Detailed Rationale

Crisil Ratings has continued its rating on the long term bank facilities of Lemon Tree Hotels Limited (LTHL)  on ‘Rating Watch with Developing Implications’

 

The long-term rating had been placed on watch on January 20, 2026, following the announcement made by the company and its material subsidiary, Fleur Hotels Ltd (FHL), on January 20, 2026, regarding execution of a composite scheme of arrangement (CSA). This is being done to simplify the group structure and enhance strategic focus. After reorganisation, LTHL will be pure-play asset-light hotel management and brand platform, focused on growing its hotel management, franchising and digital business; and FHL, as a hotel ownership platform with development capabilities. FHL will lead the group’s all future hotel acquisitions and development.

 

As on date, the board of directors has approved execution of share purchase agreement and a shareholders’ agreement. This shall enable Coastal Cedar Investment B.V., an affiliate of Warburg Pincus, to acquire 41.09% equity stake in FHL from APG Strategic Real Estate Pool N.V. Furthermore, Warburg Pincus proposes to infuse up to Rs 960 crore as equity in FHL in tranches, to support its future growth plans. The company also received approval from the Competition Commission of India for the said scheme of rearrangement in April 2026.

 

Following receipt of all relevant approvals, the CSA will become effective, and FHL will be listed as a separate entity. The entire process is expected to be completed within 9-12 months.

 

Crisil Ratings will continue to monitor the developments regarding implementation of the aforementioned reorganisation scheme and resolve the watch on receipt of shareholder’s approval and other regulatory approvals from the NCLT (National Company Law Tribunal) and the Security Exchange Board of India (SEBI).

 

The company continues to maintain its healthy business risk profile. Revenue in the first nine months of fiscal 2026 grew 13% on-year to Rs 1,028 crore, supported by healthy growth in average room rents and occupancy. The operating margin was healthy at 46.3% in the nine months of fiscal 2026 and is expected at above 45% in fiscal 2026. The business risk profile was aided by strong presence in diverse markets, along with healthy operating metrics.

 

LTHL currently has a portfolio of 41 owned hotels and 89+ managed and franchise hotels, with total key count of 11,772 as of March 2026. The portfolio is spread across top metros and business and tourism hubs, including tier 2 and 3 cities.

 

The financial risk profile has been improving, supported by healthy cash accrual and continuous deleveraging. Expansion through the asset-light route is limiting debt requirement. Improvement in profitability and continuous reduction in debt resulted in fall in net debt (including lease liabilities) to Ebitda ratio to 3.16 times in fiscal 2025 from 4.31 times in fiscal 2024. The ratio is expected below 2.5 times in the near term, aided by debt repayment and improving profitability. Debt protection metrics improved, with interest coverage ratio increasing to 3.56 times in the first nine months of fiscal 2026 (2.73 times same time in fiscal 2025) and is expected above 4 times over the medium term. Sustenance of lower leverage and delays in implementation of the projects, resulting in cost overrun, will be monitorable.

 

These strengths are partially offset by susceptibility to cyclicality in the hospitality industry and slower-than-expected ramp up of new assets, which may impact profitability.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of LTHL and its subsidiaries, collectively referred to as the Lemon Tree group, as these entities have strong business and financial linkages. The subsidiaries construct or operate hotels under the Aurika, Lemon Tree Premier, Lemon Tree, Red Fox, and Keys brands.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths 

• Strong operating performance, reputed brand and diversified portfolio: The Lemon Tree is an established brand in the upscale, upper-midscale, midscale and economy segments and operates across major metro cities and key business and leisure destinations in India. Presence in top metros, and business and tourism hubs helped these properties to attract both leisure as well as business demand. The group is among the top three hotel chains (by number of rooms) in India. The group has over 130 hotels across over 74 cities, of which 34 are owned, 7 leased and 89+ under management or franchisee contracts as of March 2026. Given the strong brand, LTHL has maintained healthy occupancy and ARR (average room rate). Consolidated revenue grew 20% on-year to Rs 1,287 crore in fiscal 2025 and Ebitda margin was 49.6%. The growth in operating performance was driven by growth in ARR by 8.6% on-year to around Rs 6,381 as well as increase in occupancy rates (OR) to around 72% in fiscal 2025 from 69% in fiscal 2024. The operating performance is expected to improve, driven by robust domestic leisure and business travel demand.

 

• Improving financial risk profile: Sustained revenue growth and healthy profitability resulted in robust cash accrual of Rs 382 crore in fiscal 2025. Regular debt repayment and healthy profitability resulted in an improvement in the leverage ratio. Net debt (including lease liabilities) to Ebitda ratio fell to 3.16 times in fiscal 2025 and is expected to reduce to below 2.5 times in fiscal 2026. Debt protection metrics have been improving with improvement in profitability: the interest coverage ratio increased to above 3 times in fiscal 2025 from 2.56 times in fiscal 2024, and is expected above 4 times over the medium term, aided by improving profitability and lower interest outgo owing to reducing debt. Sustenance of leverage will be monitorable given expected capital expenditure (capex) of Rs 60-70 crore per annum over the next three fiscals; any delay in the projects resulting in cost overrun will be monitorable.

 

• Healthy financial flexibility with regular equity infusion: The group has raised equity of over Rs 1,800 crore between fiscals 2006 and 2023, irrespective of the funding climate, which reflects its high financial flexibility. Also, liquidity is supported by improving net cash accrual due to ramp-up of properties, revival from the Covid-19 pandemic-induced challenges and long debt tenure, leading to manageable yearly debt obligation. Prudent capex funding will ensure stable financial risk profile over the medium term, while the group’s ability to raise equity and contract debt on attractive terms will support the financial flexibility. The management is committed to reduction in leverage and the company intends to be debt-free in the next 3-4 years. Improvement in leverage will support the credit risk profile.

