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MOSL: LEMON TREE HOTELS (Buy)-ARR growth and new hotels drive revenues-New hotels dent EBITDA performance

LEMON TREE HOTELS: ARR growth and new hotels drive revenues; New hotels dent EBITDA performance

(LEMONTRE IN, Mkt Cap USD0.6b, CMP INR57, TP INR75, 32% Upside, Buy)

 

• In-line revenue and EBITDA (on like-to-like basis): 1QFY20 revenue stood at INR1,409m (v/s est. INR1,428m), up 11% YoY. However, like-to-like EBITDA (adj. for Ind-AS 116 impact) stood at INR372m (v/s est. INR393m), up 7% YoY. Like-to-like EBITDA margins contracted 100bp to 26.4%. Loss during the quarter stood at INR17m (v/s est. profit of INR20m), as against profit of INR23m in 1QFY19.
• Decent ARR and occupancy improvement amidst weak environment: During 1QFY20, revenue growth of 11% was aided by (a) ARR growth of 2.6% YoY to INR4,002, (b) occupancy improvement of 70bp to 77.5% (on same hotels basis, occupancy improved 268bp to 79.5%), and (c) commencement of new hotels. However, like-to-like EBITDA grew only 7% as its recently launched hotels (operating) are in stabilization phase, and thus, dragged EBITDA growth. Operational expenses grew 13%, of which 7% was due to commencement of new hotels.
• Key concall highlights: (1) Keys Hotel is expected to contribute to revenue from 3QFY20. (2) On the student housing front, term sheets for 2,500 beds have been signed; contribution to EBITDA can be expected from 3QFY20.
• Valuation & view: Stabilization of recently launched hotels (in Pune, Chandigarh and Dehradun) and the new hotel in Mumbai are likely to drive operating profits in FY20. Factoring in the impact of Ind-AS 116 into our model, we raise our FY20/FY21 EBITDA estimate by 11%/8%, but cut PAT estimate by 14%/5%. We value the stock at 18x FY21 EV/EBITDA and arrive at a TP of INR75. Maintain Buy.