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ICICI Securities Report
We initiate coverage on Chalet Hotels Ltd. with a 'Buy' rating and an sum-of-the-parts based target price of Rs 603/share. We value the company on June-25 SOTP basis at 18 times enterprise value/Ebitda for hotel business, 9% cap rate for rental assets and residual value of Vivarea, Bengaluru project.
While industry peers are focusing on the asset light expansion route, Chalet has chosen to grow its hotel room and office rental portfolio over FY23-27E through the ownership route (mix of existing project expansion and long-term leases).
We believe that this is the right strategy in an industry upcycle (FY23-FY28E) and we estimate hotel Ebitda compound annual growth rate of 18% over FY23-26E at Ebitda margins of 44-45%.
We believe that total operating cash flow of Rs 22.1 billion over FY24-26E is adequate to fund incremental capex of Rs 17.6 billion over the same period.
Key risks are fall in hotel revenue per available room and weak office leasing.
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