IPO Report LEMON TREE HOTELS LTD AVOID IPO Details o Issue Date 26 th Mar-28 th Mar 2018 Price Band 54-56/Share Bid Lot 265 & in multiplethere of Face Value Rs 10/Share Listing BSE, NSE Offer For Sale 185,479,400 Eq Shares Fresh Issue --- Pre Issue Eq Shares 78.64 Cr Eq Shares Company is the ninth largest hotel chain in India in terms of owned, leased and managed rooms, as of June 30, 2017, according to the Horwath Report. Co operate in the mid-priced hotel sector, consisting of the upper-midscale, midscale and economy hotel segments. Co s Promoter, Mr. Patanjali Govind Keswani, who is also chairman and managing director, has approximately three decades of experience in the hotel and hospitality industry. Co s shareholders include marquee investors such as funds affiliated with Warburg Pincus and APG, a Netherlands based asset manager of pension funds. Post Issue Eq Shares BRLM Registrar 78.64 Cr Eq shares* Kotak Mahindra Capital Company Ltd, CLSA India Private Ltd,JP Morgan India Private Ltd, Yes Securities (India)Limited Karvy Computershare Private Ltd Present across the value chain: Co is a hospitality platform with operations and competencies spread across the hotel value chain. Co s operations range from acquiring land to owning, developing, managing and marketing hotels. Co have acquired expertise and understanding in site selection, design, development, management and marketing of hotels in the mid-priced hotel sector across India. Experienced promoter and management team: Co s promoter, Mr. Patanjali Govind Keswani, who is also chairman and managing director, has approximately three decades of experience in the hotel and hospitality industry. Co s management team also has substantial experience in the hospitality industry. Valuation Research Analyst : Astha Jain Co is bringing the issue at p/b multiple of 3.58 on 9MFY18 book value of Rs 15.66/share. Although co is leading mid-priced hotel chain with a differentiated business model & has strategically positioned in key geographical areas but, as company was loss making since FY 15 & has turned around only in 9MFY18, hence limited track record of profit making doesn t instill confidence in company at present level. Hence, we recommend Avoid on issue. For Private Circulation Only
Company Overview Co is India s largest hotel chain in the mid-priced hotel sector, and the third largest overall, on the basis of controlling interest in owned and leased rooms, as of June 30, 2017, according to the Horwath Report. Co is the ninth largest hotel chain in India in terms of owned, leased and managed rooms, as of June 30, 2017, according to the Horwath Report. Co operate in the mid-priced hotel sector, consisting of the upper-midscale, midscale and economy hotel segments. Co seek to cater to Indian middle class guests and deliver differentiated yet superior service offerings, with a value-for-money proposition. Co opened its first hotel with 49 rooms in May 2004. Co operated 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India as of January 31, 2018. Co have created three brands in order to address these three hotel segments: Lemon Tree Premier which is targeted primarily at the upper-midscale hotel segment catering to business and leisure guests who seek to use hotels at strategic locations and are willing to pay for premium service and hotel properties; Lemon Tree Hotels which is targeted primarily at the midscale hotel segment catering to business and leisure guests and offers a comfortable, cost-effective and convenient experience; and Red Fox by Lemon Tree Hotels which is targeted primarily at the economy hotel segment. Co s hotels are located across India, in metro regions, including the NCR, Bengaluru, Hyderabad and Chennai, as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad. The mid-priced hotel sector is expected to have competitive benefits in offering domestic travellers with hotel solutions in tier II and tier III cities, as per the Horwath Report. For Private Circulation Only \
