#ROCE

In FY24, the ROCE improved to 13.3% because of increase in PBIT and decline in capital employed. Capital employed declined because of repayment of some long term borrowings. Port wise ROCE in FY24 are as follow: Mundra port 27%, Hazira port 20%, Dahej port 33%, Dhamra port 21%, Kattupalli port 7%, Krishnapatnam port 16%, and Gangavaram port 11%. The overall ROCE to improve going ahead supported by increasing contribution of maturing ports like Kattupalli and Dhamra which it acquired a few years back and the recent acquisition of Krishnapatnam, Dighi, Gangavaram Port, Haifa Port and Karaikal Port. Going forward, these ports will generate higher ROCE because of higher capacity utilization and expected improvement in operational efficiency.

#ROE

In FY24, the return on equity improved to 16.45% because of higher increase in profit. The newly acquired ports (Dighi port, Gangavaram port, Haifa port and Karaikal Port) will further improve the port business profit and improve the return ratios.

#COMPANY #POTENTIAL

• The port sector plays a crucial role in the country’s economic empowerment. According to the ministry of shipping, around 95% of India’s trading by volume and 70% by value is being carried out through maritime transport. (Source: Sagarmala, Ministry of shipping). • India is the sixteenth largest maritime country in the world, with a coastline of about 7,517 km. Most cargo ships that trade from East Asia to Europe, America, Africa pass through Indian territorial waters. • The Indian ports and shipping industry plays a vital role in sustaining growth in the country’s trade and commerce. India has 12 major and 205 notified minor and intermediate ports. Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country. • The Indian government plays an important role in supporting the port sector. It has allowed Foreign Direct Investment (FDI) of up to 100% under the automatic route for port and harbour construction and maintenance projects. • It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.

#COMPANY #OUTLOOK

• The company expects cargo volume to be in the range of 460-480 MMT in FY25. The management target to meet annual cargo volumes of 1 billion tonnes by FY30. • In FY25, the management anticipates revenue of ₹29,000-₹31,000 cr. • In Q3 FY25, it increased its FY25 EBITDA guidance to ₹18,800-₹18,900 cr from the earlier guidance of ₹17,000-₹18,000 cr. • The company expects cargo volume of ~820-850 MMT from domestic market and ~140-150 MMT from international market by FY29-30. The international market volume growth would be led by Haifa port, Tanzania port and transshipment port at Colombo. • The company is focusing on new growth commodities like LPG (Liquified petroleum gas), LNG (Liquified natural gas) etc. In Dhamra LNG (Liquified natural Gas) terminal, the company expects volume of ~4-4.5 MMT in FY25. • The growth is expected to continue as Gopalpur port has started contributing significantly from October 2024. • In Q3 FY25, Vizhinjam port commenced commercial operations, post extensive trials. During the trial period, the port handled 70+ vessels and 147,000+ containers. • Colombo terminal received financing commitment of $553 million from the US International Development Finance Corporation (DFC). It is expected to commission before the end of current financial year. It holds 51% stake, John Keells Holdings owns 34% and the rest is held by state-run Sri Lanka Ports Authority. The container terminal at Colombo is still under construction. It is expected to commission by the end of this financial year. • It entered into a strategic partnership with Mediterranean Shipping Company (MSC) by forming a joint venture for Ennore Container Terminal.

Adani Port 1050-1190
Expected level 1500
Support 890

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Blue Star Limited Company Details Report

