Chalet Hotels Ltd. expands its portfolio with new luxury properties in top tourist destinations

“I am delighted to report that for the second consecutive quarter, we have had record-breaking numbers with the highest-ever revenues and EBITDA for the company. This has been delivered on the back of strong domestic business travel, rebound of the MICE segment and with very strong Average Room Rates. Led by sectoral tailwinds, our aggressive growth plans and a focused strategy for value creation, the best for Chalet Hotels Limited is yet to come. Mr. Sanjay Sethi, MD & CEO, Chalet Hotels Limited

Stock Data:

Ticker	NSE: CHALET & BSE: 542399
Exchange	NSE & BSE
Industry	HOTELS, RESTAURANTS & TOURISM

Price Performance:

Last 5 Days	-1.47%
YTD	+1.81%
Last 12 Months	+17.26%

Company Description:

Chalet Hotels Ltd. is a prominent hotel-led mixed-use developer in India, headquartered in Mumbai. The company specializes in owning, managing, and developing high-end hotels in the country’s prime metro cities, including Bengaluru, Pune, Hyderabad, and Mumbai Metropolitan Region. The company has been operating in the hospitality industry since its incorporation in 1986 and has since built a strong portfolio of hotels and commercial spaces. It has seven fully operational hotels that cater to both mainstream and luxury segments, providing guests with world-class services and amenities. In addition to hotels, Chalet Hotels Ltd. has also developed four commercial spaces, which add to the company’s diverse portfolio. These commercial spaces are designed to meet the needs of various businesses and organizations, offering modern facilities and amenities to ensure the smooth running of operations. Overall, Chalet Hotels Ltd. is a significant player in India’s hospitality and real estate industry, with a focus on delivering high-end services and experiences to its guests and clients.

Critical Success Factors:

• Chalet Hotels Ltd. has a strategically located hotel portfolio in metro markets with high entry barriers. This means that the threat of new room supply is low, as the company’s presence is already established in these key metros. Over the next five years, the new room supply in these markets is expected to grow at a Compound Annual Growth Rate (CAGR) of just 6%, reaching 76,045 rooms by FY27E. Chalet’s portfolio positioning is difficult to replicate, as there is limited availability of land in these high-demand areas. This lowers competitive risks, as it is challenging for new players to enter the market and replicate the company’s success. Overall, Chalet Hotels Ltd. has a strong position in these key markets, which bodes well for its future growth and success.
• Chalet Hotels Ltd. benefits from strong parentage through its affiliation with global hotel chains such as Marriott and Novotel. This affiliation provides the company with access to the management expertise and marketing strategies of these brands, which can help drive occupancies and provide a strong pricing power. This means that the company can leverage the reputation and marketing resources of these global chains to attract more guests and increase revenue. Overall, Chalet’s affiliation with these brands is a significant advantage for the company and helps position it as a leader in the hospitality industry.
• Chalet Hotels Ltd. plans to expand its room inventory in Pune, Hyderabad, and Delhi to aid growth. The company intends to add 88, 168, and approximately 375-400 rooms in Pune, Hyderabad, and Delhi, respectively, which is expected to drive the hotel business’s growth. The new room inventory in Pune and Hyderabad is likely to be operational by the end of FY23E, which should result in a hotel revenue Compound Annual Growth Rate (CAGR) of 12% from FY23E-FY25E. Overall, this expansion is a significant move for Chalet Hotels Ltd. and should help the company capitalize on the growing demand for high-end hotels in these key markets.
• Chalet Hotels Ltd.’s commercial annuity business serves as a hedge against the cyclicality of its hotel business. The company’s commercial portfolio of approximately 1.4 million square feet in Mumbai and Bangalore is expected to become operational, and the share of rental income is likely to rise to 18% by FY25E. This increase in rental income provides a hedge against the cyclicality of the hotel business and is expected to improve the company’s cash flow situation, with an estimated EBITDA margin of around 80-85%. Overall, the commercial annuity business is an important aspect of Chalet Hotels Ltd.’s operations, providing stability and diversification to the company’s revenue streams.

Key Challenges:

• Chalet Hotels Ltd. operates luxury upper upscale and upscale hotels that are comparable to Indian Hotels and EIH, while Lemon Tree is considered a midscale/economy brand. Prior to the COVID-19 pandemic, Indian Hotels and EIH had better Average Room Rates (ARR) than Chalet, indicating better pricing power. Currently, Chalet is lagging behind its peers in terms of key performance indicators (KPIs) such as ARR and Revenue per Available Room (RevPAR), with a 1% higher ARR and 3% lower RevPAR in 2QFY23 compared to the pre-COVID base. This lag in performance is due to Chalet’s business-centric portfolio, which has a higher reliance on foreign tourists, accounting for approximately 50-55% of its customer mix. The subdued demand for foreign tourism, which is partly due to ongoing visa issues, has had an impact on Chalet’s KPIs compared to its peers. Overall, this peer analysis provides insights into Chalet’s performance relative to its competitors in the Indian hospitality industry.
• Chalet Hotels Ltd. faces several key risks and concerns that could impact its financial performance. One major risk is the company’s dependence on foreign tourists, which exposes it to fluctuations in the foreign exchange market and changes in visa policies. Additionally, the Indian hospitality industry is highly competitive, and Chalet competes with both domestic and international players, which could lead to pricing pressures and a reduction in market share. Economic volatility in India is also a concern, as it could affect the demand for high-end hotels and impact Chalet’s financial performance.
• Chalet’s portfolio is concentrated in key metro cities such as Mumbai, Bangalore, Pune, and Hyderabad. A downturn in any of these markets could have a significant impact on the company’s performance. The company’s success also depends on its ability to execute its growth strategy effectively, which includes expanding its room inventory, improving its commercial annuity business, and enhancing its brand and market position. Any delays or failures in executing these strategies could adversely affect the company’s financial performance.
• Finally, Chalet is subject to various regulations and compliances related to the hospitality industry, and changes in these regulations could impact the company’s operations and financial performance. In conclusion, while Chalet Hotels Ltd. has a number of strengths such as its strategic location and strong parentage, the company needs to manage these risks and concerns to ensure its long-term success.