IDBI Capital has suggested BUY Call for Lemon Tree Hotels with Target Price at Rs 165 compared to current price ranging between Rs 110-115. After a strong Q4FY26 and a robust full-year performance that underscored resilient demand, higher occupancies, and disciplined balance-sheet repair, Lemon Tree Hotels looks like a good company for medium term investment. The broker highlighted record occupancy of 73.5%, record average daily rate of Rs 6,875, and a 13% rise in annual revenue to Rs 44,527 million, while net profit climbed 19% to Rs 2,883 million. The research house expects the company’s asset-light expansion, falling debt, and improving margins to support further upside, with valuation still leaving room for investors despite the stock’s re-rating.

Operating Momentum

Lemon Tree Hotels delivered a sturdy operational showing in FY26, with revenue, profitability, and room metrics all moving in the right direction. The company reported total revenue of Rs 44,527 million for the year, up 13% year on year, while net profit after tax advanced 19% to Rs 2,883 million. Occupancy reached a company-record 73.5%, and average daily rate hit a record Rs 6,875, signalling healthier pricing power in a competitive hospitality market.

The fourth quarter was also constructive. Revenue rose 10% year on year to Rs 4,164 million, EBITDA increased 5.5% to Rs 2,152 million, and reported profit grew 7.7% to Rs 1,165 million. IDBI Capital noted that these numbers came even as the business faced global headwinds, regional volatility, aviation disruptions, and tax-related changes.

Margin Pressure, Then Relief

The report does not sugarcoat the near-term margin drag. Full-year EBITDA margin slipped to 47.8% from 49.3% in FY25, with management attributing pressure to accelerated renovations, technology spending, and tax adjustments. Quarterly EBITDA margin also eased to 51.7% from 53.9% a year earlier, though the business still managed to outperform expectations on profit and cash generation.

What matters for investors is the forward setup. Management expects renovation, technology, and tax costs to normalize to around 3.7% of revenue by FY28, which should support margin expansion. The company also said non-recurring costs of Rs 250 million to Rs 300 million linked to ex-gratia and tax adjustments are expected to disappear in FY27, giving earnings a cleaner run-rate.

Balance Sheet Repair

One of the more encouraging threads in the report is the steady reduction in debt. Corporate debt fell to Rs 15,000 million from Rs 16,990 million in the prior year, while the average cost of debt dropped to 7.42%, down 115 basis points. That kind of deleveraging matters in hospitality, where fixed costs and interest expense can otherwise weigh on returns.

IDBI Capital’s numbers also show the strain easing over time. Net debt-to-equity improved to 1.0x in FY26 from 1.4x in FY25 and is projected to fall further to 0.4x by FY28. Interest expense, meanwhile, is expected to decline from Rs 1,672 million in FY26 to Rs 1,078 million in FY28, giving the bottom line greater operating leverage.

Growth Pipeline

The expansion story remains central to the investment case. Lemon Tree and its ecosystem ended FY26 with a combined operational and signed pipeline of 22,581 rooms across 268 hotels, including 11,811 fully functional rooms across 131 hotels. During the year, the company opened 20 managed and franchised properties and signed 55 new contracts, reinforcing its asset-light growth model.

Management is guiding for about 2,000 room openings in FY27, matching the pace of the previous year. Over the longer term, it wants to sign more than 50 hotels annually and eventually move toward 5,000 room completions per year, a scale that could materially lift fee income and occupancy-led earnings.

Valuation View

IDBI Capital’s valuation framework suggests the stock is still priced for execution, not perfection. The report shows FY27E EPS of Rs 3.9 and FY28E EPS of Rs 5.0, with the stock trading at 28.9x FY27E earnings and 23.0x FY28E earnings. EV/EBITDA is projected to ease from 15.1x in FY26 to 10.7x in FY28 as earnings compound and debt declines.

The implication is clear: the research house sees a growth-led de-rating path over time, not a valuation collapse. For investors, that typically means the stock needs operational delivery, not just narrative support. The combination of higher occupancy, better pricing, lower leverage, and a growing asset-light footprint is what underpins the BUY stance.

Investor Levels

Below is a practical way to frame the stock from an investor’s perspective based on the report’s operating trajectory and valuation trend.

Trading range to watch: investors may view near-term support in the context of the company’s earnings base and improving leverage profile, while any sustained rerating would likely depend on continued occupancy strength and execution of the room-opening pipeline.

Target orientation: the report does not surface a single explicit price target in the extracted text, but the FY27E and FY28E earnings trajectory, along with the falling multiple profile, suggest that IDBI Capital is betting on gradual upside rather than a quick revaluation.

What It Means

For investors, Lemon Tree looks like a classic operating-improvement story rather than a headline-grabbing turnaround. Revenue growth is steady, demand indicators are solid, and the balance sheet is moving in the right direction. The key risk remains execution: if room additions, margin normalization, and debt reduction proceed as guided, the stock has room to reward patient holders.

At the same time, hospitality remains cyclical, and any shock to travel demand, pricing, or execution could slow the rerating. Still, the research note makes a persuasive case that the company has entered a more mature, more disciplined phase of growth. In simple terms: the hotel chain is not merely filling rooms; it is improving the quality of its earnings.