Target: ₹140

CMP: ₹110.65

We initiate coverage on Lemon Tree Hotels Ltd (LTHL) with a ‘BUY’ rating and target price of ₹140.

We believe LTHL is well poised to capitalize from impending uptick in the Indian hospitality industry given leadership position in mid-scale/economy segment with about 19 per cent market share, aggressive plans to rapidly expand via asset light management contract route that is expected to improve BS strength and uplift margin profile and operationalisation of Aurika hotel in Mumbai with 669 rooms.

Aurika is expected to be a crown jewel for LTHL as it is strategically located in dense micro-market of Mumbai (near airport) and we expect the hotel to generate revenues of ₹276.40 crore in FY26E (2nd full year of operations with an EBITDA margin of 60%). Backed by opening of Aurika, Mumbai in Oct-23 and addition of 4,808 managed rooms by FY26, we expect revenue/PAT CAGR of 19/36 per cent over FY23-FY26. We value LTHL on SOTP basis. The standalone business is valued at 21x FY26E EBITDA while Fleur, an asset owning subsidiary with 59 per cent stake, is valued at 22x FY26 EBITDA.