Buy Chalet Hotels Ltd For Target Rs.1,030 by Axis Securities Ltd
Strong Q1 Performance Led by Real Estate Recognition
Est. Vs. Actual for Q1FY26: Revenue – INLINE ; EBITDA – INLINE ; PAT – INLINE
Changes in Estimates post Q1FY26:
FY26E/FY27E: Revenue: -7.5%/5.7%; EBITDA Abs:. -7.5%/5.7%; PAT: -10.8%/8.3%
Recommendation Rationale:
* The hospitality business reported an 18.5% YoY growth, with ARR increasing to Rs 12,200 (+18% YoY) and occupancy reaching 66%, down 360 bps YoY.
* The MMR and other regions reported ADR growth rates of 10% and 24% YoY, respectively. The rental annuity saw strong growth of 106%, driven by a 50% increase in new leased area.
* Consolidated margins (ex-residential) stood at 42.5%, up 367 bps YoY and down 374 bps QoQ, driven by the annuity business supporting profitability and strict operating cost discipline. The company's reported PAT was Rs 203 Cr, boosted by residential units handover.
Sector Outlook: Positive
Company Outlook & Guidance: The hospitality industry upcycle is expected to be long and sustained. According to Horwath HTL's prediction, demand is projected to grow at 10%+ annually for the next 3–4 years, while supply, at 7%, will continue to lag behind demand. Foreign Tourist Arrivals (FTA) reached 92 Lc in FY24, and corporate travel expenses under MICE remain below pre-COVID levels.
Current Valuation: PE 34x for FY27E earnings (Earlier 35x/PE)
Current TP: Rs 1,030/share (Earlier TP: Rs 975/share)
Recommendation: BUY
Relative Performance
Financial Performance
Chalet reported revenue of Rs 895 Cr in Q1FY26, boosted by recognised real estate sales of Rs 440 Cr. Excluding the real estate segment, revenue grew 26% YoY, broadly in line with estimates, while EBITDA rose 38% YoY. EBITDA margin (ex-real estate) expanded by 367 bps to 42.5%, marking the highest margin ever for a June quarter. RevPAR grew 10%, entirely driven by a 17% increase in ARR, though occupancy declined by ~4% YoY.
The annuity segment posted 130% YoY EBITDA growth, with margins expanding to 83.1%, supported by improved occupancy at the Powai asset (up to 79% from 71% QoQ). Revenue in this segment doubled YoY, aided by an expansion in the leased area to 1.9 msf. Meanwhile, the residential segment contributed Rs 440 Cr with a healthy EBITDA margin of 37.1%.
Chalet Hotels added 165 keys YTD, led by 121 new rooms at Marriott Whitefield (now at 512 keys, nearing 520) and 44 keys at The Dukes Retreat, Khandala, with another 30 soon to follow. These additions represent a ~5% increase in inventory and align with Chalet’s strategy to scale across both business and leisure destinations. Further key additions are expected from projects under development, including the upcoming Delhi Airport hotel (FY27) and the broader expansion target of 5,000+ keys by FY26.
Financial Performance
Chalet recognised Rs 440 Cr in residential revenue and Rs 160 Cr EBITDA in Q1FY26 from the handover of 95 units at Vivarea Koramangala, Bengaluru (~37% margin). Another 58 units are expected to be recognised in Q2, while no further revenue is anticipated for the rest of FY26. With 307 of 321 units sold, the project is expected to generate Rs 400–450 Cr net cash over the next 24 months. Management reiterated that this is a one-off initiative and not a recurring business focus. Therefore, estimates were tweaked and incorporated over FY26–FY28E, with a larger portion in FY26E/FY27E.
Outlook
The hospitality industry’s upcycle is anticipated to be long and sustained. According to Horwath HTL, demand is expected to grow at over 10% annually over the next 3–4 years, with supply continuing to lag. Foreign Tourist Arrivals (FTA) reached 92 Lc in FY24, while corporate travel expenses under MICE remain below pre-COVID levels. Upcoming events, such as the World Cup hockey and Kabaddi championships, could further boost occupancies in the coming quarters. The leisure segment is already a significant driver in the hotel industry, and these factors are expected to benefit the sector in the quarters ahead.
Valuation
We remain confident in Chalet’s strong execution capabilities. Its diversified portfolio across corporate and leisure hotels, annuity assets, and a robust development pipeline—particularly in high-demand metro locations—positions it well to deliver revenue growth ahead of industry averages. We value the stock at a P/E of 34x on FY27E earnings, arriving at a target price of Rs 1,030/share.
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