Lemon Tree Hotels (LEMTRE)
CMP: | 59 Target: | 71 ( 20%) Target Period: 12 months BUY
February 18, 2020 New properties drive strong topline performance Lemon Tree Hotels reported a strong set of Q3FY20 numbers. Revenues for the quarter increased 39.2% YoY to | 199.6 crore (I-direct estimate: | 189.6
crore). The strong topline growth was driven by ~45% increase in the number of owned/leased rooms and 58% rise in managed room portfolio. While RevPAR growth, on an overall basis, was at 1.9% for the quarter, Stock Data
RevPAR growth for the Lemon Tree portfolio (ex-keys) was at a healthy 7.5% Particulars Amount YoY. Reported EBITDA for the quarter was at | 81.2 crore (I-direct estimate: Market Capitalization (| crore) 4662 | 64.1 crore) with EBITDA margins of 40.7% (I-direct estimate: 33.8%). On a Debt (FY19) (| crore) 1196
Result Update Result comparable basis, EBITDA increased ~48% YoY to | 72.5 crore led by Cash & Investment (FY19) (| crore) 60 lower-than-expected expenses. Adjusted EBITDA margins were at 36.3%, EV (| crore) 5827 expanding 212 bps YoY. While EBITDA growth was healthy, the same did 52 week H/L | 89/47 not flow down to PAT owing to higher finance cost and depreciation. Equity Capital (FY19) (| crore) 789 Reported PAT declined to | 11.1 crore (I-direct estimate: | 2.9 crore). On a Face Value | 10 comparable basis, PAT was at | 14.42 crore, up 3.6% YoY.
Strong revenue growth trajectory to continue Key Highlights
Lemon Tree hotels has been in the growth phase in the last few years. It has Concluded deal for acquiring Keys added rooms to its portfolio at a CAGR of 17.9% in FY15-19. The company Hotels’ portfolio of 1910 rooms would continue to remain in the growth phase for the next two years till the Mumbai Aurika property gets commissioned (refer exhibit 3). Over FY19- Expect RevPAR growth of 11.3% over
22E, Lemon Tree is expected to add in excess of 5200 rooms at a CAGR of FY19-21E 25.3%. Out of the incremental 5240 rooms, 57% would be under Revenues, EBITDA expected to grow to management contracts while the balance are owned/leased (refer exhibit 4). 27.8%, 44.5%, respectively, in FY19-21E Thus, led by a strong room inventory pipeline in both owned/leased and managed properties, we expect Lemon Tree to grow its revenues at 27.8% Maintain BUY with target price of | 71 CAGR in FY19-21E to | 897 crore with its total room portfolio set to increase (earlier | 73) from 5411 rooms in FY19 to ~10650 rooms by FY22. Stabilisation, consolidation of new assets to drive EBITDA
The company, on a YTD basis, has commissioned 584 rooms across three
hotel properties in the upper-midscale, upscale segment. These properties Research Equity Retail
along with properties commissioned in FY19, reported a loss of | 9.2 crore – at PBT level. However, they are expected to stabilise in the next two years. In Q3FY20, the company also completed the acquisition of Keys Hotels, which for Q3FY20 reported a PBT loss of | 1.2 crore (refer exhibit 15). The Research Analyst management intends to bring the performance of the acquired properties at Rashesh Shah par with its midscale branded hotels. In the coming three to four years, [email protected] EBITDA growth is expected to stay strong, also partly due to Ind-AS
adjustments. We model 44.5% EBITDA CAGR in FY19-21E to | 353 crore. Romil Mehta Securities ICICI [email protected] Valuation & Outlook
Addition and ramping up of new properties are expected to continue the growth momentum for Lemon Tree Hotels. We expect debt levels to peak out at current levels supported by a rise in incremental cash flows. Hence, we continue to maintain BUY rating on the stock with a revised target price of | 71/share (i.e. at 27x FY21E EV/EBITDA adjusted as per Ind-AS). Key Financial Summary
