Evaluating Lemon Tree Hotels: business, financials, and recent developments

The impact of the coronavirus pandemic and the nation-wide lockdown on the hospitality sector has been and continues to be significant. Even as the curbs were lifted, lack of transport facilities and fear from getting infected with COVID-19 discouraged business and leisure travels. This dampened the demand for hotel rooms, which came as a severe blow to the hotel industry. At such a time, Lemon Tree Hotels managed to report a positive EBITDA in its Q1 FY2021 results, thanks to its timely, smart actions.

In this article, let’s look at Lemon Tree Hotels Ltd’s history, business model, profile, and financials.

About Lemon Tree
Headquartered at New Delhi, Lemon Tree Hotels is a well-known name in India’s hospitality sector. It has presence across the country and operates in upscale, midscale, and economy segments of the hotel business. Recently, Lemon Tree Hotels also expanded its business overseas. As of Jun 2017, Lemon Tree Hotels was India’s largest hotel chain in the mid-range hotel sector and the 3rd largest based on the controlling interest in owned and leased rooms.

History of Lemon Tree Hotels Limited

• Incorporated as “P.M.G Hotels Private Limited” on 2nd Jun 1992 as a private limited company under the Companies Act 1956
• Changed its name to “Krizm Hotels Private Limited” and got a new certificate of incorporation on 13th Dec 2002
• Opened the first ‘Lemon Tree Hotel’ in Gurugram with 49 rooms in May 2004
• Received investment from Maplewood Investment Ltd in 2006 and Citron Limited in 2008
• Opened its first ‘Red Fox’ hotel under economy segment in Jaipur in 2009
  Changed its name to “Lemon Tree Hotels Private Limited” on 2nd Jun 2010
• Opened its first ‘Lemon Tree Premier’ hotel under upper midscale segment in Gurugram in 2010
• Converted Lemon Tree Hotels into a public limited company on 29th Sep 2012 and changed its name to ‘Lemon Tree Hotels Limited’ in the same year
• Issued an IPO of Rs 1,038.68 cr in 2018
• Received final pre-construction approval for its subsidiary ‘Iora Hotels Private Limited’ (‘IORA’) in June 2018
• Ventured overseas in Dec 2019 by launching a hotel in Dubai
• Launched a hotel in Bhutan in Feb 2020

Currently, Lemon Tree Hotels operates ~8,100 rooms in 81 hotels across 49 cities under all its brands combined. About 3 hotels and over 25 management hotels are in the pipeline. After these become operational, Lemon Tree Hotels will have ~10,800 rooms in 109 hotels across 69 cities in and outside India.

Highlights of Lemon Tree Hotels Ltd
Apart from its excellent hospitality services, Lemon Tree Hotels is also known for its environmental and people-related initiatives. It currently focuses on the efficient use and conservation of energy and water in its daily operations. The company’s sustainability initiatives also include using CNG instead of LPG and green building material in the construction of its structures. In the mid- to long-term, Lemon Tree Hotels looks to use recycled water for AC cooling tower, wind and agro power, solar photo voltaic system for lighting and geothermal energy.

Talking of people-related initiatives, Lemon Tree Hotels is an equal opportunity employer and actively hires people with disabilities — physical and intellectual. It is also known for its work culture and has won several awards and recognitions for the same. For 7 consecutive years (from 2011 to 2017), the hotel chain has made it to the list of the “Best Companies to Work for” in India by the Great Place to Work Institute. Here are a few of its achievements.

Board of directors and key managerial personnel of Lemon Tree Hotels Limited

• Patanjali Govind Keswani: Chairman & Managing Director
• Rattan Keswani: Deputy Managing Director
• Aditya Madhav Keswani: Non-Executive Director
• Ravi Kant Jaipuria: Non-Executive Director
• Willem Albertus Hazeleger: Non-Executive Director
• Pradeep Mathur: Independent Director
• Arindam Kumar Bhattacharya: Independent Director
• Freyan Jamshed Desai: Independent Director
• Paramartha Saikia: Independent Director
• Arvind Singhania: Independent Director
• Ashish Kumar Guha: Independent Director
• Davander Tomar: Executive Vice-President, Corporate Affairs
• Vikramjit Singh: President
• Jagdish Kumar Chawla: Executive Vice President — Projects & Engineering Services
• Kapil Sharma: Chief Finance Officer
• Anshu Sarin: Chief Executive Officer, Keys Hotels
• Sumant Jaidka: Senior Vice President — Operations
• Mahesh S. Aiyer: Senior Vice President — Operations
• Harleen Mehta: Senior Vice President — Sales

Business model of Lemon Tree Hotels
The hotel chain earns revenue via 3 avenues:

• Owns hotels: Lemon Tree owns hotels and offers them to customers
• Leases hotels: the hotel chain takes hotels on lease and earns by renting them to customers
• Manages hotels: ties up with the management of other hotels and earns on a commission basis)

Business segments of Lemon Tree Hotels Limited
The company operates in the following segments:

• Upscale
• Mid-priced — upper-midscale, midscale, and economy

Brands of Lemon Tree Hotels Ltd
Lemon Tree Hotels operates under the following brands to serve customers belonging to its various business segments and meet their evolving behaviour:

• Aurika Hotels & Resorts — Upscale
• Lemon Tree Premier — Upper Midscale
• Keys Prima — Upper Midscale
• Keys Select — Midscale
• Lemon Tree Hotels — Midscale
• Keys Lite — Economy
• Red Fox Hotels — Economy

Lemon Tree Hotels subsidiaries
The company has both direct and indirect subsidiaries as listed below:

Some of its direct subsidiary companies are:

• Begonia Hotels Pvt. Ltd.
• Canary Hotels Pvt. Ltd.
• Dandelion Hotels Pvt. Ltd.,
• Lemon Tree Hotel Company Pvt. Ltd.
• Oriole Dr. Fresh Hotels Pvt. Ltd.
• PSK Resorts & Hotels Pvt. Ltd.
• Red Fox Hotel Company Pvt. Ltd.

