Chalet Hotels Quarterly Results Update

Chalet Hotels Ltd. continued its robust revenue growth trajectory by reporting a 22.8% YoY jump to Rs. 310.7 crores in Q1FY24. This was led by healthy growth in its ADR levels to Rs. 7,182 this quarter compared to Rs. 5,794 in the corresponding quarter of last year and an overall healthy occupancy level. However, occupancy level fell to 70% in Q1FY24 compared to 78% in Q1FY23 due to the renovation of rooms reducing the inventory, IPL season being hosted in Mumbai the previous year, and the company discontinuing its crew business.

The Rental/Annuity business grew 23.4% to Rs. 285 crores compared to Rs. 231 crores in Q1FY23. The EBITDA rose 7.8% YoY to Rs. 110.0 crores in the quarter, while the EBITDA margins declined 494bps on account of pre-opening expenses of The Westin Hyderabad HITEC City and GST payments made in the quarter. The PAT margins rose to 28.5% in Q1FY24 as against 11.3% in Q1FY23. It is important to note that this is due to the recognition of tax-deferred assets of Rs. 58.4 crores post-amalgamation of Belaire Hotels Private Limited and Seapearl Hotels Private Limited.

Key Concall Highlights

• The company aims to commence work in The Dukes Resort in early October this year.

• Additionally, it revised its earlier plan of adding 50 rooms to the property to 70, which will take its total count to around 150. With this, it expects to open approximately 80 out of 150 rooms in April and the balance by September-October next year.

• Office leasing plans in Bangalore and Mumbai are facing a slower pickup than expected, thus expecting a quarter lag from their earlier expectations.

• The company has received NCLT approval for the amalgamation of two of its wholly-owned subsidiaries- Belaire Hotels Private Limited and Seapearl Hotels Private Limited. This led to FY23 financials being restated, causing a deferred tax asset of Rs. 58.4 crores in the quarter.

• During the last quarter, the company spent about Rs. 80 crores for Capex on its operating projects. Following this, the company’s net debt rose by Rs. 30 crores from March 2023. About half of the total debt of Rs. 25 billion is allocable to new investments in office buildings under construction, new hotel projects, and hotel expansion plans.

• The company has a Capex plan of Rs. 5.6 billion for the remaining part of FY24, which includes – Capex of Rs. 2.6 billion on commercial projects (including the second commercial tower at Powai), while the balance of Rs. 3 billion will be used for renovation and room addition at Dukes Retreat, a new hotel in Delhi, expansion at Marriott Hotel in Bengaluru, and other repair and renovation costs of its existing hotels.

• Staff to room ratio rose to 0.96 in Q1FY24 compared to 0.9 in Q4FY23 due to the entry of the Duke Resort (higher employee requirements compared to the rest of the portfolio). The business maintained its aim to keep this ratio below one going forward.

• Occupancy in Mumbai dipped to 74% in Q1FY24 compared to 81% in Q1FY23 due to three prime reasons – (1) High base with IPL being hosted in Mumbai in Q1FY23 (2) Renovation of 29 rooms in the Powai hotel (3) Discontinuation of crew business.

Valuation and Outlook

Chalet Hotels continued a strong growth trajectory, registering a 22.8% YoY revenue growth to Rs. 310.7 crores in Q1FY24. This can be attributed to an increase in the overall ADRs of the industry and healthy demand from domestic travellers. The trend contrasts the company’s high dependence on its foreign travellers mix in the pre-covid period (61% mix in Q1FY20 compared to 33% mix in Q1FY23).

Therefore, with the return of FTAs in the normative range expected in H2FY24, we expect the ARRs to enhance the top-line growth further. The EBITDA margins declined to 35.3% this quarter compared to 40.3% in the corresponding quarter of the last year. It is important to note that this was led by high one-time expenses of payment made to GST authorities and pre-opening costs of The Westin Hyderabad HITEC City.

Similarly, the uptick in PAT to Rs.88.7 crores in Q1FY24 compared to 28.6 crores in Q1FY23 included a tax asset of Rs. 58.4 million. Going forward, we remain optimistic about the robust demand scenario with significant events like G20 summits and World Cup Cricket in the second half of the financial year. However, we must continue to track the management’s commentary on its debt position to assess the company’s overall financial health.