Lemon Tree Hotels Share Price Target at Rs 172: BP Equities
BP Equities has issued a BUY recommendation on Lemon Tree Hotels Limited, India’s largest mid-priced hotel chain, setting a target price of Rs 172 per share, representing a 24% upside from the current market price of Rs 138. The report underscores Lemon Tree’s robust expansion strategy, industry-leading EBITDA margins, and asset-light growth model as key drivers for future outperformance. Investors are advised to capitalize on the company’s dominant position in the mid-market hospitality segment, its aggressive pipeline, and its prudent financial management, all of which position Lemon Tree for sustained growth in a demand-rich, supply-constrained market.
BP Equities Endorses Lemon Tree Hotels: BUY Call with Rs 172 Target
BP Equities Pvt. Ltd. has placed a BUY rating on Lemon Tree Hotels Ltd., highlighting its leadership in the mid-market hotel segment and its compelling growth prospects. The research house values the stock at a PE of 50x FY26e earnings, projecting a 24% upside from the current market price.
Investment Rationale: Demand-Supply Gap Fuels Growth
India’s hospitality sector is experiencing a pronounced demand-supply imbalance, creating a fertile environment for expansion. The country’s burgeoning middle class, rising disposable incomes, and government-led infrastructure initiatives are catalyzing a surge in both domestic and foreign tourism. Notably, domestic tourist visits are projected to grow at a 13.4% CAGR from 2.8 billion in 2024 to 6.0 billion in 2030, while foreign tourist arrivals are expected to rise at a 7.1% CAGR.
Lemon Tree’s strategic focus on the underpenetrated mid-market and economy segments positions it to capture outsized gains as demand outpaces supply. The company’s value-for-money proposition and broad geographic footprint ensure it remains the preferred choice for both business and leisure travelers.
Dominance in the Mid-Market Segment
Lemon Tree Hotels has cemented its status as India’s largest branded mid-market hotel chain, operating 111 hotels with 10,269 rooms across 73 locations. The company’s multi-brand strategy—spanning upscale (Aurika), upper mid-scale (Lemon Tree Premier, Keys Prima), mid-scale (Lemon Tree Hotels, Keys Select), and economy (Red Fox, Keys Lite)—enables it to address diverse customer needs.
Recent international forays into Dubai, Bhutan, and Nepal, along with the acquisition of the Keys brand, have further bolstered its market presence. Lemon Tree’s asset-light approach, with 44% of its portfolio managed or franchised, allows for rapid, cost-effective expansion.
Expansion Pipeline: Asset-Light Model Accelerates Growth
The company’s aggressive expansion is underpinned by a robust pipeline of 101 hotels (6,847 rooms), with 99 hotels (6,591 rooms) to be managed or franchised. This asset-light model minimizes capital expenditure while maximizing returns, as Lemon Tree earns management fees and franchise royalties with limited operational risk.
Strategic focus on Tier II and III cities, as well as high-value leisure destinations, ensures Lemon Tree captures emerging demand in under-served markets. The company is also actively converting unbranded hotels into branded properties, further consolidating its leadership.
Financial Performance: Industry-Leading Margins and Steady Growth
Lemon Tree has delivered a stellar financial performance, with revenue from operations growing at a 15% CAGR from FY18 to FY25. The company’s EBITDA margin stands at an industry-leading 49%, and net profit is expected to scale further as renovation and expansion initiatives drive higher Average Room Rates (ARR) and occupancy.
Management fees, a stable revenue stream, have grown nearly tenfold from Rs 64 million in FY18 to Rs 603 million in FY25. The company’s focus on negotiated business (long-term corporate contracts) provides predictable occupancy and revenue visibility.
Key Financials and Valuation
| Year | Net Sales (Rs mn) | EBITDA (Rs mn) | Net Profit (Rs mn) | EBITDA Margin (%) | NPM (%) | ROE (%) | P/E (x) |
|---|---|---|---|---|---|---|---|
| FY24 | 10,127 | 5,237 | 1,817 | 51.7 | 17.9 | 11.8 | 73.6 |
| FY25 | 12,861 | 6,369 | 2,432 | 49.5 | 18.9 | 13.6 | 55.8 |
| FY26E | 14,954 | 7,584 | 2,925 | 50.7 | 19.6 | 14.0 | 40.4 |
| FY27E | 16,945 | 8,839 | 3,976 | 52.2 | 23.5 | 16.0 | 29.3 |
Stock Levels and Target for Investors
Current Market Price (CMP): Rs 138
Target Price: Rs 172
52-Week High/Low: Rs 162 / Rs 112
Market Capitalization: Rs 110 billion
Upside Potential: 24%
Strategic Initiatives: Renovation, Demerger, and Technology
Lemon Tree is investing Rs 120-150 crore in FY26 for portfolio renovation, with a focus on upscaling through the Aurika brand. The company is also planning a demerger, with Fleur to become the asset-holding entity and Lemon Tree focusing on brand, technology, and management platforms—furthering its asset-light ambitions.
The relaunch of the Infinity 2 loyalty program and website upgrades are expected to boost retail demand, targeting a rise in retail bookings from 45% in FY25 to 66% by CY28.
Risks and Considerations
Key risks include delays in commissioning pipeline inventory, macroeconomic shocks, and heightened competition. The company’s exposure to economic cycles and potential disruptions from geopolitical or pandemic events could impact occupancy and revenue.
Long Term View: Lemon Tree Poised for Outperformance
BP Equities’ BUY call is underpinned by Lemon Tree’s dominant market position, asset-light expansion, and superior financial metrics. The company’s ambitious growth pipeline, prudent capital allocation, and focus on operational excellence make it a compelling investment for medium- to long-term investors seeking exposure to India’s burgeoning hospitality sector. The stock’s current levels offer an attractive entry point, with a clear path to value creation as Lemon Tree continues to bridge the demand-supply gap in branded mid-market hotels.