Key Financials FY17 FY18 FY19 FY20E FY21E CAGR Sales 412 484 550 718 897 27.8% EBITDA 116 136 169 275 353 44.5% EBITDA (%) 28.3 28.1 30.7 38.4 39.3 PAT -5 15 56 36 88 24.8% EPS (|) -0.1 0.2 0.7 0.5 1.1 EV/EBITDA 46.7 41.5 34.5 22.7 17.7 RoNW -0.6 1.8 6.7 4.1 9.7 RoCE 3.9 4.6 5.5 7.2 8.3
Source: Company, ICICI Direct Research Result Update | Lemon Tree Hotels ICICI Direct Research
Exhibit 1: Variance Analysis Q3FY20 Q3FY20E Q3FY19 YoY (%) Q2FY20 QoQ (%) Comments Revenue growth strong on the back of 45% increase in Net Sales 199.6 189.6 143.4 39.2 152.8 30.7 owned/leased room inventory Other Incomes 3.9 4.0 2.7 44.2 3.7 3.3 Raw Material Expenses 16.7 16.5 12.6 32.4 13.2 26.4 Employee Expenses 42.1 41.7 29.9 40.5 36.6 14.8 Other expenses 59.6 67.3 51.8 15.2 54.4 9.5 Lease rent reclassificatoin into interest & depreciation Total expenses 118.4 125.5 94.3 25.5 104.3 13.5 EBITDA 81.2 64.1 49.0 65.7 48.4 67.7 EBITDA Margin (%) 40.7% 33.8% 34.2% 649 bps 31.7% 897 bps Interest 45.9 37.0 21.4 114.1 35.3 30.0 Lease rent reclassificatoin into interest & depreciation Depreciation 22.7 27.2 13.5 68.4 19.6 16.0 Lease rent reclassificatoin into interest & depreciation PBT 16.5 3.8 16.8 -1.8 -2.7 -715.1 Total Tax 4.6 1.0 3.4 32.3 0.1 7,753.8 Reported PAT 11.1 2.9 13.9 -20.4 -3.0 -467.8 Higher deprecaition & interest costs drags PAT
Source: Company, ICICI Direct Research
Exhibit 2: Change in estimates FY20E FY21E (| Crore) Old New % Change Old New % Change Comments Total Revenue 786.2 717.8 -8.7 940.0 897.0 -4.6 EBITDA 263.3 275.3 4.6 326.4 352.6 8.0 EBITDA Margin (%) 33.5 38.4 487 bps 34.7 39.3 459 bps EBITDA margins to expand due to Ind-AS adjustments PAT growth to be lower on account of higher depreciation PAT 73.4 36.0 -50.9 100.2 87.7 -12.4 and interest charge EPS (|) 0.9 0.5 -50.9 1.3 1.1 -12.4
Source: Company, ICICI Direct Research
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Story in charts
Exhibit 3: Upcoming owned/leased hotels Name/Location Rooms Expected opening Ownership (%) End of FY19 3570 Addition during FY20: LTP, Mumbai 303 Operational 58% LTP, Kolkata 142 Operational 58% RFH, Chandigarh 102 Operational Leased
Aurika, Udaipur 139 Operational 58%
Total addition (Ex-Keys) 686 Keys Hotels Inventory 936 End of FY20E 5192 Additions post FY20: LT Mountain Resort, Shimla 69 Apr-21 100% LT Vembanad Lake Resort, Alleppy, Kerala 10 Oct-21 100% Aurika, MIAL 577 Nov-21 58% Total Room addition 656 Total rooms by end of FY22 5848
Source: Company, ICICI Direct Research
Exhibit 4: Total room portfolio to grow at 25.3% CAGR over FY19-22E 13000
11500 10651 9820 10000 8637 8500 7000 5411 5500 4870 3689 4000 2801 3249 2500 1000 -500 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E Owned Leased Managed
Source: Company, ICICI Direct Research
Exhibit 5: ARR increases 4% YoY; OR reduces 150 bps Exhibit 6: Expect ARR CAGR of 10.5% led by commissioning 4800 78.3 80 of high ARR yielding properties 77.2 77.6 77.5 4600 76.3 76.8 78 6000 78.0 5100 4400 74.8 76 5000 4560 77.5 4180 78 4200 72.8 71.3 74 3900 77.0 4000 72 4000 345076.8 76.5 3800 70 3000 76.3 76.0
3600 68 75.9
4262 4235 3939 4465 4405 4002 4133 4644 3899 2000 75.6 3400 66 75.5 1000 75.0 0 74.5 FY17 FY18 FY19 FY20E FY21E ARR (|) - LHS Occupancy rate (%) - RHS ARR (|) - LHS Occupancy rate (%) - RHS Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
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Exhibit 7: RevPAR growth of 1.9% YoY in Q3FY20 Exhibit 8: RevPAR to grow at 11.3% CAGR over FY19-21E 3500 3418 5000 3400 3311 3269 3300 3252 3251 4500 3950 3200 3084 3102 3091 4000 3100 2994 3440 3000 (|) 3500 3190 2900 2960 2800 3000 2650 2700 2500
2000 FY17 FY18 FY19 FY20E FY21E RevPAR (|) RevPAR (|)
