Chalet Hotels Ltd (NSE:CHALET) Q4 FY23 Earnings Concall dated May. 09, 2023.
Corporate Participants:
Sanjay Sethi — Managing Director and Chief Executive Officer
Milind Wadekar — Chief Financial Officer
Analysts:
Vikas Ahuja — Antique Stock Broking — Analyst
Karan Khanna — Ambit Capital — Analyst
Jinesh Joshi — Prabhudas Lilladher — Analyst
Sakshi Chhabra — — Analyst
Hrishikesh Bhagat — Kotak Mutual Fund — Analyst
Rajiv Bharati — DAM Capital — Analyst
Siddhesh — Individual Investor — Analyst
Paresh Shah — Prernatirth Investments — Analyst
Sumant Kumar — Motilal Oswal — Analyst
Nihal Jham — Nuvama — Analyst
Presentation:
Operator
Ladies and gentlemen. Good day, and welcome to the Fourth Quarter and Year Ended FY ’23 Earnings Conference Call, of Chalet Hotels Limited.
[Operator Instructions]
I now hand the conference over to Mr. Sanjay Sethi, MD and CEO, Chalet Hotels Limited. Thank you, and over to you, sir.
Sanjay Sethi — Managing Director and Chief Executive Officer
Thank you so much Ma’am. Good afternoon. Good evening, ladies and gentlemen, and welcome to the earnings call of Chalet Hotels Limited for the last quarter of the financial year, 2023.
It has been an exceptionally good year. We ended the financial year on a strong note with historical highs in our financial performance. Our earnings call presentation has been uploaded on our website for your reference, do take some time to look at the details there.
Very quickly to summarize the year that’s gone by to begin with, we signed our first asset in North India with the proposed new hotel at the Delhi airport. We mark our debut in leisure with the acquisition of the Dukes Retreat, in Lonavala. We made strong inroads towards our sustainability goals. And very importantly, cracked the INR5 billion EBITDA ceiling for the year. We’ve also made substantial progress towards unlocking value from our new projects in hospitality, residential and office real estate at Hyderabad, Bengaluru and Mumbai.
The acquisition of the iconic resort property in Lonavala regions, the Dukes Retreat, marks our foray into leisure segment. The Dukes Retreat has built up a deep connection with guests over the last 40 years, and breathtaking views serving as a backdrop. Our vision for the retreat involves repositioning it through renovations and expansions, transforming into luxurious wellness destination that embodies a strong commitment to sustainability. We will be expanding the room inventory by approximately 50 rooms over there.
As a macro level, the hospitality industry in general, in U.S., European nation region, has been moving in a very strong and positive direction, with some regions touching record average room rates. The same momentum has also been seen in the Indian industry, with average room rates touching decade highs, with occupancies also at very healthy levels.
Traffic in the country has touched a new peak in March 2023, fueled by double-digit growth in domestic travel and recovery of international traffic. International passenger traffic recovery was around 90% to the Pre-COVID levels in the month of March. Despite new supply, office space occupancy in the top six cities remains strong at around 84%, as reported by Colliers, during the quarter ended March, 2023.
For Chalet, the robust pickup in demand seen in Q3 of FY ’23, continued in Q4 of FY ’23, largely led by corporate travel, MICE, weddings and other social events. Q4 recorded new highs in average room rates at INR11,304, which is up by 11% over the previous quarter. Portfolio average room rates cross INR12,000 levels in the month of February. Occupancy improved 9% points Q-on-Q to 74%, leading to the highest ever quarterly RevPAR, of INR8,363. Hospitality segment revenue grew by 17%, sequentially to INR3.1 billion. Room revenue grew by 23%, over the previous quarter, while costs remained well under control resulting in high flow-through during the quarter. The portfolio F&B revenue was about INR1 billion, which is again higher by 6% over the previous quarter. EBITDA for hospitality division was INR1.5 billion, with the highest ever EBITDA margin of 48%. Consolidated revenue for the quarter was at INR3.5 billion, with an EBITDA of INR1.7 billion, the EBITDA margin was 46%. This is the highest revenue and EBITDA for the company in a single quarter till date.
For the full year average room rates, were again at a decade high of INR9,169, with an occupancy of 72%. Hospitality revenue and EBITDA were at a lifetime high, of INR10 billion and INR4 billion respectively, with EBITDA margin at 42%.
Ladies and gentlemen, I am delighted to share that on a consolidated level, EBITDA of the company crossed INR5 billion mark, with an EBITDA margin of 43% for the year.
Now coming and sharing with you a quick update on our project pipeline, in the hospitality side of the pipeline, additional 88 rooms in Novotel, Pune are ready. And we are awaiting the final OC of the building to start commercial use. The new Westin Hi-Tech Hyderabad with 168 rooms, is in the process of being handed over to the operator this month, and will be operational from next month. At Westin Mumbai Powai, the newly renovated rooms have been handed over to the hotel team in January. And I’m happy to share that the response has been extremely positive over there. In fact, response in Westin Powai, Mumbai, has been very positive and it’s sort of confirms our belief in that asset, which is the largest asset in the country. And also it has reaffirmed the position that we took of changing the brand from Renaissance to Westin, around three years back. The project work at the luxury hotel at Delhi airport with about 400 rooms, is as per schedule, with expected completion in the financial year ’26. The 140 room expansion at Bangalore Marriott is at final design stage, and we’ll be submitting our plans for approval later this month.
On the commercial office real estate that we have, our commercial tower at Westin complex Powai is at the final stages of completion. And we should be able to hand it over sometime, early next quarter to the leasing team, for leasing of the space, after the OC is received. However we will already have a reasonably strong pipeline of interest for almost 300,000 sq ft, on this asset. At the commercial tower in Bengaluru in the Marriott complex, handover to tenants has commenced. And for the mall, that has been converted to the office building, the handover to tenants, it is likely to commence late next quarter. For the residential project at Bengaluru, and I think that’s a key element of our project work that we are having is going to make a material difference to our P&L for the next few years. The RERA registration has been received, construction work is on schedule, and the market rollout is scheduled to commence from July of this year.
