LEMON TREE HOTELS LIMITEDIPO

Price Band : ` 54– ` 56

Our Recommendation

“ AVOID”

THE OFFERIssue Open : 26 Mar 2018 to 28 Mar 2018

»» Issue Type: Book Built Issue IPO

»» Issue Size:

› Offer for Sale of 185,479,400 Equity Shares @ 10 aggregating up to

` 1,038.68 Cr

»» Face Value: ` 10 Per Equity Share

»» Issue Price: ` 54 - ` 56 Per Equity Share

»» Market Lot: 265 Shares

»» Minimum Order Quantity: 265 Shares

»» Listing At: NSE, BSE

CAPITAL STRUCTUREThe share capital of Company, is set forth below:-

(Amount in ` except share data)

Authorized Share Capital :-1,001,440,000 Equity Shares @ 10 Aggregate value10,014,400,000145,000 5% Cumulative Redeemable Preference Shares @ 100Aggregate value 14,500,000

Issued, subscribed and paid up capital before the Issue:-786,412,683 Equity Shares @ 10 Aggregate value 7,864,126,830

Present Issue:-Offer for Sale of 185,479,400 Equity Shares @ 10 aggregating upto ` 1,038.68 Cr

OBJECT OF THE OFFERThe objects of the Offer are to

Achieve the benefits of listing the Equity Shares on the StockExchanges .

Sale of up to 195,797,000 Equity Shares by the SellingShareholders.

Company expects that listing of the Equity Shares will

enhance visibility and brand image.

COMPANY OVERVIEWThe company operates in the mid-priced hotel sector, consisting of the upper midscale,

midscale and economy hotel segments. It launched its first hotel with 49 rooms in May2004. It operated 4,697 rooms in 45 hotels across 28 cities in India as of January 31,2018.

It has created three brands to serve 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 andare 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.

Red Fox by Lemon Tree Hotels which is targeted primarily at the economy hotelsegment. The average occupancy rate in the hotels across these three brands stoodbetween 74-77% in FY17.

Continue……These hotels are located across India in metro regions, including theNCR, Bengaluru, Hyderabad and Chennai, as well as tier-I andtier-II cities, such as Pune, Ahmedabad, Chandigarh, Jaipur,Indore and Aurangabad.

The company undertakes the business through:

Direct ownership of hotel properties

Long-term lease or license arrangements for the land on which itconstructs the hotels.

Long-term leases for existing hotels which are owned by third parties.

Operating and management agreements.

As of January 31, 2018, its portfolio consisted of 19 owned hotels, 3owned hotels located on leased or licensed land, 5 leased hotelsand 18 managed hotel.

ROAD MAP AHEADCompany objectives are to expand their market share andaim to accomplish this through the following strategies:

Strategic allocation of capital.

Grow national footprint and diversify geographically.

Expansion through development, acquisitions, leases andmanagement agreements.

Improve operating efficiencies to increase returns.

Attract consumers through expansion into leisure hotels andthrough online channels.

STRENGTHS Leading mid-priced hotel chain with a differentiated

business model.

Strategically positioned in key geographical areas.

Focus on brand excellence, providing a value-formoney proposition and strengthening employeeculture.

FINANCIAL PERFORMANCE

Total Revenues stood ` 352.8cr, ` 418.1cr, ` 370.0cr and

` 291.5cr, in nine months period ended December 31, 2017,Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

EBITDA was ` 98.5cr, ` 122.5cr, ` 103.2cr and ` 51.9cr, innine months period ended December 31, 2017, Fiscal 2017,Fiscal 2016 and Fiscal 2015 respectively.

PAT was ` 2.8cr, `(7.1)cr, `(29.7)cr and `(63.2)cr, in ninemonths period ended December 31, 2017, Fiscal 2017, Fiscal2016 and Fiscal 2015 respectively.

SNAPSHOT - CONSOLIDATED

RISK FOR THE BUSINESS A significant portion of its revenues is derived from a

few hotels and concentrated in a few geographicalregions and any adverse developments on such hotelsor regions could have an adverse effect on business.

Business is subject to seasonal and cyclical variationsthat could result in fluctuations in results ofoperations.

Company is exposed to a variety of risks associatedwith safety, security and crisis management.

Continue…… Company derives a significant portion of its revenue from

corporate customers, and the loss of such customers, couldadversely affect business.

Company is subject to extensive government regulation withrespect to safety, health, environmental and labour laws.Any non-compliance with or changes in regulations mayadversely affect business.

VALUATION

The company undertakes its business through direct ownership of lease

for the land on which it construct own hotels, long-term leases for hotelproperties, existing hotels which are owned by third parties, with operatingand management agreements. As of January 31, 2018 it operated 4,697rooms in 45 hotels across 28 cities in India.

Company has been incurring losses in the last few years, though aturnaround in the performance was seen during 9MFY18 results. Moreover,on the upper price band of ` 56 with annualized EPS of 9M FY18,valuations looks high at the current level & subscribing to the issuerisky.

Altogether, taking into risk consideration, company generates significantportion of its revenues from a few hotels and subject to extensivegovernment regulation with respect to safety, health and labour laws.

Business model shows that issue is overpriced at current level. Therefore we

suggest to AVOID this IPO.

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