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  • CMP : 76.7 Chg : 3.85 (5.28%)
  • Buying Range : 65-68.2
  • Target : 79.0 (18.62%)
  • Stoploss : 61.0
  • Target Period : 3 Month

05 Aug 2022

On cusp of consolidation breakout….

Lemon Tree weekly chart

Technical Outlook
The hospitality sector has been in limelight as it has shown resilience in recent volatile scenario. Within the space, we remain constructive on Lemon Tree as the stock has bounced from lower band of rising channel and is set to resolve above four months consolidation (₹ 71-57), indicating resumption of primary up trend that augurs well for next leg of up move
 
Key point to highlight in channelised move since April 2021 is that, on multiple occasions stock bounced from 10 weeks EMA that eventually provided fresh entry opportunity. In current scenario, it formed a higher base above 10 week’s EMA, highlighting inherent strength
 
Structurally, the stock has formed a higher high-low on the yearly chart after three years, indicating structural improvement
 
We expect the stock to resolve higher and gradually head towards ₹ 79 levels in coming months as it is the 161.8% external retracement of April-May decline (₹ 71-57)

Fundamental Outlook

Promoted by Patanjali Keswani, Lemon Tree (LTHL) is the largest hotel chain in the mid-priced segment in India. It operates 8,497 rooms in 87 hotels across 54 destinations in India and abroad under brands like Aurika (premium), Lemon Tree premier, Lemon Tree (midscale), RedFox (economy) and Keys
 
The favourable location of its properties in prominent business and tourist districts supports revenue growth prospects and reduces concentration risk
 
Hotel sector outperformance in FY22 was significantly driven by Indian leisure tourists due to Covid restrictions, who would have otherwise travelled abroad. With the opening of international borders to foreign tourists from March 27, 2022 onwards, we expect the hotel business in key cities like Mumbai and Delhi to also improve significantly. Lemon Tree is likely to be the key beneficiary of the same
 
The company plans to add 738 rooms (669 rooms in Mumbai, 69 rooms in Shimla) over the next two years with total capex of ₹ 1006 crore. Post completion of expansion, LTHL will be operating ~10,462 rooms in 105 hotels across 64 destinations, in India and abroad by FY24E
 
The company has already spent ₹ 440 crore and plans to incur ₹ 250-300  crore over the next 12 months, another ₹ 250 crore over next nine months, thereafter, and balance post that. We expect Aurika Mumbai to get launched during November-December 2023
 
The company is now more efficient in terms of operations and leaner in terms of cost. The current employee count has now reduced from 0.95/room to 0.62/room. Further with the adoption of more technology in day to day operations, we expect the company’s operating margin to scale up to 50% (highest in the Industry) over next one year
 
The current cost of building a new hotel room has increased to ₹ 1 crore vs. ₹ 50 lakh earlier. These would moderate the new launches in the hotel space. The company is well positioned to capture the unorganised market share due to slowdown in the upcoming room supply in the wake of ongoing distress
 
We believe the company’s large asset base, strategic partnership and financial flexibility would continue to support the liquidity profile, if further need arises

Follow up summary of Gladiator Stocks

Other product open recommendations

Date Product Scrip Name Market Strategy RP Target Stoploss Time Frame
04-Aug Momentum Pick Jindal Steel Cash Buy 384 412 369 14 Days
04-Aug Momentum Pick Rallis Cash Buy 223 242 214 14 Days
04-Aug Momentum Pick BEL Cash Buy 284 292 274 03 Days
01-Aug Momentum Pick Tata Chemical Cash Buy 939 1005 887 14 Days
01-Aug Momentum Pick Adani Ports Cash Buy 798 862 755 30 Days
20-Jul Momentum Pick FSL Cash Buy 110 116 102 Carried forward
Source: Company, ICICI Direct Research

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