Lemon Tree Hotels’ share price increased by more than 10% in morning trade on the BSE on Tuesday, January 2, reaching a new all-time high. Lemon Tree Hotels’ share price opened at 120.90, up from 118.70 the previous day, and jumped 10.3 percent to an all-time high of 130.90. At 10:35 a.m., the stock was trading at 128.25, up 8.05 percent.
Lemon Tree Hotels’ share price increased by approximately 40% in 2023, outperforming the equity benchmark Sensex, which increased by 19%.
However, the midcap stock underperformed the BSE Midcap index, which rose 46% in 2023.
Is there any more steam left?
Despite strong gains last year, experts believe the stock is still a good long-term investment due to strong fundamentals.
Motilal Oswal Financial Services has a buy call on the stock with a target price of 150, implying a 26% gain.
Lemon Tree Hotels, according to Motilal Oswal, has carved out a niche for itself in the expanding midmarket hospitality segment and is now spreading its wings by increasing its inventory through management contracts and improving its presence in the upscale and luxury segments.
“We believe the company is set to benefit significantly from the sectoral tailwinds and emerge as a larger and stronger player,” Motilal Oswal, the company’s CEO, said
“We expect strong momentum for Lemon Tree Hotels to continue going forward, led by: (i) further improvements in occupancy and ARR (average room rate) on the back of resilient demand and a boost from recently opened convention centres in key markets; (ii) an increase in ARR with the addition of Aurika Sky City Mumbai and room renovations; and (iii) addition of hotels under management contracts,” stated Motilal Oswal.
The brokerage firm projects that Lemon Tree Hotels will increase its return on equity (RoE) from 14% in FY23 to nearly 22% by FY26. It also projects revenue, EBITDA, and adjusted PAT CAGRs of 21%, 22%, and 38%, respectively, over FY23–26.
As an upper-upscale hotel, Aurika Sky City Mumbai will be a major beneficiary of the trickling down of demand from the luxury segment, according to Motilal Oswal.
By FY26, Motilal Oswal predicted that the hotel would account for roughly 21% of consolidated revenue and 23% of consolidated EBITDA.
In addition, Lemon Tree has a robust pipeline of approximately 3,354 managed rooms (or roughly 91% of operational managed rooms), according to the brokerage firm. These rooms are anticipated to become operational by FY27, increasing the managed room share to approximately 55%. By FY26, Lemon Tree is expected to generate management fees of ₹94.3 crore (or nearly 38 percent CAGR over FY23–26E), according to the brokerage firm.
Technical indicators are flashing bullish signals in addition to the positive fundamentals.
Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers Jigar S. Patel noted that the stock has recently given a profitable weekly breakout, which is a positive sign. Technical indicators such as weekly Stochastics have also confirmed the bullish bias by turning overbought.
“As we proceed, the ₹140 level in Lemon Tree becomes visible. Conversely, given that there are several Fibonacci ratio clustering, ₹140 would be a significant resistance zone (see chart). “Support is anticipated close to ₹125,” Patel stated.
