People like to roam around to different places to experience nature, relieve stress, and enjoy themselves with their close ones. The tourism prospers the hospitality sector in many ways. The demand upsurge is due to improvements in income, and affordability and this has opened up people’s purses to spend on luxury stays to rest.

Many Indian Hotel chains are looking up to this demand and are increasing the rooms to cater to the increasing demand. Based on seasonality and the location most of the hotels can tap into the growing middle-class to upper-class people. In this article, we will look at Lemon Tree Hotels which is in the business of Hospitality.

Company Overview Of Lemon Tree Hotels

Lemon Tree Hotels operates and owns a business chain and leisure hotels in India. The LTHL opened its first hotel with around 49 rooms in 2004. The portfolio has 160+ hotels which includes over 100+ operational hotels. The Hotels are located in Tier 1, 2, and 3 cities. Some of the cities include Chandigarh, Pune, Jaipur, Ahmedabad, Aurangabad, Indore, Vishakhapatnam, Udaipur, Kochi and others.

The company has operational of 104 hotels with 9,863 rooms in FY24. In the Pipeline they have around 62 hotels with 4,156 rooms. Lemon Tree owns around 34 hotels with 5,186 hotels, Leased – 7 hotels with 573 room capacity, and Franchised – 63 hotels with 4,104 hotels in FY24. Lemon Tree is looking to increase its portfolio through the Franchisee model which shows its brand value.

Some of the hotel brands included in the Midscale segment are Lemon Tree Hotels and Keys Select. For the Upper Mid Scale it is Lemon Tree Premier, Keys Prima, and Economy Segment it is Redfox and Keys Lite.

Industry Overview and Outlook

The hospitality industry in India is expected to grow from around US$24.61 billion in 2024 to US$31.01 billion by 2029, with a CAGR of 4.73% over this period. This growth is driven by a combination of social, economic, and technological factors. This effect will significantly boost tourism, promote economic development, and generate employment.

As India witnesses revenge tourism, analysts project the travel market to increase from US$75 billion in FY20 to US$125 billion by FY27. Experts anticipate that improvements in airport infrastructure and increased passport access will enable the Indian airline travel market, currently valued at about US$20 billion, to double by FY27.

This gives further access to NRIs and Foreign Nationals to increase tourism. The hotel market, including inbound, domestic, and outbound segments, was about US$32 billion in FY20 and is expected to grow to around US$52 billion by FY27. This growth is fueled by rising traveler demand and the efforts of travel agents.

Staycations, where people enjoy luxurious hotel stays to unwind, are becoming popular. Major hotel chains like Marriott International, Oberoi Hotels, and IHG Hotels & Resorts are offering curated staycation experiences to meet this demand. The Indian travel and tourism industry has substantial growth potential, supported by the expansion of the e-Visa scheme, which is expected to double the tourist inflow.

Additionally, a joint study by Assocham and Yes Bank suggests that the industry could grow by 2.5% due to increased budgetary allocation and affordable healthcare facilities.

Recent Hotel Expansions

In April, the company announced the opening of Lemon Tree Premier in Kathmandu, Nepal, with 102 rooms equipped. Lemon Tree opened their ninth property in Rajasthan situated in Udaipur by Key Lite equipped with 68 rooms in June. The company opened a hotel in Jamshedpur, Jharkhand in July which boasts around 42 rooms.

In August, Lemon Tree announced a new hotel in Ujjain, Madhya Pradesh which is maintained by Carnation Hotels featuring 72 rooms scheduled to open in FY27. During the same month, Lemon Tree signed a license for a property in Ayodhya managed by Carnation Hotels and expected to open by FY28 featuring 80 rooms.

There was another addition to the portfolio in August when the company signed another property in Surat, Gujarat under Aurika Hotels expected to open by FY30 with 175 rooms. Lemon Tree also acquired a new property in Varanasi, Uttar Pradesh which is expected to open in FY28.

In September, they announced a new agreement on acquiring a hotel license operation in Gir, Gujarat expected to open by FY30 with 80 rooms equipped. These are some of the recent agreements and acquiring property related to the expansion. These initiatives show the penetration required in many regions across India as well as opportunities abroad.

