Share price of Lemon Tree Hotels surged 10% to hit the upper circuit on the BSE Sensex as investors continued to react positively to the stock after the company announced the opening of a hotel in Dwarka, Gujarat.
Share price of Lemon Tree Hotels surged 10% to hit the upper circuit on the BSE Sensex as investors continued to react positively to the stock after the company announced the opening of a hotel in Dwarka, Gujarat. Shares were trading at Rs 32.25 per share. With this the stock has extended its rally to 35% so far this week. The hospitality industry has been under stress owing to the coronavirus pandemic that has brought down the number of travellers. Earlier this month, Lemon Tree’s management informed investors that the company has opened 90% of the rooms as it expects demand to revive in the next three to six months.
Lemon Tree’s newest property will be opened in Dwarka city of Gujarat state. The 109 room and suite property, the company said, has been strategically placed next to the Iskon gate to act as an lucrative option for visitors. Revenue for the hospitality major dropped to Rs 40.70 crore in the first quarter of this fiscal year, a 71% slip from Rs 140 crore worth sales seen in the same period last year. Lemon Tree Hotel’s saw a second consecutive month of net loss aided by the pandemic.
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Analysts are upbeat on the stock expecting recovery coming from domestic customers. To add to that the cost reduction that the hotel had to undergo to manage the pandemic could also result in an increased EBITDA margin by 500-700 basis points, according to the management. With a large share of domestic customers, Lemon Tree Hotel could be the fastest to regain momentum, according to brokerage and research firm Motilal Oswal. The brokerage has a BUY call on the stock with a target price of Rs 33, just shy of the current market price of Lemon Tree Hotel.
Hit by the coronavirus, occupancy in the April-June quarter was just at 29%, down from 77.5% in the same period last year. “From the liquidity perspective, LT has sufficient cash to meet its total expenses including debt obligations for the next four quarters assuming the worst-case scenario,” said analysts at Edelweiss Securities. Lemon Tree Hotels has cash and cash equivalents of Rs 225 crore. Lemon Tree’s liquidity could improve with funds coming in including from APG. “We had upgraded Lemon Tree Hotel to BUY in our last update citing reduced risk post- APG infusion. With liquidity improving further, our view is reinforced,” said Edelweiss. Their target price has been breached by Lemon Tree Hotels.