We are happy to share that, we have significantly improved our score this year on the Dow Jones Sustainability Index to 43, from last year’s score of 31. Which by the way, is a 39% improvement, and we are well above mean scores of the hospitality industry in the DJSI index. We are also proud to share with you that, the 75% of our power sourced was sourced through renewable resources, for the month of March, 2023. And I say 75%, I’m talking about full hotel portfolio is included in that, and none of it was through any green certificate. This is genuine third-party green power that we’re using.
Ladies and gentlemen, at present, we have multiple jets in final stages of completion, with capital spend of over INR1200 crores, till date. These assets will start contributing to our P&L in the next few months. In particular, the new hotel in Hyderabad, the residential asset in Bangalore, and the office assets in Mumbai and Bangalore are likely to make material improvement in our financial numbers.
As we enter the new financial year, we remain committed to enhancing our operational efficiencies, execution of ongoing projects and sustaining momentum, through both organic and inorganic growth opportunities.
On that positive note, I’ll now hand over the baton to Milind, who will take you some more financial highlights. Milind?
Milind Wadekar — Chief Financial Officer
Thank you, Sanjay. Good evening, ladies and gentlemen. As Sanjay mentioned, the company thrived in post-pandemic world, and crossed INR5 billion EBITDA milestone in the financial year FY ’23. The EBITDA and EBITDA margins will improve further with the operationalization of all new investment in commercial office buildings and hotels. These investments of about INR12 billion today, are likely to generate a stabilized return of approximately 20%, on invested capital. Most of these assets are getting operationalized in FY’24.
As Sanjay has covered most of the financial numbers, let me give you key financial highlights. Hospitality segment reported the highest ever EBITDA margin for the quarter at 48%. So I think a new industry benchmark. Margins were higher by seven percentage points from previous quarter, led by resilient ADR and prudent cost management. Hospitality EBITDA for the quarter increased by 36% sequentially. Hospitality revenue crossed INR10 billion mark, for the year FY’23. Three of our properties that is JW Sahar, Westin Hyderabad and Novotel Pune reported highest ever revenue and EBITDA for the quarter and financial year. Hospitality EBITDA for the year was INR4.3 billion, led by efficiency in two major cost saves, that is payroll at 12% of revenue, and utilities at 5.8% of revenue, creating new industry benchmark.
Consolidated revenue for the year was INR12 billion. PAT of INR1.9 billion for the financial year FY’23, is a strong recovery from the cumulative losses of INR2.1 billion in the previous two years. EPS was at INR9.06 for the financial year FY’23. The net worth of the entity is back to pre-pandemic level, at INR15.5 billion. Net debt of the company increased by INR2 billion in the last financial year, to INR24 billion as at March 31st ’23.
The company spent INR6 billion, which includes capital expenditure of INR4.4 billion and acquisition costs of Dukes Retreat of INR1.6 billion. This was largely funded by internal accruals and working capital management. Out of the total debt of INR24 billion, half is allocable to new investments in office buildings under construction, new hotel projects and hotel expansion. The cost of finance as at March ’23 is at 8.75%, against 7.5% at the beginning of the year. This is in the backdrop of an overall increase in reco rate of 250 basis points in the same period. The company is expected to convert INR12 billion to LRD in FY’24, which will reduce the average cost of finance for the company.
The company has capex plan of around INR6 billion for FY’24 for the projects, that have been announced still March, for the projects that have been announced. This includes capex of INR2.8 billion on commercial project, including second commercial tower at Pune. The balance INR3.2 billion includes spillover capex of new Westin Hotel at Hyderabad, hotel expansion at Pune, capex on new hotel in Delhi and expansion of Marriott Hotel in Bengaluru. Business is well funded, with internal accruals and available lines of credit. This is the first phase of multi-year high growth cycle for the hospitality industry.
Now let me give you few updates on Koramangala residential project. The promoters are committed to fund project cost. There has been no new subscription from promoters on 0%, non-convertible, redeemable preference shares, during the quarter under review. The total subscription stands at INR2,000 million, and the promoters have given INR450 million as interest free ICT, as at March ’23. We have received RERA approval for the modified development plan, based on the internal market assessment done by our residential team. The selling price per square feet is seen upward of INR16,000 rupees per square feet of sellable area. The cash generated from sale is expected to be cash and EBITDA accretive to Chalet.
With this, let me open the floor for question and answers.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session.
[Operator Instructions]
We have our first question from the line of Vikas Ahuja, from Antique Stock Broking. Please go ahead.
Vikas Ahuja — Antique Stock Broking — Analyst
Hi, thanks for the opportunity. I hope you can hear me.
Sanjay Sethi — Managing Director and Chief Executive Officer
Vikas, we can hear you. Go ahead.
Vikas Ahuja — Antique Stock Broking — Analyst
Yes. My first question is regarding the occupancy of southern markets, Bangalore and Hyderabad. That is, all that we have seen a strong pickup in Mumbai and Pune, but those two markets still remain under below the average. So, how should we look at going forward into FY’24? Where do you think this number can go? That’s my question number one.
Sanjay Sethi — Managing Director and Chief Executive Officer
Vikas, thank you for your question. Look, Mumbai has done exceptionally well with the occupancies in Q4, at 77%. Bengaluru and Hyderabad are markets which are sensitive to holidays — and holiday seasons. And therefore in Q4, the start of the quarter was little slow, because foreigners take a little while after New Year, to come back to travel. But then subsequently, in the second half of January and then February, were extremely good. In fact occupancy in February turned out to be brilliant in all our hotels.
Having said that, I think you will see marked improvement in occupancy in both Bangalore and Hyderabad, especially Bangalore has seen a significant improvement in the last couple of months. And we’re very excited about the demand pickup, and back to recovery in Bangalore.
Vikas Ahuja — Antique Stock Broking — Analyst
Sure, thank you. My second question is regarding the seasonality. So when we go from Q4 to Q1, we normally see a 15% to 20% decline in the FY, and as I said, it’s largely because of seasonality. So, because we are in a different times now, and just trying to understand whether we will see the same seasonality this time, as well? Or you think demand continues to remain very strong? And, at this time the drop won’t be that much?
Sanjay Sethi — Managing Director and Chief Executive Officer
So Vikas,I don’t want to comment on forward-looking numbers. But look, the seasonal trends that typical for India, for both business and leisure travel will continue. The difference could be less this time around, but we do expect Q1 and Q2 to be always lower than Q3 and Q4.
