CHALETNSEQ1 FY2023August 3, 2022

Chalet Hotels Limited

9,902words
117turns
12analyst exchanges
2executives
Management on call
Sanjay Sethi
MD & CEO
Milind Wadekar
CFO CH A LET H O T ELS
Key numbers — 40 extracted
78%
et Hotels with the best Q1 performance till date. Our hospitality business posted an occupancy of 78% in the first quarter and an ADR of 7457, higher by 37% from the preceding quarter. The division’s
37%
ospitality business posted an occupancy of 78% in the first quarter and an ADR of 7457, higher by 37% from the preceding quarter. The division’s revenue was 5% higher than Q1 of FY2020, the pre-pande
5%
quarter and an ADR of 7457, higher by 37% from the preceding quarter. The division’s revenue was 5% higher than Q1 of FY2020, the pre-pandemic year’s. The business was assisted by the IPL season in
100%
IPL season in Mumbai, strong recovery of business travel in Q1. Domestic business segment clocked 100% higher room night rent than 2019 and recovery in room night of foreign travel was 56%. I am glad
56%
nt clocked 100% higher room night rent than 2019 and recovery in room night of foreign travel was 56%. I am glad to share that Westin Powai, JW Marriott Sahar, and Novotel, Pune exceeded revenues of
14%
showing very strong recovery trend in the last few weeks. The portfolio F&B revenue was higher by 14%. When I am saying higher by 14%, I am referring again to Q1 of FY2020. I am glad to share that
2.3 billion
2020. I am glad to share that the hospitality revenue for the quarter was up 5% from Q1 2020 at 2.3 billion. The divisional EBITDA outperformed the Q1 FY2020 EBITDA by 11%. Reduction of certain fixed costs
11%
was up 5% from Q1 2020 at 2.3 billion. The divisional EBITDA outperformed the Q1 FY2020 EBITDA by 11%. Reduction of certain fixed costs help deliver GOP for our hotel division at 48% as against 45%
48%
FY2020 EBITDA by 11%. Reduction of certain fixed costs help deliver GOP for our hotel division at 48% as against 45% in Q1 FY2020. The EBITDA for the division was 950 million for this year. Our room
45%
11%. Reduction of certain fixed costs help deliver GOP for our hotel division at 48% as against 45% in Q1 FY2020. The EBITDA for the division was 950 million for this year. Our room to employee rat
950 million
er GOP for our hotel division at 48% as against 45% in Q1 FY2020. The EBITDA for the division was 950 million for this year. Our room to employee ratio remained a very healthy 0.87 at the end of June despite
13%
ncludes all employees, including contract and fixed term contracts. We maintained payroll cost at 13% of revenue as compared to 15% in the full year of FY2020. Utilities as a percentage of revenue we
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Guidance — 20 items
Sanjay Sethi
opening
“We expect to handover the ballroom by mid August and the room floors by December.”
Sanjay Sethi
opening
“I am delighted to share that we have been declared successful bidders for a terminal hotel at D3 Delhi International Airport and will be working closely with the team at DIAL to take the project forward.”
Sanjay Sethi
opening
“The hotel will have somewhere between 350 and 400 rooms and will be positioned in the - 5-star luxury segment.”
Sanjay Sethi
opening
“This project will give us a strong foothold in North India and access to the very important market of New Delhi.”
Sanjay Sethi
opening
“Just so that I can elaborate a little more about this project, this building that is going to be built by DIAL and then fitted out by us, is literally the road across the arrival section of the terminal, which means that travelers can potentially just walk in from the terminal building into the hotel with their bags and trolleys.”
Sanjay Sethi
opening
“We are also making progress in our CH A LET H O T ELS committed goals to the Climate Group, and we expect to report back significant success from that in the coming months.”
Sanjay Sethi
opening
“We are excited about the business outlook and aim to surpass revenue and EBITDA numbers of FY2020 fairly comfortably in this year, which is a year ahead of our earlier estimate.”
Milind Wadekar
opening
“There has been another Rs.250 million new subscription from promoters on 0% non-convertible redeemable preferential for funding the outlook relating to the residential project at Koramangala.”
Sanjay Sethi
qa
“So clearly, they will be quite stretched with the inventory that they have there.”
