On Friday, Chalet Hotels (CHALET:IN) received an upgrade in its stock rating from ICICI Securities, shifting from an "Add" to a "Buy" status. Alongside the upgrade, the price target was raised to INR933.00 from the previous target of INR917.00. The revision reflects a strategic valuation based on the sum of the parts (SoTP) and accounts for the company's future projections up to September 2026.
The upgrade comes with a positive outlook on Chalet Hotels' growth strategy, which involves expanding its hotel and office rental portfolio through ownership. This includes a combination of project expansions and securing long-term leases.
Chalet Hotels' decision to acquire a hotel in Goa was also factored into the valuation, with the company's hotel business being valued at 23 times its enterprise value to EBITDA, a 7% capitalization rate for its rental assets, and the residual value of the Vivarea residential project in Bangalore.
By March 2027, Chalet Hotels is expected to grow its operational hotel portfolio to 3,917 keys. ICICI Securities anticipates a compounded annual growth rate (CAGR) of 15% in revenue and 20% in EBITDA between the fiscal years 2024 and 2027.
These projections are based on the expectation that Chalet will generate an operating cash flow of INR 8-9 billion before capital expenditures and interest in the fiscal years 2026 and 2027.
The analyst's report highlighted the main risks for Chalet Hotels, which include a potential slowdown in hotel demand and office leasing. These factors could impact the company's growth and financial performance.
Despite these risks, ICICI Securities' overall assessment appears to be optimistic regarding Chalet Hotels' strategic growth plans and its ability to generate significant cash flow in the coming years.
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