This post on Lemon Tree Hotels IPO tries to bring out consolidated brokerage views , Anchor Investors list etc. The information collated from various sources in public domain can help investors to decide whether they should subscribe to Lemon Tree Hotels IPO or not.
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Lemon Tree Hotels IPO: Grey Market Premium etc.
26/03/18 Grey Market Premium Rs. NIL
Anchor Investors (AIs) portion in the Public Issue of Lemon Tree Hotels Limited 55,643,820 equity shares have been subscribed today by 18 AIs at Rs. 56/- per equity share which include SBI MF, NS Partners Trust, Mirae Asset Management, Vantagetrust, Indus India Fund, RBC, DB International, Gemequity, Doric, New York State Common Retirement Fund, Zaaba Alpine, HDFC MF and BNP Paribas.
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Consolidated opinion of Brokerages, Analysts, Business New Paper Reports, Management Views on Lemon Tree Hotels Limited IPO.
Angel Broking: “It has seen turnaround in M9FY2018 by posting a PAT of Rs. 2.9 cr which was achieved at sort of peaked occupancy and 9% price hike (taken after September 2017). Hence, any further improvement in margins have to largely come via price hikes, which looks difficult specially in the lower range hotels, amid intense competition. At the upper end of the priceband, the EV/EBITDA multiple works out be 44.5x EBITDA of FY2017 and ~38.6x on its FY2018 annualized EBITDA, which appears on the higher side even when compared to large listed hotel players like Indian Hotels (available at 33x FY2018 EV/EBITDA, others are available at 20-25x). We recommend ‘Neutral’ on the issue for a mid-to-long term period. “
Capital Market: ” Score 40/100, Indian Hotels and EIH are some of its listed peers. For FY 17, consolidated net sales and loss at PAT level of Indian Hotels stood at Rs 4020.57 crore and Rs 45.60 crore. Consolidated BV stood at Rs 33.8. At current market price of Rs 129, stock trades at 3.8 times its consolidated BV. Consolidated net sales of EIH stood at Rs 1526.79 crore and Pat at Rs 144.21 crore in FY 2017, giving an EPS of Rs 1.9. Consolidated BV is Rs 45.4. At the current market price of Rs 164, the stock trades at 3.6 times the consolidated BV. LTH has grown better than the industry due to the unique business model. But there are no luxury properties nor is the brand value comparable with that of Indian Hotels and EIH. “
Choice Broking: “Subscribe with Caution. At the higher price band of Rs. 56 per share, LTHL’s share is valued at an FY17 P/E multiple of 100.4x (to its restated cash EPS of Rs. 0.6), which is at premium to the peer average of 28.7x.”
ICICIDirect “We recommend AVOID on offering, based on high capex oriented nature of expansion, low RoCE, higher competition in the mid-scale segment. The stock is being offered at 25-30% premium valuation than peers.
Prabhudas Liladhar : “The company has been having an occupancy level at northwards of 75% and yet the bottom‐line has been patchy. LTH is undergoing a capex and the current Debt: Equity was at 1.16 on 31 Dec 2017. With LTH still on a capex mode and the D:E ,still above 1 the valuations at this level looks expensive. “AVOID”. “
Religare : “Lemon Tree is India’s largest mid-market hotel brand with about 45 operational properties having a room inventory of nearly 4,700 rooms spread across 28 cities. It has more than 3,000 rooms under development which are likely to come up between now and 2021. Nearly a third of this will come up in Mumbai close to the airport. A new hotel with 370 rooms would come up by January 2019, followed by a massive 577 room hotel by 2021. Besides there are other properties coming up in Pune, Udaipur, Kolkata and Shimla. It intends to expand to be present in 50 cities by FY21. Its long term intention is to get into management and brand model and become asset light over the years. The outlook for Indian hotel industry is bright considering rising disposable income, preference for mid-budget hotels, several attractive tourist destinations and improving spending on tourism. On financial front, revenue has increased at CAGR of 17.7% over FY13-17, while the company turned profitable in the current fiscal. We expect profit to improve going ahead with better capital allocation, higher occupancy rate, addition of more hotels and operational efficiency. At the upper price band of Rs. 56, the stock is available at EV/EBITDA of 6.6x on FY18E annualized EBITDA.”
Sushil Finance: “The valuation based on EV/EBITDA comes to 39 times the 2017 numbers, which is above the average EV/EBITDA of 25x of similar hotel chains/ brands, thus making the offer fully priced when considering the superior brand and reach of Lemon Tree. Considering the current market trend, we believe investors should subscribe to this issue with a long term perspective, as this is a fantastic brand with an aggressive growth strategy supported by better prospects for the Indian hospitality industry going forward.”
SMC : “Rating 1.5/5 The company’s chain of hotels is quite huge and it has pan-India presence, however, the company has been incurring losses in the last few years. Also the business of the company is capital intensive and cyclical. As this issue consists of Offer For Sale , the company will not be getting funds to repay the debt.
SP Tulsiyan website: “While the industry opportunity may be large and tempting, highly demanding nature of the service industry, cyclical turns and steep valuation expectations make this IPO unexciting. Weak primary and secondary market conditions provide no respite either.“
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.