This Small Cap Hotel Stock Can Gain 22%, MO Puts A “Buy” On The Stock Today

It's a time when investors are getting very selective in stock buying. Motilal Oswal (MO) has been recommending various value stocks and one of them is small cap hotel stock, Lemon Tree Hotels, which it has suggested to "buy" today. Please note, this is not a recommendation from Goodreturns.in and is from the brokerage report of Motilal Oswal. Please read the disclaimer below.

According to MO, Lemon Tree Hotels posted a strong revenue growth of 2.1x YoY in 4QFY23 (up 43% from 4QFY20 levels), led by improvement in occupancy (up 6pp QoQ/12.6pp vs. 4QFY20). ARR remained stable sequentially (up 29% from 4QFY20 levels). RevPAR improved 11% QoQ to Rs 4,286.

Motilal Oswal has highlighted a few things from the management guidance. According to the brokerage Motilal Oswal, the EBITDA margin is expected to be lower than FY23 levels as the
company will invest in renovations, resulting in an increase in expenses by 2-2.5% of revenue in FY24. It expects to sustain long-term EBITDA margins at 50%. Lemon Tree standalone and Fluer are expected to be debt free by FY26 and FY28, respectively, with major repayments beginning from FY25.

Five year road-map for Lemon Tree Hotels

According to the report, the company is targeting to operate 300+ hotels with a 20,000+ room network (including pipeline) by CY28, of which the share of managed/ franchised rooms will be over 70%.

"We expect the strong momentum to continue going forward, led by: i) further improvement in occupancy on the back of a resilient demand scenario; ii) an increase in ARR with the addition of Aurika MIAL; and iii) strong addition of hotels under management contracts. We maintain our FY24/FY25 EBITDA estimates and reiterate BUY on the stock with a target price of Rs 115 (valued at 16x FY25E EV/EBITDA)," Motilal Oswal has said in its report.

Disclaimer

The stock has been picked up from the brokerage report of Motilal Oswal and is not a recommendation of either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.