Key Rating Drivers - Weaknesses 

• Susceptibility to cyclicality in the hospitality industry: The hospitality sector is susceptible to downturns in the domestic and international economies. Growth in revenue per available room (RevPAR) in business destinations is more sensitive to macroeconomic indicators, such as nominal growth in gross domestic product. On the other hand, leisure destinations are more sensitive to non-economic factors such as terror attacks and health-related travel warnings, as seen during the pandemic. However, the RevPAR of mid-sized or economy hotels declines less sharply during downturns than for hotels in premium and luxury segments, as operating cost remains high for hotels in these segments. Thus, cash flow may remain vulnerable to economic downturns. 

 

• Exposure to execution risk in owned portfolio: The company is expected to undertake capex of Rs 60-70 crore per annum over fiscals 2026-2028 to add ~250 keys to its owned hotel portfolio in the premium segment. Upon completion, the number of owned keys will increase to over 6,000 in fiscal 2029 from 5,759 as on March 31, 2026. The capex will be funded through a prudent mix of internal accrual and debt. However, the properties are currently in early/mid-stages of construction, exposing the company to execution risk. Any cost or time overrun or delay in ramping up of the properties may have a bearing on the financial risk profile and will hence be monitorable.

Liquidity Adequate

Liquidity is supported by healthy unencumbered cash and bank balance of Rs 130 crore as on September 30, 2025. The company is expected to generate annual cash accrual of Rs 380-450 crore over the medium term against debt obligation of Rs 180-200 crore and capex of Rs 60- 100 crore per annum over the next two fiscals (2027-2028), which is likely to be funded through internal accrual. Liquidity remains supported by cushion in working capital limit and healthy financial flexibility owing to the company’s access to capital markets.

ESG Profile

Crisil Ratings believes the ESG profile of LTHL supports its already strong credit risk profile. The sector has moderate environmental and social impact, driven by energy consumption using renewable sources, effective water consumption and recycling of wastewater, along with waste-intensive processes.

 

LTHL’s focus on addressing these ESG risks supports its already strong credit risk profile.

 

Key ESG highlights:

• The company achieved 9% reduction in greenhouse gas (GHG) emissions (intensity-based) in fiscal 2024 over fiscal 2019 baseline, and targets to reduce the emissions to 40% by 2026. In fiscal 2022, renewable energy contributed 12.6% to the total energy consumption. The company plans 50% renewable energy (RE) usage by fiscal 2026.
• It achieved 22.3% reduction in water consumption (intensity based) in fiscal 2024 over fiscal 2019 baseline.
• It is committed to ensuring safety and security of its employees. Resolution of sexual harassment cases is 100% for the last four fiscals.
• The governance structure is characterised by 67% independent directors, effectiveness in board functioning and enhancing shareholder wealth, presence of investor grievance redressal mechanism and extensive disclosures.

 

ESG is gaining importance among investors and lenders. LTHL’s commitment to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Rating sensitivity factors

Upward factors

• Strengthening of the financial risk profile, with net debt (including lease liability) to Ebitda ratio falling below 2.6 times on sustained basis
• Improvement in revenue and sustenance of operating margin.
   

 Downward factors

• Weakening of operating performance owing to lower-than-expected ARR or occupancy, resulting in lower operating margin
• Weakening of the financial risk profile, with net debt to Ebitda (including lease liability) ratio above 3.25 times

About the Company

LTHL Set up by Mr Patanjali Keswani in September 2002, the Lemon Tree group has 111 hotels across 73 cities - 34 owned, 7 leased, and 70 under management or franchisee contracts. This includes 7 owned and 8 managed Keys hotels, which were added to the portfolio after the acquisition of Berggruen Hotels Pvt Ltd in fiscal 2020. The first hotel commenced operations in Gurugram in 2004. The group has seven brands: Aurika (upscale), Lemon Tree Premier and Keys Prima (upper-midscale), Lemon Tree Hotels and Keys Select (mid-scale), and Red Fox Hotels and Keys Lite (economy). It also has a management arm that leverages all seven brands and provides managerial and operational services to hotel owners.

About the Group

Set up by Mr Patanjali Keswani in September 2002, the Lemon Tree group has 130 hotels across over 74 cities - 34 owned, 7 leased, and 89+ under management or franchisee contracts as of March 2025. This includes 7 owned and 8 managed Keys hotels, which were added to the portfolio after the acquisition of Berggruen Hotels Pvt Ltd in fiscal 2020. The first hotel commenced operations in Gurugram in 2004. The group has seven brands: Aurika (upscale), Lemon Tree Premier and Keys Prima (upper-midscale), Lemon Tree Hotels and Keys Select (mid-scale), and Red Fox Hotels and Keys Lite (economy). It also has a management arm that leverages all seven brands and provides managerial and operational services to hotel owners.

 

In the first nine months of fiscal 2026, the company reported a profit after tax (PAT) of Rs 204 crore (Rs 135 crore in the corresponding period of fiscal 2025) on net revenue of Rs 1,028 crore (Rs 908 crore in the corresponding period of fiscal 2025).

Key Financial Indicators

As on / for the period ended March 31	Unit	2025	2024
Revenue	Rs Crore	1287	1072
Profit after tax (PAT)	Rs Crore	243	182
PAT margin	%	18.9	17.0
Adjusted debt / adjusted networth#	Times	1.30	1.66
Interest coverage	Times	3.06	2.56

# Adjusted debt includes lease liability

Any other information: Not applicable