India\u2019s major mid-priced hotel chain Lemon Tree IPO (Initial Public Offer) opens to raise up to Rs 1,040 crore opens for subscription today. Incorporated in 2002, Lemon Tree Hotels is India\u2019s largest hotel chain in the mid-priced hotel chains across the country and the third largest overall, on the basis of controlling interest in owned and leased rooms. Notably, Lemon Tree operates more than 4,650 rooms in 45 hotels (including managed hotels) spread across 28 cities in India. Even as investors maybe mulling whether to subscribe to the issue, we take a closer look at the details and what brokerages have to say about the issue. IPO Details Lemon Tree initial public offer consists of an offer for sale of up to 18,54,79,400 shares of face value of Rs 10 each by the selling shareholders. At the higher end of the price band, the issue will amount to Rs 1002-1039 crore. The offer for sale is being done by some of its pre-issue investors and promoters. As it\u2019s a complete offer for sale, Lemon Tree will not receive any proceeds from the issue. The company has set a price band of Rs 54-56 for its issue. Bids can be made in lots of 265 equity shares and in multiples thereafter. Lemon Tree IPO will remain open from 26-28th March 2018. According to Lemon Tree Prospectus, the company intends to benefit from listing of equity shares on the exchanges. Strengths In less than 15 years of its existence, Lemon Tree has emerged as the leading mid-priced hotel chain. According to a report by Angel Broking, hotel industry dynamics appear favourable with mid priced room demand expected to grow 11% CAGR ahead of supply till 2022. Further Lemon Tree has a differentiated business model and a well-diversified geographical location of hotel properties. Key concerns Lemon Tree Hotels has seen a turnaround of late, after making continued losses over the past many years even at peaked 75%+ occupancy level leaving limited room for further improvement in occupancy. Angel Broking notes that Lemon Tree will continue to incur substantial capex in building up hotel properties for next few years leading to more leverage. Further, the company faces still competition from OYO rooms and Air BnB which may limit the company\u2019s pricing power. Valuations Many brokerages point out that the Lemon Tree IPO is richly priced and is unlikely to offer any listing gains. Angel Broking has a neutral rating on the issue given rich valuations compared to peers. \u201cAt the upper end of the price band, the EV\/EBITDA multiple works out be 44.5x EBITDA of FY2017 and ~38.6x on its FY2018 annualized EBITDA, which appears on the higher side even when compared to large listed hotel players like Indian Hotels (available at 33x FY2018 EV\/EBITDA, others are available at 20-25x),\u201d the firm noted. Anchor investors Lemon Tree Hotels has raised Rs 311 cr from anchor investors ahead of its IPO. According to the company\u2019s statement, Lemon Tree has allotted 5,56,43,820 shares to 18 anchor investors at a price of Rs 56 per scrip, amounting to Rs 311.61 crore. The major anchor investors include SBI Magnum Balanced Fund, DB International Asia and HDFC Small Cap Fund.