Lemon Tree Hotels expects RevPAR recovery and FY28 margin expansion

Investment View and Target Price

In its August 11, 2026 result update on Lemon Tree Hotels Ltd. (LTHL), ICICI Direct retained its BUY recommendation and revised its target price to Rs128. The broker views the company as a beneficiary of a recovery in room-rate growth, normalising renovation expenses and a lower GST drag by FY28E.

Lemon Tree Hotels is India’s largest hotel chain in the mid-priced hotel sector. It operates hotels under the Aurika Hotels and Resorts, Lemon Tree Premier, Lemon Tree Hotels, Red Fox and Keys brands.

Q1FY27 Financial Performance

Lemon Tree Hotels reported consolidated revenue growth of 9.1 per cent year on year to Rs344.6 crore in Q1FY27. RevPAR rose 6.4 per cent to Rs4,814, driven principally by a 320-basis-point increase in occupancy to 76 per cent, while average daily rate grew only 2 per cent to Rs6,361.

Adjusted PAT after minority interest increased 19.2 per cent to Rs57.3 crore, aided by an 18.6 per cent reduction in interest costs. Excluding GST and stock appreciation rights charges, EBITDA was Rs160.4 crore and EBITDA margin expanded 205 basis points year on year to 46.5 per cent.

Room-Rate Growth and Demand Outlook

The broker attributes muted room-rate growth to geopolitical instability, lower air travel and foreign tourist arrivals, and subdued corporate travel and MICE activity during Q1FY27. Management temporarily increased retail business, particularly in business cities, to protect occupancy, which constrained ARR growth.

Management said demand improved in July and remained steady in August. It expects a more balanced ARR and occupancy strategy in H2FY27, supported by a stronger MICE calendar including BRICS and more than 40 wedding dates. This could return RevPAR growth to double digits in coming quarters.

Brand Performance

Around 75 per cent of the Keys portfolio has been renovated. Management expects Keys to reach full performance next year, with ARR approaching Red Fox levels and EBITDA of around Rs60 crore.

Managed and Franchised Portfolio Expansion

Lemon Tree Hotels signed management or franchise contracts for 13 hotels with 1,020 rooms in Q1FY27. Its managed and franchised pipeline stood at 140 hotels and 10,561 keys.

Management fee income grew 21 per cent year on year to Rs45.4 crore, including Rs22.6 crore from Fleur Hotels and Rs22.8 crore from third-party owned hotels. Management expects double-digit fee growth from Q2FY27 and acceleration as the signing pipeline becomes operational.

The company is also adding premium Aurika properties, including locations in Shimla, Shillong, Nehru Place in Delhi and Varanasi.

Margin Expansion and Estimates

ICICI Direct expects renovation and GST costs to decline as key drivers of operating leverage. Management expects the GST impact at around 2 per cent of revenue and renovation costs at around 1.9 per cent in FY27. These are expected to moderate to around 1.7 per cent and 1.3 per cent, respectively, in FY28.

Management expects FY27 EBITDA margin above 47 per cent and a medium-term margin of around 50 per cent. The broker reduced its estimates as follows:

• FY27E revenue estimate reduced by 1.1 per cent and FY28E revenue estimate by 2.2 per cent.
• FY27E EBITDA estimate reduced by 2.9 per cent and FY28E EBITDA estimate by 2.4 per cent.
• FY27E PAT estimate reduced by 3.9 per cent and FY28E PAT estimate by 3.1 per cent.

Valuation and Key Risks

ICICI Direct’s Rs128 target price is based on 20 times FY28E EV/EBITDA after adjusting for the 59 per cent stake in Fleur Hotel.

Key risks identified by the broker are:

• A demand slowdown caused by global weakness or a black-swan event.
• A delay in debt reduction.