Chalet Hotels: No negative impact of global economic crisis on hospitality industry right now: Sanjay Sethi, Chalet Hotels


“We have got the office block in Powai ready, which will be operational in another two or three months time. So there is a lot happening on the capex side, which is going to fructify into operating assets now, which will again boost up EBITDA and revenue numbers for Chalet Hotels,” says Sanjay Sethi, MD & CEO, Chalet Hotels.

We all know that in December quarter there is usually a high amount of interest with respect to travel but this time around, even in Q4 of the year, the momentum has been quite strong? Could you talk to us about what is the occupancy level like and what does it do to your average key rate, etc.?
I can talk about the third quarter occupancies and average room rates, which were healthy and close to 70%, with the average room rates climbing up to 10,100 for our portfolio. Quarter four has been consistent with that. In fact, the occupancies and rates are marginally higher than the previous quarter. So we expect this quarter to be a strong quarter. I must highlight to you quarter on quarter improvement over here. We did say at the end of quarter two that it was the best ever quarter for Chalet Hotels, both revenue wise and EBITDA wise.

And then quarter three, we came back to you and said, again, this is the best ever. So we surpassed Q2. Q4 should be more or less in line with that. In addition to that, we have got a lot of new assets coming into play in the next few weeks. We have got the additional 88 rooms at Pune almost ready. We have got the office at Bangalore ready. We have got the hotel at Hyderabad, which will be ready and operational.

We have got the office block in Powai ready, which will be operational in another two or three months time. So there is a lot happening on the capex side, which is going to fructify into operating assets now, which will again boost up EBITDA and revenue numbers for Chalet Hotels. In addition to that, you must be aware that we have acquired the Dukes Retreat Lonavala based iconic resort property which we will now renovate, expand and reposition to much higher levels.

When we just talk about how things are moving in terms of demand, can you just tell us inflation is pinching in everything, but on the luxury side of the market, are you seeing that the pinch is slightly low as of now in terms of demand?
We are not seeing any pinch at all on the demand side. The occupancies continue to be robust. The average room rates continue to be growing. We have had high acceptance of annual contracts, which are significantly higher than the previous years by corporates. So I think as of now, things look positive. We do have the global threat of the economic crisis that looms over everyone but for now at least we see no negative impact on the hospitality industry. You must remember the domestic demand within India is so strong that we expect that to sustain us over the next few quarters.

What phase of the cycle are we right now? How long does this cycle or this structural trend appear to you? Are we in the mid phase? Are we still in the early? Where exactly are we? Because this is a cyclical industry after all.
Yes from a helicopter view we are in the early stages right now. Notwithstanding the economic challenges that we are facing or the financial crisis that we are facing globally that will pass some point of time. Overall, we see this for the foreseeable future which is roughly around five-six years from now. We expect the demand supply patterns to be favourable for growth.

Demand supply dynamics continue to be favourable. I just wanted a word regarding one of the recent acquisitions that you made with respect to Dukes Resort of around Rs 135 crore in terms of valuation. What kind of upside do you expect? Will it going to be EPS accretive and how are you going to fund this particular acquisition?
Let me begin with the funding. It has all been funded through internal accruals. We have got 80 rooms there. We expand to around 128 for sure, maybe some more. So it will be 50% more additional capacity almost 60% additional capacity actually in the property. We will also renovate to reposition the property from where it is. The retreat had average room rates of about Rs 8600 year to date as of this year with occupancies at around 72%. We think the upside is strong. We can actually increase the rates going forward by about 60-70% and with additional 50-60% capacity this can be a very good acquisition for us.

It is value accretive in the sense that its EBITDA numbers already support the purchase price. We have purchased this at roughly around 10x of EBITDA this year. The EBITDA is expected to be 13.1 crores which is a fairly decent acquisition price. So it remains value-accredited from day one. But I think when we reposition it, it should be a clear winner for us. But let us not look at it just the Dukes Retreat in its isolation. This is our first baby step towards expanding into the leisure portfolio. We already operate one small resort in Mud Island as an operating model. This is the second one that we will have which we have acquired now and we are looking for more opportunities on the leisure side, in addition to the green fields that we are building ourselves.

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