Vikas Ahuja — Antique Stock Broking — Analyst
Sure. Thank you. And my final question is on the F&B revenue, which came around mid-single digits. While the overall RevPAR growth was 25% above on sequential basis. So I mean, what was the reason for lower growth in F&B revenues?
Sanjay Sethi — Managing Director and Chief Executive Officer
So the growth in F&B revenues, between Q3 and Q4 is still at 6%. And remember, Q3 came off a high base, because that was the period for several weddings etc., that happened. So it’s unfair to compare Q4 to Q3, and the fact that Q4 managed to report 6% growth, on Q3 where they banquet season was at its peak, itself is commendable. So, I see this as a positive.
Vikas Ahuja — Antique Stock Broking — Analyst
Okay. But I think, that same applies to the areas as well, right. It was around to 10,200, and it moves to 11,300.
Sanjay Sethi — Managing Director and Chief Executive Officer
Yes, even by rooms — room demand.
Vikas Ahuja — Antique Stock Broking — Analyst
Yeah.
Sanjay Sethi — Managing Director and Chief Executive Officer
The business travelers was driven by social events, which are basically locals, who use the auspicious days of wedding, to host the events. And both the JW Marriott at the airport in Mumbai, and the Westin Powai, did exceptionally well with weddings during the quarter three. So coming off a strong base, I think the fact that quarter four, managed to improve the revenues by another 6%, that’s quite commendable.
Vikas Ahuja — Antique Stock Broking — Analyst
Okay. Sorry, if I can just squeeze in one last question. As we already in the middle of May, are we seeing any difference now, in terms of the occupancies or the pricing in different markets, whether Mumbai has dropped or Bangalore has improved? Are we seeing any stock differences from the trend we have been seeing in past two, three quarters? And that’s about it. Thanks a lot.
Sanjay Sethi — Managing Director and Chief Executive Officer
Vikas, thank you for your questions. But look, we’re not in a position to share numbers at this time with you, because we do not really released those numbers to the market in general, so we’re restricted. As I said, expect Q1, Q2 to be lower than Q3, Q4. My sense is that the gap is not going to be 15%. It should be a little more balance than that.
We can move on to the next.
Vikas Ahuja — Antique Stock Broking — Analyst
Sure Sir. Thanks a lot.
Operator
Thank you. We have our next question from the line of Karan Khanna, from Ambit Capital. Please go ahead.
Karan Khanna — Ambit Capital — Analyst
Thanks for the opportunity, and congratulations on the best ever quarter. So Sanjay, you spoke about the hospitality outlook for FY ’24 and beyond. But from a strategic perspective, while most of the hoteliers are expanding in Tier 2, and Tier 3 cities, and beyond with smaller hotels. Chalet’s pipeline is focused on Tier 1 big box hotel. So if you could help us understand more, in terms of your current model, will that work better than expanding in smaller cities, but with scale?
Hello?
Sanjay Sethi — Managing Director and Chief Executive Officer
Sorry, Karan, I put it in mute. Thank you for your question. And thank you for the congratulations. Let me just remind you that the last two hotels that we’ve commissioned or acquired, are in Tier 2 locations. Pune Novotel was in a Tier 2 city, and the recent acquisition, the Dukes Retreat is indeed in a secondary or Tier 3 market. So we believe that, there is strength in some Tier 2 and Tier 3 cities.
But we’d like to be very, very careful, not to go and increased supply in some of these cities. Because, they come off a low base, and if we continue to increased supply, the cities itself could suffer. So in both cases, we’ve actually picked up existing supply, as against added supply to the Tier 2 or Tier 3 locations.
But to answer your questions, are we looking at Tier 2 and Tier 3 cities? Absolutely, and the outcome is in front of you.
Karan Khanna — Ambit Capital — Analyst
Sure, and thanks for the clarification. And just continuing on the Dukes’s acquisition, which has been an opportune acquisition for Chalet. But it also marks your entry into the leisure segment, through a smaller hotel. So is it fair to assume that, right now, you are testing the waters in the leisure market and hence you’ve gone with the smaller hotel, compared to the rest of the portfolio? And inherently, as you start witnessing potential turnaround, or possible success in the leisure segment, you look to add further hotels in this segment? And if so, which are the markets, that you’re actively evaluating at this point.
Sanjay Sethi — Managing Director and Chief Executive Officer
So Karan, we are going to stay consistent with our stated strategy, that we’d like to be in leisure destinations, which are in drivable distance from Mumbai and couple of other big cities around the country. And we’d like to look at Goa and Rajasthan, as the two other leisure destinations, and we’d like to focus on. I don’t think this strategy change will last three, four years now.
And what we’ve done at Dukes is consistent with that. We continue to look for opportunities in Goa and Jaipur etc., as and when we have some opportunities, we will look at them. This is not by design, that we got Dukes first and we wanted to test quarters. It’s just that we were able to execute this first.
Karan Khanna — Ambit Capital — Analyst
Sure. On commercial real estate you have closer to 2 million square feet that’s hitting the market in FY ’24. And if I look at the outlook for commercial real estate, it doesn’t seem as positive when we look at some of the incumbents in Bangalore, even suggesting possible extra exits then contractual in the year. In that context, I wanted to understand your standpoint on the CRE demand for Chalet, and the visibility in terms of leasing potential tenants, opportunities that you’re seeing. And Milind, if you could also talk about the pending capex for, before seeing these towers in Bangalore and Mumbai.
Sanjay Sethi — Managing Director and Chief Executive Officer
So Karan, I don’t think we have any major concern on the INR1.5 million that’s coming in play in this year, not INR2 million. Roughly around INR1 million of 0.95 in Bangalore and 0.78 in Mumbai. I don’t know where I’ve seen a recent report, I’m trying to take that out whilst we speak, which had given — actually at the TV report that have come out from the television in CNBC, where it given the leasing traction of big cities in India. And you’d be surprised to know that, Bangalore was the highest in the lot. And with absorption as high, as I think 17% increase on the year, which is very strong.
