India's Lemon Tree inks deal to acquire Keys Hotels

Lemon Tree Hotels' backers are set to sell between Rs1,000 and 2,000 crore in shares.
Lemon Tree Hotels reportedly is India's third-largest mid-price hotel chain. Photo credit: Lemon Tree Hotels

Lemon Tree Hotels, reportedly India's third-largest mid-price hotel operator, is looking to boost its capacity by nearly a third.

In an exchange filing, the New Delhi-based company announced it signed a non-binding agreement with Berggruen Hotels to acquire a 100-percent stake in Keys Hotels, the fourth-largest operator in the category. The filing did not disclose the purchase price.

The deal, which is still subject to conditions and due diligence, is expected to help increase Lemon Tree's portfolio to 75 hotels in 44 cities with 7,322 rooms.

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Keys Hotels owns seven hotels with 936 rooms in six cities in India. In addition, it owns two land parcels for hotel development at Goa and Raipur and operates 14 hotels with 975 rooms under various agreements.

Patanjali Kesvani, chief managing director at Lemon Tree Hotels, told financial news site BloombergQuint that once the deal clears, the company will have  1.5 percent of India’s total inventory of branded hotel rooms. Lemon Tree also plans to build 33 hotels with 3,389 rooms in 26 cities by 2020-21.

Related: Lemon Tree forms JV to expand beyond hotels

Amit Agarwal, an analyst with Nirmal Bang, who tracks Lemon Tree Hotels, told BloombergQuint that the deal could cause "concern" for investors, especially if the company adds "significant debt" for this acquisition.