Shares of Lemon Tree Hotels rose 5% on Tuesday after brokerage CLSA recommended a buy rating on the company with a price target (TP) of Rs 102 per share, implying a 34% upside from yesterday’s close of Rs 76. The brokerage expects demand from the company to grow at a compound annual growth rate (CAGR) of 12% and believes it will expand to 25,000 rooms within five years.

The company recently signed a licensing agreement for two new hotels in Maharashtra, branded “Lemon Tree Hotel” and “Keys Lite by Lemon Tree Hotel”, with 50 and 20 rooms, respectively, which will be It will be operational in October 2023. Last month, it also inked two licensing deals, one for a 110-room hotel in Himachal Pradesh under its brand “Aurika”, which is expected to be operational by November 2024, and another 47-room hotel in Madhya Pradesh to be operational by December 2023.

Lemon Tree Hotels is a mid-priced hotel chain that currently operates about 8,300 rooms in 87 hotels in 53 destinations in India and abroad under its brands, including Aurika, Lemon Tree Premier, and Lemon Tree Hotels.

The brokerage said that the upcoming low supply would drive ARR (average room rate) compound annual growth rate to 10-15%, and the EBITDA margin is expected to remain above 50%. The company also plans to be debt-free within four years, it added.

In Q3FY23, the company’s total income grew 60% YoY to Rs 234 crore against Rs 146 crore for the period ending December 31, 2021. It was Rs 197 crore for the September 2022 quarter. It also reported a positive net profit, which widened to Rs 40 crore compared to a net loss of Rs 2 crore reported in the year-ago period. The net profit for the September 2022 quarter stood at an optimistic Rs 17 crore.

The company’s market capitalisation has risen 41% in the past year but has fallen 5% in the past six months.

The stock was up 4.64% at Rs 78.90 per share at 10:38 am, while the benchmark Nifty 50 was down 0.4% at 17,086.25.