So I think, we’ve positioned our office assets at the right locations, because Bangalore was number one, followed by Delhi, and followed by Mumbai. So within the top three cities that are with the most demand in office space, two of the cities are where we’re launching office assets. You had a question for Milind
Milind Wadekar — Chief Financial Officer
Sir, to add further to what Sanjay said, Whitefield is connected on Metro now. So demand in Whitefield is expected, demand for commercial office space is expected to go up in Whitefield. On pending capex on these two projects, I mean, commercial tower is almost ready at Bangalore. And we have some spillover capex to be spent. Repurpose mall will be ready in the quarter also, and Powai commercial tower will be ready in one quarter. So all put together including spillover capex, we’ll be spending around INR250 crore.
Karan Khanna — Ambit Capital — Analyst
Sure. And last question, so you exited FY ’23 with an annual EBITDA of INR500 crores, and debt at INR2,200 crores, INR2,300 crores. So internally, while thinking about expansion and Greenfield asset acquisition, what sort of a debt-to-EBITDA multiple, or metrics are you comfortable with, while evaluating for these projects? That would be my last question. Thank you.
Sanjay Sethi — Managing Director and Chief Executive Officer
So Karan, we are well aware of the fact that the investment community prefers debt-to- EBITDA ratio to be not too much, north of 3.5 times. And we are conscious, and we are working towards that. You see a lot of the capex that we put in play, as I mentioned in my opening statement is coming into fruition in the next few months. It’s INR1,200 crores of capex that we’ve already spent. I think, a couple of hundred more to be spent on these assets, and we are targeting 20% EBITDA by capital employed numbers on these assets.
So clearly there is enough return that they’re going to generate, enough EBITDA to sustain their cost, and you got to remember that, because there are couple of these assets are office assets, the debt will convert to LRD from there, where the cost of capital will reduced significantly for us.
So we see a lot of comfort in where we stand today, and the accruals that we are creating now will give us headroom for growth, going forward. Beyond that 1,100 rooms that we have in the pipeline right now as we speak, and the 2 million sq ft office space that we have, 2.5 million for office space that we have as prospective office growth.
Milind Wadekar — Chief Financial Officer
Karan, out of INR2,400 debt today, INR1200 crore is for assets, which are not yet operational. So we have to compare INR500 crore EBITDA, with debt of INR1200 crores.
Karan Khanna — Ambit Capital — Analyst
Sure. Thanks for the clarifications. Thank you and all the best.
Operator
Thank you. We have our next question from the line of Jinesh Joshi, from Prabhudas Lilladher. Please go ahead.
Jinesh Joshi — Prabhudas Lilladher — Analyst
Yeah. Thanks for the opportunity. I have a bookkeeping question on the inventory write-down of INR18 crores, which has occurred in this quarter, due to revision in the project completion cost. But if I look at —
Sanjay Sethi — Managing Director and Chief Executive Officer
Sorry, I will have to request you to repeat that, because your voice is not coming through clear.
Jinesh Joshi — Prabhudas Lilladher — Analyst
Am I audible now?
Sanjay Sethi — Managing Director and Chief Executive Officer
Yeah, better.
Jinesh Joshi — Prabhudas Lilladher — Analyst
Yeah. So basically, I had a question on inventory write-down of INR18 crores, which has occurred in this quarter, due to revision in the project completion cost. But if I look at the current PPT, we have stated that, the cost of completion is about INR425 crores, which is similar to what we had reported in the last quarter, as well. So, just wanted to understand this aspect on write-down a bit better.
Sanjay Sethi — Managing Director and Chief Executive Officer
So Jinesh, this is one of the accounting requirement. Whenever this flats, this write-down, write offs pertains to flats which were sold five, seven years back. And those were sold at very low rate. Now the cost per square feet, based on revised budget is slightly higher than the selling price. Hence as per accounting standard, we have created these provision for impairment. This is called net realizable value provision.
Jinesh Joshi — Prabhudas Lilladher — Analyst
Got that. And secondly, with respect to these commercial assets, I mean, I believe that in the PPT we have stated that, the project in the Bangalore of about 2.65 million sq ft. The handover has already been commenced. So the question is, how much area have you been able to lease out so far? And secondly, the other asset, which were repurposed very recently, in the last PPT we had stated that, the handover might begin in 1Q, but apparently now it seems to have got postponed to Q2 FY ’24.
So any specific reason out there? And one follow-up on this part is, pertaining to the LRD debt of about INR1,200 crores, which will get converted in FY ’24, which you mentioned in the opening remarks itself, so what kind of interest cost reduction will you get, because of it?
Sanjay Sethi — Managing Director and Chief Executive Officer
So Jinesh, to answer your first part of the question, and we might have missed something, because your voice is still breaking up. The Bengaluru leasing, that you were asking for is roughly about 1.5 lakh square feet, that we’ve done with the anchor client. They may be looking at another 40,000 sqft more, and then we’ve got interest from another three, four clients who are taking up the majority of the balance area, in the new IT tower.
Then there is the mall which is converted, or getting converted into office. There, we haven’t started the leasing activity, there is still some work that is getting completed. And once that is completed, we will open this out to potential tenants. To answer your LRD question, Milind will comment on the cost of capital.
Milind Wadekar — Chief Financial Officer
I mean, the entitlement is to the extent of 6.5 times to 7 times of EBITDA or rentals earned. And costs arbitrage ranges between 50 basis points to 75 basis points.
Jinesh Joshi — Prabhudas Lilladher — Analyst
Sure. One last bookkeeping question from my side, in the opening remarks you had guided for a capex of about INR600 crores, in FY’24, out of which roughly INR280 crore will be only of commercial project in Powai, which is Tower 2. So can you just highlight what will be total capex for this project? And the operational timeline — an indicative operational timeline, if you can share? That is the last question from my side.
Sanjay Sethi — Managing Director and Chief Executive Officer
I’ll cover the operational timelines, in fact I just had some updates on that. We expect to start work on site in the middle of this calendar year, and we are expecting to complete this project in roughly around 33 months.
Milind, total project cost.
Milind Wadekar — Chief Financial Officer
Total capex for commercial office buildings will be around INR280 crores, which includes Powai, Bangalore both phases, I mean, commercial tower as well as repurpose mall. And will be spending INR40 crore rupees on commercial tower, new commercial tower at Powai. And we’ll be spending —
Sanjay Sethi — Managing Director and Chief Executive Officer
He wants the total project cost for new commercial tower at Powai.
Milind Wadekar — Chief Financial Officer
Second commercial tower including interest and approval cost will be in the range of INR700 crores.
