27 February 2019: Chalet Hotels, a K Raheja group firm, is scouting for acquisitions as it seeks to ramp up presence in the hospitality space, said a top company official.
The Mumbai-based firm, which recently concluded an initial public offering (IPO), has pared its debt to Rs 1,500 crore from Rs 2,600 crore. The capex requirement will be funded through internal accruals and the company will not need debt or equity. The asset developer raised Rs 950 crore through the IPO. It was the second hotel after Lemon Tree to go public in less than 12 months.
“Acquisition will be an important pillar of our growth strategy. The National Company Law Tribunal (NCLT) has created interesting opportunities,” Sanjay Sethi, managing director and chief executive officer (CEO), Chalet Hotels, told Business Standard. He said a buyout, rather than building projects ground-up, will make better sense as the industry is in the midst of an up-cycle.
Sethi, however, added that even as there are quite a few assets available below the replacement costs, Chalet will only pursue the ones that meet its criteria of high returns. The assets should add an earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 40-50 crore each, he added.
Meanwhile, the three greenfield hotel projects underway will add another 588 rooms to its existing portfolio of 2,328.
Chalet is the asset manager for properties, including JW Marriott, Sahar, Mumbai; Marriott Hotel, Whitefield, Bengaluru, The Westin Hyderabad Mindspace; Four Points by Sheraton, Vashi in Navi Mumbai, and Renaissance.
They will be operational by September 2021 and March 2021, respectively. Asset developers always tend to gain during an up cycle and Chalet is well positioned to take advantage, said Deepak Agarwal, an analyst at Phillip Capital.
He, however, added that, with most its properties already running at 70-80 per cent occupancy, there is hardly any headroom for growth in the top line even as profitability is set to improve owing to appreciating average room rent.
“The next cycle of growth will kick in once the new properties become operational,” he said. With demand outstripping supply, Agarwal expects the hotel operators to benefit for the next two to three years.
Sethi is even more optimistic. “We expect the favorable arbitrage between demand and supply to continue for the next five to seven years,” said Sethi, adding that he expects supplies to be in the low-single digit during this period.