Stock To Buy: Brokerage Bets On This Small-Cap Hotel Stock For Robust 44% Gains

Monarch Networth Capital has recommended buying the stock of Chalet Hotels Ltd for a fair value of Rs 450/share. The brokerage sees a 44% potential upside if the investors buy the stocks at the current market price. Chalet holds 4.5% of the overall inventory room share in the luxury-upper upscale segment. The asset-heavy approach in land-locked cities of MMR, Hyderabad, Bangalore & Pune gives them immense negotiating power on the management contracts.

Stock Outlook

The share of the Company is closed on Tuesday at Rs 314.45/share. It was opened at Rs 325.55/share. The stock's 52-week low is Rs 159.05/share recorded on 11 August 2021, while the 52-week high is 345/share, recorded on 07 July 2022. The CMP of the stock is trading at Rs 30.55 below ist 52 week-high levels. 

The company could witness a potential upside of 43% considering the current market price (CMP) and the estimated Fair Value of Rs 450/share. The PE ratio is negative at 78.92, and the P/B ratio is 4.98. The TTM EPS is negative Rs 3.98, and ROE is also negative 6.07%. 

The stock has done well in terms of returns on investment over the past 3 years. In the past 1 week, its share price slid 5.83%. In 1 and 3 months, the share has gained 5.79% and 5.15%, respectively. In the past 1 year, its share gained a whopping 67.71%. It also gave minor positive returns of 1.53% in 3 years. 

Hospitality at the cusp of multi-year upcycle, Limited supply over FY18-FY22 + robust economic environment to aid growth

Slower room inventory addition along with strong economic growth outlook led to a roaring upcycle for Hotel Industry in FY03-FY08. As per us, similar conditions are in place for Hospitality given limited room inventory addition over FY18-FY22 and improving economic environment. Indian Hospitality sector is well placed for better occupancies than the pre-covid levels (FY23E occupancies at 66% vs 65% in FY20) and will attract much better ADR's (Rs 5,450 in FY23E vs Rs 4495 in FY22).

Chalet is sweetly positioned with Metro focused luxury-upper upscale properties

Chalet holds ~4.5% of overall inventory room share in the luxury-upper upscale segment. Asset heavy approach in land locked cities of MMR, Hyderabad, Bangalore & Pune gives them immense negotiating power on the management contracts. With record high occupancies and ADRs in April-22 (80% and INR 7,100 resp), Chalet is on-course to end FY23 above pre-covid levels. Operating leverage to kick in as the RevPar surpasses the pre-Covid levels with higher occupancies and strict cost controls. Operationalization of new Hotels (Westin Hydrabad and Novotel) and Commercial Properties (Hydrabad and Powai) to further aid growth.

 

Cyclical upturn + Earnings growth leading to Re-rating

Chalet remains our preferred bet to play the cyclical upturn in Hotels. We expect FY24E revenues to be 44% higher than FY20 (pre-covid levels); while EBITDA margins to improve by ~440bps from pre-Covid levels of 34%. At CMP, It is currently trading at ~15.7x FY24E EV/EBITDA (x). Given the strong margin expansion & revenue growth trajectory and the inherent high quality of the business, we believe it merits a much better multiple. We thus attribute a multiple of ~20x FY24E EV/EBITDA, thus arriving at a March-23 Fair Value of Rs 450 (Upside ~38%).

Views & Valuations

The brokerage said, "As per us, Hospitality as an Industry is poised for a multi-year upcycle on account of limited supply in new inventory over the last 5 years and post covid demand environment. Chalet is sweetly positioned on account focus on Luxury-upscale segment in Metros and asset ownership model. With the Net debt peaking in FY23, Key assets commercializing in FY22-24 and benefits of operating leverage kicking in, Chalet is expected to deliver much richer RoEs over next 2-3 years. We thus value Chalet on 20x EV/EBITDA basis for their base business FY24E EBITDA and arrive at a March-23 base case Fair value of Rs 450 which implies 38% upside on CMP."

 

About - Chalet Hotels Ltd

Chalet Hotels Ltd ('Chalet'), promoted by the K Raheja Corp Group, is engaged in the business of hospitality (hotels), commercial and retail operations and real estate development. The company owns 7 operational hotels representing 2,554 keys, across mainstream and luxury hotels in hospitality segment located in the Mumbai Metropolitan Region (MMR), Hyderabad, Bengaluru and Pune (largely managed by Marriott). Its commercial portfolio comprises of 4 commercial spaces, representing ~0.9 mn sq.ft .

Disclaimer

The stock has been picked from the brokerage report of Monarch Networth Capital. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.