Jinesh Joshi — Prabhudas Lilladher — Analyst
Sure sir.Thank you so much.
Milind Wadekar — Chief Financial Officer
Yeah, that’s over three years.
Jinesh Joshi — Prabhudas Lilladher — Analyst
Yes, got it. Thank you.
Operator
Thank you. We have our next question from the line of Sakshi Chhabra, from Swan [Phonetic] Investments. Please go ahead.
Sakshi Chhabra — — Analyst
Hello sir, congratulations on a great set of numbers. Sir, my first question was, I wanted to understand what would be the trajectory for the average room rate for the coming year?
Sanjay Sethi — Managing Director and Chief Executive Officer
So Sakshi, I think, the average room rates have been going extremely well. If you look at the history of the average room rates on a month-by-month basis, we have a fair amount of traction building up. And if I was to break it up your quarter four numbers, January we hit 10,462, February we hit 12,239 and March we were at 11,160. So average for the quarter was 11,304.
As we said earlier, quarter 1 and quarter 2, we do traditionally see dips, and expect some dip on this, going forward for the first two quarters of the year. But then the growth in quarter 3 and quarter 4, will be higher than what we did in quarter 3 and quarter 4 of FY’23.
Sakshi Chhabra — — Analyst
Okay. But like, I mean, approximately can the price increase led by around 10%?
Sanjay Sethi — Managing Director and Chief Executive Officer
So pricing increase has already come in the January to March numbers, Sakshi. The net increase will happen in January next year.
Sakshi Chhabra — — Analyst
Okay, understood.
Sanjay Sethi — Managing Director and Chief Executive Officer
And I do not want to give any forward-looking average room rates, right now.
Sakshi Chhabra — — Analyst
Okay. So I wanted to understand that, in Bangalore and in Powai, what will be the commercial rates that we could expect?
Sanjay Sethi — Managing Director and Chief Executive Officer
So Bangalore, we are targeting about INR60 to INR62 rupees per square foot.
Sakshi Chhabra — — Analyst
Okay.
Sanjay Sethi — Managing Director and Chief Executive Officer
And Powai, around the INR120 to INR125 mark. This is on leasable area, and the efficiencies are leasable areas are 70%. Okay.
Milind Wadekar — Chief Financial Officer
We have leasable area of around INR1 million in Bangalore, and INR0.8 million in Powai.
Sakshi Chhabra — — Analyst
Okay, understood. And the 88 rooms in Pune, I understand that, you are awaiting for the office supplies. By when do you think that those rooms can be operational?
Sanjay Sethi — Managing Director and Chief Executive Officer
Within this month.
Sakshi Chhabra — — Analyst
Okay, all right.
Operator
Thank you. We have our next question from the line of Hrishikesh Bhagat, from Kotak Mutual Fund. Please go ahead.
Hrishikesh Bhagat — Kotak Mutual Fund — Analyst
Hi, thank you for the opportunity. So, over few questions, firstly, when I look at the foreign tourist, clearly that stays at 37%, fairly below our usual trend. Now clearly one thing, I want to understand, whether when do you expect normalization of the same? And secondly, with 37% have you seen across the most of the markets, or probably some markets have already reached the normalization? Where some are lagging significantly. So some insight on that front.
Sanjay Sethi — Managing Director and Chief Executive Officer
Yes, so I don’t know what the exact breakup. But Powai typically — Westin Powai, typically has a lower foreigners to Indian ratio. Indians are higher, because of the nature of the banquet events that we have their conventions, etc., which are largely domestic. Hyderabad, Bengaluru, typically have higher percentages of foreigners in our hotels. And I think, that’s picking up very rapidly. But in fact, the reason Bangalore took longer than most of the market’s pickup was because, the foreign business travel took time to come back.
But now we see that Marriot Whitefield is doing extremely well. And that’s been driven by foreign travelers coming back. So there is a bit of variation across properties, and I think it’s not even hotels, it is not city-specific, it’s more hotel specific.
Clearly with 772 rooms in Westin Powai, which is a significant part of the inventory, if that is lower, that tends to bring the average down. But Marriott Whitefield, will continue to have more majority of the book guests of foreigners over there.
Hrishikesh Bhagat — Kotak Mutual Fund — Analyst
Okay. I think, it would be great if you continue to publish this information in your investor deck, it’s really helpful.
Sanjay Sethi — Managing Director and Chief Executive Officer
Hrishikesh, just one more input I want to give you that, what happened is, since the pre-pandemic time, we’ve also acquired the Novotel Pune. Novotel Pune has primarily domestic guests. So the ratio, if we look at it, when we look at it from the like-to-like or apple-to-apple hotels set, as against looking at the combined portfolio.
Hrishikesh Bhagat — Kotak Mutual Fund — Analyst
Okay, thanks. The second question is, you spoke about addition of rooms to Dukes also. Now can this addition happen by continuing the operation? Or do you think we will have to shut down the operation, when this addition happens?
Sanjay Sethi — Managing Director and Chief Executive Officer
Hrishikesh, we are also planning to reposition the hotel or the resort through major renovations. And the way we’ve planned it is, that will take 60% inventory out. At that time, we’ll renovate this inventory of 60% in F&B areas, and use that same time to add the rooms — additional rooms. So, if we take 60% out, which means 48 rooms will be out of action, but when they come back, we’ll come back 48 plus 48, plus 96 rooms, which is significantly higher 20% higher than what we have current inventory. And that’s when the balance 22 rooms are going into renovation.
Hrishikesh Bhagat — Kotak Mutual Fund — Analyst
Okay. And the last question on the INR600 crore capex guidance, so does it capture your any capex, or likely capex on Airoli, as well as Delhi? Or do you think that could be further upside on the capex?
Milind Wadekar — Chief Financial Officer
Hrishikesh, I mean, our INR600 capex also includes, Airoli, Duke’s renovation, as well as some capital expenditure on new Delhi hotel.
Hrishikesh Bhagat — Kotak Mutual Fund — Analyst
Okay, Thank you.
Operator
Thank you.
[Operator Instructions]
We’ll take our next question from the line of Rajiv B, from DAM Capital. Please go ahead.
