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Sector Outlook: Positive
Strong performance, with on track expansion plans
In Q1FY25, Chalet Hotels Limited reported a total income of Rs. 3,691 million, up 16.2% YoY but down 13% QoQ. Revenue from hospitality grew 15% YoY to Rs. 3,255 million, with the Average Room Rate (ARR) slightly rising to Rs. 10,466 and stable occupancy at 70%, leading to a 2% YoY increase in RevPAR to Rs. 7,361. EBITDA grew 31% YoY to Rs. 1,483 million, with a margin of 38.8%. Despite these gains, net profit fell 31.6% to Rs. 606 million. The company credits its best-ever Q1 performance to capacity expansion and operational efficiency. Future growth includes expansions at Bengaluru Marriott Hotel Whitefield and The Dukes Retreat Lonavala by Q3FY25, and new projects like the Taj at New Delhi Airport and Hyatt Regency in Navi Mumbai, set for FY26 and FY27. Additionally, CIGNUS Powai Tower II will add significant office space, with 90% expected to be leased by year-end. Chalet Hotels also committed to achieving Net-Zero Greenhouse Gas Emissions by 2040, in line with global environmental goals.
Key Concall Highlights
- Domestic demand was impacted by elections and extreme heat waves, but management expects strong performance in H2FY25 due to favourable economic conditions and a demand-supply mismatch.
- The company is acquiring 11 acres in South Goa for a new 5-star resort with 170 sea-facing rooms, expected to be completed in 3 years, with an ARR of Rs. 17,000 to Rs. 25,000. The deal will close in two weeks, funded by internal accruals.
- Planned capital expenditures of Rs. 15 billion over the next two years include Rs. 6.5 billion for new commercial towers, Rs. 6 billion for hospitality projects (DIAL, Bengaluru, Dukes), and Rs. 2.5 billion for other purposes, including Rs. 1 billion for repairs. All funded by internal accruals.
- Marriott Bengaluru expansion (130 rooms) and The Dukes Retreat in Lonavala (70 rooms) are on schedule, expected to complete in Q3FY25. Phase 1 of The Dukes Retreat to launch by August 15, 2024.
- Investment of Rs. 120 million planned for New Delhi Airport property expansion, adding six acres, set to open in FY26.
- CIGNUS Powai Tower II expected to be fully leased by end of FY25. Bengaluru real estate project to generate significant cash flow, but segment EBITDA margin decreased from 80% in Q1FY24 to 74% in Q1FY25 due to property taxes and unabsorbed costs.
- Successfully raised Rs. 10 billion through a QIP, reducing net debt from Rs. 25,086 million in March 2024 to Rs. 15,319 million by June 2024. Finance cost reduced by 43 bps to 8.43%, with no further debt increases planned.
Valuation and Outlook
Chalet Hotels focuses on key metro markets, benefiting from the revival in corporate travel. Their strong presence in these cities boosts their bargaining power during contract renewals, especially as demand for management contracts rises. Q1FY25 was one of their best quarters, with revenues up over 16% and EBITDA margins increasing by nearly 352 basis points YoY. They reduced debt to around Rs. 15,319 million, cutting interest costs to 8.43%. Management expects continued growth due to rising room demand and rental rates in key markets. Chalet forecasts consolidated revenue and profit after tax (PAT) to grow at a CAGR of 15% and 38%, respectively, from FY2025 to FY2026. Given their strong performance and debt reduction, we maintain a positive outlook on Chalet Hotels, expecting significant improvement in returns in the coming years.
