Why Lemon Tree Hotels Share Price is Falling

It's that time of the year in India!

The time when you see too many people dressed up for a wedding .

It's literally Band Baaja Baaraat in India. Over 3 million weddings are expected to take place over the next month in India. According to the Confederation of All India Traders, it will generate business of at least Rs 3.7 trillion (tn).

And that is just phase one of the wedding season. The next phase of the wedding season will start in January and continue till April 2023.

One of the chief beneficiary sectors of this wedding season is the hospitality sector.

Hotels with wedding halls or open spaces, can host multiple weddings on a single day. Weddings are generally preceded and followed by customary ceremonies which too, many a times are hosted at the same location.

In the past one year, hotel stocks boomed as top hotel companies including Lemon Tree, Indian Hotels, and the likes saw sharp improvement in their financials.

Lemon Tree Hotels in particular rallied 87% in the year gone by. However, the stock has dipped on the bourses in recent sessions. In the past one-month, the share price has fallen by 14%.

Why Lemon Tree Hotel is Falling

#1 Profit booking

Profit booking is a tendency of stock market. In multiple cases, you would see a stock come down after rallying sharply.

Take the case of PSU banks. UCO Bank stood as the biggest gainer in the recent PSU bank rally. The stock went on to deliver multibagger gains withing a span of a month.

But the stock came under pressure in the recent two sessions after a sharp rally. There was nothing particular in news but still the stock came down by over 15% in two sessions.

This is an effect of profit booking. Investors who think the stock has run its course and will likely stay in a range for the time being exit the stock.

It appears something similar has happened to Lemon Tree Hotels. After rallying non-stop, some investors might have opted to book profits.

#2 Stake sale by promoters

The promoter's holding indicates the promoter's trust in the company. When promoters sell a stake in the company it leads to distrust in shareholders and hence they also start selling the shares.

Promoters of Lemon Tree Hotels have continuously sold their stake in the company for the last three quarters. From December 2021 to September 2022 promoters reduced their stake by 2.3%.

As of 30 September 2022, promoters held a stake of 23.6% in the company.

#3 FII Selling

Interest rates are rising in developed markets like the USA. This makes the emerging markets less attractive for FIIs because the risk-free rate of return reduces.

Hence FIIs sell their holdings in companies operating in emerging markets like India to return to the safety of dollars. The same has happened with Lemon Tree Hotels.

FII stake was reduced to 27.5% in September 2022 quarter from 28.7% in March 2022.

In fact, FIIs have sold for two consecutive quarters now.

For more, check out Lemon Tree Hotels' latest shareholding pattern.

How Lemon Tree Hotels shares have performed recently

Lemon Tree Hotel shares have declined by more than 14% in the last month.

The company touched its 52-week high of Rs 103.3 on 01 December 2022 and its 52-week low of Rs 43.2 on 20 December 2021.

At the current price, the stock is trading at a PE multiple of 249.2 and a price-to-book value multiple of 6.2. This makes it overvalued on the PE front.

About Lemon Tree Hotels

Lemon Tree is largest mid-priced and the third largest hotel chain in India overall. It operates in the upscale segment and in the mid-priced sector, consisting of the upper-midscale, midscale, and economy segments.

In the next five years, the company's management has committed to reduce debt and become a debt free company.

On the capacity addition, the company plans to add 738 rooms in Mumbai and Shimla in the next two years with an investment of Rs 10.1 bn.

Going forward, as the demand for corporate travel and other such events remains intact, Lemon Tree stands to be a big beneficiary with most of its hotels located at business destinations.

For more details, see Lemon Tree Hotels' company fact sheet and quarterly results.

You can also compare Lemon Tree Hotels with its peers:

Lemon Tree vs Indian Hotels

Lemon Tree Hotels vs EIH

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...