Lemon Tree Hotels IPO Review

Lemon Tree Hotels LimitedThe Hospitality chain Lemon Tree Hotels IPO is set to raise Rs 1,040 crore through sale of up to 185,479,400 equity shares by the existing  shareholders. Promoters, private equity firm Warburg Pincus, and Dutch pension fund APG, will offload 18.5 crore shares i.e. about 23.59 % stake.

Lemon Tree Hotels Limited IPO Details
Issue Period Mar 26, 2018-Mar 28,2018
Issue Details Offer for Sale of 185,479,400 Equity Shares
Issue Size (Rs. Cr)  1,038.68 Cr
Price Band Rs.54 – 56
Bid Lot 265 Equity Shares 
Issue Structure :  
QIB 50% of the offer 
NIB 15% of the offer 
Retail 35% of the offer-6,49,17,790 Equity Shares – 363.54 Cr
Appls. required for 1x Retail Subscription  2,44,973
BRLMs Kotak Mahindra Capital, CLSA India, J P Morgan, Yes Securities
Registrar Karvy Computershare Pvt. Ltd.
About Lemon Tree Hotels Limited
  • Lemon Tree Hotels Limited  is India’s largest hotel chain in the mid-priced hotel sector, and the 3rd largest overall, on the basis of controlling interest in owned and leased rooms, as of June 30, 2017.
  • The company operates in the mid-priced hotel sector, consisting of the upper-mid scale, mid scale and economy hotel segments.
  • Lemon Tree has 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India as of January 31, 2018.
  • As of January 31, 2018, Lemon Tree has a portfolio of 19 owned hotels, 3 owned hotels located on leased or licensed land, 5 leased hotels and 18 managed hotels.
  • Issue consists of offer for sale by Maplewood Investment, RJ Corp, Ravi Kant Jaipuria and Sons (HUF), Whispering Resorts, Swift Builders, Five Star Hospitality Investment Limited, Palms International Investments Limited, Satish Chander Kohli and Raj Pal Gandhi.
Lemon Tree Hotels Limited: Financials: 
(Rs. In Cr)
Particulars 9mFY18 Fy17 Fy16 Fy15
Revenue from Operations  352.25 411.93 367.95 290.36
Revenue Growth (%) 11.95% 26.72%
EBITDA 98.58 122.57 103.29 51.92
EBITDA % 27.99% 29.76% 28.07% 17.88%
Profit Before Tax 5.28 -2.48 -17.28 -60.08
Profit as stated 2.85 -7.17 -29.8 -63.24
EPS (Rs.) 0.04 -0.11 -0.4 -0.69
RONW(%) 0.23% -0.66% -2.52% -4.33%
Share Capital 786.37 781.21 778.04 776.43
Reserves 16.94 27.36 31.86 33.76
Net worth as restated 1,231.55 1,236.93 1,237.63 1,232.46
Long Term Borrowings 899.98 690.7 523.73 486.6
Short Term Borrowings 31.49 67.46 69.49 66.94
Net Asset Value (Rs.) 15.66 15.83 15.91 15.87
Face Value 10
IPO Price 332
Rationale for Investment:
  • Company’s hotels are wide spread geographically. Company’s hotels are located across India, in metro regions, including the NCR, Bengaluru, Hyderabad and Chennai, as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad.
  • As of January 31, 2018, Lemon Tree has a portfolio of 19 owned hotels, 3 owned hotels located on leased or licensed land, 5 leased hotels and 18 managed hotels.
  • Corporate customers contributed 55.62% of the total revenues in the nine months ended Dec 2017.
  • Lemon Tree Hotels Limited has Emerged as a leading mid-price hotel chain in a relatively short time.
  • The outlook for  hotel industry is positive  with mid price room demand expected to grow at a reasonable rate.
  • Company’s shareholders include marquee investors like with Warburg Pincus and APG, a Netherlands based asset manager of pension funds
Risks & Concerns:
  • Hotel industry is highly competitive and capital-intensive.
  • Lemon Tree Hotels operates in mid-sized segment which is highly competitive.
  • Lemon Tree Hotels has no presence in the luxury or upscale segment
  • Demand is both cyclical and seasonal.
Lemon Tree Hotels IPO: Assessment
  • The aggregate number of hotel properties that were owned, operated or managed increased from 18 in year 2013 to 36 hotels by the year 2017 and 45 by  January 2018. Thus Lemon Tree Hotels Limited has shown good growth. 
  • Revenues between FY 2013 to FY 2017 recorded CAGR of 17.8%
  • Lemon Tree Hotels Limited has meagre profitability with losses till FY 2017.
  • Lemon Tree Hotels return ratios are poor and its  EV/EBITDA mis around 44 based on Fy17 results44.5x  whoch is higher compared to other listed hotels.  
  • I  do not intend to apply in Lemon Tree Hotels IPO.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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