Article

IPO Note: Lemon Tree Hotels Ltd-Not Rated

23 Mar 2018 Nikita Bhoota

Issue Opens: March 26, 2018
Issue Closes: March28, 2018
Face Value: Rs10
Price Band: Rs54-56
Issue Size: ~Rs1,039cr
Public Issue: 18.55 lakh shares
Bid Lot: 265 Equity shares     
Issue Type: 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

31.1

31.1

Public

68.9

68.9

Source: RHP

Company Background

Lemon Tree Hotels Limited (LTHL) is India’s largest hotel chain in the mid-priced hotel sector, as per the Horwath report. It is also the third largest hotel on the basis of controlling interest in owned and leased rooms, as of June 30, 2017. LTHL operates 4,697 rooms in 45 hotels (including 18 managed hotels with 1,504 rooms) across 28 cities, as on January 31, 2018. LTHL has three brands under following segments: Lemon Tree Premier – Upper mid-scale hotel segment (10 hotels having 1,301 rooms, as on January 31, 2018), Lemon Tree Hotels – Mid-scale hotel segment (27 hotels having 2,325 rooms) and Red Fox – Economy hotel segment (eight hotels having 1,071 rooms). Its owned and leased hotels had an average occupancy rate of 75.3% for 9MFY18.

Objective of the Offer

The offer consists of an offer for sale (OFS) of ~18.55 lakh shares by nine public shareholders, aggregating up to ~ Rs1,039cr at the upper end of the price band. LTHL will not receive any proceeds from the offer.

Financials

Consolidated Rs cr.

FY15

FY16

FY17

^9MFY18

Revenue

290

368

412

352

EBITDA Margin (%)

17.5

27.5

28.2

27.8

Adj. PAT

-63

-30

-7

3

EPS (`)*

-0.69

-0.4

-0.11

0.04

P/BV*

3.57

3.56

3.56

-

EV/EBITDA*

96.32

49.1

44.1

-

ROCE (%)*

0.65

4.87

9.81

-

RoNW (%)*

-4.33

-2.52

-0.66

-

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band and on post issue shares. ^9 month numbers are not annualized.

Key Points

LTHL has presence in major metro, tier I and II cities in India, including NCR, Bengaluru, Hyderabad, Chennai, Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad. It has strategically developed hotels at locations with high barriers-to-entry within or close to major business centers, airports and other convenient locations. Company has a development pipeline of 3,038 rooms across new regions, as of January 31, 2018. This majorly comprises of two upper mid-scale hotels in Mumbai and one each in Pune, Udaipur and Kolkata to be developed over FY18-21E.

The sluggish demand over the past several years owing to the global financial crisis had materially caused slowdown in the Indian economy, resulting in a moderate performance in hospitality industry. Demand and supply across all segments witnessed a 12.5% and 13.7% CAGR respectively over FY07-16. However, occupancy has improved over FY16-17. Further, higher occupancy is expected as demand is witnessing as surge, while supply scenario remains limited.

Key Risk

LTHL has strategically positioned its hotels in key geographical markets in India. However, hotels in few geographic locations like NCR, Bangalore and Hyderabad form concentrated sources of revenue for the company. It derived 71.17%, 67.17% and 67.61% of its total revenue from the above locations for 9MFY18, FY17 and FY16 respectively.

LTHL’s brand and reputation are among the most important assets of the company for attracting and retaining guests. Continuous efforts to develop awareness of LTHL’s brands through focused and consistent branding is an important tool to increase the company’s existing market share and expand into new markets. Any decrease in the quality of services including reasons beyond the company’s control, or allegations of defects at any of the hotel properties could tarnish the image of LTHL’s brands.

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IPO Note: Lemon Tree Hotels Ltd-Not Rated

23 Mar 2018 Nikita Bhoota

Issue Opens: March 26, 2018
Issue Closes: March28, 2018
Face Value: Rs10
Price Band: Rs54-56
Issue Size: ~Rs1,039cr
Public Issue: 18.55 lakh shares
Bid Lot: 265 Equity shares     
Issue Type: 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

31.1

31.1

Public

68.9

68.9

Source: RHP

Company Background

Lemon Tree Hotels Limited (LTHL) is India’s largest hotel chain in the mid-priced hotel sector, as per the Horwath report. It is also the third largest hotel on the basis of controlling interest in owned and leased rooms, as of June 30, 2017. LTHL operates 4,697 rooms in 45 hotels (including 18 managed hotels with 1,504 rooms) across 28 cities, as on January 31, 2018. LTHL has three brands under following segments: Lemon Tree Premier – Upper mid-scale hotel segment (10 hotels having 1,301 rooms, as on January 31, 2018), Lemon Tree Hotels – Mid-scale hotel segment (27 hotels having 2,325 rooms) and Red Fox – Economy hotel segment (eight hotels having 1,071 rooms). Its owned and leased hotels had an average occupancy rate of 75.3% for 9MFY18.

Objective of the Offer

The offer consists of an offer for sale (OFS) of ~18.55 lakh shares by nine public shareholders, aggregating up to ~ Rs1,039cr at the upper end of the price band. LTHL will not receive any proceeds from the offer.

Financials

Consolidated Rs cr.

FY15

FY16

FY17

^9MFY18

Revenue

290

368

412

352

EBITDA Margin (%)

17.5

27.5

28.2

27.8

Adj. PAT

-63

-30

-7

3

EPS (`)*

-0.69

-0.4

-0.11

0.04

P/BV*

3.57

3.56

3.56

-

EV/EBITDA*

96.32

49.1

44.1

-

ROCE (%)*

0.65

4.87

9.81

-

RoNW (%)*

-4.33

-2.52

-0.66

-

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band and on post issue shares. ^9 month numbers are not annualized.

Key Points

LTHL has presence in major metro, tier I and II cities in India, including NCR, Bengaluru, Hyderabad, Chennai, Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad. It has strategically developed hotels at locations with high barriers-to-entry within or close to major business centers, airports and other convenient locations. Company has a development pipeline of 3,038 rooms across new regions, as of January 31, 2018. This majorly comprises of two upper mid-scale hotels in Mumbai and one each in Pune, Udaipur and Kolkata to be developed over FY18-21E.

The sluggish demand over the past several years owing to the global financial crisis had materially caused slowdown in the Indian economy, resulting in a moderate performance in hospitality industry. Demand and supply across all segments witnessed a 12.5% and 13.7% CAGR respectively over FY07-16. However, occupancy has improved over FY16-17. Further, higher occupancy is expected as demand is witnessing as surge, while supply scenario remains limited.

Key Risk

LTHL has strategically positioned its hotels in key geographical markets in India. However, hotels in few geographic locations like NCR, Bangalore and Hyderabad form concentrated sources of revenue for the company. It derived 71.17%, 67.17% and 67.61% of its total revenue from the above locations for 9MFY18, FY17 and FY16 respectively.

LTHL’s brand and reputation are among the most important assets of the company for attracting and retaining guests. Continuous efforts to develop awareness of LTHL’s brands through focused and consistent branding is an important tool to increase the company’s existing market share and expand into new markets. Any decrease in the quality of services including reasons beyond the company’s control, or allegations of defects at any of the hotel properties could tarnish the image of LTHL’s brands.

Research Disclaimer