Investment Rationale Leading mid-priced hotel chain with a differentiated business model Co is India s largest hotel chain in the mid-priced hotel sector, and the third largest overall, in terms of controlling interest in owned and leased rooms, as of June 30, 2017, according to the Horwath Report. Co is the ninth largest hotel chain in terms of owned, leased and managed rooms, as of June 30, 2017, according to the Horwath Report. Co have a portfolio of 45 hotels spread across 28 cities, as of January 31, 2018. As of June 30, 2017, co s rooms comprised 4.22% of uppermidscale, 7.65% of midscale and 15.30% of economy rooms, aggregating to 6.91% of all midpriced rooms, available across chain affiliated hotels in India, according to the Horwath Report. Strategically positioned in key geographical areas Co s hotels are located in major metro regions in India, including the NCR, Bengaluru, Hyderabad and Chennai, as well as tier I and tier II cities in India such as Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad. In the leisure hotel segment, co operate a resort and a hotel in Goa, one resort in the backwaters of Alleppey, Kerala and one wildlife resort in Bandhavgarh, Madhya Pradesh. Co have strategically developed hotels at locations with high barriers-to-entry within or close to major business centers, airports and other convenient locations. Co s presence across the mid-priced hotel sector in India allows to offer guests with quality yet cost-effective hotel solutions in metro regions and tier I and tier II cities across India. Further, co have focused on certain key micro-markets in order to address demand and optimize pricing. For example, co have 13 operational hotels, with 1,542 rooms, as of January 31, 2018 in the National Capital Region ( NCR ). Co s geographical spread across India and presence in key micro-markets enables co to cater more effectively to its corporate clients and business travellers. As of January 31, 2018, co also have a development pipeline of 3,038 rooms. Focus on brand excellence, providing a value-for money proposition and strengthening employee culture Co s well-differentiated brands target distinct segments in the mid-priced hotel sector, which enables co to avoid brand overlap or dilution. Co s approach of owning and leasing hotels, which are designed and built or converted to its specific brand standards, has enabled co to build a portfolio of proprietary brands with uniform quality and operational parameters. Co s brands are recognised for quality and consistency across various price points in the mid-priced hotel sector. Risk Factors Co rely heavily on its existing brands and quality of services at its hotels. Any dilution of co s brand reputation or failure of its quality control systems could adversely affect its business, results of operations and financial condition. For Private Circulation only
Objects of Offer The objects of the offer are to achieve the benefits of listing the equity shares on the stock exchanges and for the sale of up to 185,479,400 equity shares by the selling shareholders. Further, company expects that listing of the equity shares will enhance its visibility and brand image and provide liquidity to co s shareholders. Listing will also provide a public market for the equity shares in India Financial Statements Rs Cr Particulars FY15 FY16 FY17 9MFY18 Total Income 290.36 367.95 411.93 352.21 Operating Exp 239.66 266.79 295.57 254.29 EBIDTA 50.71 101.17 116.36 97.96 EBIDTA Margin (%) 17.46 27.49 28.25 27.81 Other Income 1.22 2.12 6.20 0.62 Depreciation 51.69 52.26 51.01 39.83 EBIT 0.24 51.03 71.55 58.75 Interest 60.32 68.30 74.03 54.14 PBT -60.09-17.28-2.48 4.61 E/O Item 0.00 0.00 0.00 0.00 PBT After E/O Item -60.09-17.28-2.48 4.61 Tax 3.16 12.52 4.70 2.43 PAT -63.24-29.80-7.17 2.84 Other Comp Inc 0.001 0.06 0.08 0.06 Adjusted PAT -63.23-29.74-7.10 2.90 NPM(%) -21.78-8.08-1.72 0.82 Eq Capital 776.43 778.04 781.21 786.37 Res & Surplus 33.76 31.86 27.36 16.94 Non Cont Int 422.27 427.73 428.36 428.25 Net Worth 1232.46 1237.63 1236.93 1231.55 Eq Shares ( In No) 77.64 77.80 78.12 78.64 EPS -0.81-0.38-0.09 0.04 ROE (%) -5.13-2.40-0.57 0.24 ROCE (%) -3.36-0.94-0.12 0.21 Book Value 15.87 15.91 15.83 15.66 For Private Circulation only
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