Stock to Buy: Hotel stock with upside potential up to 38%

Synopsis: The stock gained traction after a ‘Buy’ call with a ₹185 target, implying 38% upside. A proposed restructuring will create two focused entities, expand room inventory from 11,769 to 25,000 over four years, and unlock long-term value through an asset-light model.

India’s Hotels & Resorts sector thrives amid booming domestic tourism and rising demand. In FY2025, room inventory hit around 2.03 lakh, up from 1.88 lakh prior, with occupancy nearing 71% and ADR climbing to Rs 8,000. Revenue expanded to roughly Rs 906 billion, fueled by 10.5% CAGR growth, as demand outpaced supply driving RevPAR to Rs 5,680. This positions the sector for sustained momentum.

With a market capitalisation of Rs 10,639.87 crore, the shares of Lemon Tree Hotels Ltd closed at Rs 134.30 per share, decreasing around 0.96 percent as compared to the previous closing price of Rs 135.60 apiece.

Brokerage Recommendation

ICICI Direct turned bullish on the hotel stock, issuing a ‘Buy’ recommendation with a target price of  Rs 185. This implies a potential upside of about 38% from Tuesday’s closing price of  Rs 134.30, reflecting optimism around the company’s growth prospects and improving sector outlook.

According to brokerage analysis, the restructuring of Lemon Tree Hotels Limited and Fleur Hotels aims to unlock shareholder value by creating two focused entities. Existing shareholders will receive 20 Fleur shares for every 311 LTHL shares, while Warburg Pincus will acquire 41.09% in Fleur. Fleur is expected to list within 15 months.

Post restructuring, brokerages expect LTHL to become a debt-free, asset-light platform with room inventory rising from 11,769 to 25,000 rooms over four years. Asset-light EBITDA margins may improve to ~80% with PAT margins of ~55%. Fleur, with 5,556 rooms, targets  Rs 1,000+ crore EBITDA by FY28, despite near-term margin impact of 400–500 bps in FY26–27.

Financials

Looking ahead, the company reported steady growth in Q2FY26, with revenue rising 7% from  Rs 284 crore to  Rs 306 crore. Net profit increased 20% increase, moving from  Rs 35 crore to  Rs 42 crore, indicating stable earnings despite cost pressures and a challenging operating environment.

Lemon Tree Hotels has a strong fee-income growth pipeline with over 9,400 rooms planned from third-party owners, alongside a large owned pipeline. New Aurika properties in Shimla, Shillong, and New Delhi add scale, while active discussions for 2,500+ rooms strengthen long-term expansion visibility across brands.

Lemon Tree Hotels has built a strong pan-India footprint across major business hubs and high-growth air corridors. The portfolio is concentrated in cities such as Delhi, Bengaluru, Mumbai, and Hyderabad, benefiting from rising air traffic and office absorption, while exposure to fast-growing markets supports sustained demand and long-term expansion.

Lemon Tree Hotels is one of India’s leading mid-priced hotel chains, known for its strong presence across business and leisure destinations. The company operates a diversified portfolio across brands, focusing on asset-light growth, consistent service quality, and expanding demand driven by travel and corporate activity.

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