Inside the Bengaluru Marriott Hotel in Whitefield. (Source: Chalet Hotels)

All You Need To Know: Chalet Hotels’ IPO

Chalet Hotels Ltd. plans to raise nearly Rs 1,640 crore through its three-day initial public offering—the biggest in India in the last four months —to invest in new businesses and pare debt.

The hotel chain developer will issue 5.86 crore equity shares at a price band of Rs 275-280. The IPO, which opens on Jan. 29, consists of an offer for sale and a fresh issue.

All You Need To Know: Chalet Hotels’ IPO

“It reduces our debt, reduces our interest outlay and therefore gives us more of free cash flows to invest in new businesses,” Managing Director and Chief Executive Officer Sanjay Sethi had told BloombergQuint on the sidelines of their IPO launch in Mumbai on Friday.

Five promoter groups are looking to sell shares worth Rs 691 crore. The company is looking to raise Rs 950 crore to pare debt and for general corporate purposes. At the upper-end of the price band, the K Raheja-promoted hotel developer is valued at close to Rs 5,741 crore.

Business

Chalet Hotels is an owner, developer and asset manager of high-end hotels in key metro cities in India. It has five properties in Mumbai, Hyderabad and Bengaluru with 2,328 hotel rooms as of September last year. Chalet Hotels manages one property, while the remaining four are managed by Marriott. The company’s hotels are operated under brand name of JW Marriott, Westin, Marriott, Marriott Executive Apartments, Renaissance and Four Points by Sheraton.

The operating income of these hotels grew over the last four financial years, but the average daily rates remained stagnant, according to data compiled by BloombergQuint.

Chalet Hotels’ property at Vashi, Navi Mumbai—that it manages on its own—has 152 rooms. Rising occupancy and room rates led to an improvement in its operations. The company has three new hotels in the pipeline—two in Mumbai and one in Hyderabad. All of these should be operational in 2021.

The company is developing commercial and retail business and residential properties. So far, Chalet Hotels has developed two projects and will complete another two by 2021. It has built one residential property in Hyderabad, while its second proposed project in Bengaluru is in the middle of a dispute as the property is located within the proximity of an aerodrome operated by the Hindustan Aeronautics Ltd.

All You Need To Know: Chalet Hotels’ IPO

Together, these businesses contribute less than 5-10 percent to the total revenue of Chalet Hotels.

Financial Highlights

After listing, the company’s net worth would be Rs 1,417 crore, translating into a book value of Rs 69 apiece.

Chalet Hotels’ revenue has been growing at an annualised growth rate of 17.6 percent over financial years 2014-18. The company also returned to profitability during the period. For 2017-18, net profit declined from last year due to lower other income. For the first half of calendar year 2019, the company reported a revenue of Rs 470 crore and a net loss of Rs 63 crore.

Earnings before interest, tax and depreciation and amortisation grew at a compounded annual growth rate of 32.7 percent. The Ebitda margin averaged around 24.4 percent over financial years 2014-18. For the first half of calendar year 2019, the company had an Ebitda of Rs 107 crore with margin of about 22.7 percent.

Total debt of Chalet Hotels stood at nearly Rs 2,468 crore as of September 2018. Due to high debt, its interest cost remained elevated, leading to weaker interest coverage ratio and higher leverage ratio.

The company consistently generated cash flows from operations in the last five years but has never paid any dividend so far.

Peer Comparison

The Indian Hotels Company Ltd., EIH Ltd. and Lemon Tree Hotels Ltd. are among the few listed players. EIH and Lemon Tree, however, are the nearest peers by market capitalisation and revenue. Chalet Hotels’ revenue and Ebitda grew at a faster pace than EIH but lagged Lemon Tree, according to data compiled by BloombergQuint.

Chalet Hotels’ debt would fall to Rs 1,748 crore after the fund infusion as the company will use Rs 720 crore to repay debt. Its leverage ratio on listing would be close to eight times.

Chalet Hotels’ return ratios are better compared to its peers. But compared to FY17, its return-on-equity and return-on-assets have declined.

Valuations

Chalet Hotels trades at a cheaper valuation compared to peers by market capitalisation-to-FY18 sales and enterprise value-to-FY18 Ebitda, according to BloombergQuint’s calculations. In terms of price-to-book ratio, however, the stock’s marginally expensive than EIH.