Lemon Tree Hotels IPO review

Lemon Tree Hotels Limited are the India’s largest hotel chain in the mid-priced hotel sector. They are coming up with their initial public offer. They are going to introduce their ipo on 26^th march 2018 and the issue will close on 28^th march 2018. The firm aiming to raise around Rs. 1038.68 cr. by offering shares at Rs 54 – Rs 56 per Equity Share.

About Company

Lemon Tree Hotels Limited was incorporated as “P.M.G Hotels Private Limited” on June 2, 1992, as a private limited company at New Delhi. They are India’s largest hotel chain in the mid-priced hotel sector, and the third largest overall on the basis ofcontrolling interest in owned and leased rooms, as of June 30, 2017. They are theninth largest hotel chain in India in terms of owned, leased and managed rooms, as of June 30, 2017. They operate in the mid-priced hotel sector, consisting of the upper-midscale, midscale andeconomy hotel segments. They seek to cater to Indian middle class guests and deliver differentiated yet superiorservice offerings, with a value-for-money proposition. They opened their first hotel with 49 rooms in May 2004. They operated 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India.

They have created three brands in order to address three hotel segments:

1. Lemon Tree Premier which is targeted primarily at the upper-midscale hotel segment catering to businessand leisure guests who seek to use hotels at strategic locations and are willing to pay for premium service and hotel properties
2. Lemon Tree Hotels which is targeted primarily at the midscale hotel segment catering to business andleisure guests and offers a comfortable, cost-effective and convenient experience
3. Red Fox by Lemon Tree Hotels which is targeted primarily at the economy hotel segment.

Their hotels are located across India, in metro regions, including theNCR, Bengaluru, Hyderabad and Chennai, as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh,Jaipur, Indore and Aurangabad.In the leisure hotel segment, they operate a resort and a hotel in Goa, one resort in the backwaters of Alleppey, Kerala and one wildlife resort in Bandhavgarh, Madhya Pradesh.

The firm undertake their business through:

• direct ownership of hotel properties
• long-term lease or license arrangements for the land on which they construct their own hotels
• long-term leasesfor existing hotels which are owned by third parties, and
• Operating and management agreements.

As of January31, 2018, they have a portfolio of 19 owned hotels, three owned hotels located on leased or licensed land, fiveleased hotels and 18 managed hotels. They also have project design, management and development capabilitiesthrough their Subsidiary, Grey Fox Project Management Company Private Limited (“Grey Fox”).As of January 31, 2018, they also have a developmentpipeline of 3,038 rooms.

Qualitative Factors

Some of the qualitative factors and their strengths which form the basis for the Offer Price are:

• Leading mid-priced hotel chain with a differentiated business model.
• Strategically positioned in key geographical areas.
• Present across the value chain.
• Focus on brand excellence, providing a value-for money proposition and strengthening employee culture.
• Experienced promoter and management team.

Strategies

• Strategic allocation of capital
• Grow their national footprint and diversify geographically
• Expansion through development, acquisitions, leases and management agreements
• Improve operating efficiencies to increase returns
• Attract consumers through expansion into leisure hotels and through online channels

Objects of the Issue:

The objects of the Offer are to-

1. Achieve the benefits of listing the Equity Shares on the Stock Exchanges
2. Sale of up to 195,797,000 Equity Shares by the Selling Shareholders.

Financials

 

As the earning are negative, EPS cannot be calculated. We can look at Price to Book value ratio to compare it with other hotel chains. Indian Hotels and EIH are comparable companies even though the properties of these chains are very premium compared to Lemon Tree. Book Value of Lemon tree is 10.3 and at the price of 56, it comes to around 5.3. Compared to this, P/BV of Indian hotels and EIH are 3.8 and 3.6 respectively.

Find out the latest details about the Lemon tree IPO here.

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