Chalet Hotels Limited Stock Research Report

RIDING THE UPCYCLE……

Chalet Hotels Limited, part of the K Raheja Corp Group, is a leading owner, developer, and operator of hotels and resorts in key Indian cities such as Mumbai, Bengaluru, Hyderabad, NCR, Lonavala, and Pune. The company partners with international hotel brands like Marriott, leveraging global marketing strategies and the “Bonvoy by Marriott” loyalty program to attract both local and international business travellers. In addition to its hospitality ventures, Chalet has significant interests in commercial real estate, leasing nearly 2.5 million square feet to corporate clients, which provides a robust annuity business and enhances its overall portfolio.

Key Rationale

◼ MICE A Catalyst for Hospitality Growth:

The Indian MICE market is expected to be valued at $3.30 Bn in 2023, growing to $10.52 Bn by 2030, with an 18% CAGR (Source: Coherent Market Insights). Assuming that 10% of this revenue contributes to room revenues and F&B in the hospitality sector, it would add ~$330 Mn (Rs 2,739 Cr). This growth is anticipated to support the ARRs of major players in the hospitality sector, including IHCL, EIH, Chalet, Park, Lemon Tree, and Juniper.

◼ Robust Operational Metrics:

The Hospitality business reported a growth of 18% YoY. ARR (Average Room Rate) increased to ₹10,532 (+2.3% YoY), with occupancy reaching 74%, an improvement of 82 basis points YoY. In comparison, the MMR and other regions reported RevPAR growth rates of 9% and 12% YoY, respectively. Rental Annuity reported strong growth of 40%, driven by a new lease made & signed. Consolidated margins stood at 39.7%, down by 39 basis points YoY, due to one-time expenses like advertisement & credit rating fees. The company’s Adjusted PAT (Profit After Tax) stood at ₹63 Cr, up 73% YoY.

Chalet Hotels Limited Stock Research Report

◼ Leisure Expansion to Newer Horizons:

The company anticipates a 30% growth in keys, with ~870 rooms in the pipeline over the next three financial years. These upcoming offerings are strategically located in high ARR, high-margin regions such as the Delhi Airport zone (NCR), Airoli (Navi Mumbai), and a beachfront land parcel in South Goa. Additionally, there will be an increase in the number of keys at existing lucrative properties like Dukes Retreat (Lonavala) and Marriott Whitefield (Bengaluru). The CAPEX for the Signus Tower 2 at Powai is set at Rs 700 Cr, while the company plans to allocate Ra 600 Cr for key expansions and the development of other land parcels, including those in Goa and Kerala.

◼ Impressive Financials:

Chalet Hotels reported consolidated Revenue/EBITDA growth of 20%/19% YoY, which is in line with our expectations. In Q2FY25, this growth was significantly supported by domestic & international travel, and weeding events also Within the portfolio, Hyderabad led the occupancy improvement, and Bangalore followed by Hyderabad led the pack on the room rate growth.

◼ Outlook:

The Hospitality Industry upcycle is expected to be a long and sustained one. As per Horwath HTL prediction, demand will grow at over 10% annually for the next 3-4 years, while the supply will continue to lag demand. The Foreign Tourist Arrival (FTA) number 92 lakhs in FY24 and Corporate Travel Expenses under MICE are still below pre-covid levels. Additionally, upcoming events such as the World Cup hockey or Kabaddi championships could enhance occupancies in the upcoming quarters. The leisure segment is already driving business in the hotel industry, leading us to believe that the aforementioned factors will benefit the Indian hotel sector in the coming quarters.

◼ Valuation: As per impressive revenue growth & Revenue recognition of residential units to be kicked in From Q4FY25E.

◼ Key risks: a) economic slowdown b) Negative operating leverage c) Delay in commissioning

Key Financials