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 9: Revenues grow 39.2% YoY led by 45% increase in Exhibit 10: Topline to grow at CAGR of 27.8% over FY19-21E owned/leased room inventory 1000 250 897 200 718 200 800 153 143 151 141 550 150 132 132 127 129 600 484 412
| crore | 400 100 crore |
50 200
0 0 FY17 FY18 FY19 FY20E FY21E
Total Revenues
Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20
Quarterly revenues Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 11: EBITDA margins expand ~650bps YoY Exhibit 12: EBITDA margins to look high optically due to Ind- AS adjustments 90 34.2 40.0 32.3 32.5 31.8 80 30.7 35.0 29.0 28.1 27.5 28.0 400 45 70 30.0 39.3 60 350 38.4 25.0 40 50 % 20.0 300
40 81 | crore | 250
30 15.0 35
49 49
48 30.7 (%)
45 10.0
20 43 200
38
36 35 5.0 crore) (| 28.3 28.1 353 10 150 30 0 0.0 275 100 169 136 25 50 116 0 20 EBITDA - LHS EBITDA margin - RHS FY17 FY18 FY19 FY20E FY21E EBITDA (LHS) EBITDA margins (RHS) Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
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Exhibit 13: Quarterly PAT trend Exhibit 14: PAT to grow at 24.8% CAGR over FY19-21E
40 34 100 88 35 30 80 25 56 60 20 13 36
15 10 12 12 40 | crore |
10 6 crore | 15 5 2 20 0 0 -5 -2 -3 FY17 FY18 FY19 FY20E FY21E
-20 -5
Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20
Net Profit Net Profit
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 15: Same hotels report healthy growth of 19% at PBT levels during Q3FY20
Source: Company, ICICI Direct Research
Exhibit 16: Valuation matrix Target valuations Amount Lemon Tree Group Enterprise value (| crore) 9520 Net Debt FY21E (| crore) 1590 Lemon Tree Group Equity value (| crore) 7930 Lemon Tree Equity Value - Standalone (| crore) (A) 2324 Fleur Hotels Equity Value (| crore) (B) 5605 Fleur Hotels Equity Value - 58% Lemon Tree share (| crore) (C) 3251 Lemon Tree Value (| crore) (A) + (C) 5576 Number of shares (Crore) 79
Target Price (|) 71 Source: Company, ICICI Direct Research
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Exhibit 17: Recommendation History vs. Consensus 100 100.0 90 90.0 80 80.0 70 70.0 60 60.0
(|) 50 50.0 40 40.0 (%) 30 30.0 20 20.0 10 10.0 0 0.0 Apr-18 Jul-18 Sep-18 Nov-18 Feb-19 Apr-19 Jul-19 Sep-19 Dec-19 Feb-20
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICI Direct Research
Exhibit 18: Top 10 shareholders Rank Name Last filing date % O/S Position (m) Change (m) 1 Spank Management Ser 27-Aug-19 26.2 207.7 0.03 2 Apg Strat Real Estat 30-Jun-19 15.0 118.7 0.00 3 Maplewood Investment 30-Jun-19 12.4 98.4 0.00 4 Sbi Funds Management 31-Jan-20 9.8 77.3 9.88 5 Franklin Resources 31-Dec-19 4.3 34.3 0.00 6 Rj Corp Limited 27-Nov-19 4.1 32.4 0.00 7 Keswani Patanjali Go 30-Jun-19 3.5 27.8 27.84 8 Five Star 19-Sep-17 3.0 23.6 0.00 9 Standard Life Aberde 31-Jan-20 2.6 20.4 0.00 10 Zaaba Pan Asia Maste 30-Jun-19 2.2 17.4 17.45
Source: Company, Thomson Reuters, ICICI Direct Research
Exhibit 19: Shareholding Pattern (in %) Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Promoter 30.89 30.89 30.89 31.24 31.24 FII 13.80 13.50 14.13 20.36 23.79 DII 8.36 8.95 10.27 18.61 17.23 Others 46.95 46.66 44.71 29.79 27.74
Source: Company, Thomson Reuters, ICICI Direct Research
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Financial summary
