Lemon Tree, Ahluwalia Contracts Q2 Results Review: HDFC Securities

HDFC Securities Institutional Equities

Lemon Tree - Focus on premium positioning

Lemon Tree Hotels Ltd. recorded a healthy Q2 FY25 as it focusses on renovation and repositioning of the portfolio to command premium rates. Revenue grew 24% YoY to Rs 2.8 billion, led by a healthy 12% average room rate growth but subdued occupancy of 68.4% in Q2 FY25, leading to a modest RevPAR growth of +7% YoY.

In our view, key growth drivers for Lemon Tree are:

1. ramp-up of Aurika, Mumbai;

2. full availability of renovated “Keys” portfolio leading to ARR/occupancy increase; and

3. growth in fee income from managed portfolio.

We believe first two drivers will show its true potential starting from FY26 and FY27 respectively; hence, we have reduced the Ebitda estimates for FY25E and FY26E and introduced FY27E estimates. We expect Lemon Tree to continue to benefit from buoyant discretionary spending and demand tailwinds of the sector. We maintain a Buy rating and roll forward to FY27E with an EV/Ebitda multiple of 17 times FY27E to arrive at a target price of Rs 155.

Ahluwalia Contracts - Margin miss; weak execution

Ahluwalia Contracts Ltd. reported a revenue/Ebitda/APAT miss of 0.0/28.4/36.7%. Ebitda margin stood at 7.3% (-270/+68bps YoY/QoQ, versus our estimate of 10.1%). RPAT/APAT: Rs 384 milion (-30.6/+25.3% YoY/QoQ, a miss of 36.7%). Execution for Ahluwalia Contracts has been affected by elections causing labour scarcity and extended monsoon, resulting in project sites operating at subdued execution levels. The company guided growth of 15/20% for FY25/26 revenue and an Ebitda margin of single/double digit for FY25/26, respectively. The total FYTDFY25 order inflow stands at Rs 77.9 billion. The order book as of Sep’24 stood at Rs 161.9 billion (~4.2 times FY24 revenue). Ahluwalia Contracts has guided for further order inflow of Rs 10 billion for the remaining FY25 (FY26 OI guided at Rs 50-60 billion). The company is effectively debt-free, with a negligible gross debt of Rs 0.1 billion and total cash and cash equivalents of over Rs 7.6 billion, as of Sep’24.

Given the slowdown in execution and weak margins (FY25 – 9% Ebitda margin guidance, FY26- double digit) we revise our EPS/target price lower and maintain our Add rating with target price to Rs 1,111 (16 times Dec-26E EPS).

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