Rajiv Bharati — DAM Capital — Analyst
Good afternoon, sir. And thanks for the opportunity, and congratulations on great set of numbers. Sir, on your capex bit, if I remember it right, your capex for FY’23 was planned to be close to INR500 odd crores right? And you have done something like INR587 odd crores. So have we short, higher on some of these? Or this Powai Tower 2 is basically has got some capex in FY’23 done, as well?
Sanjay Sethi — Managing Director and Chief Executive Officer
No. So we haven’t, all our capex, our projects are in within their defined cost budgets. But I’ll let Milind give you the breakup of the increase, depends what INR450 crores, that could be on account of acquisition of Dukes?
Milind Wadekar — Chief Financial Officer
Yes. So, total capex of INR600 crores for financial year ’23, includes INR160 crore for Dukes acquisition cost, and the balance for other growth projects.
Sanjay Sethi — Managing Director and Chief Executive Officer
So if you look at slide 20 in your presentation, you will actually find some of the parts and the debt over there, where you will find that the capex that we put in for Dukes is INR158 and INR159 crores. And then there is INR440 crores towards other growth projects, and that’s sort of will give you the breakup.
Milind Wadekar — Chief Financial Officer
So Rajiv, I mean, the difference of our guidance of INR500 and actual for INR440 crores spend, and something is lying as creators, which will be paid in next few days.
Rajiv Bharati — DAM Capital — Analyst
Sure. And also on the dial thing, have we finalized the flag there? Whether it will be domestic or international?
Sanjay Sethi — Managing Director and Chief Executive Officer
We should have that in place in the next few days.
Rajiv Bharati — DAM Capital — Analyst
Sure. And in one of your slides, the timeline of the Powai second tower is FY’26, it shows. I think, you’ve said the capex is three years.
Sanjay Sethi — Managing Director and Chief Executive Officer
Yes, initially I was just — because FY’24 is also getting consumed, right. So it’s ’24, ’25 and ’26, 33 months, the total project time. Earlier, and besides that we might start around October of this year, but it looks like we’ll be able to start around two or three months earlier. But we believe that in 33 to 36 months time, we’ll complete this project. So end of FY’26 is when we’ll see this completion.
Rajiv Bharati — DAM Capital — Analyst
Sure. Thanks a lot.
Operator
Thank you. We have our next question from the line of Siddhesh, an Individual Investor. Please go ahead.
Siddhesh — Individual Investor — Analyst
Hi, congratulations on the revenue, I would like to inquire about the breakdown of our capital expenditure, by project and corporate property for the current year. And also request information on the anticipated timeline, for when we can expect to see the effects of this expenditure reflected in our EBITDA levels.
Sanjay Sethi — Managing Director and Chief Executive Officer
So, I’ll let Milind, first to give you the breakup of the capex expenditure. We’ll give you completion dates also, so that you can get a sense of that.
Milind Wadekar — Chief Financial Officer
So, Siddhesh, INR240 crore we will spend on Powai commercial and Bangalore commercial. And both are expected to be operational in first quarter or second quarter of FY ’24. INR200 crore, we will spend for hotels, which includes Dan, Dukes, Airoli and some spillover capex for our Westin Hotel and Novotel hotel. We will undertake some renovation at our existing properties, and will spend around INR65 crores on that. So all put together, our capex plan is for INR600 crores for the year.
Sanjay Sethi — Managing Director and Chief Executive Officer
But Milind, that’s for this year. He wants to know what’s the project wise capex plan.
Milind Wadekar — Chief Financial Officer
Okay, total capex plan for next five years is around INR2,000 crores. Out of INR2,000 rupees, INR1,000 crore is for commercial office buildings, which includes new commercial tower at Powai. INR750 crore rupees for hotels, which includes Dan, Duke’s, Airoli. An addition of 140 keys in Bangalore. And we will spend around INR125 crore, on renovation of existing properties.
Siddhesh — Individual Investor — Analyst
Okay. And while doing renovation at Dukes Retreat, are we expecting any effects on the existing room capacity?
Sanjay Sethi — Managing Director and Chief Executive Officer
Sorry, I missed that. Could you repeat your question please?
Siddhesh — Individual Investor — Analyst
While doing renovations at the Duke’s property, while expanding the capacity at Duke, are we expecting any restrictions on the current room capacity, a little bit over there?
Sanjay Sethi — Managing Director and Chief Executive Officer
As I explained earlier, we will take 60% inventory out in Phase 1, and operate 40% of the inventory. And when that 60% comes back, which is 48 rooms, it will also come back with the expected 48 to 50 additional rooms that we’re planning there. So it’ll come back as 96 to 98 rooms, which will be 20% higher than the total capacity, right now. And subsequent to that the 32 rooms will get renovated, we do want to do this in 2 phases, Siddhesh. This is still being worked out, we are on the drawing board stage. Let us come back to you, with a far more firmer plan, by the end of this quarter.
Siddhesh — Individual Investor — Analyst
Perfect. Thank you.
Operator
Thank you. We have our next question from the line of Vikas Ahuja, from Antique Stock Broking. Please go ahead.
Vikas Ahuja — Antique Stock Broking — Analyst
Hi, thanks for taking my question again. Sir, just one book keeping question, this is for Milind. Milind sir, this 1.8 million square feet commercial we are planning to add in FY ’24 and FY ’25. What is the occupancy assumptions we could work with, because you talked about in Q1, Q2, the Powai and Whitefield Bangalore will come back. For the whole year, what kind of occupancy assumption should we work with?
Milind Wadekar — Chief Financial Officer
See Vikash, in our financial modeling, our group has more than 33 million commercial office space. So we take 3% perpetual vacancy.
Sanjay Sethi — Managing Director and Chief Executive Officer
He is asking more about the buildup. How this occupancy is going to build up there.
Milind Wadekar — Chief Financial Officer
Okay. So Bangalore, we expect in next six months, Bangalore commercial tower. Next six months, we’ll lease out around 85%. By March, we should have revenue kicking in. Bangalore repurpose mall,should start from next six months, so more than 75% of that will be leased out in next six months. And Powai buildup will be 25% in March ’24, 25%. I mean, this is revenue earning, after a fit out period 25%.
Sanjay Sethi — Managing Director and Chief Executive Officer
It should give the leasing timeline, not the revenue timelines here. Because anyway straight line your accounting, right.
