Anand Rathi Is Bullish On This Small Cap Hotel Chain Stock, Buy For 21% Gains

Leading brokerage firm Anand Rathi has assigned a "buy" tag to hotel chain Lemon Tree Hotels Ltd. for a target price of Rs 110. Considering this, the stock is likely to gain 21% in 12 months. The brokerage is positive as it expects international travel returning would benefit the industry in the coming months. It is a small-cap hotel chain company having a market cap of Rs 7,185.68 crore.

CMP, 52-Week Low/High, & Returns Over the Years

The current market price of the stock is Rs 91.40 apiece on NSE. It is trading near its 52-week high. The stock on 06 October touched the 52-week high level at Rs 93.35. Whereas, its 52 week low was recorded on 20 November 2021 at Rs 42.10.

It was listed on the stock exchange in 2018 and since then it has delivered 27.77% positive returns on investment. In a week, its share price moved up 5.13%, and 19.75% in the past 1 month, respectively. In the past 3 months, it gave 40.28% positive return. In the past 1 year, it gave 78.05% positive return. It gave 62.9% positive return in the past 3 years.

Aurika MIAL to contribute ~21% of FY25 EBITDA

Anand Rathi said, "We expect Aurika MIAL to contribute ~21% of FY25 EBITDA. The Mumbai market has always been strong and resilient in occupancy and ARR over the last 6-8 years. From FY14 to FY20 its average occupancy was ~74% beating the likes of Goa and Delhi. It even enjoyed one of the highest ARRs in India (~Rs7,900 over the past 6-8 years). Company already has one 303-room Lemon Tree Premiere property near Andheri East in Mumbai, (currently doing more than 75% occupancy and over with Rs7,500 ARR). We expect Rs2.4bn revenue from Aurika, MIAL in FY25 (assuming 65% occupancy and Rs12,000 ARR) with margins of over 50%, bringing ~19%/~21% to the company's revenue/EBITDA in FY25."

Looking to be debt free in the next 4-5 years

According to the brokerage, in Mar'22, Lemon Tree had Rs16.4bn net debt, which we believe has peaked. It has yet to incur ~Rs5bn capex for its pipeline, the bulk for the MIAL property. After this, it is not now looking at any further capex other than on routine renovation. It aims to repay debt over the next five years. "It generated FCF of Rs677m in FY22 and we expect it generate cumulative FCF of ~Rs7.3bn over FY23-FY25 which should help it become net debt free over the next 5 years," the brokerage has said.

Growth story intact; maintaining a Buy

The brokerage said, "We expect Lemon Tree Hotels' Q2 FY23 to be on similar lines as in Q1, as it sees demand rising. International travel returning would further benefit it in coming months. Lemon Tree is set to open its largest hotel, Aurika (669 rooms), Mumbai (MIAL) by end-CY23 (construction on track) ~13% of its current inventory. Therefore we incorporate Aurika, MIAL, and introduce our FY25 estimates, anticipating the company to report revenue/EBITDA CAGRs of 47%/71% over FY22-FY25. Hence, factoring in the above we raise our TP to Rs110 (from Rs85 earlier), valuing the stock at 18x FY25e EV/EBITDA from 20x FY24 EBITDA."

According to Anand Rathi, the risks would be a slow-down in the economy would curtail demand, Vulnerable to external factors: terrorist attacks, epidemics, further delay in opening the Aurika MIAL property etc.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.