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India’s Lemon Tree Hotels to take over Keys Hotels for $65.6 million [Infographic]

by | Sep 27, 2019 | Chains

One of Lemon Tree Hotels’ upscale properties. (Photo: Lemon Tree Hotels)

Lemon Tree Hotels’ $65.6 million acquisition of Keys Hotels should be a done deal by October 2019.

Lemon Tree Hotels’ $65.6 million acquisition of Keys Hotels and the integration of all financials are set to be finalised by October 2019. 

“The management was confident that after the acquisition is complete, the average room rate (ARR) of Keys Hotels could be increased on par with Lemon Tree. Therefore, the earnings before interest, tax, depreciation and amortisation (Ebitda) margin is not expected to decline,” Amit Agarwal, research analyst, Nirmal Bang Institutional Equities said in a company note.

Expanding the brand portfolio

The acquisition of Keys should bring several benefits. For one, it will let Lemon Tree quickly add more rooms under management contracts. 

Additionally, hotels which are interesting to the group, but do not qualify for the company’s main brand can now be considered for the Keys brand. That way, new properties can be added to create a more diverse portfolio. 

Today, Lemon Tree runs over 5,300 hotel rooms under its three brands Lemon Tree Premier, Lemon Tree and Red Fox. 

“Post-acquisition, while most Keys hotels would operate under the existing brand name, a few will get rebranded as Lemon Tree hotels, which the management believes would require a capex of $2 million. The company is confident of achieving an immediate 4% revenue improvement coupled with a 2% cost decrease (of sales) post the acquisition and expects Keys Hotels to generate Ebitda of $8,3 million in fiscal 2021,” Motilal Oswal, research analysts Sumant Kumar and Darshit Shah said in a company note. 

He also added that to improve digital sales, Lemon Tree has also hired ex-digital head of Tata Group’s hospitality business vertical Indian Hotels Co Ltd (Taj Hotels, Palaces, Resorts & Safaris).

Promising numbers and a solid financial outlook

According to Agarwal, Lemon Tree will be able to increase the ARR (average room rate) of many Keys properties and raise it to Lemon Tree’s level by benefiting from their experienced sales team. 

“Also, existing corporate relations with online travel agencies (OTAs) will help improve the Ebitda of Keys Hotels,” Agarwal said in the note.

According to Murtuza Arsiwalla and Samrat Verma, research analysts at Kotak Institutional Equities, the company’s current net debt is $163 million against an Ebitda of $25 million, with attributable net debt of $129 million and Ebitda of $21 million. 

“The total debt of $70 million is attributable to properties under construction as well as stabilisation. Lemon Tree has already spent $89 million as of June 2019 for projects under construction and will likely need to incur an incremental capex of $42 million,” the analysts said in a company note. 

“The Keys transaction will not substantially increase the net debt position as APG brings in cash of $58 million to fund it while Lemon Tree offers 42% stake in the recently commissioned hotel at Andheri, Mumbai.”

According to analysts, the acquisition of Keys Hotels will also lead to the company’s Ebitda margin being compressed in the next one to two years. 

“This is expected to be an added risk to the valuation for the company,” Agarwal said in the note. 

Preparing for the good times and the bad

Lemon Tree’s management aims to strengthen the mid-market segment. Of the 45,700 rooms in this segment, it plans to operate 18,280, or a 40% market share by 2022. 

The idea is to aggressively expand this core segment now to help maintain pricing power even in the event of an economic downturn. 

For strategic reasons, no new Red Fox hotels are currently planned. Instead, the new luxury brand Aurika is now earmarked for growth in the five-star deluxe sector. 

The first 134-room property under the Aurika name is set to launch in Udaipur in October 2019 and claims to already have 1,000 room nights on the books. 

The second Aurika is already underway too. The 670-room hotel will be near Mumbai International Airport’s T2 hotel and include a 10,000 square feet convention centre, making it Lemon Tree’s largest single structure property.

For now, the company plans on owning only these two properties in the five-star sector. Others joining the brand will do so under management contracts.

According to the TOPHOTELCONSTRUCTION online database 160 hotel projects are currently in the pipeline in India:

Let’s take a look at a few outstanding hotel projects in India:

Wyndham Resort Goa

Hilton Goa Resort

The Zephyr


India’s first, largest and finest chain of upscale hotels and resorts.


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