Macquarie believed the performance of Lemon Tree Hotels' during July–September, but the outlook for the company looks better. The brokerage raised the target price to Rs 210, which indicated 35% upside from Thursday's close price.
Macquarie has an 'Outperform' rating on the stock
Macquarie expects the real growth and margin profile to emerge as Lemon Tree's strategy to grow in mid-market is paying off. Growth from organic and current pipeline will drive free cash flow, reduce debt, resulting in a return on capital employed expansion, Macquarie said in a report.
According to Macquarie, Lemon Tree Hotels has numerous tailwinds for revenue. Renovated rooms are coming to the markets at a much higher average room rate and ocupancy, increasing pipeline which may potentially accelerate, GST-cut driven, potential acquisition in the works are all going to contribute to Lemon Tree Hotels' topline growth.
Macquarie hiked revenue estimates by 1% for financial year 2026, and by 3% for financial year 2028. Meanwhile, it reduced the revenue estimate by 1% for the financial year 2027. After the revision,Macquarie sees Lemon Tree Hotels' revenue growing at 13% CAGR during the financial year 2025 and 2028.
Tourism destination development announcement, updates on Fleur divestment, and revenue per available room improvements at Aurika are going to be key things monitorable for the brokerage.
Lemon Tree Q2 Earnings Key Highlights (Consolidated, YoY)
Net Profit rose 16.7% to Rs 34.6 crore versus Rs 29.6 crore
Revenue rose 7.7% to Rs 306 crore versus Rs 284 crore
Ebitda flat at 131 crore
Margin at 42.7% versus 46%
Lemon Tree's Ebitda margin declined 330 basis points to 42.7% compared to Macquarie's estimate of 46.9% because of higher renovation expenses and a one-time employee benefit payment, the brokerage said in the note.
Key risks to Macquarie's thesis are Aurika Mumbai does not gain traction. ARR growth in key invetories does not materialise post renovation. Pipeline projects delayed or terminated. Immature Tier II and Tier III could see fits and starts.
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