Blue Star Limited incorporated in 1943, headquartered in Mumbai, is a leading heating, ventilation, air conditioning and commercial refrigeration (HVAC&R) company, and a major player in the mechanical, electrical, plumbing, and fire-fighting (MEP) space with a network of 31 offices, 7 modern manufacturing facilities – 2 at Himachal Pradesh and one each at Dadra, Ahmedabad and 2 in Wada and one at Sri City. It has 4,120 channel partners. The Company has 7,500 stores for room ACs, packaged air conditioners, chillers, cold rooms as well as refrigeration products and systems, along with 1,172 service associates reaching out to customers in over 900 towns. The Wada plant has an installed production capacity of 3L deep freezers and 1L water coolers, while the Ahmedabad plant has a dedicated capacity for deep freezers of 1L units. The Wada plant also manufactures cold room panels, evaporating units, and condensing units. The Company’s integrated business model of a Manufacturer; Engineering, Procurement and Construction (EPC) services provider; and an after-sales service provider; not only enables the company to offer end-to-end solutions to its customers across building, industrial, and infrastructure segments, but also facilitates delivery of these offerings in an agile manner. It exports AC&R (air conditioning & refrigeration) products and Original Equipment Manufacturing (OEM)/Original Design Manufacturing (ODM) businesses for globally recognized brands such as Danfoss and Rheem and solutions to 19 countries across the Middle East, Africa, SAARC and ASEAN regions. Through its joint ventures in Qatar and Malaysia, the company also undertakes MEP projects for residential, commercial and infrastructure in those markets. The company is a market leader in the product categories of modular cold rooms, deep freezers and storage water coolers and estimates their market share, both the residential segment and institutional segment put together, to be 13.5%. In volume terms they are marginally higher than 10%, in value terms are at 13.75%. It crossed ten lakh units during FY24 in RAC segment.

Electro - Mechanical Projects and commercial air conditioning system – This business segment covers the design,manufacturing, installation, commissioning and maintenance of central air conditioning plants, packaged/ducted systems and Variable Refrigerant Flow (VRF) systems, as well as contracting services in mechanical works, electrification, plumbing and fire-fighting, and water distribution. It also comprises after-sales services such as revamp, retrofit and upgrades, which covers a wide repertoire of operation and maintenance services for efficient functioning of electro-mechanical utilities. Unitary Products – The company offers a wide variety of contemporary and highly energy-efficient room air conditioners for both residential as well as commercial applications. It also manufactures and markets a comprehensive range of commercial refrigeration products and cold chain equipment. Besides, the company has water purifiers, air purifiers and air coolers in its product portfolio. This segment is seasonal in nature. Professional Electronics and Industrial Systems – Exclusive distributor in India for many internationally renowned manufacturers of professional electronic equipment & services, as well as industrial products and systems. This business is managed by the company’s wholly owned subsidiary, Blue Star Engineering & Electronics Limited.

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Lemon Tree Hotels Company details report

Lemon Tree Hotels (LEMONTRE) reported strong revenue growth of 23% YoY in 3QFY25, led by significant improvement in occupancy (OR) to 74.2% (up 830bp YoY) and healthy growth in ARR (up 7% YoY). OR improvement was primarily led by the ramp-up of Aurika Mumbai. Further, operating leverage resulted in an EBITDA margin improvement of 350bp YoY.  With a robust performance in 9MFY25 (revenue up 23%), we expect FY25 to end on a strong footing with healthy performance in 4Q. The continuous ramp-up of Aurika Mumbai and favorable demand-supply dynamics coupled with renovations (boosting ARR and OR) will be the key drivers.  We broadly maintain our FY25/FY26/FY27 EBITDA estimates and reiterate our BUY rating on the stock, with an SoTP-based TP of INR190 for FY27.

Revenue grew 23% YoY to INR3.6b (in line), and occupancy rose 830bp YoY to 74.2%, reflecting the ongoing ramp-up at Aurika Mumbai and higher ARR of INR6,763 (up 7% YoY). Management fees increased 23% YoY to INR184m.  EBITDA rose 32% YoY to INR1.8b (in line). EBITDA margin expanded 350bp YoY to 52% (est. ~50.3%) driven by favorable operating leverage. Adj. PAT increased 71% YoY to INR625m (est. INR664m).  During the quarter, LEMONTRE signed 13 new management and franchise contracts, which added 766 new rooms to its pipeline, and operationalized one hotel, which added 38 rooms to its portfolio.  As of 31st Dec’24, the total operational inventory comprised 112 hotels with 10,317 rooms, and the pipeline comprised 88 hotels with 6,068 rooms.  In 9MFY25, revenue/EBITDA/adj. PAT grew 23%/24%/37% YoY to INR9b/ INR4.3b/ INR1.1b.

