Chalet Hotels Ltd Quarterly Result Update

Chalet Hotels Limited (CHL), is an owner, developer, asset manager and operator of high-end hotels and resorts in India with more than 2,500 room keys. It is one of the largest owners of luxury and upper-upscale hotels in India, which are branded with globally recognized hospitality brands and is a group company of real estate conglomerate K Raheja Corp.

CHL uses its experience to actively manage hotel assets to drive performance. In addition, CHL has developed commercial assets, co-located with the hotels under a mixed-use strategy. These are at strategic locations, generally with high barriers to entry, and in high-density business districts.

Quarterly Result Highlights

1. In Q4FY23, Chalet Hotels Ltd. had strong revenue growth of 128.3% YoY to Rs. 337.8 crores. This was driven by high demand in corporate travel, MICE, and the wedding business.
2. The Mumbai and Pune hotels performed exceptionally well, achieving a good occupancy rate of 73% in FY23 compared to 52% in FY22.
3. The company’s EBITDA increased by 384.8% YoY to Rs. 152.3 crores, with a healthy EBITDA margin of 45.1% in Q3FY23. This growth was attributed to their effective cost management and reducing major cost overheads.
4. The PAT declined sequentially to Rs. 39.1 crores in Q4FY23, primarily due to higher exceptional items in the previous quarter. The PAT margin for this quarter was 11.6%.

Valuation and Outlook

1. Chalet Hotels Ltd. had an impressive performance in Q4FY23, following the trend of strong growth seen in the hotel industry after the challenges of the Covid-19 pandemic. This success can be attributed to improved operational efficiency and the company benefiting from higher room rates and improved occupancy mix during this season.
2. The acquisition of The Dukes Retreat in Lonavala opens up opportunities for growth in the leisure segment. Looking ahead, we anticipate an improvement in the company’s Bengaluru segment with an increase in foreign tourist arrivals.
3. We will also keep an eye on the company’s debt levels and expect margins to improve as their commercial office space investments become operational, which generally have higher profitability.

Key Concall Highlights

Business Performance

1. The company’s strong performance in Q4FY23 was driven by corporate travel, MICE, and a thriving wedding business. They successfully reduced payroll costs to 12% and utilities to 6% of total revenues in FY23, compared to FY20.
2. Looking ahead, they are optimistic about improving EBITDA and EBITDA margins through new investments in office buildings and hotels, aiming for a 20% return on investment.
3. The company’s net debt increased to Rs. 24 billion, with 50% allocated to new investments.
4. They spent Rs. 6 billion in FY23, funded through internal accruals and working capital management. In FY24, they have a Rs. 6 billion capex plan for announced projects, including commercial projects and the expansion of hotels in Hyderabad, Delhi, Bengaluru, and Pune.

Management Strategy and Outlook

1. The company’s strategy includes opening leisure destinations near metro cities, such as the acquisition of The Dukes Retreat in Lonavala.
2. They plan to renovate and add new rooms in two phases. In tier-2 and tertiary cities, they focus on acquiring existing market supply rather than adding rooms to avoid supply disruptions.
3. The metro connection is expected to increase demand for their commercial office space in Whitefield, Bengaluru.
4. The management anticipates the debt to peak at Rs. 26.5 billion and then decline, with cash generated from the Koramangala real estate project funding future capex.
5. The company has no plans to acquire land solely for standalone office spaces, as its rental/annuity business segment provides a hedge against the cyclicality of the hospitality business.

Projects expected to be operational in FY24

1. Upcoming operational projects include Cignus Powai and Cignus Whitefield Tower 1 at Westin Complex Powai and Marriott Complex Bengaluru, respectively, in the commercial space.
2. In the hospitality sector, Westin Hyderabad Hitec City and Novotel Pune Nagar Road are expected to be operational, adding 168 and 88 rooms, respectively.

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