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Steady quarter; earnings impacted by one-off costs

Chalet Hotels (Chalet) reported an inline quarter with consolidated revenues coming at INR 4.2bn (+15% YoY, +10% QoQ; JMFe: 4.2bn). ARRs continue to grow: at INR 11,862, it was up 8% YoY on a same-store basis. Occupancies were robust at 76% (74% in 4QFY23) led by the MMR market which clocked occupancies of 81%. Adjusted EBITDA grew 25% YoY to INR 1.9bn, but was slightly lower than JMFe (-5%), due to higher than expected employee costs and other expenses. There was an impact of one-time expenses relating to the Dukes asset, acquisition costs of the Aravalli Resort and the residential project in Bengaluru. Consolidated EBITDA (adjusted) margins stood at 46%, improving by 56bps over 4QFY23. The next leg of growth is likely to come from a strong development pipeline across its hospitality and annuity portfolio. Consequently, we build a revenue / EBITDA CAGR of 21% / 29% over FY24-27E respectively. We retain our positive view on Chalet, as it is best placed to benefit from the industry upcycle, driven by strategic expansions in Tier-1 locations. We maintain BUY with a SoTP-based Mar’25 TP of INR 990.

* Sectoral tailwinds driving robust RevPAR growth:

Hospitality segment posted another robust quarter, as ARR came in at INR 11,862 (+5% YoY; +8% QoQ), and occupancy improved to 76% (+200bps YoY; +500bps QoQ); as a result, RevPAR grew to INR 8,984 (+7% YoY; +15% QoQ). We highlight that Chalet has achieved an 18% growth in FY24, for both aggregate portfolio ARR and RevPAR. In 4QFY24, Hospitality segment reported revenues of INR 3.8bn (+24% YoY; +12% QoQ) and an EBITDA of INR 1.8bn (+24% YoY; +15% QoQ) aided by room inventory growth of c.10% and continued traction in corporate travel, MICE and social events.

* Portfolio occupancy moves up to 76% in 4QFY24:

ARR growth in MMR (+2% YoY) was entirely been driven by JW Marriott Sahar, while the company focused on improving occupancy at the other assets through higher share of MICE and crew business. Consequently, the aggregate occupancy of MMR hotels stood at 81%, while for the rest of portfolio, occupancy was recorded at 70%. Contribution of foreign guests in total revenues has increased to 43% as compared to 37% in 4QFY23. The management indicated that the markets of Bengaluru and Hyderabad have maintained their strong performance in 4QFY24, with RevPAR growth of c.20% and c.33% respectively.

* Strong leasing pipeline to aid growth in FY25E:

In its annuity business (2.4msf of leasable area), committed occupancy stood at 45% as the recently completed towers (Cignus Powai Tower 1 and Cignus Whitefield Tower 2) are in the process of being leased. Annuity business reported stable operations with revenues of INR 354mn (+26% YoY; +18% QoQ) and EBITDA of INR 272mn (+5% YoY; +8% QoQ) in 4QFY24. At the Cignus Powai Tower 1 (total leasable area: 0.9msf), 0.14msf has been leased till 4QFY24 and there are three leasing transactions in the pipeline.

* Maintain BUY with a Mar’25 TP of INR 990:

We are modifying our estimates slightly to arrive at a SoTP-based Mar’25 TP of INR 990, ascribing an EV/Mar’26 EBITDA of 24.0x and cap rate of 7.5% (for Mar’26 NOI) for the hospitality and annuity assets respectively

* Internal accruals to fund capex outlay:

Chalet has embarked on an expansion plan to grow its room inventory from 3,052 keys as on date to 3,922 keys by FY27E. 30% of the additional room capacity is on existing assets, which is expected to yield high EBITDA margin and improve return ratios. Residential sales will inject additional cash flows starting in FY25, which help fund capex. As on date, at the residential project, Chalet has achieved sales of INR 5.5bn and collections of INR 2.5bn at this project. The revenue potential of the remaining units in the project is c. INR 8.5bn.

* Conference call takeaways: -

* Raheja Vivarea (residential project in Koramangala, Bengaluru): As on date, at the residential project, Chalet has achieved sales of INR 5.5bn and collections of INR 2.5bn at this project. The revenue potential of the remaining units in the project is c.INR 8.5bn.

* Capex: In FY24, the company incurred a capex of INR 6.6bn. Furthermore, the company has a capex plan of INR 15bn in the next 24 months, of which INR 7.5bn would be spent for the Cignus Powai Tower 2, while the balance will be incurred for the DIAL Hotel, Dukes Resort renovation and expansion and brownfield addition at Whitefield, Bengaluru

* Net Debt: The net debt as of Mar'24 was at INR 25bn, marginally up from the previous year. Around half of the debt is allocable to capital work in progress and assets not yet operationalized. Chalet closed the year with the cost of finance at 8.87%. Since the completion of QIP (INR 10bn), the net debt as of 30th Apr’24 was down to INR 14.6bn.

* Aravalli Resort: Chalet is planning to add new rooms at higher rates and will look to reposition the asset over a period of time. The asset has 6 acres of land for future expansion. The asset achieved occupancies of c.40% last year, which the company is targeting to increase it to 55%-60%.

* Other expenses have gone up due to the commissioning of the new tower in Bengaluru and due to higher royalty and management fees paid to the operators

* Utilisation of QIP proceeds: The QIP money has been largely used to reduce debt on the balance sheet. The company continues to explore acquisition opportunities as and when they come up

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SEBI Registration Number is INM000010361