Leisure occupancy sees demand boom but business occupancy still low: Lemon Tree

Update on the Indian Equity Market:

On Monday, NIFTY closed at 14,676 (-2.0%). Top gainers in NIFTY50 were Adani Ports (+2.8%), JSW Steel (+2.3%), and Hindalco (+2.0%). The top losers were Eicher Motors (-5.1%), M&M (-4.7%), and Tech M (-4.6%). The top sectoral gainers were METAL (+1.6%), and sectoral losers were MEDIA (-3.4%), IT (-2.9%) and REALTY (-2.8%)
Excerpts of an interview with Mr. Vikramjit Singh, President, Lemon Tree Hotels (LEMONTREE) with CNBC -TV18 dated 19^th February 2021

• The COVID-19 pandemic hit the hospitality sector hard and things are just starting to look up now.
• The large corporates are the biggest laggards predominantly because the IT companies have not started travel; their employees are still working from home. Therefore, this segment has seen the slowest recovery.
• However, the big surprise is the leisure/retail segment; they have not only recovered but today their retail contribution is about 115-120 percent of pre-COVID levels.
• In tier-I cities occupancies are now catching up, they are roughly about 20 percent below pre-COVID level but the big dip is in the average room rate (ARR), the average rates today are still 40-50 percent below what they were for the same period pre-COVID so the revenue recovery has not happened. Tier-II is doing very well.
• On the expansion front, Lemon Tree opened 5 hotels in the COVID fiscal and will open hotels in Coorg, Port Blair, Dehradun, Mumbai and other places.
• In the COVID fiscal, they have opened 5 hotels; they opened hotels in Dwarka, Aligarh, Jhansi, Vijayawada and Goa.
• So today, as things stand, they have about 8,300 rooms in 84 hotels across 51 cities and they have 2,200 room additions in the pipeline.

Asset Multiplier comments:

• The most talked-about trend that is fast catching up in Resorts & Hotels is Work away from home, where guests experience a completely new and refreshing environment. As most of the corporates have extended WFH till the second half of 2021, this trend will be embraced by most working professionals.
• The onset of COVID-19 and the subsequent travel restrictions and nation-wide lockdown, however, have had an unprecedented impact on the sector.
• Upscale/Luxury Leisure and Branded Economy/Mid-market business hotels are expected to lead the recovery growth in the sector.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of LEMONTREE was ₹ 41/- as of 22-February-2021.  It traded at NM/ NM/ 215x the consensus earnings estimate of ₹ -1.9/ -0.8/ 0.2 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 40/- which trades at 209x the earnings estimate for FY23E of ₹2/-

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