Exhibit 20: Profit and loss statement | crore Exhibit 21: Cash flow statement | crore (Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E Total operating Income 484.3 549.5 717.8 897.0 Profit after Tax 14.6 56.4 36.0 87.7 Growth (%) 18% 13% 31% 25% Add: Depreciation 52.6 54.1 83.6 98.3 Raw Material Expenses 43.6 49.8 60.2 75.1 (Inc)/dec in Current Assets -51.1 -48.0 -12.9 -19.4 Employee Expenses 109.6 120.5 151.9 177.7 Inc/(dec) in CL and Provisions 30.0 69.7 183.5 -14.1 Other Exp 194.9 210.4 230.3 291.6 CF from operating activities 109.4 177.7 440.4 296.0 Total Operating Expenditure 348.1 380.7 442.4 544.4 (Inc)/dec in Other Non-Curr Assets 0.0 0.0 0.0 0.0 EBITDA 136.2 168.8 275.3 352.6 (Inc)/dec in Fixed Assets -302.4 -302.8 -781.2 -200.0 Growth (%) 16.9% 23.9% 63.2% 28.1% Others 57.9 13.8 -88.2 33.6 Depreciation 52.6 54.1 83.6 98.3 CF from investing activities -244.5 -289.0 -869.4 -166.4 Interest 78.4 84.7 158.9 153.4 Issue/(Buy back) of Shares 5.2 2.9 0.9 0.0 Other Income 12.6 14.5 14.0 15.0 Inc/(dec) in loan funds 212.4 184.5 398.2 10.0 PBT 17.8 44.5 46.9 115.9 Dividend paid & dividend tax 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 Others -79.0 -65.7 10.8 -138.4 Total Tax 3.8 -11.1 11.8 29.2 CF from financing activities 138.6 121.7 410.0 -128.4 Reported PAT 14.0 55.6 35.1 86.7 Net Cash flow 3.4 10.4 -19.0 1.2 Adjusted PAT 14.6 56.4 36.0 87.7 Opening Cash 17.6 21.0 31.4 12.4 Growth (%) NA 2.9 -0.4 1.4 Closing Cash 21.0 31.4 12.4 13.6
Adjusted EPS (|) 0.2 0.7 0.5 1.1 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research
Exhibit 22: Balance sheet | crore Exhibit 23: Key ratios (Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E Liabilities Per share data (|) Equity Capital 786 789 790 790 Adjusted EPS 0.2 0.7 0.5 1.1 Reserve and Surplus 28 86 76 156 Cash EPS 0.9 1.4 1.5 2.4 Total Shareholders funds 815 875 867 946 BV 10.3 11.1 11.0 12.0 Total Debt 1011 1196 1594 1604 DPS 0.0 0.0 0.0 0.0 Deferred Tax Liability 4 0 0 0 Cash Per Share 0.3 0.4 0.2 0.2 Minority Interest / Others 429 432 633 641 Operating Ratios (%) Total Liabilities 2209 2480 3220 3287 EBITDA Margin 28.1 30.7 38.4 39.3 Assets EBIT Margin 19.8 23.5 28.7 30.0 Gross PPE 1599 1792 3097 3172 PAT Margin 3.0 10.3 5.0 9.8 Less: Acc Depreciation 150 202 326 424 Inventory days 3.9 3.8 3.5 3.6 Net PPE 1449 1589 2771 2747 Debtor days 31.6 45.5 45.2 39.1 Investment Property 2 2 3 3 Creditor days 53.4 58.8 51.9 45.8 CWIP 556 664 180 305 Return Ratios (%) Total Fixed Assets 2007 2256 2953 3055 RoE 1.8 6.7 4.1 9.7 Intangibles 12 12 12 12 RoCE 4.6 5.5 7.2 8.3 Investments 47 52 50 50 RoIC 5.4 4.2 7.6 6.4 Inventory 5 6 8 10 Valuation Ratios (x) Debtors 53 84 93 99 P/E 320.0 82.6 129.5 53.1 Loans and Advances 0 0 0 0 EV / EBITDA 41.5 34.5 22.7 17.7 Other Current Assets 47 46 48 54 EV / Net Sales 11.7 10.6 8.7 7.0 Cash 21 31 12 14 Market Cap / Sales 9.6 8.5 6.5 5.2 Total Current Assets 138 197 190 211 Price to Book Value 5.7 5.3 5.4 4.9 Creditors 81 96 108 117 Solvency Ratios Provisions & Others 88 135 143 142 Debt/EBITDA 7.4 7.1 5.8 4.5 Total Current Liabilities 249 292 326 343 Debt / Equity 1.2 1.4 1.8 1.7 Net Current Assets -111 -95 -135 -132 Current Ratio 0.6 0.7 0.6 0.6 Others Assets 254 255 341 302 Quick Ratio 0.5 0.7 0.6 0.6
Application of Funds 2209 2480 3220 3287 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 7 Result Update | Lemon Tree Hotels ICICI Direct Research
Exhibit 24: ICICI Direct coverage universe (Hotels) CMP M Cap EPS P/E (X) EV/EBITDA ROCE (%) RoE (%) Sector/Company (|) TP(|) Rating (| Cr) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E Indian Hotel (INDHOT) 141 135 HOLD 16769 2.4 3.0 4.0 58 37 36 22 17 15 7.1 8.4 10.1 6.6 10.1 9.7 EIH (EIH) 136 175 BUY 7773 3.4 3.1 4.4 53 44 31 20 23 18 9.2 7.7 10.2 6.4 5.7 7.8 TajGVK Hotels(TAJGVK) 175 220 BUY 1097 4.3 6.2 7.8 40 28 23 17 14 13 9.7 11.1 11.8 6.9 9.8 11.1 Lemon Tree Hotels 59 71 BUY 4662 0.7 0.5 1.1 83 129 53 35 23 17 5.5 7.2 8.4 6.7 4.1 9.7 (LEMTRE)
Source: Company, ICICI Direct Research
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Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
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