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Room additions: Pipeline strong

Mumbai market sees lower ARR growth

Chalet Hotels (CHALET IN) reported lower-than-expected Q4, driven by less-than-anticipated growth in the hospitality business, which struggled with lower ARR growth (1.6% growth YoY) in the Mumbai market. Profitability for the commercial business was stable and in-line. Excluding one-time expenses of INR 81mn, growth in other expenses was high. Net debt, as at end-FY24, stood at INR 25bn but reduced to INR 14.6bn post QIP capital raise.

Aravali resort may undergo brand uplift and expansion

The recently-acquired 158-room Courtyard by Marriott Aravali Resort at Faridabad caters to three categories: (a) families of holiday seekers living within drivable distance of the location (weekend occupancies at premium rates), (b) meeting, incentives, conference and events (MICE) demand from corporates and (c) wedding season demand during auspicious months. The property reported an ARR of INR 13,500 and occupancy of 44% through April-December 2023. Going forward, CHALET plans to upwardly reposition the asset with a better brand. Post scaling-up of occupancy, CHALET plans to utilize the undeveloped land of 6 acres for further expansion.

Valuation: Reiterate Accumulate with a higher TP of INR 873

CHALET’s tie-up with global hospitality brands and presence in key metro cities may ensure continued high occupancy and healthy ARR. Its strong promoter pedigree – the Raheja Group – offers it operational expertise and financial flexibility. We exclude accounting of the residential real estate project in our financials (one-off project and the timing of revenue recognition varies widely, depending on accounting policies). Hence we substantially cut FY25E-26E EBITDA and PAT projections but raise Hospitality EBITDA 4% for FY26E. We reiterate Accumulate with a higher SoTP-TP of INR 873 from INR 825 driven by INR 10 bn debt reduction (through QIP raised money). We value the hotel business at 20x (unchanged) FY26E EV/EBITDA, commercial real estate at 11x (unchanged) FY26E EV/EBITDA and residential real estate at NAV.

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SEBI Registration number is INH000000933