Lemon Tree Q4 Results Review: Margins Expand, But ARR Growth Lags, Says Nirmal Bang Maintaining 'Hold'

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Nirmal Bang Report

Lemon Tree Hotels Ltd. reported Q4 FY25 revenue and Ebitda broadly in line with our estimates, registering YoY growth of 16% and 19%, respectively. The Ebitda margin expanded by 154 bps YoY, primarily driven by operating cost efficiencies. While PAT exceeded our expectations, the outperformance was largely attributable to lower tax expenses recorded during the quarter rather than operational outperformance.

Revenue growth during Q4 FY25 was driven by a 15% increase in RevPAR to Rs 5,462, largely due to a 555 bps improvement in occupancy, which rose to 77.6% compared to the same quarter last year. However, average room rate growth remained modest at 7% YoY, in contrast to the strong double-digit ARR growth reported by other companies in our coverage universe.

This divergence highlights the constraints associated with Lemon Tree's market positioning. Additionally, the total number of operational keys saw a low single-digit increase of 4% YoY, reaching 10,269 rooms.

We forecast 14%/16%/30% CAGR in revenue/Ebitda/ PAT over FY25– FY27E, with PAT growth aided by lower interest costs as Lemon Tree continues to deleverage.

The addition of 4,500+ managed/franchised keys should support steady growth in management fees. However, the upcoming Navi Mumbai Airport may temporarily impact performance of existing airportadjacent assets.

Moreover, its upper midscale positioning may constrain ARR growth due to higher price sensitivity. We maintain our Hold rating, valuing the stock at 16x FY27E EV/EBbitda vs its three-year average of 18 times at Rs 153.

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