MOSL: LEMON TREE HOTELS (Buy)-Synergies from Keys’ acquisition to offer a great deal
Lemon Tree Hotels: Synergies from Keys’ acquisition to offer a great deal; Further strengthening its presence in the mid-market segment
(LEMONTRE IN, Mkt Cap USD0.8b, CMP INR66, TP INR90, 36% Upside, Buy)
Lemon Tree (LEMONTRE) hosted a conference call to discuss its acquisition of Keys Hotels. Main insights highlighted below:
Concludes acquisition of Keys Hotels for cash consideration of INR4,710m
The LEMONTRE board has approved the acquisition of Keys Hotels, owned by Berggruen Hotels Pvt. Ltd, for a cash consideration of INR4,710m (enterprise value – INR6,050m) through its subsidiary Fleur Hotels. Keys Hotels operates seven owned hotels (936 keys) and 14 managed hotels (975 keys). The acquisition will increase LEMONTRE’s managed rooms by 50% and owned/leased rooms by 24%, taking the total to ~7,800 rooms, which constitutes 15% of the mid-market room supply in the country (up from 11%).
LEMONTRE’s distribution network provides revenue potential…
Currently, occupancy/ARR of Keys Hotels is 10%/25% lower than LEMONTRE. However, management believes that the said gap can be narrowed by leveraging the distribution network of the company, and thus, offering a lucrative opportunity. Management highlighted that few hotels of Keys are located in the vicinity of LEMONTRE’s existing hotels. Therefore, post-acquisition, the company would control a significant chunk of the supply in the respective micro-markets (Whitefield & Electronic City in Bangalore and Pune), which would further aid ARR increase.
Lemon Tree Hotels Ltd is an India-based company, which operates a chain of upscale business and leisure hotels. The Company is engaged in acquiring land, building, leasing, owning, managing and marketing hotels. The Company offers three brands across various levels, that include Aurika Hotels and Resorts in Upscale; Lemon Tree Premier and Keys Prima in the upper midscale segment; Lemon Tree Hotels and Keys Select, in the midscale segment; and Red Fox Hotels and Keys Lite by Lemon Tree Hotels in the economy segment. Lemon Tree hotels are located across India, in metro regions, including the Mumbai, Bengaluru, Kolkata, Hyderabad and Chennai, as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh, Jaipur, Udaipur, Indore, Vijaywada and Aurangabad.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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