Home >Markets >Mark To Market >Lemon Tree Hotels’ woes are far from over after a tough year

Financial year 2021 was a challenging one for Lemon Tree Hotels Ltd. After all, the hotel sector was one of the worst-affected due to the covid-19 pandemic as demand took a beating owing to the various restrictions to contain the spread of the virus.

The upshot: Lemon Tree’s consolidated revenues have declined as much as 62% to 252 crore for FY21 versus FY20. There was some respite in the March quarter with improving consumption on the leisure front. Consequently, the drop in revenues was curtailed to 46% year-on-year (y-o-y). Even so, revenues have grown by 39% on a quarter-on-quarter basis and that is encouraging. This was helped by 1,685 basis points improvement in occupancy rates sequentially to 59.3%. One basis point is one-hundredth of a percentage point.

Rough path
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Rough path

However, with the second covid wave, the near-term path is anything but smooth. Unfortunately for investors, this also delays the anticipated recovery further. “Heading into FY22E, the second wave in India has dented the nascent recovery in the sector and we now expect the company’s average daily rates and occupancies to recover to pre-covid levels only in FY24E versus FY23E earlier," said analysts from ICICI Securities Ltd in a report on 16 June.

The broker added: “Factoring in the covid impact, we cut our FY22/FY23E revenue estimates by 32-14% and Ebitda estimates by 44-17%, respectively." Ebitda is short for earnings before interest, tax, depreciation and amortization.

In the March quarter, Lemon Tree’s average daily rate fell as much as 45% y-o-y to 2,498, although the sequential drop in the measure was curtailed to 1%.

However, as mentioned earlier, occupancy rates have been far better compared to the December quarter.

The company’s management told analysts that the sequential pick-up was driven by the gradual decline in covid cases across the country and also better demand from ‘staycations’ and leisure.

For FY21, Lemon Tree managed to report an Ebitda of 61 crore, which is commendable despite the tough business conditions. Going ahead, investors would do well to track the progress on the revival in corporate demand.

“Lemon Tree operates in the mid-priced market and has a higher share of domestic customers (85%), which is likely to witness a faster demand recovery. It is also benefiting from a higher share of SME (small and medium enterprises) and retail customers, which have witnessed a faster demand revival," said analysts from Motilal Oswal Financial Services Ltd in a report on 16 June.

As things stand, Lemon Tree’s shares are about 34% away from pre-covid highs seen in January 2020. The delay in recovery and weak outlook on the earnings front may well keep a check on the stock’s performance until meaningful signs of demand revival emerge

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