Opening Of Mumbai And Delhi Airports Will Improve Future Occupancy

Key Takeaways

• Expanding airport capacity and strategic renovations could boost Chalet Hotels' occupancy rates, ADRs, and revenue growth.
  
• Strong commercial leasing and residential expansion are expected to drive rental revenues, bolster earnings, and improve EBITDA margins.
  
• High debt and capital expenditures, potential delays in airport projects, competitive pressures, and execution risks could strain Chalet Hotels' revenue growth and margins.

Catalysts

Owns, develops, manages, and operates hotels and resorts in India.

• The opening of two major new airports in Mumbai and Delhi is expected to enhance passenger capacity and international flights, providing significant growth opportunities for Chalet Hotels, potentially boosting occupancy rates and room revenues.
  
• The introduction of additional rooms and phased renovations, such as the Courtyard by Marriott Aravali and The Dukes Retreat, are expected to enhance Chalet's room inventory and service offerings, aiming to capture higher ADRs and improve overall occupancy, positively impacting revenue and earnings.
  
• The robust leasing momentum in Chalet's commercial portfolio, including leasing an additional 400,000 square feet, is driving growth on the rental and annuity front, likely to increase stable rental revenues and contribute to higher EBITDA margins.
  
• Chalet Hotels is expanding its residential real estate segment with ongoing sales and development, which may lead to increased revenue from unit sales and bolster overall earnings through real estate appreciation.
  
• The leadership augmentation with the addition of a new COO and the fostering of a talented workforce indicate enhanced operational excellence, potentially leading to increased efficiencies and improved net margins over time.

Chalet Hotels Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chalet Hotels's revenue will grow by 20.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.3% today to 31.7% in 3 years time.
• Analysts expect earnings to reach ₹8.9 billion (and earnings per share of ₹43.5) by about April 2028, up from ₹1.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.5x on those 2028 earnings, down from 176.8x today. This future PE is greater than the current PE for the IN Hospitality industry at 35.5x.
• Analysts expect the number of shares outstanding to grow by 6.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.17%, as per the Simply Wall St company report.

Chalet Hotels Future Earnings Per Share Growth

Risks

• The high debt levels, with a net debt of ₹15.8 billion and planned capital expenditures of around ₹20 billion over the next three years, could strain Chalet Hotels' balance sheet and impact its net earnings if revenue growth does not keep pace.
  
• Though the company expects growth from new airport openings in Mumbai and Delhi, delays or issues in completion could limit the anticipated increase in passenger capacity and thus potentially affect revenue growth projections.
  
• The company's aggressive expansion through new projects and marketing efforts in various cities could face execution risks, which might impact the projected revenue growth and potentially strain net margins if not managed effectively.
  
• Chalet Hotels faces competition from new hotel openings, such as the Fairmont in Mumbai, which could affect market share and pricing power, particularly impacting revenue from the Mumbai Metropolitan Region.
  
• The Q3 performance showed strong revenue growth, but operating margins remained flat. If the costs associated with expansion and renovation projects rise or if revenue growth slows, there could be pressure on the company's overall EBITDA margins.

Valuation

• The analysts have a consensus price target of ₹1015.0 for Chalet Hotels based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1175.0, and the most bearish reporting a price target of just ₹830.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹28.2 billion, earnings will come to ₹8.9 billion, and it would be trading on a PE ratio of 45.5x, assuming you use a discount rate of 15.2%.
• Given the current share price of ₹818.8, the analyst price target of ₹1015.0 is 19.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.