Lemon Tree Hotels margin recovery hinges on repricing, renovations and new Aurika rooms

Investment View and Target Price

Prabhudas Lilladher's November 12, 2026 Q2FY27 result update maintains a BUY recommendation on Lemon Tree Hotels and raises the target price to Rs160 from Rs155. The broker increased EBITDA estimates by about 3 per cent across FY27E to FY29E after refining its RevPAR growth assumptions.

The investment case is supported by expected margin recovery in 2HFY27E, renovation-led repricing and inventory additions at Aurika properties. Prabhudas Lilladher expects revenue to grow at an 11 per cent CAGR over FY26 to FY29E. Two marquee Mumbai and NCR assets are expected to become operational only after FY29E.

The target price is based on a sum-of-the-parts valuation using September 2028E EBITDA multiples of 22 times for the fee business and 20 times for the asset-heavy business, with no change in target multiples. The valuation implies a total equity value of Rs126,319 million, or Rs160 per share, after debt and cash adjustments.

Q2FY27 Financial Performance

Lemon Tree Hotels reported Q2FY27 revenue of Rs3,614 million, up 18.0 per cent YoY and above Prabhudas Lilladher's estimate of Rs3,389 million and consensus of Rs3,476 million. ARR rose 8.1 per cent YoY to Rs6,751, RevPAR increased 17.9 per cent YoY to Rs5,137 and occupancy was 76.1 per cent.

EBITDA rose 22.2 per cent YoY to Rs1,597 million, exceeding the broker's Rs1,451 million estimate and consensus of Rs1,510 million. EBITDA margin expanded 150 basis points YoY to 44.2 per cent, compared with the broker's 42.8 per cent estimate, as higher-than-expected revenue supported the operating beat.

Profitability and Exceptional Items

Reported PAT after minority interest increased 63.7 per cent YoY to Rs566 million. However, adjusted PAT after minority interest was broadly flat YoY at Rs346 million, below the broker's Rs425 million estimate and consensus of Rs520 million.

Reported profit included a net exceptional gain of Rs221 million from termination of a Gurgaon hotel lease. Elevated tax expense of Rs311 million, compared with the broker's Rs192 million estimate, and minority interest of Rs231 million, compared with Rs150 million estimated, constrained adjusted profitability. GST-related headwinds represented 2.4 per cent of sales, while the SAR provision represented 0.8 per cent of sales.

Forecasts and Margin Outlook

Prabhudas Lilladher expects EBITDA margins to improve from 48.6 per cent in FY27E to 49.7 per cent in FY28E and 51.0 per cent in FY29E. The improvement is expected to be supported by lower renovation intensity of 1.9 per cent of revenue in FY27E and 1.3 per cent in FY28E, alongside pricing actions intended to mitigate GST effects.

Expansion and Management Commentary

Management stated that around 80 per cent of renovation work across the Keys portfolio has been completed. It expects 2HFY27E to contribute around 55 per cent of FY27 revenue and 60 per cent of EBITDA.

Lemon Tree Hotels remains on track to open around 2,000 managed rooms gross in FY27E, compared with 1,523 rooms opened in the prior year. Aurika Shimla, Aurika Shillong and Aurika Varanasi are scheduled to open in Q3FY27E, FY28E and FY29E respectively.

The company acquired land adjoining BKC, Bandra, for around Rs1,200 million to develop an upscale 172-room hotel expected to commence operations in FY30E. Management expects the Bandra hotel to generate ROCE of around 12 to 13 per cent if it achieves the targeted ARR of Rs12,000, subject to regulatory approvals and project execution.

Operating Concerns

• Renovation and GST pressure are affecting Fleur management-fee income.
• Around 530 rooms were de-flagged in Q2FY27, largely due to compliance-related matters at managed properties.
• The Gurgaon lease exit removed around 80 rooms after approval to operate its banquet was withdrawn.
• The company shelved its Maldives acquisition plan following a local-currency revenue-retention requirement.