Shares of Lemon Tree Hotels Ltd closed nearly 28% higher on the stock market debut on Monday after its Rs1,039 crore initial public offering (IPO) was subscribed 119% during the three-day share sale that closed on 28 March.
Lemon Tree Hotels shares ended at a premium of 27.94% at Rs71.65 on the NSE over its issue price of Rs56 apiece. The stock debuted on the bourses at Rs61.60, up 10% over its issue price.
Lemon Tree Hotels had set a price band of Rs54-56 per share for its IPO. It had raised Rs311 crore from anchor investors.
Ahead of the issue, most analysts had expressed concerns about its expensive valuations. IIFL Wealth Management Ltd had said that the steep valuations of Lemon Tree Hotels were nowhere near its comfort zone though it liked positioning of the leisure industry stocks from a cyclical perspective.
“Even if Ebitda growth picks up on the back of improved room rates, it would still leave Lemon Tree at a significant premium to other players,” it said in a note on 23 March. Ebitda stands for earnings before interest, tax, depreciation and amortization.
According to Kotak Securities Ltd, the company is into risky business as slowdown in economic growth in India could have an adverse effect on Lemon Tree Hotel’s business, results of operations and financial condition.
Lemon Tree Hotels operate in the mid-priced hotel sector in India, where consumer demand is highly dependent on the general economic performance in India.
“The company’s approach of owning and leasing hotels, which are designed and built or converted to its specific brand standards, has enabled it to build a portfolio of proprietary brands with uniform quality and operational parameters,” Kotak Securities said in a report on 23 March.
Started in 2002, Lemon Tree Hotels is India’s largest hotel chain in the mid-priced hotel sector and the third-largest overall, on the basis of controlling interest in owned and leased rooms. As of 31 January 2018, it operates 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India.
Lemon Tree operates under three brands that cater to the needs of different hotel segments: Lemon Tree Premier is targeted primarily at the upper-mid-scale hotel segment; Lemon Tree Hotels is targeted at the mid-scale segment; and Red Fox by Lemon Tree Hotels is targeted at the economy segment.
This story was first published on livemint.com
