Indian hospitality company Lemon Tree Hotels has reported an in-line operational performance, supported by strong demand in the mid-market hotel segment and rising revenue per available room (RevPAR).
The company recorded 9.5% growth in RevPAR, while consolidated management fee income increased by around 10%, reflecting steady improvement across its hotel portfolio. At the same time, Lemon Tree continues to expand its development pipeline, particularly through managed hotel agreements.
During the quarter, the company’s managed hotel pipeline increased by 1,855 rooms, taking the total to 9,364 keys. However, analysts say the pace of new hotel openings remains relatively slow, which could delay the translation of the growing pipeline into operational capacity.
Looking ahead, the company’s growth over the next two years is expected to be driven by several factors, including improved performance at Aurika Mumbai, the planned opening of the 91-room Aurika hotel in Shimla in FY2027, rising management fee income, and continued double-digit RevPAR growth in the owned hotel portfolio.
Despite steady demand, profitability has been affected by higher costs linked to renovation and technology upgrades. Lemon Tree’s EBITDA margin declined by 145 basis points to 50.4% in the third quarter of FY2026, mainly due to front-loaded investments in property upgrades, digital systems and the impact of changes in the goods and services tax (GST).
Together, these cost items accounted for 6.4% of revenue during the quarter. The company says such expenses are largely temporary and are expected to fall to about 3.6% of revenue by FY2028, which could help improve margins over time.
Lemon Tree is also undertaking selective rebranding of existing properties to improve pricing power. For instance, the conversion of Red Fox Hotel in New Delhi into a Lemon Tree Hotel has already resulted in higher average room rates. Similar upgrades are planned, including the rebranding of Red Fox Hyderabad by October 2026 and the conversion of some Keys properties to the Keys Prima brand after renovations.
Meanwhile, capital spending continues to focus on expanding the Aurika luxury hotel portfolio. Construction of Aurika Shimla is progressing with an investment of around ₹660 million, while Aurika Shillong, a 165-room project, is expected to open in FY2028.
Analysts maintain an “Accumulate” rating on the stock with a target price of ₹157, citing the company’s strong positioning in India’s growing mid-market hospitality sector despite near-term cost pressures.
