Stock To Buy: Revenue Grew 26% YoY, Buy This Hotel Chain Stock For 26% Returns, Suggests Motilal Oswal

The leading brokerage firm, Motilal Oswal Financial Services has suggested investors buy the Lemon Tree Hotels Ltd shares for a target price of Rs 870/share. In its report published on 30 May 2022, the brokerage has also stated that the hotel chain, lemon Tree Hotels' revenue grew 26% YoY in 4QFY22.

Stock Overview- Target Price, CMP, Return, 52 Week Low & High

The stocks yesterday closed at Rs 65.90, and today it was opened at Rs 67. According to the brokerage estimated target price of Rs 870, and the Current Market price of Rs 67.65, it has the potential to return 26%. The stocks performed well in the last 1 year, gained more than 60%, however, in last 1 month it has maintained the price. The 52 week low is Rs 36, whereas, the 52 week high is 71.45.

Resilient demand to propel growth in FY23E

Lemon Tree Hotels' revenue grew 26% YoY (down 26% QoQ) to Rs 1,195m (est. Rs 1,222m) in 4QFY22 driven by higher ARR, which surged 54% YoY to Rs 4,093. However, occupancy declined to 46% in 4QFY22 from 56% in 4QFY21 due to the third Covid wave in Jan'22. Consequently, RevPAR grew 27% YoY to Rs 1,888. EBITDA margin improved 80bp YoY to 30.8% (est. 38.0%) in 4QFY22. EBITDA grew 29% YoY to Rs 368m (est. Rs 465m). RevPAR declined 16% QoQ due to a 1,150bp decline in the occupancy rate led by the lockdowns in Jan'22. ARR grew 5% QoQ. Net loss stood at Rs 132m in 4QFY22 (est. adj. net loss at Rs 156m) v/s net loss of Rs168m in 4QFY21. Keys Hotels generated a revenue of Rs 80m (down 22% QoQ and 4% YoY), with an EBITDA of Rs 11m (up 38% YoY) in 4QFY22. It operated at 32% occupancy (down 80bp YoY), with an ARR of Rs 2,374 (up 21% YoY). Revenue/EBITDA surged 60%/2.2x YoY in FY22, respectively. CFO for FY22 came in at Rs 1.4b while FCF was at Rs 685m. Net Debt stood at Rs 16.4b v/s Rs 15.3b in FY21.

 

Buy for a Target Price of Rs 85/share

With improving traction in corporate travels, resumption in international travels and improving MICE activity, Lemon Tree Hotels is expected to witness strong growth as it garners ~86% of its business from the business hotels. In FY21, Lemon Tree Hotels operated 13 toddler hotels with 1,914 rooms, which accounted for 37% of its owned/leased room inventory. The performance of these rooms, which were in the stabilization phase, has been impacted by the pandemic. Once normalcy is reached, stabilization will drive growth. "We maintain our FY23/FY24 EBITDA estimates. We reiterate our BUY rating on the stock with an SoTP-based Target Price of Rs 85 (assigning an 18x one-year forward EV/EBITDA multiple to FY24E EBITDA)," the brokerage has said in the report.

Lemon Tree Hotels Ltd.

Lemon Tree Hotels Ltd is the largest mid-priced and the third-largest overall hotel chain in India as of June 30, 2017, according to the Horwath Report. Lemon tree Hotels opened its first hotel with 49 rooms in May 2004 and currently operates 87 hotels in 54 destinations with ~8,500 rooms and over 8,000 employees. It operates in the upscale segment and in the mid-priced sector, consisting of the upper-midscale, midscale and economy segments. It delivers differentiated yet superior service offerings, with a value-for-money proposition.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author, and the 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 taking any investment decisions.