LEMONTREE

: Expansion and Renovation Drive Growth

recently hit a new 52-week high, fueled by optimism around its expansion and ongoing renovation strategy. The company is actively acquiring new properties and renovating its existing ones to enhance its portfolio and drive future growth. → Expansion and Portfolio Growth: Lemon Tree recently won a land e-auction in New Delhi to build a new five-star hotel, adding to its footprint. The company signed 14 new management contracts in Q1 FY26, adding over 1,200 rooms. It also operationalized five new hotels with 392 rooms, bringing its total portfolio to 226 hotels and 18,430 rooms. Almost half of these rooms are still in the pipeline. A potential IPO for its asset-heavy arm, Fleur Hotels, could accelerate the shift towards a more asset-light model. → Financial Performance and Renovation Impact: Q1 FY26 consolidated revenue rose 18% year-on-year, with an impressive 10% increase in Average Room Rates (ARR) and a 600 basis point (bps) rise in occupancy to 73%. Revenue per Available Room (RevPAR) grew by 19%. The company's operating margin expanded by 160 bps to 44.5%, as renovation costs were offset by lower expenses for power, fuel, and payroll. The extensive renovation of existing properties, with around 40% of its operational keys already refurbished, is a key focus. This is a costly process, absorbing about 6% of revenue, but is expected to boost future performance. → Outlook and Challenges: The company expects the renovation cycle to be completed by October 2026, which should lead to a reduction in related costs and further boost margins. While renovations keep costs high, analysts expect growth momentum to continue, driven by the ramp-up of its key properties like Aurika Mumbai and a favorable demand-supply dynamic in the market. The stock's current valuation leaves little room for short-term upside, with future gains dependent on the successful execution of its expansion and renovation plans.