Some of its indirect subsidiary companies are:

• Bandhav Resorts Pvt. Ltd.
• Celsia Hotels Pvt. Ltd.
• Inovoa Hotels And Resorts Ltd.
• Ophrys Hotels Pvt. Ltd.
• Hyacinth Hotels Pvt. Ltd.

Acquisition by Lemon Tree
In FY2020, Lemon Tree Hotels acquired 100% stake in Berggruen Hotels Private Limited via its subsidiary Fleur Hotels Private Limited. This makes Berggruen Hotels a direct subsidiary of Fleur Hotels Private Limited and an indirect subsidiary of Lemon Tree Hotels Limited.

Peers of Lemon Tree Hotels Ltd
Indian Hotels Company Ltd, EIH Ltd, and Chalet Hotels Ltd are some of the peers of Lemon Tree Hotels Ltd. Following is an image that compares the valuation metrics of these stocks.

To assess how Lemon Tree share compares with its peers based on technical and forecast metrics, go to ‘Peers’ tab of the stock page on Tickertape.

Lemon Tree share price
Here’s a chart comparing Lemon Tree share price movements with that of Indian Hotels and EIH Ltd from 16th Oct 2019 to 12th Oct 2020. You can also compare the stock with others.

Financials of Lemon Tree Hotels Ltd

Last 4 yrs’ income statement of Lemon Tree Hotels Ltd

While Lemon Tree Hotel’s revenue and EBITDA have risen consistently from FY2017 to FY2020, its net income saw a sharp decline in FY2020. This can be attributed to tepid demand due to the pandemic. Further, the increase in the company’s revenue is mostly due to its cost cutting-initiatives.

Over the last 5 yrs, Lemon Tree Hotels has generated a higher revenue compared to the industrial average. If you wish to do an in-depth analysis of Lemon Tree’s financials, you can do so by using the quarterly financials feature of Tickertape. Here’s how you can access the feature.

Last 4 yrs’ balance sheet of Lemon Tree Hotels Limited

Though Lemon Tree Hotel’s current ratio rose for the first 3 yrs in consideration, it dropped in FY2020 — due to the pandemic. The numbers also suggest that the company doesn’t have liquid assets in proportion with its current liabilities. Nonetheless, Lemon Tree Hotels current ratio has been higher than the industry average over the last 5 yrs, which is noteworthy.

Talking about the debt-to-equity ratio, the figure has seen a consistent rise over the 4 yrs under review. It also suggests that the company’s operations are significantly funded by debt. In fact, the company’s debt-to-equity ratio has been higher than the industry average over the last 5 yrs.

Cashflow statement of Lemon Tree Hotels Ltd

On Tickertape, you can access 9 yrs’ financial statements for every stock listed on NSE. Visit Lemon Tree Hotels stock page to view the information for all the 9 yrs.

Lemon Tree Hotels Ltd’s Q1 FY2021 results
Due to lack of business owing to the pandemic, Lemon Tree Hotels put in place a two-pronged strategy: to earn revenue from all possible segments amid the testing situation and redefine its cost fixed and variable structure. That is why the company implemented various cost-cutting measures — these include voluntary pay cuts and strict control in power and fuel cost — so expenses could shrink to match the level of revenue.

Although demand for Lemon Tree’s hotel rooms wasn’t at pre-COVID levels during Q1, the company saw it coming from Indians opting for institutional quarantine under the Vande Bharat Mission, global IT majors, and frontline workers. With 71% of inventory operational, a mere average occupancy of 28.9%, and average room rates down by 34.4%, the hotel chain’s revenue for Q1 FY2021 declined by 71.1% y-o-y. The hotel chain’s total operating expenses and EBITDA were also down by 62.2% and 83.8%, respectively.

• Average Daily Rate (ADR) declined by 34.4% y-o-y compared to 60% of the industry. ADR is the average tariff per room per day, which is set based on the demand and supply in the sector. A decline in ADR also brings down the revenue
• The occupancy rate fell by 48.6% during the quarter under review. The industry occupancy fell to 15%
• The fees earned from managed hotels was Rs 0.5 cr, 1.1% of operations revenue
• Total expenses came down by 62.2% y-o-y

According to the management, Lemon Tree Hotels has sufficient cash to pay the total expenses including debt for the following 4 quarters. Thanks to Unlock 3.0, the hotel chain had 85.5% of its owned/leased inventory operational in Jun. Although the company has seen a negligible rise in demand, the Lemon Tree Hotels hopes that the hospitality industry would start recovering from the second half of the FY2021.

Recent developments
Recently, Lemon Tree Hotels Limited launched two new properties in India.

• Resort Lazy Lagoon at Baga, Goa
• Hotel in Dwarka, Gujarat

As mentioned, the company has 3 own hotels and over 25 management hotels in the pipeline.

Prospects of Lemon Tree Hotels Limited
The pandemic and the resultant lockdown has had an enormous impact on Lemon Tree Hotels and the same would continue until business picks up. For now and some time to come, the hotel chain faces the structural loss of demand.

Finally, we suggest you conduct your own research before making an investment decision. Read the entire coverage of Lemon Tree Hotels Ltd here.