Analyst Corner: Lemon Tree- Maintain ‘Buy’ with a fair value of Rs 70

By: |
February 20, 2020 1:15 AM

LTH reported Ebitda and PAT of Rs 812 mn (+66% y-o-y, +68% q-o-q) and Rs 119 mn (-11% y-o-y, -536% q-o-q) against our estimates of Rs 611 mn and negative Rs 26 mn, respectively.

Strong revenue performance was offset by 200 bps drop in occupancy on the back of commissioning of 1,622 rooms during the past 12 months. Strong revenue performance was offset by 200 bps drop in occupancy on the back of commissioning of 1,622 rooms during the past 12 months.

Lemon Tree reported 39% y-o-y growth in revenues at Rs 2 bn on the back of addition of 1,622 keys—comprising 936 keys of acquisition and 686 organic commissioning. Same-hotel revenue growth was 5.8% y-o-y that aided 19% y-o-y growth in Ebitda in Q3FY20. Earnings performance should be seen in the context of a weak economic environment that poses demand challenges. Lemon Tree’s earning profile will continue to benefit from stabilization of 978 keys that have less than two years of operations, improving metrics from 936 rooms through a recently concluded acquisition, and commissioning of 748 keys by end FY22. Maintain ‘Buy’ rating with unchanged FV of Rs 70/share.

Lemon Tree reported 39% y-o-y growth in revenues on the back of 45% y-o-y and 31% q-o-q growth in room keys (5,192 keys as of December 2019 compared to 3,570 keys as of December 2018 and 3,975 keys as of September 2019), and 4% y-o-y (12% q-o-q) growth in ARR to Rs 4,644. Strong revenue performance was offset by 200 bps drop in occupancy on the back of commissioning of 1,622 rooms during the past 12 months. LTH reported Ebitda and PAT of Rs 812 mn (+66% y-o-y, +68% q-o-q) and Rs 119 mn (-11% y-o-y, -536% q-o-q) against our estimates of Rs 611 mn and negative Rs 26 mn, respectively. Reported Ebitda grew 66% y-o-y to Rs 812 mn with margins of 41% though should be seen in the context of Ind-AS 116 adjustment that capitalizes lease expenses. On a comparable basis, Ebitda grew by 48% y-o-y with margins of 36.3% (34.2% in Q3FY19). Lemon Tree’s results for Q3FY20 should be seen in the context of challenging economic environment, commissioning of 281 keys during the quarter and 686 keys during the past twelve months, and inclusion of Keys Hotels (936 rooms) during the quarter that has traditionally had inferior operating metrics compared to Lemon Tree. On a same-hotel basis, ARR increased by 5.4% y-o-y to Rs 4,712 along with increase in occupancy to 76.2% (+148 bps) leading to RevPAR growth of 7.5% y-o-y to Rs 3,592. Consequently, revenues from same hotels grew by 5.8% y-o-y to Rs 1.5 bn and Ebitda grew 19% y-o-y to Rs 576 mn (70% of consolidated Ebitda).

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