Karan Khanna
qa
“But talking about the capex here because you have mentioned that the shell will be delivered by Delhi International Airport Limited but the interior and other fitouts will be completely by Chalet, so against that context can you give some sense on the overall cost involved in terms of the auction and capex which was being incurred by Chalet and how do you plan to fund the same given you are already going capex for commercial assets apart from the hotel expansion at Pune and Hyderabad?”
Risks & concerns — 7 flagged
I just want to emphasize there is no concern at our end on funding of this capex.
— Sanjay Sethi
What we are going to keep in mind we have come out of two very difficult years the stage one for any industry is to first get a strong foothold and consolidate on capacity and very often we all talk about occupancies, and I look at vacancies.
— Sanjay Sethi
I do not see that happening in the business cities as a challenge.
— Sanjay Sethi
For Mumbai, are we seeing substantial decline?
— Rajiv
My personal view is that with the addition of more airlines as well as more capacity in airlines with Akasa or Jet Airways, Air India, all having major plans for India within the domestic as well as international circuit will ease that pressure on pricing, and thereby open up the skies within India a lot more.
— Sanjay Sethi
Of course, you pointed that new airlines will come in and that will ease the pressure of the air tickets?
— Achal Kumar
You are right drivable distance seems to be the preferred option because prices of flights are high but I think for the people who want to travel they are not going to be deterred by it too much by these prices and on the prices front as I said earlier, I think the addition of Akasa and Jet Airways, expansion with an Air India, all of them point to more growth in capacities which will ease the pricing pressure.
— Sanjay Sethi
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Q&A — 12 exchanges
Q
Hi. Thanks for the opportunity and congratulations on an encouraging quarter. Sanjay, firstly on the recovery MMR with 65% contribution of the hospitality segment revenue clearly remained an outlier apart from Pune where we have seen an incremental contribution when you compare it with pre-COVID. However, can you give us some sense on the revenue contribution from IPL specifically during the quarter and also your blended CH A LET H O T ELS occupancy in June was 73% versus 80% in April-May so can you give some specifics how would be the stack across micro markets in June versus the rest of the
Sanjay Sethi
Sure Karan, thank you for question. Good to connect with you again. Look, IPL was a contributor for the months of April and May, and they moved out sometime in the end of May so we had about 20th May when they moved out and there was that impact in our Mumbai hotel as they moved out from the teams that were staying with us as well as compression in the market got eased up. Having said that, the occupancies have remained healthy since then, true. So the fact that we remained at lower or mid 75% occupancies in the subsequent months indicate that the market is robust even if we exclude one of eve
Q
A very good performance in this quarter. Sir, I just want to understand how do you see the revenue visibility for this year, for this second half when I know that foreign travel is something which will add to the revenue in a meaningful way. But besides that, do you have some booking and all or do you see any mega events happening like IPL?
Sanjay Sethi
Aishwarya, thank you for the question and thank you for being on the call. Look, we do have a lot of activity on the MICE segment because that gets booked out in advance, both corporate events as well as social events, including wedding seem to be trending extremely CH A LET H O T ELS strongly and you know our hotels in Mumbai which is the Westin in Powai and the JW Marriott at the airport in Sahar are very banquet intensive hotels so we see that getting up the revenue for us in the second half. In terms of business travel, the lead time is somewhere between 7 and 15 days, but looking at the c
Q
Can you talk about the pricing power the hotel industry is getting and how sustainable it is considering the pent up demand going to be not there maybe after couple of quarters?