Milind Wadekar — Chief Financial Officer
Yeah, so leasing timelines by September ’23, we should lease out more than 25% in Powai. By December additional 25%, and balance 47% by March or so.
Vikas Ahuja — Antique Stock Broking — Analyst
Okay, thank you. And lastly, I mean, do we have any line faster, less to add anymore commercial or we have exhausted all by adding 3 million square feet by end of FY’26? So largely it will take care of all the land, am I correct on that?
Sanjay Sethi — Managing Director and Chief Executive Officer
Sorry, before we go to the end of question with you, I just want to clarify on page 7, whilst Milind was reading out the timelines. I realize it was a typo, that 0.8 million square foot taken at Powai tower 2, says FY’25, that’s an error. That will actually get completed as we’ve said, three years from starting of middle of this year. So please factor that in. So please go ahead with your question.
Vikas Ahuja — Antique Stock Broking — Analyst
The next one was regarding the land parcel for adding any other commercial, we have exhausted all right or do we have anymore?
Sanjay Sethi — Managing Director and Chief Executive Officer
Vikas, as you know this commercial assets that we’re developing our all existing land parcels, where our hotels exist. And the whole idea was to strength the real estate of that particular hotel land parcel, and build complementary assets, that complement the hotel, in terms of demand expansion. So that’s worked very favorably wherever we’ve looked at it, and we expect this to contribute significantly, as these offices get operationalized.
Coming to your question, whether we have any more land parcels? Look, as things stand right now, with the FSI that was available in hand, once we complete the second tower in Powai, we are likely to sort of exhaust all FSI that could potentially be available. I’ve have also shared in the past that we don’t have any desire to acquire a land parcel to build a standalone office asset.
I must however add that, in Koramangala, which has residential towers, where we were able to carve out one extra land parcel, where we’re building an office tower, not very large, 1.5 lakh square feet only. Which is the only asset that we will build and sell in our space. Beyond that, nothing else, as we stand right now.
Vikas Ahuja — Antique Stock Broking — Analyst
Sure. Thanks, and best of luck for Q1.
Sanjay Sethi — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. We have our next question from the line of Paresh Shah, from Prernatirth Investments. Please go ahead.
Paresh Shah — Prernatirth Investments — Analyst
Sir, I have one question about the debt, which is required for capex. Are you planning to do any QIP’s to reduce either the debt, or for the capex plan you envisage?
[Speech Overlap]
Trying to bring in equity to reduce the risk element, going forward. Because I’ve been hearing a lot of concerns or rather a little bit of anxiety for debt related to our company.
Sanjay Sethi — Managing Director and Chief Executive Officer
So Paresh, thank you for the question. I’ll let Milind comment on the exact numbers, but let me give you an overview.
Our debt is going to go down very rapidly in the next couple of years. Because of the operationalize assets that we have, the LRD effect, and the fact that a lot of the projects are coming to culmination as we speak now. Having said that, right now, there is no plan to raise any fresh equity in the company, because we really don’t need it. You got to remember, equity is far more expensive than debt for any company.
And from that perspective, we’d like to optimize the balance sheet for most optimal returns, and we’d like to leverage to an extent that is most efficient. And that’s our thesis and we continue to stick to that.
Milind Wadekar — Chief Financial Officer
So Paresh, we have rate of around INR2,400 crores today. We expect it will peak out to INR2,650 crores, and then it will start reducing. We have Koramangala residential project, which starts opening for sales, and this is expected to generate cash of INR600 crores in next three years. Which will be used to fund our capex in the future years. And we believe internal accruals which were expected to generate in next three, four years, will take care of our capex.
Paresh Shah — Prernatirth Investments — Analyst
Okay. So from this reply, one more question which comes to my mind is, the commercial leasing part what we have, are you exploring to get a good value for the shareholders, in terms of putting it in great kind of an instrument?
Sanjay Sethi — Managing Director and Chief Executive Officer
So, Paresh, I think as an opportunity, it exist. At this point of time, we see no need to do that. These are going to be high-yielding assets for Chalet Hotels.
Paresh Shah — Prernatirth Investments — Analyst
Absolutely.
Sanjay Sethi — Managing Director and Chief Executive Officer
And there’s no reason to transfer it into a REIT, when we are getting very good returns from that. So right now, no such plans. But at any point of time, if suppose there is an opportunity for a large platform acquisition in the hospitality space. This remains as available currency for us to monetize at a given time.
Paresh Shah — Prernatirth Investments — Analyst
Okay. So do you think that you are looking for a proper kind of a lease rental, then it kicks in? Or as of now, you have not thought on this?
Sanjay Sethi — Managing Director and Chief Executive Officer
No, we are expecting a significant amount of EBITDA contribution to come from these assets. As we shared earlier, I mean you got to remember that, out of the total 3 million sqft, 2 million square foot lies in the highest rent yielding City of Mumbai, and 1 million in Bangalore in Whitefield. And if you really do the math on it, you will realized that the returns are extremely healthy on the investment over here. And there is no reason for us to look at them adversely from any angle.
Paresh Shah — Prernatirth Investments — Analyst
No, I’m thinking from the value creation for the shareholders, because many times when it is captured in our company in consolidation, the value doesn’t get discovered for this kind of instrument. That was my only concern.
Sanjay Sethi — Managing Director and Chief Executive Officer
So EBITDA flow through, it’s going to create shareholder value for sure. And a significant EBITDA flow, if you just do the math at the numbers that we shared with you, and you must remember, why did we do this. There is a Genesis to this, and this Genesis to this is that,, number one we want to de-risk the cyclical facility of the hospitality industry. Rental and annuity business tends to de-risk that. In fact during the COVID period, the fact that we were able to report EBITDA positive results in our company for every quarter, during that year, it was on the back of rental yields that we’re getting from assets on the annuity business.
So, I think this is a good edge to any risks that we may have in the hospitality, equal diversify in various forms. This is our form of diversification, and not only are we diversifying and hedging the risks, we also creating significant value for shareholders, in form of EBITDA earnings.
Paresh Shah — Prernatirth Investments — Analyst
Okay, sir. Thank you, sir, for your reply. And wishing you very best, and we are really happy with the strategies what you have put in play for the shareholders. Thank you, sir.
Operator
Thank you
[Operator Instructions]
We have question from the line of Sumant Kumar, from Motilal Oswal. Please go ahead.
