Lemon Tree Hotels Ltd stock hit a fresh 52-week high of ₹174.90 on Monday, partly because of optimism around its Aurika expansion plans. The company recently won a Delhi Development Authority e-auction for license rights to a 2.25-acre land in Nehru Place, New Delhi, to build a five-star hotel.
Lemon Tree is also in the thick of a makeover, renovating thousands of rooms and preparing to spin off its asset-heavy arm, Fleur Hotels. The renovation is a bold and pricey shift, soaking up about 6% of revenue, with large properties in Delhi, Hyderabad and Bengaluru being upgraded.
Nearly two-thirds of the 4,300 rooms to be upgraded, comprising about 40% of its operational keys, have already been refurbished in the past two to two-and-a-half years, with the rest due to be completed by October 2026.
The near-term result is higher costs and disrupted occupancy, though spending should ease to 2–2.25% of revenue once the cycle ends. Total spend in FY26 is expected to be around ₹130 crore, including ₹80-90 crore of operating expenses.
Q1 performance
Lemon Tree’s June quarter (Q1FY26) results were decent. Consolidated revenue rose 18% year-on-year, with average room rates (ARR) up 10% to ₹6,236 and occupancy climbing 600 basis points (bps) to 73%. Thus, revenue per available room (RevPAR) grew 19%. Operating margin rose 160 bps to 44.5% as renovation costs were offset by lower power and fuel costs and payroll costs.
Aurika Mumbai illustrates the payoff. Occupancy jumped to 76% in Q1 from 46% as renovated inventory came onstream. The focus now shifts to raising ARR by targeting higher-yielding business.
Lemon Tree signed 14 new management and franchise contracts in Q1FY26, adding more than 1,200 rooms, and operationalised five hotels with 392 rooms. Its portfolio now comprises 226 hotels and 18,430 rooms, almost half of which are yet to open.
Debt in Q1 was at ₹1,658 crore, which management expects to ease gradually. A potential IPO of Fleur Hotels by December 2026 could accelerate the shift toward an asset-light structure.
Short-term pain
Still, renovations will keep costs high and margins capped, while new signings will take time to add to earnings. Motilal Oswal Financial Services expects the growth momentum seen in Q1FY26 to continue, led by the ramp-up of Aurika Mumbai, better demand-supply dynamics, renovation-driven gains in ARR and occupancy, and the Infinity 2.0 loyalty program.
Lemon Tree’s shares trade at an enterprise value of 18.5 times estimated FY27 Ebitda, as per Bloomberg estimates, leaving little room for near-term upside unless the makeover delivers more than it promised.
