COVID-19 delivered a knockout punch to the hospitality industry and sent stock prices reeling. Patu Keswani-founded Lemon Tree Hotels also buckled under the carnage and hit an all-time low of ₹14 in May 2020. That fall was exacerbated due to institutional selling by Aberdeen Investment and Kuwait Investment Authority. Along with the overall market, it has recovered since and now trades at ₹40.  

During that steep fall, WF Asian Reconnaissance Fund was a prominent buyer and it has again bought in as promoter Keswani sold shares worth ₹1.67 billion.

While the lockdown has been lifted in phases, business is yet to get back to normal. Q2FY21 was certainly better than Q1FY21 in terms of volume but average room revenue was stagnant. An Edelweiss Securities report mentions, “While green shoots of demand are visible in certain segments, especially leisure travel, revival of the key corporate segment will begin only by Q4FY21.”

Given the uncertainty, most brokerages have conservative estimates. Analysts at Edelweiss have a target price of ₹32 stating, “Factoring in the performance up to H1FY21 and delayed sector recovery, we are reducing FY22 estimated revenue/EBITDA by 13%.” ICICI Securities has a target price of ₹37 as its analysts, “expect improved performance in H2FY21 on the back of recovery in leisure/wedding bookings from Q3FY21 and possible pickup in business travel from Q4FY21.”

Even as net debt has reduced by nearly a billion over the past two quarters, at ₹14.5 billion, it continues to be a concern relative to its size. After the latest selling, promoter holding now stands at 25.87%. Total mutual fund holding for September 2020 was 16.26% of which SBI MF (8.94%) and Franklin India (4.36%) are the biggest. Among FIIs, WF Asian Reconnaissance Fund held 6.38% and its revised holding now stands at 6.98%. The other investors who bought in include Baillie Gifford’s Pacific Horizon Investment Trust (1%) and Hero Group promoter Sunil Kant Munjal through Ivy Icon Solutions LLP (2.04%).