Lemon Tree Hotels announces Q1FY25 results

Lemon Tree Hotels has announced its revenue growth of 21 per cent year-on-year (YoY) for the 1QFY25. The growth was driven by a increase in Average Room Rates (ARR), up 9 per cent YoY, and the addition of 669 rooms at Aurika Mumbai, which opened in October 2023. However, despite the revenue surge, the company faced challenges in maintaining its EBITDA margins, which saw a decline of 410 basis points (bp) YoY, primarily due to an increase in renovation and business development expenses.

The company reported a 15 per cent drop in its profit after tax (PAT) for the first quarter of the current financial year, falling to Rs 20 crore from Rs 23.5 crore in the same period last year. This decline has triggered a slip in the company's stock price, reflecting investor concerns about the company's financial trajectory. The drop in profitability comes despite a 4 per cent increase in total income, which reached Rs 220.41 crore. The growth in revenue was largely driven by an uptick in occupancy rates across the company’s properties, which averaged 76 per cent compared to 74.7 per cent in the previous year. The Average Daily Rate (ADR) also saw an improvement, rising from Rs 4,808 to Rs 5,114.

However, the company’s EBITDA margin also narrowed, further exacerbating the financial strain. Lemon Tree Hotels management attributes this to inflationary pressures and a challenging macroeconomic environment, which have increased operational costs more than anticipated.

Lemon Tree, known for its mid-market and budget accommodations, has been expanding its footprint across India, with plans to open new properties in key locations. The company has a total inventory of 8,350 rooms across 87 hotels in 53 destinations. The current economic climate has, however, posed challenges in maintaining profitability while pursuing aggressive growth strategies. Investors are closely monitoring the company's ability to manage these cost pressures while continuing to expand. With travel and tourism recovering post-pandemic, the hospitality sector is seeing increased demand, but sustaining profit margins in this competitive environment remains a challenge.