Improving operating margins in the hotel industry led this company's stock price surge by 55% in just three months

Shares of Lemon Tree Hotels stock saw a strong recovery due to its improving margins.

The stock today reached its 52-week high of Rs 93.20 after opening at Rs 92.10, while the company's 52-week low is Rs 42.10. The stock price has increased significantly following its June quarter results. A major factor in the stock price increase from Rs 60.80 on July 1 to Rs 91.95 on October 6 was its enhanced operating margin.

Lemon Tree Hotels Ltd is the largest mid-priced and the third largest overall hotel chain in India. It operates in the upper-midscale, midscale, and economy segments of the mid-priced sector as well as the posh area. With a value-for-money promise, it offers distinctive yet superior service options. Room rentals account for over 74% of the business's earnings, followed by sales of food and drink (14%), alcohol and wine (2%), and banquet rentals (1%).

Despite difficulties encountered during the two pandemic waves, profitability in fiscal 2022 improved after the severely hit fiscal 2021. The fiscal 2023 year has started strongly, with average room rent (ARR) exceeding pre-pandemic levels and occupancy levels maintaining satisfactory. The sequential recovery has been significant over the past few quarters.

In addition to a positive industry forecast, LTHL is anticipated to gain from switching from an occupancy-led growth strategy to an ARR-led approach, which would result in margin expansion similar to what was seen during the first quarter of fiscal 2023.

The company's sales significantly increased during the June quarter. In Q1FY23, the topline increased by 356% YOY and 61% QOQ. The company's operating margins increased from 18.1% in the June quarter to 45.6% this quarter. The company borrowed Rs 2128 crore in FY22. The hotel business is growing its properties; as of FY22, Rs 8 crore in capital work is ongoing. In FY22, the company generated 135 crore rupees in cash from operations. The company has a market value of Rs 7308 crore.