Sumant Kumar — Motilal Oswal — Analyst
Yeah, hi, sir. Can you talk about G20 benefit to Chalet, in past couple of quarters?
Sanjay Sethi — Managing Director and Chief Executive Officer
Hi Sumant. So look, I think, every hotel companies had the benefit of G20 business. And it comes in two forms. One direct bookings that come to hotels, and the second form is where other hotels gets sold out, treating compression in the market. Which leads to your hotels enjoying the benefit of other bookings being diverted to you, and typically at a much higher rate. So we’ve had the benefit on both counts at all cities, whether it was Hyderabad, Bengaluru, Pune or Mumbai.
Sumant Kumar — Motilal Oswal — Analyst
So any quantification or some, the occupancy rate at any market dynamic change, in say, Mumbai and..
Sanjay Sethi — Managing Director and Chief Executive Officer
I can go around quantifying it, but it won’t serve the purpose, because even if my competitor takes the G20 business, the spillover effect to me is very positive, and how do you quantify that. So therefore, I would rather not quantify. All I can say is, it has helped all cities. And I want to highlight one thing here, G20 is not about just this year, your having these few events across the country over the year, it’s the smaller benefit of G20.
I think the bigger benefit of G20 is the mileage that India is getting from the investor community and the global community, to see India in a different light in a more positive way, which is going to be beneficial to us in long term.
Sumant Kumar — Motilal Oswal — Analyst
Can you talk to — is there any decline or some slowdown in foreign customer mix in Q4?
Sanjay Sethi — Managing Director and Chief Executive Officer
Not at all. Okay. Thank you.
Operator
Thank you. We have our next question from the line of Nihal Jham, from Nuvama. Please go ahead.
Nihal Jham — Nuvama — Analyst
Yes. Thank you so much and congratulations on this performance. My first question was on the foreign mix that you’ve given. The number as said it’s 37% for Q4, but this includes the impact of — maybe Novotel getting commissioned which is mainly a domestic-driven hotel. Would it be possible to give a ballpark sense of how this number is if you do it on a like-to-like basis, versus pre-COVID?
Sanjay Sethi — Managing Director and Chief Executive Officer
I’m afraid, I don’t have that number, but it is lower. As we said, the foreign airline traffic of passenger load is only 90% recovery to pre-pandemic time, so there will be a reduction. But look, at the end of the day, we are not looking at whether it’s Foreigner or Indian. Our preference is for anyone who gives us a premium to us, on our room rate.
And if today the domestic market is giving us a premium to the room rate, we would go in favor of them. So it’s not as if it is 37% only, because that was only business available in the market. It could also be that, you displayed some of the foreign business, which with the higher yielding domestic business, and that’s what led to our growth.
I can give you a clear example on that. The airline crew that we used to have earlier, was significantly higher than what we have now. And these are typically come at a lower rate, and they were in large volumes, large numbers.
So from that perspective, I think, we’ve been able to optimize our average room rate, and thereby the RevPAR. A quick number that we were looking for earlier, Bangalore is actually back to 66% of its guests being foreigners in the month of March ’23, and Hyderabad is at 50%.
Nihal Jham — Nuvama — Analyst
And then, was this the number Pre-COVID also, of 66% for Bangalore and Hyderabad, as well?
Sanjay Sethi — Managing Director and Chief Executive Officer
Yeah, 66%. Hyderabad was marginally higher. And you got 55% or so.
Nihal Jham — Nuvama — Analyst
Sir, just one clarification, it was that, in the earlier participant has the number moved from 41% to 37% from Q3 to Q4. Ideally the January to March period, if you look at the India FDA calendar, sees more foreign drivers. Not sure, how it works out for you, but is there anything worth noting there that, the 41% moving to 37%, in terms of the mix of customers?
Sanjay Sethi — Managing Director and Chief Executive Officer
No, I think, what has happened is, the occupancy has gone up in general. So therefore, you’re seeing that ratio is skewed, but if you look at the occupancy has gone up almost 700 bps. 700 bps or 900 bps? 900 bps is the occupancy improvement. So that could have led to this change. I don’t think, the absolute number has gone down. It’s actually probably stayed slightly above only.
Nihal Jham — Nuvama — Analyst
Point taken sir. One final question.
Sanjay Sethi — Managing Director and Chief Executive Officer
By my colleague, that the absolute number is 62,000 room nights for both quarters, which is exactly the same.
Nihal Jham — Nuvama — Analyst
Okay, that’s helpful. Just final question, sir. That was on the cost base, how do you see FY ’24? Is this a normalized cost base. Only because if we are in a strong cycle, is there a case for higher than expected inflation, and a lot of line items or just your sense?
Sanjay Sethi — Managing Director and Chief Executive Officer
Sure. I don’t see any reason, why the cost will go up from where they are today. I think, we must highlight here that are in the last quarter, our variable costs as a percentage to revenue were 3% lower than Q3. So if anything, I think inflation is cooling off a bit. And similarly, fixed costs were also 300 bps lower than Q3. In both fronts, cost percentage to revenue seems to be more efficient in Q4,that was in Q3. We don’t have any significant insight into any further implicating pressure on us.
Milind Wadekar — Chief Financial Officer
To add further, I mean, there two major cost saves payroll. We were at 12% as a percentage to revenue against 15% pre-pandemic. At HLP utilized power, it was at 5.4% against 7% pre-pandemic. So these major cost, we’re bringing it down.
Sanjay Sethi — Managing Director and Chief Executive Officer
These are two largest cost that we have in, operating cost that we have.
Nihal Jham — Nuvama — Analyst
Understood. That was it from my side. Wish you all the best, sir. Thank you so much.
Sanjay Sethi — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Sanjay Sethi, for closing comments. Over to you, sir.
Sanjay Sethi — Managing Director and Chief Executive Officer
Thank you, ma’am. Thank you everyone for joining us for the call. I want to sort of, reassure you that we are extremely excited about Chalet Hotels, especially by the fact that, we’ve got a significant amount of capex work in progress, which is now coming to fruition, which will now contribute to our operating numbers.
And in addition to that, we’ve got some more projects that are coming online, which is again add — create value for our shareholders. And we are excited for that, for everyone around, all-round. We wish you all the best. Happy times to everyone.
Operator
[Operator Closing Remarks]