Article

Chalet Hotels Ltd IPO Note- Not Rated

29 Jan 2019

Issue Opens: January29, 2019

Issue Closes: January31, 2019

Face Value: Rs 10

Price Band:  Rs 275-280

Issue Size: ~Rs 1,641 cr

Public Issue: ~5.86cr shares

Bid Lot: 53 Equity shares       

Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

71.4

Public

0.0

28.6

Source: RHP

Company Background

Chalet Hotels (CHL), a part of K. Raheja Corp group, is the owner, developer and asset manager of high-end hotels in key Indian metro cities. CHL’s hotels are managed through third-party operators (four hotels) across luxury-upper upscale and upscale segments. The hotels are branded with Marriott group brands (leading global hospitality group) like JW Marriott, Westin, Marriott, Marriott Executive Apartments, Renaissance and Four Points by Sheraton. CHL operates across five operating hotels, with 2,328 keys as of September 30, 2018. CHL’s average occupancy and ARR (average room rent) during H1FY19 (managed hotels) stood at 73.82% and ~Rs7,830 respectively.

Objective of the Offer

The offer consists of an offer for sale (OFS) of ~2.47cr shares by the promoters and fresh issue aggregating up to Rs950cr (total issue size of ~Rs1,641cr at the upper end of the price band). The net proceeds of the fresh issue will be utilized to repay / prepay debt (Rs720cr) and for general corporate expenses.

Financials

Consolidated `Cr

FY16

FY17

FY18

^H1FY19

Revenue from operations

573

706

874

470

EBITDA

131

212

294

107

EBITDA Margin %

22.9

30.1

33.7

22.7

Adj. PAT

(112)

127

31

(44)

Adj. EV/EBITDA* (x)

52.0

32.8

23.6

-

Adj. EV per key*

3.6

3.1

3.0

-

Debt-to-Equity ratio (x)

4.5

5.6

5.4

5.8

RONW (%)

(20.7)

26.0

4.4

-

 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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Chalet Hotels Ltd IPO Note- Not Rated

29 Jan 2019

Issue Opens: January29, 2019

Issue Closes: January31, 2019

Face Value: Rs 10

Price Band:  Rs 275-280

Issue Size: ~Rs 1,641 cr

Public Issue: ~5.86cr shares

Bid Lot: 53 Equity shares       

Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

71.4

Public

0.0

28.6

Source: RHP

Company Background

Chalet Hotels (CHL), a part of K. Raheja Corp group, is the owner, developer and asset manager of high-end hotels in key Indian metro cities. CHL’s hotels are managed through third-party operators (four hotels) across luxury-upper upscale and upscale segments. The hotels are branded with Marriott group brands (leading global hospitality group) like JW Marriott, Westin, Marriott, Marriott Executive Apartments, Renaissance and Four Points by Sheraton. CHL operates across five operating hotels, with 2,328 keys as of September 30, 2018. CHL’s average occupancy and ARR (average room rent) during H1FY19 (managed hotels) stood at 73.82% and ~Rs7,830 respectively.

Objective of the Offer

The offer consists of an offer for sale (OFS) of ~2.47cr shares by the promoters and fresh issue aggregating up to Rs950cr (total issue size of ~Rs1,641cr at the upper end of the price band). The net proceeds of the fresh issue will be utilized to repay / prepay debt (Rs720cr) and for general corporate expenses.

Financials

Consolidated `Cr

FY16

FY17

FY18

^H1FY19

Revenue from operations

573

706

874

470

EBITDA

131

212

294

107

EBITDA Margin %

22.9

30.1

33.7

22.7

Adj. PAT

(112)

127

31

(44)

Adj. EV/EBITDA* (x)

52.0

32.8

23.6

-

Adj. EV per key*

3.6

3.1

3.0

-

Debt-to-Equity ratio (x)

4.5

5.6

5.4

5.8

RONW (%)

(20.7)

26.0

4.4

-

 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.

Research Disclaimer