Lemon Tree hotel: , breakout awaited for 3rd wave rallyAnalysis:
- Wave Structure:
- From March 2020 low of ₹16, the stock has completed a 5-wave Elliott Wave pattern, peaking at ₹158 (all-time high).
- Currently in an ABC correction, likely the second corrective wave of the primary wave cycle.
- Breakout Confirmation:
- A price breakout above ₹158-160 (ATH) will confirm the start of the third primary wave, which is typically the strongest upward wave.
- Target for Wave 3: Minimum reasonable target is ₹226.
Here’s a clear summary of the current Elliott Wave analysis for Lemon Tree Hotels (LTH):
- 1st Primary Wave: The stock completed its 1st primary wave consisting of 5 intermediate waves as shown in chart number marked in white color, which started at ₹16 in March 2020 and peaked at ₹158 (all-time high).
- 2nd Primary Wave: Currently, the price is in the 2nd primary wave, which is a corrective phase.
- This correction is forming an ABC flat pattern, where the stock is consolidating before the next move.
- What’s Next?:
- If the price breaks out above ₹158-160 (ATH), it will confirm the start of the 3rd primary wave, which is typically the strongest upward trend in Elliott Wave theory.
- The minimum target for the 3rd primary wave is estimated at ₹226.
This structure aligns with Elliott Wave principles, where corrections after major rallies provide opportunities for the next bullish trend
my Action : I will definitely wait for breakout from 158 to 160 for conformation, those who are already invested be in the game ,and it would be prudent to wait for breakout those who want to be in the game
Positive Fundamentals:
- Strong Industry Growth: Increasing demand in the Indian hospitality sector, driven by domestic travel and rising disposable incomes.
- Market Leadership: Lemon Tree is one of the largest hotel chains in the mid-market and economy segments in India, with a growing brand presence.
- Expansion Plans: Aggressive expansion with new properties and partnerships, including asset-light models, ensuring long-term growth potential.
- Operating Leverage: Improved operational performance due to higher occupancy rates and RevPAR (Revenue per Available Room).
- Post-COVID Recovery: Strong recovery in travel and tourism after the pandemic, boosting revenue and profitability.
- Cost Control: Efforts to reduce debt and improve margins through operational efficiency.
Negative Fundamentals:
- High Debt Levels: Significant debt on the balance sheet, increasing interest costs and financial risk.
- Sector Sensitivity: The hotel industry is cyclical and sensitive to economic slowdowns, inflation, or geopolitical issues.
- Competition: Intense competition from other established hotel chains and new players, especially in the mid-market segment.
- Vulnerability to Disruptions: Any resurgence of pandemics or global uncertainties could adversely impact occupancy rates and revenues.
- Capex Heavy Model: Expansion plans require heavy capital investments, which could stretch financials if growth does not meet expectations.
This balanced view gives you a clear perspective on the company's strengths and challenges.
Fundamental Positives (Numbers):
1. Revenue Growth: Strong recovery post-pandemic, with revenue growing by over 25% YoY in FY2024.
2. Operating Efficiency: EBITDA margins improving; EBITDA/EV ratio is 25.73, reflecting better cost management.
3. Return on Equity (ROE): Healthy at 12.11%, indicating good returns for shareholders.
4. Asset Turnover Ratio: Improved to 0.29, showing better utilization of assets compared to prior years.
5. Market Position: Lemon Tree is the largest player in the mid-market segment, driving consistent long-term growth.
Fundamental Negatives (Numbers):
1. High Debt Levels:
- Debt-to-Equity Ratio: 1.42, indicating a heavy reliance on debt, though slightly better than prior years.
- Debt/EBITDA Ratio: 4.03, showing significant debt pressure relative to earnings.
2. Valuation Concerns:
- PE Ratio: Elevated at 77.16, suggesting the stock is expensive compared to earnings.
- PB Ratio: High at 11.51, indicating a steep valuation compared to its book value.
3. Liquidity Constraints:
- Quick Ratio: Weak at 0.31, reflecting short-term liquidity challenges.
4. Sector Sensitivity: Highly vulnerable to economic and travel disruptions due to cyclical nature of the hospitality sector.
DISCLAIMAR : Not SEBI registered , On Good to Know basis or Know your chart category type, due diligence required
