Lemon Tree Hotels Valuation Excel Model and Intrinsic Value of Shares

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Lemon Tree Hotels Valuation : About the Company

The company operates in the hospitality industry where market dominance comes from branding, customer base, assets and service quality. The company owns and operates 80+ hotels, with over ~8000 rooms in 48 cities of India till date. Lemon Tree operates under 7 brands: Aurika Hotels and Resorts (upscale), Lemon Tree Premier (upper midscale), Lemon Tree Hotels (midscale) & Red Fox by Lemon Tree Hotels (economy), Keys Prima (upper midscale), Keys Select (midscale) and Keys Lite (economy).In 2019, the company acquired Berggruen Hotels Private Limited for an enterprise value of INR 605 crore.

The business model of the company is such that, once the current pipeline becomes operational, the Lemon tree will be operating 108+ hotels with ~10,700 rooms, across 68+ cities in India and abroad. The company expanded internationally with the launch of the hotel in Dubai in December 2019 and Bhutan in February 2020. New hotels are also opening internationally in Nepal. Aurika Hotels & Resorts is their upscale brand and Lemon Tree Premier is a chain of upper-midscale business and leisure hotels. From here, we go ahead with Lemon Tree Hotels Valuation and Intrinsic Value of its shares.

Read more here: Lemon Tree Hotels Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares
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You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Lemon Tree Hotels Valuation.

Financial Year Revenue Growth Rate
Year 1 20%
Year 2 -60%
Year 3 50%
Year 4 18%
Year 5 12%
Revenue Growth Rates: Lemon Tree Hotels Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : Lemon Tree Hotels Valuation
Financial Statements Forecast : Lemon Tree Hotels Valuation


Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

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F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 6286 -14668 2713 883 1715
Free Cash Flow to Equity 13047 -34687 8735 21493 5606
FCFF and FCFE values: Lemon Tree Hotels Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 1715.17
Growth Rate 5.00%
Cost of Capital 9.53%
Terminal Value 39735.14
Terminal Value: Lemon Tree Hotels Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Lemon Tree Hotels Valuation.

WACC Calculation for Lemon Tree Hotels Valuation.
WACC Calculation for Lemon Tree Hotels Valuation.


Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Lemon Tree HotelsValuation. (Units are INR Millions)

PV of FCFF and FCFE  for Lemon Tree Hotels Valuation.
PV of FCFF and FCFE for Lemon Tree Hotels Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFF and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Lemon Tree Hotels Valuation Units
PV in INR Million 15682
No of Shares Outstanding (In Million) 790
Intrinsic Value 19.85
Current Market Price of Share 41.35
Current Discount/Premium 108%
Intrinsic Value of the Shares: Lemon Tree Hotels Valuation

Lemon Tree Hotels Valuation and Intrinsic Share Price = INR 19.85

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References: Investopedia
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)



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