Financial Overview & Its Segments

LTHL reported its revenue from operations of Rs. 1,071.12 crore in FY24 compared to Rs. 874.98 crore in FY23, an increase of 22.41%. Their Net profits stood at Rs. 181.70 crore in FY24, a 29.28% increase from Rs. 140.54 crore in FY23. The EPS improved from Rs. 1.45 in FY23 to Rs. 1.88, benefiting the shareholders.

The employee expenses in FY24 were around 17.40% which saw an increase from 17% in FY23. Power and Fuel expenses improved to 7.20% in FY24 from 7.80% in FY23 as a percentage of revenue.  

Operating business in the Hotels and Hospitality Industry needs more working capital and it’s capital intensive. If we look at the debt-to-equity ratio of LTHL in FY24 it was 1.96 which is lower than 2.04 in FY23. RoE in FY24 stood at 15.35% compared to 13.41% in FY23. 

The company has improved its returns YoY and as capital intensive the business is looking at RoCE as relevant. In FY24 the returns stood at 11.52% compared to 10.54% in FY23. The RoE has a better return than RoCE which indicates higher use of debt compared to its equity. Lemon Tree is solely in the business of hospitality and records revenue under it. 

Also read…

Future Outlook Of Lemon Tree Hotels

• Lemon Tree Hotels plans to complete the renovation of its owned hotels by the end of FY26, to enhance room quality and customer experience.
• The company aims to increase its room inventory by operationalizing new management and franchise contracts, having signed three new contracts that add 187 rooms.
• Lemon Tree is focusing on digital transformation to improve sales processes, revenue management, and loyalty programs through a partnership with BCG.
• Implementation of dynamic pricing algorithms helps to optimize revenue from new rooms.
• The business development team has been expanded fourfold to drive growth in managed and franchise contracts, increasing fee income.
• Lemon Tree intends to utilize free cash flow from peak seasons for renovations and allocate winter cash flow for debt reduction.
• The company anticipates maintaining revenue growth through improved average room rates and occupancy levels as renovated rooms return online.
• Continued investment in renovation and digital capabilities is expected to improve the position. Lemon Tree as a leading brand in the mid-market and upper mid-market hotel segment, capitalizing on anticipated demand growth.
• The company is looking to be debt-free and to improve its Free Cash Flow, Maintaining a 70%+ Asset-light portfolio, 20K + hotel rooms network, and Stable in 50% EBITDA over the next 5 years from CY24 to CY28.

Peer Comparison

Lemon Tree has a market capitalisation of around Rs. 10,647 crore which is lower than its peer’s size. The Stock P/E is at the higher end of the premium compared to its peers. EIH has a lower P/E among its peers. In Net profit margin, the lemon tree has a margin of around 16.89% compared to its peers range of 4% to 26%.

The debt-to-equity ratio of Lemon Tree is 1.96 compared to its other competitors like Chalet and Mahindra Holidays have more than 1 time of equity. IHCL and EIH have lower debt-to-equity ratios which is better for companies operating in the hospitality industry. 

The occupancy rate of Lemon Tree is around 72%, which is lower compared to its peers. The highest rate is at Mahindra Holidays. In terms of operating room numbers, Lemon Tree has 9,863 rooms, which is less than its peer IHCL’s count of 24,136 rooms. Despite having more rooms, Lemon Tree’s competitors mainly attract high-end customers, while Lemon Tree caters to mid and higher mid-tier customers.

Conclusion

As we near the end of the article, we will look at Lemon Tree in brief. This industry was struggling during the COVID period. The recovery shows a strong revival especially in tourism and countries opening up to host delegates and meetings. Capex plans are going on in the company to limit exposure to owning hotels.

The Franchisee model shows the strong brand value. The improvement in debt to equity ratio is the key factor for the company. Now Lemon Tree is looking from mid-space to upper mid-space to add to their customer base to capitalize. What do you think about Lemon Tree? What is your view on the Lemon Tree’s prospects? Let us know your views in the comments section below.

Written by Santhosh

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.

The post Can Lemon Tree Hotels become Debt Free and grow its EBITDA by 50% in the next 5 years appeared first on Trade Brains.