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Lemon Tree Hotels Q1 depressed as second covid wave hits check-ins

Friday, August 13, 2021, 18:00 Hrs  [IST]

Lemon Tree Hotels Ltd's June quarter results (Q1FY22) give a sense of déjà vu. Yet again, the company’s revenues have been hit due to the covid-19 pandemic’s restrictions and lockdowns, which weighed on the domestic hospitality and tourism industry. Occupancy levels declined in April compared with March with the increasing number of cases. Operations took a severe hit in the May with travel restrictions across key states amid the devastating second wave of the pandemic. June saw occupancy levels start to improve.

Overall, Lemon Tree’s consolidated revenues increased 3.7% year-on-year to INR 42 crore. RevPAR or revenue per available room declined around 8% year-on-year and 53% sequentially to Rs700.

Higher costs pushed the company to report a small operating loss. The company’s earnings before interest, tax, depreciation and amortisation (Ebitda) loss in Q1FY22 stood at Rs1 million versus a profit of Rs4.4 crore in Q1FY21. Note that the company had made a profit of Rs28.5 crore at the Ebitda level in Q4FY21. 

Post the company's Q1 results, Motilal Oswal Financial Services Ltd has lowered its FY22 estimated Ebitda estimate by 7%, factoring in the performance of the current quarter and considering the current demand scenario.

To be sure, recovery is on track after a miserable Q1. “Currently, we are seeing a very healthy build-up in demand and consumption that is strengthening on a month-over-month basis from June onwards," said Patanjali Keswani, chairman & managing director, Lemon Tree Hotels, in the earnings presentation.

Having said that, investors should watch the pace of recovery in corporate demand and that would be a key trigger for the stock, going ahead. In general, the increasing pace of vaccinations augurs well for the sector as a whole.

“Lemon Tree has done well to survive the past twelve months, and will likely bounce back stronger with stringent cost controls. However, stock performance will be contingent on revival of room rates that remain subdued," point out analysts from Kotak Institutional Equities in a report on 13 August.

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