EBITDA/PAT CAGR of 19%/19%/33% over FY23A-26E and RoE to improve from 14% in FY23 to ~20%+ by FY26E. We reiterate 'BUY' with a revised March 2025 TP of Rs 155 per share, valuing LTH at 23.0x EV/EBITDA (20.0x earlier)."

As of 12:50 pm on the National Stock Exchange (NSE), Lemon Tree Hotels' shares were trading with gains of more than 1%, reaching Rs 140.10 per share. The stock has showcased impressive growth, surging nearly 80% in the last year. Investors seem optimistic about the company's future prospects, buoyed by its strategic expansion plans and resilience in the face of challenges.

Lemon Tree Hotels' recent winning streak on the stock market, coupled with its expansion endeavors and positive financial outlook, positions the company as a key player in the hospitality industry.