Sanjay Sethi
Firstly, let me address the pricing part. Look, we saw pricing power being put to play when the IPL was happening in Mumbai. Hotels room shot back to Rs.14,000 to 15,000 in fact in some cases it was Rs.12,000 on the visible rates that is the bar rates that are rates available on the general public and that is why the hotels were able to cream the market in that point of time, so revenue management is clearly at play. What we are going to keep in mind we have come out of two very difficult years the stage one for any industry is to first get a strong foothold and consolidate on capacity and ver
Q
Thank you for the opportunity. Sorry Sir, I missed your opening remarks so sorry if something you need to repeat? Firstly on the margins, hospitality margins improved pretty sharply and I just wanted to understand how much the improvement is because of the better mix because obviously you know the room revenue was much better than the food during this time and this is across for the industry that is number one, and number two is there any change in strategy because we have been talking about adding more property into leisure and commercial and then we do this bidding that is about it these two
Sanjay Sethi
I will get the strategy part out of the way first Vikas. Our stated strategy obviously has been entering Delhi. You can refer back to any of our conversations. Delhi or NCR was always mentioned as an area that we liked to be in to expand our geographical presence and Delhi being the good market we wanted to be there so with that out of the way on your second part on the mix of revenues. Actually, F&B has grown more than the higher percentage than rooms so this is in spite of F&B growing at a higher percentage than rooms that are overall EBITDA margin on GOP that margin is higher. This is drive
Q
Thank you for taking my questions. Sir, I have two questions. First is given the expansion plan wherein we are going to add roughly around 250 rooms in FY2023, so are we going to see any rise in variable components fixed components had it been like staff to room ratios or any other costs and what percentage of cost reduction we can see that would be sustainable in nature compared to pre-COVID levels that is my first question. The second question I would also like to highlight on how leisure demand is panning in domestic market, especially compared to that of COVID times wherein people preferre
Sanjay Sethi
Poonam as far as your question about cost on expansion, Chalet has been always very efficient on delivering high margins. As you can see, we have only improved on that in this last quarter compared to even the pre-pandemic numbers and with the ADR upside that will improve further. Any addition will only improve because from our perspective we see because two orders in fact one, two and three hotels that we are working our expansion and capacity, which basically means that the costs both fixed and variable as a ratio will be lower than before so that will actually add higher margins to the port
Q
Good morning and thanks for the opportunity, Sir. Sir I have just one question on commercial. The first one is a basic question. We have two commercial operational buildings right now. One is the Orb, which is half million and one is the Whitefield which is 0.4 million square feet. What will be the occupancy here in Q1 FY2023?
Sanjay Sethi
So ook, Orb which is about little more than half a million actually is almost full. It is I think 93% as per the commercial space is concerned. It is already occupied and yielding rents. As far as Whitefield is concerned, I did share a little earlier that we have just signed a LOI recently. The building will be ready for fit outs in October and whatever the times the tenants take for fitting them out they do take their time and they will move in. So, Whitefield there is no revenue that we are getting currently. It is only the Rs.22 Crores that we have mentioned in the presentation is only from
Q
Good morning Sir and congratulations on a great set of numbers. Sir, my question is on the capex side, so ALC conversion of 190 rooms if I heard it right, if you were to start it today, how much time does it take and how much capex does it will entail?
Sanjay Sethi
We are looking at roughly may be design time of three to four months and then start work on that. Since it is in one building where the building is already done, I think the fit-out time will be around three quarters at maximum, and the total capex amount that we are looking at there is Rs.70 Crores to Rs.75 Crores and that includes renovation of the existing 67 rooms. CH A LET H O T ELS Great and Sir on this cold shell arrangement with DIAL so how are the EBITDAs different in this case? Do we share something with DIAL as a commission separately? We will come back to you with the DIAL terms. W
Q
Hi Sanjay. Just one question. Can you give me an idea of the expected IRRs on the New Delhi project given that there is an element of MG you said even lease rental, right?
Sanjay Sethi
Pratik, this is going to be in healthy teens. I think I had shared earlier that we set up an investment matrix and we are going to be guided by that of all investments going forward, and I think we are looking at healthy teens IRRs on the project after deducting the rent that we will be paying them. I was asking that was post tax right? The IRRs are post tax right for you when you say healthy teen? Yes. Is this levered in your assumptions the debt equity ratio? I think it is equal mix of debt equity ratio in the new project. We are also looking at interest rate of course we provided for slight
Q
Good morning gentlemen. Thanks for the opportunity. I have only two questions actually if I may. So first of all, on the hotel side, the flight tickets has been very expensive now and that has sort slowed down the traffic growth significantly so the domestic demand has halted actually so now given that of course that may not have any impact on the cost of demand because that is not a very price sensitive but the immediate demand is highly price sensitive and looks like that has halted the demand how do you see that has impacted the demand for the hotels or do you think the customers behavior h
Sanjay Sethi
Achal great questions. On the air fares getting expensive a very valid point. We have not been seeing that impact corporate as yet. My personal view is that with the addition of more airlines as well as more capacity in airlines with Akasa or Jet Airways, Air India, all having major plans for India within the domestic as well as international circuit will ease that pressure on pricing, and thereby open up the skies within India a lot more. On the length of stay yes, we have witnessed an increased length of stay at our hotels. I think that is driven by the fact that people want to conduct more
Q
Just on the opex front, basically this was a quarter with practically no COVID disruptions and you have already eluded to the fact that you see the second half being much better than the first half with weddings and MICE events. So, apart from the efficiencies in employee cost and power and fuel inching up, do you see the entire opex basket trending higher especially in the second half or do you see this continuing this range and seeing some margin expansion in the second half?
