Target: ₹455
CMP: ₹348.65
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 per cent share by FY25) that acts as a hedge to deeply cyclical hospitality industry.
We believe Chalet is best placed to ride the industry upcycle as it has: strategically located metro centric hotel portfolio where threat of new room supply is low (new supply CAGR of 6 per cent over the next five years in key metro cities) and; 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 per cent CAGR over FY23-FY25, whereas annuity business is likely to grow at a CAGR of 78 per cent over the same period amid addition of about 1.4mn sq ft of leasable area at Mumbai and Bangalore.
Overall, we expect revenue/PAT CAGR of 19 per cent/68 per cent over FY23-FY25 and recommend ‘Buy’ with a SOTP based TP of ₹455. We value hotels business at 16x FY25 EBITDA, annuity business at a cap rate of 10 per cent and residential project in Bangalore at NAV of ₹15 a share.