Lemon Tree Hotels Ltd IPO - Should you subscribe?
Incorporated in June 1992 as P M G Hotels Private Ltd and after undergoing name change a couple of times later and finally settles to Lemon Tree Hotel Ltd in September 2012, Mr Patanjali Govind Keswani and SMSPL (Spank Management Services Pvt Ltd) promoted company is going public in the last week of Fiscal 2018. This is the 8th mainstream IPO of March 2018 and 14th IPO of 2018.
In this bearish IPO market, profit making Defense PSU giants like Bharat Dynamics Ltd and Hindustan Aeronautics Ltd hardly managed to subscribe, keeping NII and RII quota undersubscribed. In fact, HAL remained undersubscribed on the last day. Fundamentally strong yet little expensive Bandhan Bank has given impressive subscription figures. On the other hand, Karda Construction and Sandhar Technologies are yet to prove their subscription potentials. The continuous downturn in the current market has kept the IPO market very bearish. In this current negative sentiments, the loss making Lemon Tree is going public to offload up to 19, 57, 97, 000 shares of its existing shareholders. 10 selling shareholders have put their shares for sale under this arrangement. Promoter or promoter group shareholders are not in the list of selling shareholders.
LEMON TREE - OVERVIEW
The company seeks to cater to Indian middle class guests and deliver differentiated yet superior service offerings, with a value-for-money proposition. The company opened its first hotel with 49 rooms in May 2004. The company operated 4,289 rooms in 40 hotels (including managed hotels) across 24 cities in India as of July 31, 2017. Its hotels are located across India, in metro regions, including the NCR, Bengaluru, Hyderabad and Chennai, as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad.
Its operations are spread across the value chain and range from acquiring land to owning, leasing, developing, managing and marketing hotels. The company undertakes its business through: (i) direct ownership of hotel properties, (ii) long-term lease or license arrangements for the land on which it constructs its own hotels, (iii) long-term leases for existing hotels which are owned by third parties, and (iv) operating and management agreements. As of July 31, 2017, the company has a portfolio of 19 owned hotels, three owned hotels located on leased or licensed land, five leased hotels and 13 managed hotels. The company also has project design, management and development capabilities through its Subsidiary, Grey Fox Project Management Company Private Limited (“Grey Fox”).
LEMON TREE - OVERVIEW
The company seeks to cater to Indian middle class guests and deliver differentiated yet superior service offerings, with a value-for-money proposition. The company opened its first hotel with 49 rooms in May 2004. The company operated 4,289 rooms in 40 hotels (including managed hotels) across 24 cities in India as of July 31, 2017. Its hotels are located across India, in metro regions, including the NCR, Bengaluru, Hyderabad and Chennai, as well as tier I and tier II cities such as Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad.
Its operations are spread across the value chain and range from acquiring land to owning, leasing, developing, managing and marketing hotels. The company undertakes its business through: (i) direct ownership of hotel properties, (ii) long-term lease or license arrangements for the land on which it constructs its own hotels, (iii) long-term leases for existing hotels which are owned by third parties, and (iv) operating and management agreements. As of July 31, 2017, the company has a portfolio of 19 owned hotels, three owned hotels located on leased or licensed land, five leased hotels and 13 managed hotels. The company also has project design, management and development capabilities through its Subsidiary, Grey Fox Project Management Company Private Limited (“Grey Fox”).
LEMON TREE - ISSUE DETAILS
The issue is opening on March 26, 2018 and closing on March 28, 2018. The tentative dates of allotment and listing are April 4, 2018 and April 6, 2018. The issue price is between Rs. 54 - Rs. 56 and minimum application lot is for 265 shares. The allotment status can be seen on this link http://karisma/karvy.com
The issue is opening on March 26, 2018 and closing on March 28, 2018. The tentative dates of allotment and listing are April 4, 2018 and April 6, 2018. The issue price is between Rs. 54 - Rs. 56 and minimum application lot is for 265 shares. The allotment status can be seen on this link http://karisma/karvy.com
LEMON TREE - OBJECTS OF THE ISSUE
As it is 100% Offer for sale by the selling shareholders, the company will not receive any proceeds from the offer and all the proceeds will go to the selling shareholders. The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges. Further, the Company expects that listing of the Equity Shares will enhance its visibility and brand image and provide liquidity to its shareholders. Listing will also provide a public market for the Equity Shares in India.
LEMON TREE - REVENUES AND PAT
The company has been making the loss since five years. Though its revenue from operations grew at a CAGR of 17.68% between the Fiscal 2013 and 2017 from 214.82 Crore in Fiscal 2013 to 411.93 Crore in Fiscal 2017.
LEMON TREE - PRICING OF THE SHARE
The company has set the price Rs. 54 - Rs. 56 per share. As the company has registered loss on March 31, 2017 having negative EPS (Rs. -0.11), the PE can not be calculated. The industry average PE is 64.80. Its peers viz Indian Hotel is also loss making, and EIH Ltd is trading at 64.80 PE.
CONCLUSION:
The company has negative RoNW. As it is loss making, it hasn't declared any dividend in the last five years. It has Negative cash flows from its operating activities. The company has 40 operating hotels (Owned + Leased + Managed) in 24 cities of India and 24 hotels are under development in 18 cities. The company must have been at good position at this point. The company is big and growing its operations and as can be seen that its losses have been decreasing year over the year. Debt Equity ratio is also moderate i.e. 0.56. However, better to wait and buy from the market on the listing day if you want to hold hospitality industry shares.
Thank you for reading...Jai Hind
CA Prashant Seta
(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her own research before applying)
Follow us on:
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As it is 100% Offer for sale by the selling shareholders, the company will not receive any proceeds from the offer and all the proceeds will go to the selling shareholders. The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges. Further, the Company expects that listing of the Equity Shares will enhance its visibility and brand image and provide liquidity to its shareholders. Listing will also provide a public market for the Equity Shares in India.
LEMON TREE - REVENUES AND PAT
The company has been making the loss since five years. Though its revenue from operations grew at a CAGR of 17.68% between the Fiscal 2013 and 2017 from 214.82 Crore in Fiscal 2013 to 411.93 Crore in Fiscal 2017.
LEMON TREE - PRICING OF THE SHARE
The company has set the price Rs. 54 - Rs. 56 per share. As the company has registered loss on March 31, 2017 having negative EPS (Rs. -0.11), the PE can not be calculated. The industry average PE is 64.80. Its peers viz Indian Hotel is also loss making, and EIH Ltd is trading at 64.80 PE.
CONCLUSION:
The company has negative RoNW. As it is loss making, it hasn't declared any dividend in the last five years. It has Negative cash flows from its operating activities. The company has 40 operating hotels (Owned + Leased + Managed) in 24 cities of India and 24 hotels are under development in 18 cities. The company must have been at good position at this point. The company is big and growing its operations and as can be seen that its losses have been decreasing year over the year. Debt Equity ratio is also moderate i.e. 0.56. However, better to wait and buy from the market on the listing day if you want to hold hospitality industry shares.
Thank you for reading...Jai Hind
CA Prashant Seta
(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her own research before applying)
Follow us on:
Facebook : https://www.facebook.com/investmentbazaarr.blogspot/?ref=bookmarks
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