Upcoming IPO of Lemon Tree Hotels Ltd

A slew of initial public offers (IPOs) are hitting the Indian market in this month. One of the latest in the offering is Lemon Tree Hotels Ltd. The issue is opening on 26th March 2018.

Recently, there has been a lot of buzz around tourism. This has led to brokerage houses initiating coverage on many hospitality companies.

So, why the sudden noise about being bullish on the hotel industry? Let us explain the same with the help of the chart:

The chart below illustrates the change in occupancy, ADR and RevPAR across India between the fiscal years 2007 and 2017:

From the above chart we can interpret few things:

  • Occupancy levels have increased since FY14 and even more notably since FY15. This is primarily on account of improvement in demand. Further a deceleration in the rate of new supply too has boosted the occupancy rates.
  • An increase in occupancy level has led to a surge in Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR). RevPAR is calculated by multiplying a hotels average daily room rate (ADR) by its occupancy rate.
  • This trend as witnessed in the preceding two years can improve further with introduction of e-visa and with the domestic economy improving.

    Foreign Tourist Arrival (FTAs) at 101.77 lakh grew by 15.6% in FY17 as compared to a year ago. The Government of India has planned to take the FTA figure to 20 million by 2020.

    Not only this, the domestic travel is also set to improve with increasing disposable income in the hands of people.

    All these factors have led to the analysts being bullish on the hotel industry. Given the tailwinds, does the business model of Lemon Tree and the valuations leave any upside on the table for the investor? We would be releasing the IPO note on this Saturday. Stay tuned!

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