Buy Chalet Hotels, target price Rs 230: JM Financial
Going forward, the brokerage has factored in very gradual recovery - occupancies of 45 per cent and 65 per cent and ARR decline of 10-12 per cent and a partial recovery in FY21 and FY22 respectively.
JM Financials has given a buy rating to Chalet Hotels Ltd with a 12-month target price of Rs 230. The share price moved down by -6.76 per cent from its previous close of Rs 154.65. The last traded stock price is Rs 144.20.
Chalet Q4 EBITDA was a miss on brokerage estimates as operating leverage deteriorated due to 21 pps drop in occupancy. Decline in travel and subsequent lockdown due to Covid-19 pandemic led to lower occupancy in the fourth quarter. Average room rate remained stable year on year during the quarter. Company reported a decline in EBITDA (-35 per cent year on year) and EBITDA margins (-820bps) on unfavourable operating leverage.
Investment Rationale
Decline in the domestic/international travel since Mari in 2020 and a subsequent travel ban imposed by the government in view of Covid-19 pandemic has materially impacted Chalet’s occupancy (c.20 per cent for April-May’20) and average room rates or ARRs (-45 per cent and -55 per cent year on year in April-May 2020). Additionally, extension of lockdown in the Mumbai Metropolitan Region or MMR which accounts for .60 per cent of the revenues, will adversely impact the cash flows in the near term. Given the operating-leverage-heavy nature of business, management is taking initiatives to control costs through i) operating 4 out of 6 hotels; ii) rationalising salaries; iii) reducing power usage and; iv) renegotiation of contracts. With a view to conserve cash in an uncertain environment, management has deferred the capex for two of the hotel projects (410 keys across Hyatt Regency Airoli and W Hotel Powai), completion of 88 rooms at Novotel Pune and renovation exercise at Renaissance Powai. The company has Rs 3.7 billion of liquidity with the available cash and undrawn lines of credit.
The brokerage estimates an interest cost of Rs 1.7 billion and fixed cost of Rs 3-3.2 billion (excluding semi variable components) in FY21 for Chalet. Going forward, it has factored in very gradual recovery - occupancies of 45 per cent and 65 per cent and ARR decline of 10-12 per cent and a partial recovery in FY21 and FY22 respectively.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 227.35 crore, down -18.26 per cent from last quarter sales of Rs 278.14 crore and down -15.75 per cent from last year's same quarter sales of Rs 269.86 crore. The company reported net profit after tax of Rs 42.18 crore in the latest quarter.
Promoter/FII Holdings
FIIs held 71.41 per cent stake in the company as of March 31, 2020, FIIs held 8.60 per cent while DIIs held 18.75 per cent, and public and others 1.24 per cent.
Chalet Q4 EBITDA was a miss on brokerage estimates as operating leverage deteriorated due to 21 pps drop in occupancy. Decline in travel and subsequent lockdown due to Covid-19 pandemic led to lower occupancy in the fourth quarter. Average room rate remained stable year on year during the quarter. Company reported a decline in EBITDA (-35 per cent year on year) and EBITDA margins (-820bps) on unfavourable operating leverage.
Investment Rationale
Decline in the domestic/international travel since Mari in 2020 and a subsequent travel ban imposed by the government in view of Covid-19 pandemic has materially impacted Chalet’s occupancy (c.20 per cent for April-May’20) and average room rates or ARRs (-45 per cent and -55 per cent year on year in April-May 2020). Additionally, extension of lockdown in the Mumbai Metropolitan Region or MMR which accounts for .60 per cent of the revenues, will adversely impact the cash flows in the near term. Given the operating-leverage-heavy nature of business, management is taking initiatives to control costs through i) operating 4 out of 6 hotels; ii) rationalising salaries; iii) reducing power usage and; iv) renegotiation of contracts. With a view to conserve cash in an uncertain environment, management has deferred the capex for two of the hotel projects (410 keys across Hyatt Regency Airoli and W Hotel Powai), completion of 88 rooms at Novotel Pune and renovation exercise at Renaissance Powai. The company has Rs 3.7 billion of liquidity with the available cash and undrawn lines of credit.
The brokerage estimates an interest cost of Rs 1.7 billion and fixed cost of Rs 3-3.2 billion (excluding semi variable components) in FY21 for Chalet. Going forward, it has factored in very gradual recovery - occupancies of 45 per cent and 65 per cent and ARR decline of 10-12 per cent and a partial recovery in FY21 and FY22 respectively.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 227.35 crore, down -18.26 per cent from last quarter sales of Rs 278.14 crore and down -15.75 per cent from last year's same quarter sales of Rs 269.86 crore. The company reported net profit after tax of Rs 42.18 crore in the latest quarter.
Promoter/FII Holdings
FIIs held 71.41 per cent stake in the company as of March 31, 2020, FIIs held 8.60 per cent while DIIs held 18.75 per cent, and public and others 1.24 per cent.