Started in 2002, Lemon Tree Hotels Ltd. (LTHL) is India’s largest hotel chain in the mid-priced hotel sector and the third largest overall, on the basis of controlling interest in owned and leased rooms. As of January 31, 2018, Lemon Tree operated 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India.
Outlook & Valuation: It has seen turnaround in M9FY2018 by posting a PAT of `2.9 cr which was achieved at sort of peaked occupancy and 9% price hike (taken after September 2017). Hence, any further improvement in margins have to largely come via price hikes, which looks difficult specially in the lower range hotels, amid intense competition. At 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). We recommend ‘Neutral’ on the issue for a mid-to-long term period.

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