Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

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Equity Capital Markets

Lemon Tree Hotels Ltd / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/26159" target="_blank" data-smartkarma-citation="entities:26159:1">Lemon Tree Hotels Ltd (778410Z IN)</a> (LTH) plans to raise up to US$180m in its IPO through a sale of 24.9% of the company's secondary shares. LTH is one of the largest players in the mid-priced hotel segment in India and has been one of the fastest growing as well, though it's still not been able to generate profits. The company has a robust pipeline which should aid future growth, however, it does seem to imply a shift towards upper-midscale and more managed rooms which seems to be a slight change in strategy. Then there is also the issue of related party transactions and lack of primary issuance despite rising leverage.

Lemon Tree Hotels Ltd (778410Z IN) (LTH) plans to raise up to US$180m in its IPO through a sale of 24.9% of the company's secondary shares. LTH is one of the largest players in the mid-priced hotel segment in India and has been one of the fastest growing as well, though it's still not been able to generate profits. The company has a robust pipeline which should aid future growth, however, it does seem to imply a shift towards upper-midscale and more managed rooms which seems to be a slight change in strategy. Then there is also the issue of related party transactions and lack of primary issuance despite rising leverage.

Lemon Tree Hotels Pre-IPO Review - Moving up the Value Chain Within Its Segment

India focused Portfolio Advisory - Exp of 40+years, Das Capital Management and Advisors

Arun Thirumalai

India focused Portfolio Advisory - Exp of 40+years

Das Capital Management and Advisors

Das Capital is a research boutique with an aim to continuously map and plan the investment needs of investors focused on India. We have a six member research team with a combined experience of over 40 years as a part of our investment wing. Our team assisted in the setup of Premji Investments, which was one of India’s first family offices focused to managing Mr.Azim Premji personal wealth. We also serve as a research team to two Indian private equity energy funds “Small is Beautiful” and “KSK Emerging India Energy Fund”.

Equity Bottom-Up

Royal Orchids is one of the major players in the Indian hotel industry managing 42 operational properties with an inventory of 3159 rooms. The company was impacted in the recent past due to a sector slowdown which led to some deleveraging as well. Post restructuring, the company is focussing on pursuing growth through an asset-light model of managed contracts instead of buying capital intensive assets. We believe that the Indian hotel sector is on the cusp of an “upcycle” that is reflected from improving occupancy rates across the country. Royal Orchid's profitability may witness high growth in the medium term due to improving operating leverage along with higher revenue realization from Managed properties that flows directly to the bottom line, if the improving trend of occupancy rates continues in the country.Key growth drivers<ul><li>The revenue from tourism is expected to grow at a CAGR of 7% to reach USD 148 bn in the period FY16-27 due to improving prosperity and favorable demographics leading to higher discretionary spending.</li><li>The recent approval of visa on arrival by the government for 150 countries has attracted significant foreign tourists which is sustainable in the medium term, driving the Hospitality sector.</li><li>The World Bank expects India’s GDP to grow above 7% per annum till FY20 reflecting a stability in the economy that bodes well for the hospitality industry that is cyclical in its nature.</li><li>Business travel spending is expected to grow at a CAGR of above 16% from FY17-26 that may help the corporate segment of the hospitality sector.</li><li>Royal Orchid expects to add 15 managed properties with 1400 room keys by FY19e that may help in additional growth apart from the growth expected from the improving occupancy rates from the existing portfolio.</li><li>While we expect the revenues to grow at a CAGR of 18%, PAT may grow at a CAGR of 47% from FY17-19e due to improving operating leverage along with an expected reduction in net taxes on recent GST revision of luxury hotels from 28% to 18%.</li></ul>ValuationThe company is trading at a PE of 47x FY17, 28x FY18e and 22x FY19e EPS and an EV/EBITDA of 41x FY17, 25x FY18e and 19x FY19e EBITDA which we believe is fairly valued and the scope of further re-rating is low in spite of high growth in profitability in the near term.

Royal Orchids is one of the major players in the Indian hotel industry managing 42 operational properties with an inventory of 3159 rooms. The company was impacted in the recent past due to a sector slowdown which led to some deleveraging as well. Post restructuring, the company is focussing on pursuing growth through an asset-light model of managed contracts instead of buying capital intensive assets. We believe that the Indian hotel sector is on the cusp of an “upcycle” that is reflected from improving occupancy rates across the country. Royal Orchid's profitability may witness high growth in the medium term due to improving operating leverage along with higher revenue realization from Managed properties that flows directly to the bottom line, if the improving trend of occupancy rates continues in the country.Key growth driversThe revenue from tourism is expected to grow at a CAGR of 7% to reach USD 148 bn in the period FY16-27 due to improving prosperity and favorable demographics leading to higher discretionary spending.The recent approval of visa on arrival by the government for 150 countries has attracted significant foreign tourists which is sustainable in the medium term, driving the Hospitality sector.The World Bank expects India’s GDP to grow above 7% per annum till FY20 reflecting a stability in the economy that bodes well for the hospitality industry that is cyclical in its nature.Business travel spending is expected to grow at a CAGR of above 16% from FY17-26 that may help the corporate segment of the hospitality sector.Royal Orchid expects to add 15 managed properties with 1400 room keys by FY19e that may help in additional growth apart from the growth expected from the improving occupancy rates from the existing portfolio.While we expect the revenues to grow at a CAGR of 18%, PAT may grow at a CAGR of 47% from FY17-19e due to improving operating leverage along with an expected reduction in net taxes on recent GST revision of luxury hotels from 28% to 18%.ValuationThe company is trading at a PE of 47x FY17, 28x FY18e and 22x FY19e EPS and an EV/EBITDA of 41x FY17, 25x FY18e and 19x FY19e EBITDA which we believe is fairly valued and the scope of further re-rating is low in spite of high growth in profitability in the near term.   

Royal Orchids- Asset-Light Hotel Business Checkin for a Cyclical Upturn

India

Royal Orchid Hotels Limited owns and operates hotels. The Groups hotels include the Royal Orchid, Central Park and Harsha in Bangalore and Hotel Metropole  in Mysore.

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Royal Orchid Hotels (ROHL IN)

Lemon Tree Hotels Pre-IPO Review - Moving up the Value Chain Within Its Segment

Lemon Tree Hotels Ltd (778410Z IN) (LTH) plans to raise up to US$180m in its IPO through a sale of 24.9% of the company's secondary shares. LTH is...

Sumeet Singh

Royal Orchids- Asset-Light Hotel Business Checkin for a Cyclical Upturn

Royal Orchids is one of the major players in the Indian hotel industry managing 42 operational properties with an inventory of 3159 rooms. The...

Das Capital Management and Advisors

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