Lemon Tree's stock outlook is improving, but don't expect a run-away rally
1 min read 02 Jun 2022, 12:29 PM ISTThe management expects consumption to reach pre-covid levels by 1HYFY23. Further, in FY23, revenue is expected to grow at least 100% and the company aims to have net Ebitda of minimum 50%. However, after a sharp run up in the stock price, a potential upside from the current level is limited
PremiumShares of Lemon Tree Hotels Ltd have risen around 15% since the company announced its Q4FY22 earnings on 27 May. The rise has come despite a poor earnings performance in the quarter gone by. Omicron-led disruption in the initial part of the March quarter weighed on its operations. The company has around 86% inventory in the business segment and nearly 40% old inventory in Gurgaon, Hyderabad and Bangalore, the management said. Consequently, it disappointed on key parameters as occupancy dropped 967 basis points year-on-year and stood at 46.1% in Q4FY22. One basis point is 0.01%.
However, demand outlook is seen improving. In a call with analysts, the company's management said, post the opening up of offices towards the end of March, occupancy in its key markets of Bangalore and Hyderabad was at around 80%. The management expects consumption to reach pre-covid levels by 1HYFY23. Further, in FY23, the management expects revenue to grow at least 100% and aims to have net Ebitda of minimum 50%. Ebitda is short for earnings before interest, tax, depreciation and amortization.
On Thursday, the stock rose nearly 4% intraday on the National Stock Exchange and currently trades at Rs68.10.
Analysts at Motilal Oswal Financial Services Ltd note that with improving traction in corporate travels and resumption in international travels, the company is expected to witness a strong growth as it garners around 86% of its business from business segment.
"In FY21, Lemon Tree operated 13 toddler hotels with 1,914 rooms, which accounted for 37% of its owned/leased room inventory. The performance of these rooms, which were in the stabilisation phase, has been impacted by the pandemic. Once normalcy is reached, stabilisation will drive growth," said the Motilal Oswal report.
Sharing the optimism, analysts at IDBI Capital Markets and Securities Ltd said, "The company’s focus on inventory addition through management contracts, opening up of Aurika, Mumbai and prudent cost optimization measures would pave the way for future earnings growth." However, after a sharp run up in the stock price, potential upside from current level is limited, added the IDBI report.
Note that so far in this calendar year, the stock is up about 40%, having hit a new 52-week high of ₹71.45 on the NSE in April.
