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ARR-driven growth

Chalet Hotels (CHALET IN) reported in-line Q3, with slight miss on profitability due to higher-than-expected depreciation and interest costs. Segmental financials are largely in line for both hospitality and commercial lease rental segments. CHALET reported INR 965mn profit at the PAT level versus our estimate of INR 1.1bn profit. We remain structurally positive on CHALET, given visibility on healthy room addition till FY29. Healthy cash generation FY25 onwards will give it gunpowder to harness inorganic growth opportunities. Reiterate BUY with a lower SoTP-TP of INR 1,039.

MMR RevPAR down by 2% YoY due to drop in occupancy:

MMR’s revenue contribution dropped from 63% to 56%, reflecting a strategic diversification towards other key markets, with Hyderabad and NCR markets offsetting the dip. ADR in MMR grew 13% YoY to INR 12,972, underscoring strong pricing power, while occupancy declined 400bps to 74%, as CHALET let go off some low-paying clients. CHALET was supported by a robust ADR strategy, which led to RevPAR growth of 7% despite dip in occupancy. Occupancy remained in mid-70s. Additionally, the upcoming launch of Fairmont Mumbai (1 March 2025) could pose competitive pressure on JW Marriott Sahar, potentially impacting ARR and occupancy, given its comparable market positioning.

Ex-MMR RevPAR grew by 6% led by both occupancy and ARR:

Ex-MMR, occupancy growth of 400bps was led by ~1,600bps rise in occupancy in Pune. A 26% ARR growth in ex-MMR markets was led by 31%, ~10% and ~10% increase in ARR at hotels in Bengaluru, Pune and Hyderabad respectively. Courtyard by Marriott, Aravali witnessed increased occupancy as well as ARR. The property will be repositioned as Marriott in the next six months. The upcoming addition of ~130 rooms at Bengaluru Marriott hotel in the coming weeks is expected to further strengthen capacity and market presence in the IT city. About 40 keys at Dukes, Khandala remain out of circulation, but the hotel will be relaunched in May at full capacity of 145 rooms.

Reiterate Buy with a lower TP of INR 1,039:

The recent addition of Goa and Kerala assets to the pipeline provides growth visibility beyond FY27. With strong cash generation from FY25, we expect CHALET to pursue inorganic growth opportunities. Strong promoter pedigree – the Raheja Group – ensures operational expertise, management bandwidth and financial flexibility. CHALET’s tie-ups with global brands ensure continued high occupancy and healthy ARR.

We have cut EBITDA and APAT by 5% and 12% for FY26E and by 4% and 9% for FY27E, respectively, to factor in ~100-150bps lower-than-earlier expected occupancy in MMR. So, we lower SoTP-TP to INR 1,039 from INR 1,089, assuming 22x (unchanged) FY27E EV/EBITDA for the hotels business, with an 8% capitalization rate for commercial leasing and 1x (unchanged) NAV for residential real estate. Key risks include weak hotel demand and lower-than-expected ARR growth. We reiterate Buy.

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