ICICI Direct recommended hold rating on Lemon Tree Hotels with a target price of Rs 24 in its research report dated June 03, 2020.
ICICI Direct's research report on Lemon Tree Hotels
Lemon Tree Hotels’ (LTH) revenues for Q4FY20 increased 17% YoY to Rs 176.1 crore (I-direct estimate: Rs 150 crore) driven by a 45% YoY higher room inventory. Occupancy was down 1660bps YoY to 61%. Higher ARR from new properties was offset by lower ARR of Keys’ properties. Thus overall ARR saw a 2.8% YoY growth to Rs 4,530. EBITDA stood at Rs 63.9 crore (I-direct estimate: Rs 53.3 crore) with EBITDA margins of 36.3% (I-direct estimate: 35%). On a comparable basis, EBITDA increased 12% YoY to Rs 55 crore and EBITDA margins contracted 127bps YoY to 31.2% in Q4FY20. EBITDA growth did not flow to PAT due to higher finance cost and depreciation (IndAS Adjustments). Net loss for the quarter stood at Rs 19 crore (Adjusted net loss: Rs 15.7 crore) against a profit of Rs 33.7 crore YoY.
Outlook
Outlook remains grim as the hotel industry grapples with after effects of the virus on tourism. LTH’s management expects the ongoing crisis to lead to 15-20% of room inventory getting wiped out, which would augur well for companies like LTH with a strong brand recognition and presence. Weak industry dynamics, heavily indebted B/S and capital infusion at lower prices (leading to significant dilution) compel us to maintain a HOLD rating. On an SOTP basis, we value the company at Rs 24 per share.
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