Avoid Lemon Tree Hotels IPO : HEM Securities

Lemon Tree Hotels 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 June 30, 2017, according to the Horwath Report. Co is the ninth largest hotel chain in India in terms of owned, leased and managed rooms, as of June 30, 2017, according to the Horwath Report. Co operate in the mid-priced hotel sector, consisting of the upper-midscale, midscale and economy hotel segments. Co seek to cater to Indian middle class guests and deliver differentiated yet superior service offerings, with a value-for-money proposition. Co opened its first hotel with 49 rooms in May 2004. Co operated 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India as of January 31, 2018.
Co have created three brands in order to address these three hotel segments:
• “Lemon Tree Premier” which is targeted primarily at the upper-midscale hotel segment catering to business and leisure guests who seek to use hotels at strategic locations and are willing to pay for premium service and hotel properties;
• “Lemon Tree Hotels” which is targeted primarily at the midscale hotel segment catering to business and leisure guests and offers a comfortable, cost-effective and convenient experience; and

• “Red Fox by Lemon Tree Hotels” which is targeted primarily at the economy hotel segment.

Valuation

Co is bringing the issue at p/b multiple of 3.58 on 9MFY18 book value of Rs 15.66/share. Although co is leading mid-priced hotel chain with a differentiated business model & has strategically positioned in key geographical areas but , as company was loss making since FY’15 & has turned around only in 9MFY18, hence limited track record of profit making doesn’t instill confidence in company at present level. Hence, we recommend “Avoid” on issue

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