Chalet Hotels stock rises 10% in 3-days rally. Should you check-in for more?

Chalet Hotels stock rises 10% in 3-days rally. Should you check-in for more?

Market


Chalet Hotels extended their strong rally for the third consecutive day on Wednesday. The stock gained 5% on BSE and by at least 6.5% on NSE in the latest trading session. So far in the current week, the stock witnessed an upside of around 10% on both exchanges. Year-to-date, Chalet Hotels’ stock has skyrocketed by 60.5%. Brokerage Prabhudas Lilladher has initiated coverage in this hotel stock with a ‘Buy’ recommendation.

On BSE, Chalet Hotels stock ended at 350.50 apiece up by 4.30%, while on NSE, the stock finished at 350 apiece higher by 5.85%.

Chalet Hotels stock has been rising since the start of Monday on exchanges. The stock also managed to recover losses witnessed last week due to volatile markets condition. Between December 19th to 23rd, the stock tumbled by a little over 10%.

On Wednesday, Jinesh Joshi – Research Analyst, Prabhudas Lilladher said, “we initiate coverage on Chalet Hotels with a ‘BUY’ rating, as it is a play on an 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.”

Prabhudas Lilladher highlights four key factors for Chalet Hotels. These are:

1. Strategically located hotel portfolio with high entry barriers:

As Chalet’s portfolio is located in metro markets where penetration is high, the threat of new room supply is low. Over the next 5 years, new room supply in key metros where Chalet has a presence is expected to grow at a CAGR of just 6% to 76,045 rooms by FY27E. Given high entry barriers amid limited availability of land, the brokerage believes that Chalet’s portfolio positioning is difficult to replicate thereby lowering competitive risks.

2. Strong parentage:

Affiliation with brands like Marriott and Novotel provides access to management expertise and marketing strategies of these global chains which not only helps in driving occupancies but also lends strong pricing power. The stock brokerage expects an ARR CAGR of 7% over FY23E-FY25E backed by recovery in business travel.

3. Expansion of room inventory in Pune, Hyderabad & Delhi to aid growth:

Planned addition of 88/168/~375-400 rooms in Pune/Hyderabad/Delhi respectively is likely drive hotels business. New inventory at Pune and Hyderabad is likely to be operational by end of FY23E, resulting in hotel revenue CAGR of 12% over FY23E-FY25E.

4. Commercial annuity business acts as a hedge to hotels’ cyclicality:

As the commercial portfolio of ~1.4mn sq ft in Mumbai and Bangalore becomes operational, the share of rental income is likely to rise to 18% by FY25E, in the brokerage’s view. Rising share of rental income not only provides a hedge to cyclicality of hotels business, but is also expected to improve the cash flow situation (EBITDA margin of ~80-85%).

In the overall outlook and valuation, Prabhudas Lilladher analyst said, “We expect revenue/PAT CAGR of 19%/68% over FY23E-FY25E, backed by room inventory addition at Pune & Hyderabad and increase in commercial leasable area by ~2.6x. We recommend ‘BUY’ with a SOTP-based TP of Rs455 as we value hotels business at 16x FY25E EBITDA, annuity business at a cap rate of 10%, and residential project at Bangalore at a NAV of Rs15 per share.”

Part of the K Raheja Corp group, Chalet Hotels is an owner, developer, asset manager, and operator of high-end hotels and a hotel-led mixed-use developer in key metro cities in India such as Mumbai Metropolitan Region, Hyderabad, Bengaluru, and Pune.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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