Chalet Hotels Ltd IPO Note- Not Rated

 Source: RHP, 5Paisa Research; *EPS & Ratios at higher end of the price band and on post IPO shares; ^H1FY19 numbers are not annualized.

Key Points

1. CHL leverages upon K. Raheja Corp group’s extensive experience in developing large scale real estate and commercial projects. The company has a strong backward integration process for development of hotel assets at optimal cost and quality owing to the experience and relationships of the promoter group.
2. CHL has an existing pipeline of three hotels with 588 keys and two commercial office space projects (~1.12mn square feet). CHL’s hotels under development across locations are as follows:

•          Hyderabad (proposed to be ‘Westin’ hotel) - 178 keys

•          Navi Mumbai (proposed franchise of Hyatt Regency) - 260 keys

•          Powai, Mumbai (proposed to be ‘W’ hotel) - 150 keys

CHL has traditionally acquired large parcels of land at competitive prices with the intention to develop projects. CHL has developed two projects towards commercial / retail spaces representing ~0.86mn square feet (as on September 30, 2018) adjacent to the existing hotel properties. These projects accounted for 3.62% of total revenue from operations during H1FY19. CHL further intends to leverage upon the unutilized FSI at few of its existing hotel properties, which allows developing additional hotels and commercial / retail spaces.

Key Risk

1. CHL’s four owned hotels are operated and marketed by Marriott group. They accounted for 90.2% and 84.7% of the operating revenues during FY18 and H1FY19 respectively. Non-renewal / termination of management contracts could significantly impact CHL’s operations.
2. CHL’s hotels located in Mumbai contributed 61.7% and 57.3% during FY18 and H1FY19 respectively. Increased competition or supply, or reduction in demand in the markets in which these hotels operate, may have an adverse effect on the business and results of the company.

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