PL Stock Report: Chalet Hotels (CHALET IN) - Q1FY24 Result Update - Asset sweating starts - BUY

Chalet Hotels (CHALET IN) - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs489 | TP: Rs562

Q1FY24 Result Update - Asset sweating starts

Quick Pointers:

♦ EBITDA impacted by one-off charges of Rs164mn, while PAT was aided by DTA recognition of Rs584mn.

Chalet reported a decent performance with RevPAR growth of 24.0% YoY to Rs7,182 and we expect current buoyancy to continue in light of 1) ongoing G-20 events 2) upcoming cricket world-cup and 3) expectation in FTA revival. Moreover, full-fledged benefits of asset sweating are expected to accrue in near future as 88 rooms at Novotel Pune will begin operations soon (OC awaited) while 0.3mn sq ft of area at Bangalore will be ready for handover to tenants in 3QFY24. Buoyed by healthy RevPAR growth and operationalization of hotel/commercial assets, we expect revenue/EBITDA CAGR of 25%/31% over FY23-FY25E. Accordingly, we increase out TP to Rs562 (Rs504 earlier) as 1) we raise our ASP for Koramangala project to Rs15,500 2) re-align our capitalization rate for annuity business to 9% and 3) increase our hotel business target EV/EBITDA multiple to 17x (earlier 16x). Retain BUY on the stock.

Revenue up 22.8% YoY: Topline increased 22.8% YoY to Rs3,108mn (PLe Rs3,189mn). Hospitality/annuity revenue was up 22.8%/23.5% YoY to Rs2,822mn (PLe Rs2,929mn)/Rs285mn (PLe Rs260mn). ARR increased 38.4% YoY to Rs10,317. RevPAR grew 24.0% YoY to Rs7,182 while occupancy stood at 70%.

EBITDA margin of 35.3% was impacted by one-offs: EBITDA increased 7.8% YoY to Rs1,098mn (PLe Rs1,271mn) with a margin of 35.3% (PLe 39.9%) due to a one-off charge of Rs107mn pertaining to reversal of input tax credit of earlier years (claims were ineligible) and an additional cost of Rs57mn relating to pre-opening expenses of West-In 2 in Hyderabad. Adjusting for these charges, EBITDA margin stood at 40.6%. PAT stood at Rs887mn with a margin of 28.5% due to DTA recognition of Rs584mn resulting from merger of wholly owned subsidiaries (Belaire Hotels & Seapearl Hotels) with Chalet. Adjusting for DTA recognition and the one-off charges at operational level, PAT stood at Rs467mn (PLe of Rs463mn).

Con-call highlights: 1) Incurred capex of Rs806mn in 1QFY24. Rs5.6bn is expected to be spent in balance 9 months (Rs2.6bn/Rs3bn towards commercial projects/hotels) 2) Promoter infusion towards residential project in Koramangala stands at Rs2.7 bn. Out of 11 towers, OC for 4 towers is expected in next 2 weeks while for the other 3 towers in next 2-3 months. Overall, cash flow generation from the project is expected to be at Rs0.8-1bn in FY24E. 3) Occupancy was lower at 70% in 1QFY24 (78% in 1QFY23) as a) IPL was concentrated in Mumbai during base quarter b) 29 rooms were under renovation (accounted in base inventory calculation) and c) share of crew business has declined (tactical call as rates in this business are lower and payment terms are lengthy). 4) Lease rates in Mumbai/Bangalore are in the range of ~Rs110-125/Rs60 respectively. 5) Renovation & expansion capex for Dukes is pegged at Rs1bn. 6) Staff to room ratio is likely to remain in the range of 0.9-1x. 7) West-In 2 (168 rooms) in Hyderabad started operations in June 2023 and Chalet has entered into a 3-year contract with a corporate. 8) Foreign guest mix was 33% in 1QFY24.

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