- Revenue jumped 14% YoY in Q3 FY26, driven by a 34% surge in Food & Beverage sales.
- EBITDA margin stayed above 50% despite higher renovation spend and GST pressure.
- Motilal Oswal projects a 27% CAGR in adjusted PAT through FY28 and lifts target price to INR 200.
- Room rates rose 11% YoY while occupancy slipped only 80bp, indicating pricing power.
- Return on Capital Employed (RoCE) expected to climb from ~11.7% to ~19.4% by FY28.
You missed the subtle upgrade in Lemon Tree’s fundamentals, and that could cost you big gains.
Motilal Oswal’s latest research paints a vivid picture of a hospitality brand that’s not just surviving – it’s accelerating. In the third quarter of FY26, Lemon Tree Hotels (LEMONTRE) delivered a healthy 14% top‑line growth year‑over‑year, anchored by an explosive 34% jump in Food & Beverage (FnB) revenue and a modest 7% rise in room revenue. Even as the average occupancy dipped by just 80 basis points to 73.4%, the average room rate (ARR) surged 11% to INR 7,487, underscoring the chain’s ability to command premium pricing in a price‑sensitive market.
Below you’ll find a quick dive into why this matters, how the broader sector is shaping up, and what the numbers mean for your next trade.
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Why Lemon Tree Hotels' 14% Revenue Surge Matters
The hospitality sector in India is entering a sweet spot. Domestic travel demand, buoyed by rising disposable incomes and a post‑pandemic rebound, is projected to grow at a 10‑12% CAGR through 2028. Lemon Tree’s revenue mix—where FnB now contributes a larger slice—mirrors this shift. Restaurants, banquets, and cloud kitchens have become high‑margin engines that offset the cyclical nature of room occupancy. A 34% YoY lift in FnB suggests the brand is capturing more ancillary spend, a trend analysts label “hospitality diversification.”
How FY25‑28 EBITDA Growth Beats Industry Trends
Motilal Oswal forecasts a 13% compound annual growth rate (CAGR) in EBITDA and a striking 27% CAGR in adjusted PAT (profit after tax) through FY28. Compare this with the Indian hotel industry’s average EBITDA margin of ~38% and a sector‑wide PAT growth of around 12% over the same horizon. Lemon Tree’s EBITDA margin of 50.4%—still industry‑leading—shows resilience despite a 150 basis‑point contraction caused by renovation outlays and the GST surcharge.
Why the margin dip matters: the firm is investing heavily in property upgrades and technology platforms (property management systems, contactless check‑in, AI‑driven pricing). These capex items are front‑loaded, compressing short‑term margins but setting the stage for higher RevPAR (Revenue per Available Room) and lower operating costs in the long run.
Impact of Renovation & GST on Lemon Tree's Margins
GST on hospitality services was increased from 12% to 18% in mid‑FY25, eroding net margins across the board. Lemon Tree mitigated this by passing a portion of the tax to customers via higher ARR, evident in the 11% price hike. Simultaneously, the company accelerated renovation spend, targeting a “next‑gen” guest experience. While this cost pressure shaved 150 basis points off EBITDA, analysts view it as a strategic trade‑off: upgraded assets command higher room rates and improve brand perception, translating into superior RoCE.
Competitive Landscape: Tata, OYO, and the Upscale Segment
Peers such as Tata Capital Hotels and OYO face divergent challenges. Tata’s luxury portfolio is seeing slower room revenue growth, constrained by limited mid‑tier properties. OYO’s asset‑light model struggles with consistent service quality, leading to higher churn. Lemon Tree, positioned as a mid‑scale upscale brand, enjoys a sweet spot: it can leverage scale economies while delivering a consistent guest experience.
Market share data indicates Lemon Tree holds roughly 8% of the organized mid‑scale segment, second only to OYO’s 12% but ahead of Tata’s 5% in the same tier. The company’s strategic focus on renovating existing properties rather than aggressive expansion reduces dilution of earnings per share (EPS) and supports margin stability.
Technical Metrics Demystified for Retail Investors
Return on Capital Employed (RoCE): A measure of how efficiently a company generates profit from its capital. Lemon Tree’s RoCE is projected to rise from ~11.7% in FY25 to ~19.4% by FY28, indicating stronger capital efficiency.
Adjusted PAT: Net profit after tax, adjusted for one‑time items and non‑recurring expenses. The 27% CAGR forecast signals robust bottom‑line growth, outpacing peers.
EBITDA Margin: Earnings before interest, taxes, depreciation, and amortisation as a percentage of revenue. Staying above 50% places Lemon Tree in the elite tier of hospitality operators.
Investor Playbook: Bull vs. Bear Cases
Bull Case: Continued FnB expansion, successful renovation roll‑out, and price‑elastic demand support a target price of INR 200 by FY28. The stock could rally 30‑40% from current levels, delivering a compelling upside for growth‑oriented portfolios.
Bear Case: If GST pressure persists and occupancy declines sharply (below 70%), margin compression could deepen. Additionally, a slowdown in discretionary travel due to macro‑economic headwinds could stall revenue growth, capping the upside.
Overall, Motilal Oswal maintains a BUY rating, underscoring confidence in the firm’s strategic trajectory and financial fundamentals. Investors seeking exposure to a resilient, high‑margin hospitality player should weigh Lemon Tree’s upside against the modest risks outlined above.