Lemon Tree Hotels stock: Is the juice worth the squeeze?

Lemon Tree Hotels’ stock has delivered a remarkable 90% return since its listing in April 2018. However, over the past year the stock has declined 8%, reflecting near-term challenges and sector-wide corrections.

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The company’s ability to balance cost-efficiency with quality service makes it an attractive player in the hospitality industry. Can it sustain its momentum and emerge as a market leader? Let’s dive into the numbers, strategies, and market trends shaping its future.

Financials on track

The Indian hospitality sector has rebounded strongly from the pandemic, with 10-12% year-on-year growth in average room rates (ARR) and a 15% year-on-year increase in revenue per available room (RevPAR) in early 2025. Lemon Tree Hotels has been a significant beneficiary of this growth, reporting record-breaking financials in Q3FY25.

The company’s revenue soared to ₹355.2 crore in the quarter, up 22.4% year-on-year, highlighting strong demand trends. Profit after tax saw an even sharper 82.4% year-on-year surge to ₹79.9 crore, reinforcing the company’s ability to scale profitability. Ebitda rose 30.2% year-on-year to ₹184.8 crore, with Ebitda margin expanding to 51.9% from 48.8% in the previous year.

These figures indicate a clear trajectory of improvement in operational efficiency and pricing power. RevPAR, a critical industry metric, surged 21% year-on-year to ₹5,018, driven by an 826-basis-points occupancy-rate increase to 74.2%.

The strong financial performance is backed by several demand drivers. The resurgence of wedding tourism, the Indian Premier League (IPL) season, and MICE (meetings, incentives, conferences and exhibitions) events have fueled occupancy growth.

Analysts remain bullish, with ICICI Securities, JM Financial and Macquarie rating the stock a ‘buy’ with target prices ranging from ₹155 to ₹210.

Strategic expansion with asset-light model

Lemon Tree Hotels operates across various segments, from upscale properties under Aurika Hotels & Resorts, to midscale brands such as Lemon Tree Premier, Keys Prima and Red Fox, and budget-friendly accommodations under Keys Lite. Over the past five years, the company has increasingly focused on having an asset-light model, shifting towards management contracts rather than outright ownership.

The company has outlined an ambitious expansion plan in which it will add 88 new hotels with 6,068 rooms, increasing its total inventory to more than 20,000 rooms by FY28. This aggressive growth is spread across key business and leisure destinations including Shirdi, Moga, Chittorgarh, Bhopal, Valsad and Shillong. The jewel in its crown, Aurika Mumbai Airport, is projected to drive a significant chunk of revenue growth, stabilising at an average room rate (ARR) of ₹9,500 and expected to cross ₹11,000 within a year.

By FY28, 70% of Lemon Tree’s portfolio will be under management contracts, allowing it to scale operations efficiently without incurring large capital expenditure. This strategy ensures a high-margin, asset-light revenue stream, making the company more resilient to economic fluctuations. Management contracts also provide consistent revenue streams while minimising the risks associated with owning and maintaining large properties.

Premiumisation and renovation

Lemon Tree is undergoing a strategic shift towards premiumisation, recognising the higher profitability of upscale hotels. The company is aggressively renovating its existing properties, focusing on enhancing ARR and occupancy rates to maximise revenue potential.

The renovation pipeline includes more than 2,700 rooms that are expected to be upgraded by FY25, with a full portfolio refresh targeted for completion by FY26. This investment is expected to yield a 9% compound annual growth rate (CAGR) in ARR over the next three years, significantly enhancing the company’s profitability.

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Aurika, Lemon Tree’s premium brand, is central to this strategy. Currently contributing 14% of total revenue, Aurika is expected to increase its share to 23% by FY27, thanks to its superior (60%) Ebitda margin, the highest in the portfolio. This expansion aligns with Lemon Tree’s plan to diversify revenue streams and increase profitability by attracting high-value customers. The company is also focusing on enhancing customer experiences by integrating smart technology and high-end services into its premium properties.

Debt reduction

A critical factor in Lemon Tree’s growth story is its aggressive debt-reduction strategy. The company has been leveraged historically, and currently has ₹1,800 crore of debt. However, with improving cash flows and strategic capital allocation, Lemon Tree is on track to become debt-free by FY28.

It has already repaid ₹1,500 crore of debt, reducing its interest burden and improving overall financial health. Additional cash flow from management contracts, increased RevPAR, and premium property revenues will further drive deleveraging efforts. The upcoming IPO of Fleur Hotels, a subsidiary, is also expected to inject additional liquidity to accelerate debt reduction.

Challenges and key risks

Despite its strong fundamentals, Lemon Tree faces certain challenges that could hamper its trajectory. A major concern is the 53% occupancy rate at Aurika Mumbai Airport, which lags industry benchmarks. While management is optimistic about achieving over 60% occupancy by FY27, any delays could affect ARR growth and overall revenue projections.

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Competition from established players such as Indian Hotels (Taj) and Chalet Hotels is another hurdle. Lemon Tree stock currently trades at a 40% valuation discount compared to that of Indian Hotels, primarily due to concerns about its performance in the premium segment. Moreover, the influx of 2,000 new rooms near Aurika Mumbai within the next year could lead to pricing pressure, hitting profitability in this high-stakes market.

Verdict: Is Lemon Tree stock a buy?

Lemon Tree Hotels has successfully transformed itself from a budget hospitality chain to a diversified, premium-focused player with strong financial performance, strategic expansion, and an asset-light business model. Its growth trajectory, backed by a pipeline of high-value properties, increasing ARR, rising occupancy and debt reduction, positions it well for long-term success.

With target prices ranging from ₹155 to ₹210, the stock has significant upside potential, making it an attractive investment opportunity in India’s booming hospitality sector. Investors looking for exposure to India’s high-growth travel & tourism industry may find Lemon Tree Hotels to be a compelling bet as it appears poised for sustained growth and value creation over the next few years.

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About the author: Suchitra Mandal is a proficient financial writer with expertise in delivering well-researched insights and detailed analyses of companies’ performance and market trends.

Disclosure: The author does not hold any shares of Lemon Tree Hotels at the time of writing this article. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.