PL Stock Report: Chalet Hotels (CHALET IN) - Q2FY24 Result Update – Recovery eyed in 2HFY24 - BUY

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

Rating: BUY | CMP: Rs560 | TP: Rs650

Q2FY24 Result Update – Recovery eyed in 2HFY24

Quick Pointers:

♦ 88 rooms at Novotel, Pune have started operations from 04th Oct, 2023.

♦ Occupancy certificate received for 4 residential towers at Koramangala.

We cut our FY24E PAT by 2.8% as we re-align our leasing time-line assumptions for the rental business. Chalet reported a decent performance with RevPAR growth of 24.5% YoY to Rs7,034 (PLe of Rs7,207) and we expect 2HFY24 to be much better buoyed by the ongoing Cricket World Cup and FTA revival. Moreover, full-fledged benefits of asset sweating have started accruing as 1) 168/88 rooms at Hyderabad/Pune have begun operations 2) OC for 4 towers at Koramangala has been received and 3) ~0.3mn/0.8mn sq ft of leasing portfolio at Bangalore/Mumbai is ready for handover from 3QFY24. Buoyed by healthy RevPAR growth and operationalization of hotel/commercial assets, we expect revenue/EBITDA CAGR of 21%/24% over FY23-FY26E. We maintain our BUY rating on the stock with SOTP based TP of Rs650 (earlier Rs656) as we value the hotel business at EV/EBITDA multiple of 20x 2) annuity portfolio at a cap rate of 9% and 3) the residential project at NAV of Rs14 per share. Slower than expected traction in leasing and delayed recovery in FTA revival is a key risk to our rating.

Revenue up 26.9% YoY: Topline increased 26.9% YoY to Rs3,145mn (PLe Rs3,213mn). Hospitality/Annuity revenue was up 27.4%/29.7% YoY to Rs2,845mn/ Rs300mn respectively. ARR increased 21.2% YoY to Rs9,610. RevPAR grew 24.5% YoY to Rs7,034 while occupancy stood at 73%.

EBITDA margin at 40.0%: EBITDA increased 48.0% YoY to Rs1,260mn (PLe Rs1,196mn) with a margin of 40.0% (PLe 37.2%) as against a margin of 34.3% in 2QFY23. Hospitality/Annuity EBITDA stood at Rs1,184mn/Rs237mn with a margin of 41.6%/79.0% respectively. PAT stood at Rs364mn (PLe of Rs376mn) with a margin of 11.6% (PLe 11.7%) as against a margin of 6.4% in 2QFY23.

Con-call highlights: 1) Starting Oct-23, 5 flats have been sold at the residential project in Bangalore. 2) Dukes Retreat, Lonavala is undergoing renovation. Half of the current rooms in Phase 1 are shuttered for renovation and will be operational in 1QFY25. Remaining rooms will be refurbished in Phase 2 and the entire renovation & expansion plan is expected to be complete by 3QFY25. 3) Capex of Rs9bn is planned for next 18 months, which will be financed by internal accruals. 4) Management expects double digit growth in room rates for next couple of years. 5) Out of 0.66mn sq ft of leasable in area in Bangalore, ~0.2mn sq ft has been leased out. 6) LRD conversion of debt is a continuous process and benefits will accrue as more area gets leased out over a period of time.7) Construction work of Delhi hotel at the airport has begun. 8) There has been an amendment in arrangement with respect to development of proposed 280 rooms hotel at Navi Mumbai. Instead of acquiring the land, it will now be taken on lease reducing the capex outgo to Rs1.6bn odd (Rs2.9bn earlier).

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