Lemon Tree Hotels’ Fleur scale-up and asset-light pipeline bolster growth visibility

Investment View and Target Price

Motilal Oswal Financial Services (MOFSL) retains a BUY rating on Lemon Tree Hotels with a sum-of-the-parts based target price of Rs 140 for FY28, versus the current market price of Rs 108. The broker considers the 1QFY27 operating performance to be in line, while its longer-term growth view is supported by Fleur’s owned-hotel expansion, the asset-light management-contract model, Aurika premiumisation, hotel rebranding and the benefits of completed renovations.

1QFY27 Operating Performance

Lemon Tree Hotels reported 1QFY27 revenue growth of about 9 per cent year on year to Rs 3.4 billion. Room revenue grew 5 per cent, management fees rose 42 per cent and food and beverage revenue increased 30 per cent.

The company prioritised occupancy and retail volumes amid subdued corporate demand, which limited ARR growth. Management indicated that performance had improved in July and August, and that the company had moved to a more balanced 2Q strategy aimed at improving both occupancy and ARR.

Margin Factors and Balance Sheet

EBITDA margin was affected by Rs 98 million of renovation spending, technology investments and an Rs 81 million GST impact. Gross debt stood at Rs 14.8 billion, compared with Rs 16.5 billion in June 2025.

Keys Brand Progress and Renovation Programme

Management commentary highlighted progress at the Keys brand. Keys RevPAR increased 19 per cent to about Rs 2,885, while 1QFY27 ARR was Rs 4,311, nearing management’s Rs 4,500 target. About 75 per cent of the Keys portfolio has been renovated, although the brand remains a work in progress and further refurbishment is planned.

Management expects Keys to operate at full potential next year, with occupancy moving closer to Lemon Tree levels and continued ARR improvement. This is expected to support a Rs 600 million EBITDA target. Major renovations at Keys Pimpri and Whitefield were completed at costs of Rs 110 million and Rs 230 million, respectively.

Lemon Tree Hotels renovated about 300 rooms in 1QFY27 and planned a similar number in 2QFY27. Major renovation projects are expected to be largely completed in FY27, leaving routine refurbishment thereafter. Incremental renovation spending of about Rs 60 million above normal quarterly spending of about Rs 30 million is expected to normalise from FY28.

These temporary renovation, technology and GST costs, alongside subdued corporate demand and muted 1Q ARR growth, are the near-term factors constraining margins and operating performance.

Growth Outlook and Estimates

MOFSL expects Lemon Tree Hotels to deliver FY26-FY28 revenue, EBITDA and adjusted PAT CAGRs of 9 per cent, 13 per cent and 22 per cent, respectively. RoCE is expected to improve to about 18 per cent in FY28 from about 13.1 per cent in FY26.

• An approximately 13,300-room management-contract pipeline.
• Aurika expansion and premiumisation.
• Hotel rebranding and higher yields after renovations.
• Support from Warburg Pincus.
• Fleur’s 3,300-key pipeline by FY30.

MOFSL broadly maintained its revenue estimates, reduced FY27E and FY28E EBITDA estimates by 1 per cent, and raised adjusted PAT estimates by 6 per cent and 7 per cent, respectively.

FY28 Valuation Framework

The FY28 target valuation assigns 17 times EV/EBITDA to standalone EBITDA of Rs 556 million and to Lemon Tree Hotels’ share of Fleur EBITDA. Carnations’ management-contract EBITDA receives a 30 times EV/EBITDA multiple.