Buy Chalet Hotels; target of Rs 650: Prabhudas Lilladher

Prabhudas Lilladher's research report on Chalet Hotels

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.

Outlook

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.