Lemon Tree Hotels and Zydus Wellness: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are Lemon Tree Hotels and Zydus Wellness. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between February 10, 2025 and February 14, 2025.

Lemon Tree Hotels Limited

Lemon Tree Hotels share price is ₹138.80 (as on February 7, 2025) and its target price is set at ₹178 with an upside potential of 29%.

Lemon Tree Hotels Limited: Investment Rationale

• Lemon Tree Hotels Limited (LTHL) is a leading hotel chain in India, operating a diverse portfolio of hotels across various segments, including upscale, upper-midscale, midscale, and economy. With a strong focus on delivering high-quality service and value, LTHL offers seven distinct brands to cater to diverse guest needs.
• The company has a significant presence in major metro cities and tier I, II, and III cities across India. LTHL has also expanded its international footprint with hotels in Dubai, Bhutan, and Nepal.
• In Q3 FY2025, revenue grew by 22% YoY to ₹355.8 crores. Net EBITDA grew 30% YoY to ₹184.8 crores, translating into a Net EBITDA Margin of 51.9%, which increased by 316 bps YoY. Profit after tax stood at ₹79.9 crores in Q3 FY25, an increase of 82% Y-o-Y. It recorded a Gross ARR of ₹6,763, which Increased by 7% YoY.
• The occupancy for the quarter stood at 74.2%, an increase of 826 bps YoY. This translated into a RevPAR of ₹5,018, which increased by 21% YoY. During the quarter total management fees stood at ₹43.7 crores, an increase of 35% YoY.

• As of December 31, 2024, the inventory for the group stands at 112 operational hotels with 10,317 rooms. This includes 34 owned (including leased land) hotels with 5186 rooms, 7 leased hotels with 573 rooms, and the balance is managed/franchised.
• It has a pipeline of 88 hotels with 6,068 rooms which would be completed in different phases. On completion of the hotels under the pipeline, it will operate 200 hotels with 16385 rooms. By FY2026 it expects 34 hotels with 2307 rooms to become operational.
• On the asset-light side, in Q3FY2025 it signed 13 new management and franchise contracts, adding 766 new rooms taking the total pipeline to 5,879 rooms and 86 hotels. Currently, it is operating 71 hotels with 4558 rooms.
• It has received an LOA from the Directorate of Tourism, Government of Meghalaya, for the redevelopment, operation, and maintenance of the existing Orchid Hotel, Shillong, under the Design, Build, Finance, Operate, and Transfer mode on a Public Private Partnership.
• The property will feature 120 elegantly designed rooms and suites. It is expected to become operational within the next three years. The project qualifies for capital subsidy and various incentives, including GST reimbursement.
• According to the management, the increased investment in renovation expenses would continue into FY26 until the entire portfolio of owned hotels has been fully renovated and refreshed. Post this, renovation expenses will be close to 1.8% of revenue on an ongoing basis.
• According to the management the timely completion of renovation activities in the owned portfolio to further improve Gross ARR and occupancy.

Lemon Tree Hotels Limited: Shareholding Pattern

The foreign investor’s shareholding is highest in Lemon Tree Hotels at 36.28%.

Lemon Tree Hotels Limited: Valuation

India’s growing demand for branded rooms, coupled with rising discretionary consumption, is expected to outpace supply growth. Lemon Tree’s investment in hotel renovations will enable the company to capitalize on this trend, commanding premium pricing and solidifying its position as a preferred midmarket brand.

Thus, it is expected that the stock may see a price target of ₹178 in 8 to 10 months’ time frame on three year average P/BV of 9.25x and FY26 BVPS of ₹19.29.

Lemon Tree Hotels Limited: Risk

• Economic Slowdown
• Intense Competition

Zydus Wellness Limited

Zydus Wellness share price is ₹1,787.25 (as on February 7, 2025) and its target price is set at ₹2,149 with an upside potential of 20%.

Zydus Wellness Limited: Investment Rationale

• Zydus Wellness is engaged in the development, production, marketing, and distribution of health and wellness products. It has 7 leading brands in its portfolio, namely Complan, Sugar-Free, Glucon-D, Everyuth, Nycil, I m lite and Nutralite.
• Headquartered in Ahmedabad and Mumbai, has 4 manufacturing facilities across 3 locations – Aligarh, Ahmedabad, and Sikkim. It has also 8 co-packing facilities in India, Oman, and New Zealand.
• During Q3 FY25, it recorded 12.7% YoY growth in Q3 net sales which stood at ₹450.80 crores. EBITDA rose to ₹14.80 crores, marking a 16.5% YoY increase, while net profit surged to ₹6.40 crores.
• The company sustained its gross margin even under Inflationary pressures, which affected input prices. Gross margin growth was driven by strategic hedging, favorable product mix, and calibrated pricing.

• During the quarter, the company completed the acquisition of 100% equity share capital of Naturell (India). Naturell (India) specializes in manufacturing, research and development, and marketing of nutrition bars, protein cookies, protein chips, and health food products under the Ritebite Max Protein (Protein fuelled healthy snacks) and Ritehite (fibre-enriched snacks).
• Growth in Q3 FY25 was driven by robust consumer demand in the personal care segment, which posted double-digit growth of 50.3% while the food and nutrition segment recorded a growth of 8.8% for the quarter. Most of the Company’s brands are the market leaders in the respective categories/segments and continue to perform well.
• Leveraging its strong research and development capabilities, Nutralite Doodhshakti Professional forayed into processed cheese this quarter, while Naturell launched the choco-filled fiber har ‘Melting Chocolate, and two variants under the fruit-filled har range ‘Blueberry Blast’ and ‘Berry Delite-and ‘Protein Bar Bytes’.
• In the personal care segment, the company’s brand Nycil is driving continuous volume growth with a market share of 35.5% as per MAT Dec 2024. Everyuth widened its product portfolio. Scrub and peel off continues to strengthen its leadership with growth in volume market share.
• Prickly heat powder market share was 33.9% and Facial cleaning market share was 7.2%, the Scrub market share was 47.3% and the Peel-Off market share was 77.8%. Moreover, Nutralite continued to widen its product basket supported by focused B2B and B2C teams.

Zydus Wellness Limited: Shareholding Pattern

In the overall shareholding of Zydus Wellness, promoters have the highest shareholding of 69.62%.

Zydus Wellness Limited: Valuation

The company is doing well and most of the company’s brands are the market leaders in the respective categories/segments and continue to perform well. The management of the company is targeting 8-10% of its total revenue from international business in the next 4-5 years.

Moreover, according to the management of the company, the company continues to drive innovation, category expansion, and market leadership, reinforcing its strong growth momentum.

Thus, it is expected that the stock may see a price target of ₹2,149 in 8 to 10 months’ time frame on one year average P/BV of 2.25x and FY26 BVPS of ₹954.90.

Zydus Wellness Limited: Risk

• Regulatory Risk
• Supply Chain Issue

Conclusion

These two stocks, one from the hospitality sector and the other from the consumer goods sector can reach their target price in the coming 8 to 10 months. However, it is always better if you do your analysis before investing and set a stop-loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.