Buy Chalet Hotels; target of Rs 455: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Chalet Hotels

We initiate coverage on Chalet Hotels Ltd (Chalet) with a ‘BUY’ rating, as it is a play on expected recovery in business travel complemented by an exposure to annuity business (18% share by FY25E) that acts as a hedge to deeply cyclical hospitality industry. We believe Chalet is best placed to ride the industry upcycle as it has 1) strategically located metro centric hotel portfolio where threat of new room supply is low (new supply CAGR of 6% over next 5 years in key metro cities) and 2) requisite pricing power amid affiliation with marquee global brands like Marriott and Novotel. Chalet has plans to add 88/168 rooms in Pune/Hyderabad which along with improvement in RevPAR is likely to drive hotel revenues at 12% CAGR over FY23E-FY25E, whereas annuity business is likely to grow at a CAGR of 78% over the same period amid addition of ~1.4mn sq ft of leasable area at Mumbai and Bangalore.

Outlook

Overall, we expect revenue/PAT CAGR of 19%/68% over FY23E-FY25E and recommend ‘BUY’ with a SOTP based TP of Rs455. We value hotels business at 16x FY25E EBITDA, annuity business at a cap rate of 10% and residential project in Bangalore at NAV of Rs15 per share.

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Chalet Hotels - 28 -12-2022 -prabhu