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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.
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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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