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Lemon Tree Hotels Ltd - IPO Note - Sushil Finance

Posted On: 2018-03-22 09:46:17

Price band for IPO - Rs. 54 to Rs. 56
Issue Opens on: March 26, 2018
Issue Closes on: March 28, 2018

Lemon Tree Hotels is India's largest hotel chain in the mid-priced hotel sector, and the third largest overall, on the basis of controlling interest in owned and leased rooms. It is the 9th largest hotel chain in India in terms of owned, leased and managed rooms, according to a Howrath Report. They operated 4,697 rooms as of January'18.

They operate in the mid-priced hotel sector, consisting of upper midscale, midscale and economy hotel segments. They seek to cater to the Indian middle class guests and deliver differentiated yet superior service offerings, with a value for money proposition.

They have created 3 brands:

'Lemon Tree Premier' targeted at the upper midscale hotel segment, 'Lemon Tree Hotels' targeted at the midscale hotel segment, and 'Red Fox by Lemon Tree Hotels' targeted at the economy hotels segment.

Their brands have a standardized design, appearance, décor etc. The brands also have a standardized set of guest amenities which helps them deliver a consistent experience.

Their operations are spread across the value chain and range from acquiring land to owning, leasing, developing, managing and marketing hotels. They design and develop projects through their subsidiary, Grey Fox Project Management Company Pvt Ltd. As of January'18 they had a portfolio of 19 owned hotels, 5 leased hotels and 18 managed hotels.

The company has been ranked among the "Best Companies to Work for" in India every calendar year. The company is also involved in CSR activities like employing opportunity deprived individuals, which includes differently abled individuals and socio-economically disadvantaged persons of employable age. 21.1% of their workforce consists of such individuals. They also adopt street dogs at their hotels and source art from economically deprived artisans to put in their hotels.


- Leading mid-priced hotel chain with a differentiated business model.
- Strategically positioned in key geographical areas.
- Focus on brand excellence, providing a value for money proposition and strengthening employee culture.
- Experienced promoter and management team.

Objects of the issue

- To achieve the benefits of listing the equity shares on the stock exchanges.


Lemon Tree Hotels is one of the leading hotel chains in India not just in terms of number of rooms managed, but also in terms of their brand, service quality and customer satisfaction. The company has strategically positioned themselves in the midscale segment which has seen the most growth in recent years. The Indian Hotel/Hospitality industry is highly under-penetrated and is poised for high growth in coming years due to, (a) increase in business and leisure travel, and (b) change in preference of tourists from staying at friend's/family's place to a hotel.

Financially, the company had an average EBITDA Margin of 25% over the last 5 years. The EBITDA Margin in fiscal 2017 was 30.2%. The company has only recently reported profits during Dec'17 which was a PAT of Rs. 2.85 Cr, a PAT Margin of 0.8%. However, the company has managed to generate cash consistently and managed to expand its assets and hotels without over-leveraging themselves.

The valuation based on EV/EBITDA comes to 39 times the 2017 numbers, which is above the average EV/EBITDA of 25x of similar hotel chains/ brands, thus making the offer fully priced when considering the superior brand and reach of Lemon Tree.

Considering the current market trend, we believe investors should subscribe to this issue with a long term perspective, as this is a fantastic brand with an aggressive growth strategy supported by better prospects for the Indian hospitality industry going forward.

Source: Equity Bulls

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