Warburg Pincus-backed Lemon Tree Hotels gets SEBI nod for IPO
Photo Credit: Ankit Kumar/VCCircle

Lemon Tree Hotels Ltd, which counts private equity giant Warburg Pincus among its backers, has received approval from the Securities and Exchange Board of India to float an initial public offering.

The mid-sized hotel chain received the SEBI nod on 22 December. With this, 46 firms have received clearance for IPOs so far in 2017, according to information made available on SEBI’s website.

New Delhi-based Lemon Tree had filed its draft prospectus for the IPO with SEBI on 21 September.

The public issue comprises a sale of 195.79 million shares by the company’s promoters and Warburg Pincus. The issue will see result in a 24.9% stake dilution on a post-issue basis.

Warburg Pincus, through its investment arm Maplewood Investments, will sell 94.50 million shares, or half the 192.9 million shares it owns. Its stake will drop to roughly 12.51% from 24.53%, as per the draft prospectus.

The total issue size is estimated at Rs 1,000-1,200 crore ($155-185 million). This would value the Patu Keswani-led hotel chain at roughly Rs 4,820 crore (nearly $750 million), according to VCCircle estimates.

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

Lemon Tree also counts Dutch pension fund APG as an investor. APG had first invested in Lemon Tree in 2012 and put more money two years later.

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

Last month, VCCircle reported that Gurgaon-based School of Hospitality India Pvt. Ltd, founded by industry veteran Dilip Puri, raised Rs 25.2 crore from a group of high net-worth individuals including Patu Keswani.

Lemon Tree Hotels

The company is India’s largest hotel chain in the mid-priced segment, and the third-largest overall, on the basis of its controlling interest in owned and leased rooms, as of 30 June 2017. It is the ninth-largest hotel chain in India in terms of owned, leased and managed rooms.

The company directly owns some hotels and operates some others through long-term leases for hotels owned by third parties. 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 called ‘Lemon Tree Premier’, midscale segment ‘Lemon Tree Hotels’ and economy hotels under ‘Red Fox’.

As on July 2017, it had 4,289 rooms in 40 hotels (including managed hotels) across 24 cities in the country. 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 is Keswani, who has nearly three decades of experience in the hotel and hospitality sector. Its revenue from operations was Rs 411.93 crore for 2016-17, growing at a compound annual rate of 17.7% since 2013-14.

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