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PE-backed Lemon Tree Hotels IPO nears half-way mark on second day
Photo Credit: Shah Junaid/VCCircle

The initial public offering (IPO) of Lemon Tree Hotels Ltd, India’s largest hotel chain in the mid-priced segment, inched closer to the half-way mark on the second day, Tuesday, led by institutional investors. Retail investors and wealthy individuals, however, chose to wait on the sidelines.

The public offering, excluding the anchor allotment, received bids for nearly 57.22 million shares, or 44%, of the 128.83 million shares available publicly.

The qualified institutional buyers’ book was subscribed 1.42 times, while non-institutional investors, comprising high net-worth individuals and corporate bodies, bid for just 5.4% shares available for them.

The portion set aside for retail investors, wherein bid values cannot exceed Rs 2 lakh per application, received 4.3% demand for shares reserved for them.

At the end of day one, the book was subscribed 25.11%. The public issue will close on Wednesday.

The New Delhi-based hotel chain had raised Rs 311.60 crore ($48 million) from a bunch of anchor investors, including Scottish investment firm Aberdeen and a New York pension fund, a day ahead of its IPO.

Lemon Tree, which counts private equity giant Warburg Pincus as its backer, is seeking a valuation of Rs 4,404 crore ($675 million) through the public offering, which began on Monday.

Dutch pension fund APG, which is also an investor in the hotel chain, is not selling any stake.

It will join a clutch of listed peers such as Indian Hotels Co. Ltd, EIH Ltd, Mahindra Holidays, Hotel Leela Ventures and Royal Orchid Hotels on the stock exchanges.

The Rs 1,038 crore ($160 million) public issue comprises a sale of about 185.5 million shares by the company’s promoters and Warburg Pincus. The issue will result in a 23.58% stake dilution on a post-issue basis. The promoter holding will drop to 19.49% from 31.07%.

VCCircle had reported that Warburg Pincus was set to walk away with lower-than-benchmark returns from its partial exit through the Lemon Tree IPO.

Warburg Pincus is selling 94.50 million shares out of the 192.908 million shares it owns. Its stake in the company will drop to 12.01% from 24.53%, regulatory filings show.

Lemon Tree had filed its draft prospectus on 21 September 2017. It had received regulatory nod three months later.

Kotak Mahindra Capital Co, CLSA India, JP Morgan and Yes Securities are the merchant bankers managing the IPO.

Lemon Tree Hotels

The company directly owns a few hotel properties, besides operating third party hotels on long-term contracts. It also enters into operating and management agreements for some properties.

The chain operates under three categories in the mid-priced hotel sector – the upper-midscale category, Lemon Tree Premier, the midscale segment, Lemon Tree Hotels, and economy hotels, Red Fox.

As on July 2017, it had an inventory of 4,289 rooms across 40 hotel properties, including managed hotels, in 24 Indian cities. Its first hotel, in 2004, had 49 rooms.

The company has a portfolio of 19 owned hotels, three owned hotels located on leased or licensed land, five leased hotels and 13 managed hotels as on July 2017.

The company’s chairman and managing director Patu Keswani is 30-year veteran of the hotel and hospitality sector. Its revenue from operations in 2016-17 was at Rs 411.93 crore, growing at a compounded annual rate of 17.7% since 2013-14.

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