ET Intelligence Group: Investors may wait until the listing of Chalet Hotels shares before making an investment decision. Asset-heavy business model and inconsistent financial performance are the key concerns.
Chalet Hotels operates five luxury hotels across Mumbai, Hyderabad and Bangalore with aggregate capacity of 2,328 rooms. The company follows asset-heavy model wherein it owns the property. Global hospitality brands such as JW Marriott, Westin, Marriott, Marriott Executive Apartments, and Renaissance have lent their brand name to these properties.
The company plans to raise Rs 1,641 crore through the initial public offering (IPO) of shares. Of this, Rs 950 crore will be the fresh issue while the rest will be offer for sale by the promoters including Ravi Raheja and Neel Raheja.
FINANCIALS In the past three years to FY18, the company's revenues grew to Rs 873 crore from Rs 572 crore. After a loss of Rs 112 crore in FY16, the hotel posted Rs 31.2 crore of profit in FY18. It reported a loss of Rs 43.7 in the six months to September 2018 quarter.
VALUATION Considering the equity after IPO, Chalet Hotels demands price-book multiple of four. This appears to be fair considering that listed luxury hotels such as Indian Hotels and EIH, which are bigger in operation and superior in financial performance, trade at P/B of nearly four.
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Chalet Hotels’ strategy to follow asset-heavy model has resulted in higher interest expense as percentage of total revenues. In FY18, the ratio was 22 per cent compared with 1.6 per cent for EIH and 6 per cent for Indian Hotels. This makes the IPO less attractive.