Sanjay Sethi
Let me put it like this that there may be an increase in opex cost as revenues go up but the flow through of any incremental business, especially if it is rate driven business, is going to CH A LET H O T ELS be higher than the current EBITDA margins which means it should actually add further value to our EBITDA performance. Understood fair enough. That’s it from my side. Thank you.
Q
Congratulations on a good set of numbers, Sir. I just wanted to ask because I missed the earlier part where you were explaining about capex so you talked about 7 billion capex so could you elaborate as to what that amount means and it is related to you are spending into which business if you could explain it, I missed that part?
Sanjay Sethi
Thank you Vignesh for the congratulations. I will let Milind give you the inputs on this. Vignesh, so out of 7 billion major components is for our two commercial buildings that is in Powai and Bengaluru and some part is going into 88 rooms in hotel, refurbishment of Westin Powai and Westin 2, which is coming up in Hyderabad. So, this is entirely for FY2023 right? Rs.700 Crores? There will be some spillover in FY2024, mostly project raters will be paid and cash outflow may happen in FY2024. In the current year FY2024, you are right. Can I throw in a flavor just to make comments a little more in
Q
Thank you so much ladies and gentlemen. I hope you are as excited as we are about the future of the hospitality industry and Chalet in particular. I think the games changes for us, is the sharp recovery that has happened in my opinion about two quarters before I expected to happen. I had maintained that we will probably have a full recovery by October of this year. I am glad that it has happened in the quarter of April to June, and we had anticipated that the FY2024 will be a full year with full recovery. We see that now being far healthier than that. We are also very excited about the new ann
Management
Speaking time
Sanjay Sethi
46
Moderator
14
Rajiv
8
Aishwarya Agrawal
6
Ritwik Sheth
6
Karan Khanna
5
Sumant Kumar
5
Poonam Joshi
5
Pratik Poddar
5
Vignesh Iyer
5
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Opening remarks
Sanjay Sethi
Thank you, Mitchell. Good morning and thank you for your time today ladies and gentlemen. We have moved from a strong performance in March to a stronger succeeding quarter. After three tumultuous waves of the pandemic, we have witnessed six consecutive good months. I am going to sort of talk you through that and then handover to Milind to share some key numbers from his side and then we will move to Q&A after that. We are happy to announce a back to normal performance of Chalet Hotels with the best Q1 performance till date. Our hospitality business posted an occupancy of 78% in the first quarter and an ADR of 7457, higher by 37% from the preceding quarter. The division’s revenue was 5% higher than Q1 of FY2020, the pre-pandemic year’s. The business was assisted by the IPL season in Mumbai, strong recovery of business travel in Q1. Domestic business segment clocked 100% higher room night rent than 2019 and recovery in room night of foreign travel was 56%. I am glad to share that Westin
Milind Wadekar
Thank you, Sanjay. Good morning, ladies and gentlemen. Let me reiterate that Chalet has seen best quarter one in April and June 2022. Let me now take you through financials in some more details. Reported revenue for the quarter was Rs. 2.6 billon which was higher than Q4 FY2022 due to business operations resuming back. As compared to Q1 FY2020 the company marked a growth of 6% backed by a robust recovery in hospitality and higher rental as compared to the base period. During the quarter, the company received an interest income on income tax refund of Rs.30 million and accounted Rs.16 million as reversal of provision for expenses of earlier years. Adjusted for this, EBITDA was little over a billion, which was three times Q4 FY2022 EBITDA and 23% growth for the same quarter of FY2020. The EBITDA margins for the quarter were at 42% for the company. The company reported profit after tax at 286 million an improvement from loss of Rs. 115 million in the sequential quarter. Defaults after tak
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