IPO of Lemon Tree Hotels Ltd will open
on March 26 and closes on March 28, 2018. The proceeds from this IPO of
around Rs 10.9 billion will go to the selling shareholders & promoters are not selling their shares ( Holding 29.16%.)
About
the company, Lemon Tree Hotels Ltd. is the India's largest hotel chain in the
mid-priced hotel sector, and the third largest overall, on the basis of
controlling interest in owned and leased rooms, as of June 30, 2017 (as per the
Horwath Report). It is also the ninth largest hotel chain in India in terms of
owned, leased and managed rooms, as of June 30, 2017. The company operates in
the mid-priced hotel sector, consisting of the upper-midscale, midscale and
economy hotel segments.
A significant part of the company's
revenues (57% in FY17) comes from the corporate customers. The company opened
its first hotel in 2004 and the count as of 31 July 2017 stood at 40.
Business Model:
§ Direct ownership of hotel
properties wherein the land is acquired by Lemon Tree (19 hotels)
§ Long term lease for
the land on which Lemon Tree constructs its hotel (3 hotels)
§ Long term lease for
hotels owned by third parties (5 hotels)
§ Operating and
Management agreements (13 hotels)
The hotels are spread across India.
In metros, the company is present in National Capital Region (NCR), Bengaluru,
Hyderabad and Chennai. Whereas, in Tier 1 and Tier 2 cities, they are present
in Pune, Ahmedabad, Indore, Chandigarh, Indore and Aurangabad etc.
Pros : Various state governments
are promoting tourism by advertising in the media space. Gujarat, Rajasthan, Madhya
Pradesh, Uttar Pradesh are some few states which have witnessed a surge in
tourism post these advertisements.
Further, there has
been a rise in the foreign tourists in India. Foreign Tourist
Arrival (FTAs) at 101.77 lakh grew by 15.6% in FY17 as compared to a year ago.
The Government of India has planned to take the FTA figure to 20 million by 2020.
This trend as witnessed in the preceding two years can improve further with
introduction of e-visa.
Not only this,
with tax benefits to hotels located nearby
UNESCO sites and the launch of campaigns such as Incredible India, the
tourism industry could get the much-needed boost which in-turn would benefit
the hospitality sector.
Cons : Slowdown
in Economic Growth Could Impact Financials. As 60% of the business of the company comes from
corporate clients, a slowdown in the economic activity in India can hamper the
health of the company.
High
Attrition Rates... The company has attrition rates north of 40% in last 3years, which
costs it to require new recruitments and train them as well.
Low
Interest Coverage Ratio... The debt is
almost doubled since FY13. This
has impacted the interest coverage ratio from FY13 to FY16. In 2017, it is
1.PAT has been negative for past five
years mainly on account of higher finance cost and depreciation.
At the
upper price band of Rs 56, the stock is valued at a price to book value of 3.6
times which is at par with The Indian Hotels Ltd - one of the biggest players
in the Indian hotels industry. Its Return on
Net Worth (%) is -0.6 ; Net Profit Margin (%) is -2 & Debt/
Equity Ratio (x) is 0.6.
As the market is
trading with negative bias due recent rise in Interest Rate ( USA), we may get the
stocks at lower price.