Highlights from the management commentary

 Guidance: The company expects mid-teen RevPAR growth through optimizing ARR and occupancy. It is also targeting to reach 20,000 rooms (operational and pipeline) ahead of FY27, i.e., within 12 to 15 months vs. the current 16,385 rooms (operational – 10,317; pipeline – 6,068).  Aurika: The company expects Aurika Mumbai to stabilize by 2HFY26, with ARR reaching ~INR11.5-12.5k and occupancy stabilizing over 85%. The hotel is already doing ARR/OR of ~INR9,500/85% in Jan’25. Additionally, the company is close to signing Aurika in Varanasi, which is expected to have an ARR five times higher than the other Aurika properties.  Aurika Shillong: LEMONTRE received a Letter of Award from the Directorate of Tourism, Government of Meghalaya, to redevelop Shillong’s Orchid Hotel as Aurika under a PPP model, featuring 120 rooms. The company will invest INR1.2b for all 120 rooms supported by a 5% interest subvention. It received the land for a 1% revenue share plus INR10-20m annually. The initial annual EBITDA from this hotel is expected to be ~INR150m.

Valuation and view

 LEMONTRE is likely to maintain a healthy growth momentum, led by 1) the stabilization of Aurika Mumbai, 2) accelerated growth in the management contract (pipeline of ~5,879 rooms), and 3) the timely completion of the portfolio’s renovation leading to improved OR, ARR, and EBITDA margins.  We expect LEMONTRE to post a CAGR of 16%/19%/34% in revenue/EBITDA/ Adj. PAT over FY24-27 and RoCE to improve to 19.3% by FY27 from ~10% in FY24. We reiterate our BUY rating on the stock with our SoTP-based TP of INR190 for FY27.

Guidance and outlook

 Moving forward, the company remains confident in its ability to sustain growth in the coming quarters by focusing on key strategic drivers: I) accelerating the expansion of its management and franchised portfolio, resulting in a proportional increase in fee-based income. (II) Ensuring the timely completion of renovation activities in its owned portfolio to enhance Gross ARR and occupancy rates.  The company aims to significantly increase EBITDA, while operating at an EBITDA margin of 60%, with Keys expected to double its EBITDA.  The company aims for mid-teen growth in RevPAR by optimizing the right combination of ARR and occupancy rate growth.  The company is confident of reaching its target of 20k rooms well ahead of FY27, potentially achieving this milestone within the next 12 to 15 months.  The company expects management fee income to double in the next two years.  Demand growth is expected to continue exceeding supply in the mid-market hotel segment in India.

key highlights

 The management is confident that the company will achieve a debt-free status within the next two years.  The company believes it has a competitive moat due to its network effect, which is difficult for competitors to overcome  The company does not directly compete with the hotel industry for talent, as only about 15% of its workforce is interchangeable with staff from five-star hotels.  The company has a practice of transferring employees to other hotels and replacing them with employees who have a lower salary, which helps manage rising wage costs.  The company is focused on eliminating lower-price businesses and replacing them with higher-price businesses.  The increased investment in renovation expenses will persist into FY26 until the entire portfolio of owned hotels has been fully renovated and refreshed.

Valuation and view

 LEMONTRE is likely to maintain a healthy growth momentum, led by 1) the stabilization of Aurika Mumbai, 2) accelerated growth in the management contract (pipeline of ~5,879 rooms), and 3) the timely completion of the portfolio’s renovation leading to improved OR, ARR, and EBITDA margins.  We expect LEMONTRE to post a CAGR of 16%/19%/34% in revenue/EBITDA/ Adj. PAT over FY24-27 and RoCE to improve to 19.3% by FY27 from ~10% in FY24. We reiterate our BUY rating on the stock with our SoTP-based TP of INR190 for FY27.

Lemon Tree Hotels 110-130
Expected level 170
Support100