Companies

Chalet Hotels plans to take margins to 45% on luxury expansion

PTI Mumbai | Updated on February 23, 2020 Published on February 23, 2020

Chalet Hotels, the hospitality arm of leading realtor K Raheja Corp, is targeting to increase its margin, which is already the highest in the industry, to around 45 per cent on the back of expansion and rising room prices.

The company currently has margins of about 41 per cent.

Chalet operates close to 2,780 keys spanning six properties in Mumbai/Navi Mumbai, Bengaluru, Hyderabad and Pune, and is adding around 600 more rooms in three greenfield properties by 2022 at an investment of ₹1,300 crore.

Chalet will be opening the city’s first super-luxury brand ‘W’ from the Marriot stable with 150 keys in Powai by 2022.

It will also add a 260-room Hyatt Regency in Navi Mumbai through its maiden association with the Hyatt group, apart from adding over 80 keys to the just acquired Novotel in Pune towards the end of the year.

That apart, it is investing around ₹600 crore to upgrade the 600-keys Renaissance Convention Centre & Hotel into The Westin, later this year.

The company is also keen to enter Chennai and Goa, and “doesn’t mind buying out an operational property in Delhi”, taking into account the “considerable developmental risks” in the national capital, according to its Managing Director and Chief Executive Sanjay Sethi.

According to publicly disclosed numbers and also those collated by industry tracker Horwath STR India Hotel Review 2019, Chalet’s margin is almost double of its peers and also the highest by a wide margin at 41.4 per cent as of the December 2019 quarter as also in the first nine months of the fiscal.

Competitors

As against this, Taj (Indian Hotels from the Tatas) has a margin of 24.4 per cent, East India Hotels that operates the Oberori/Trident brands has the lowest at 21 per cent and the mid-sized Lemon Tree stands at 32 per cent (in the first three quarters).

“Our target is to take margins to the mid-40s, as taking it to 50 per cent will be tough,” Sethi told PTI when asked whether margins can improve with expansion of its portfolio.

Explaining how it maintains high margins, Sethi said, “We’ve the lowest salary cost in the industry even though our salaries are much higher than the industry average. Our employee-room ratio is 1.2 against the industry’s 2 per room.”

“This makes a lot of difference as salaries are the biggest expenses head in hospitality. While the industry average is 21 per cent, ours is only 14 percent,” he said.

Tariffs and more

Also, at ₹8,367 a room per night in the first three quarter of the year, Chalet’s average tariff is higher than the industry’s at ₹6,698, according to the Horwath data.

Again, it has the highest room occupancy at 75 per cent against 69 per cent of the industry, Sethi said.

Another factor that helps maintain higher margins is the eco-friendly properties that Chalet operates, which helps it cut down on energy usage, he said, adding that HLP (heating, lighting and power) is the second biggest expense head for the industry. While the industry average is 9 per cent, Chalet’s is only around 7 per cent, he said.

On the tariff front, he said it has risen by 9 per cent so far this fiscal and the upward trend is likely to continue given the limited number of inventory entering the market and the industry, that contributes 7.5 per cent of GDP, is expected to grow 16.1 per cent annually through 2022.

Chalet operates the Marriott-branded Renaissance at Powai with 600 keys, making it the largest in the city. It is being upgraded to The Westin soon.

It also operates The Westin in Hyderabad with 427 rooms, and the Lakeside Chalet in Powai (Marriott Executive Apartments) with 173 suits; The Westin in Hyderabad with 170 rooms; JW Marriott near Mumbai airport with 588 rooms; the 391-keys Marriott in Bengaluru; Four Points by Sheraton in Navi Mumbai with 152 keys and the upcoming 260-room Hyatt Regency at Navi Mumbai and the Accor group-branded Novotel in Pune with 223 keys.

It will be adding 88 more keys to the Pune property, which was its first acquisition for ₹176.8 crore. During the December quarter, Chalet reported a 134 per cent spike in net income at ₹33.3 crore on an income of ₹284.7 crore, up from ₹255 crore, as its RevPAR (revenue per room) growth doubled to 9.9 per cent.

Chalet, which went public last February with a public issue, also owns co-located non-hotel real estate assets in Bengaluru and Mumbai, said Sethi.

Chalet stocks closed down 2.2 per cent at ₹339.45 on BSE on Thursday with an m-cap of ₹6,958.73 crore, making it the second largest in terms of market value against Taj’s ₹16,650 crore, EIH’s ₹887.55 crore and Lemon Tree’s ₹4,919.6 crore.

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Published on February 23, 2020
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