Lemon Tree Hotels made a stable debut on Monday, with its shares listing at Rs 61.60 a share, a 10% premium to its issue price of Rs 56 a share on the bourses. The listing premium gave Lemon Tree Hotels a market capitalisation of about Rs 4,800 crore.

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The issue was subscribed 1.19 times with retail subscription coming in at a disappointing 12 per cent. The Rs 1,038 crore issue was primarily an offer for sale and had prominent investors such as Warburg Pincus and RJ Corp making a partial exit.

Lemon Tree is one of the largest hotel chains in India in the mid-price segment and has outlined an ambitious expansion plan, looking to add a little over 3,000 hotel rooms to its portfolio by 2021.

The hospitality chain, promoted by Patanjali Keswani, believes that it has the advantage to charge higher tariffs to consumers owing to high demand. With occupancy rates as high as 70-75 percent, Lemon Tree spiked tariffs by 14 percent in September 2017.

Strong Revenue Growth

Revenues, growing at a CAGR of 18 percent, are expected to be driven by a combination of tariff increase as well as the addition of new properties in India. The company has about 25 new hotels in the pipeline.

Lemon Tree also turned PAT positive at the end of the December 2017. The company says that it has been cash profitable for many years.

Debt Poses Risk

As the company looks at increasing capacity at 20 percent a year, analysts say a vital concern is mounting debt. Lemon Tree has a debt of about Rs 1,000 crore and said it is working to reduce it.

With increasing focus towards the asset light strategy and management contracts model, Lemon Tree Hotels expects to be debt free very soon. It is looking to take its direct and indirect ownership of hotels to 50 percent by 2021. It is also looking at current assets and seeing how it can recycle the capital in some form.

First Published:Apr 9, 2018 9:03 AM IST