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Chalet Hotels Ltd
Earnings Call Analysis
Q1-2025 Analysis
Chalet Hotels Ltd
Chalet Hotels has begun FY '25 with remarkable performance, reporting the best Q1 in its history. This impressive achievement comes despite a challenging economic backdrop in India, influenced by an extended election period, heatwave, and subdued MICE (Meetings, Incentives, Conferences, and Exhibitions) demand.
The company saw a consolidated revenue growth of 17% year-over-year, reaching INR 3.7 billion, while total EBITDA surged by 31% to INR 1.5 billion. The hospitality segment alone contributed INR 3.3 billion, marking a 15% increase. Operationally, overall occupancy across the portfolio was reported at 70.5%, a notable increase of 90 basis points.
The Revenue Per Available Room (RevPAR) showed a growth of 2% year-on-year, averaging INR 7,361 for Q1 FY '25. Specific properties like JW Marriott Sahar and Marriott Bengaluru performed particularly well with higher RevPAR growth, while the Novotel faced challenges due to newly added room inventory.
Management emphasizes a strategy focused on capacity expansion and operational excellence, which is crucial in capturing the ongoing demand-supply arbitrage in the market. This approach positions Chalet favorably within the growing Indian tourism sector backed by strong demographic trends.
Chalet is actively pursuing a robust growth pipeline, targeting approximately 4,000 hotel rooms and launching a new 5-star deluxe resort in Goa, which is expected to take about 3 years from acquisition to completion. The acquisition includes 188 rooms with the anticipated room count reduced to approximately 170 post-optimizations.
Despite the positive overall results, management acknowledged specific areas of challenge, especially in the MICE and leisure markets due to seasonal fluctuations and the impact of the elections affecting consumer spending and travel patterns. The strategic pivot towards occupancy-led revenue management during such periods aims to stabilize the performance.
Chalet is expanding its residential projects, achieving sales significantly higher than initial projections, bolstering cash flows over the next few quarters. Their rental income from leased commercial spaces is expected to grow substantially as leasing activities pick up, projecting around INR 280 crore annually upon achieving 90% occupancy.
The company's net debt as of June 30, 2024, stood at INR 15 billion. This debt is primarily allocated towards capital work in progress. The cost of finance has improved, leading to an escalation in profitability metrics. The management aims for a sustainable margin above 40% as operational efficiencies improve further.
The hospitality sector exhibits favorable market dynamics with demand expected to strengthen, particularly in the wake of new infrastructure developments like the upcoming airport in Mumbai. With 60% of Chalet's portfolio situated in this region, this should reinforce future demand and occupancy rates.
Chalet has also launched an initiative to achieve net-zero greenhouse gas emissions by 2040, which aligns with growing investor expectations around sustainability. This dedication to eco-friendly practices can enhance the company's corporate reputation and appeal among environmentally conscious consumers.
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Ladies and gentlemen, good day and welcome to Chalet Hotels Q1 FY '25 Earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sanjay Sethi, MD and CEO, Chalet Hotels Limited. Thank you, and over to you, sir.
Thank you, Jerald. Ladies and gentlemen, thank you for joining us today for the earnings call where we will reflect on the performance of Q1 FY '25. Before I commence the quarterly update, let me share with you our announcement of this morning. Committee of our Board has approved a transaction to purchase a land and go up for the development of 5-star deluxe resort. The closure of the acquisition process will take a couple of weeks and we will send out an update in the near future. This is in line with our long-term growth strategy to expand into the picturesque state of Goa. It is a greenfield opportunity, and I believe we will be able to bring in Chalet strength of design and efficiency for exceptional guest experiences.
Back to Q1. In the backdrop of some unique challenges, including the longish election process in the world's largest democracy, the heatwave and a subdued quarter for MICE and leisure, we are pleased to announce that Q1 FY '25 has been the best Q1 in the history of Chalet Hotels Limited. This achievement underscores our continued focus on executing a growth-based strategy that combines capacity expansion with operational excellence.
The macroeconomics of India presents a compelling opportunity, particularly in the flourishing tourism and hospitality sector. This growth potential is underpinned by the demographic strength of the nation. Our strategy of hard asset-led capacity addition and operational efficiency, places us in a sweet spot to capitalize on favorable industry dynamics buoyed by favorable demand-supply arbitrage. The tailwinds of the present market conditions are expected to further bolster our operational performances and drive sustained growth in the coming quarters.
During Q1 FY '25, we have been able to demonstrate consistency across key metrics when compared to the same period last year. Consolidated revenue of the company increased by 17%, whereas total EBITDA saw a 31% rise from Q1 FY '24. Within the hospitality segment, our revenue climbed by 15% accompanied by an 18% increase in segment EBITDA for the same period. Our portfolio occupancy stood at 70%, up by 90 bps, with the average room rate showing a 1% improvement over Q1 FY '24, contributing to a year-on-year growth of RevPAR of 2%. On a same-store basis, the portfolio RevPAR has grown by 4%. We saw accretive RevPAR performances at JW Marriott Sahar, Westin Complex at Powai, Marriott Bengaluru and our 2 hotels in Hyderabad. [ Navashi ] hotel saw a 7% dip in RevPAR. This was due to significant increase in room supply in similar category hotels in Navi Mumbai micro market over the last couple of years.
Novotel had lower RevPAR on account of increased capacity of 88 rooms, which will take another quarter or two to stabilize. However, the hotel had revenue growth of 15% over the same quarter last year. Due to major renovation work underway at Dukes, we removed the limited inventory from sales from middle of May, which is about a couple of months back, we will be opening 37 new rooms and some new public areas in Phase 1 for business before the long weekend of 15th of August. We have a robust pipeline for capacity expansion in existing hotels at the Marriott Bengaluru and the Dukes Retreat in Lonavala. This expansion will be in play by end of the current calendar year. As most of you are aware, we are also developing 2 new hotels with Taj New Delhi Airport and the Hyatt Regency at Airoli in Mumbai. These 2 hotels will add approximately 660 rooms to the portfolio.
Additionally, the development of CIGNUS Powai Tower II, a new commercial building will add approximately 9 lakh square feet to our existing 24 lakh square feet of office portfolio, which is a strategic move into alternate asset class designed to mitigate the cyclicality of the hotel industry through annuity income. Leasing activity at the new office buildings in Powai and Whitefield is steady. We continue to expect 90% of the portfolio -- of the office portfolio leased out by end of the calendar year.
Our residential project at Koramangala, Bangalore is surpassing sales expectations, achieving prices significantly higher than initially projected. We anticipate substantial cash flows from this project over the next 6 to 7 quarters.
Another pivotal focus for us is our pledge to net zero greenhouse gas emissions by 2040, aligning with the Paris Agreement's goal of limiting global temperature rise to 1.5 degrees Celsius. This commitment announced on the World Environment Day on 5th June, underscores our deep-seated commitment to sustainability and responsible business practice.
Ladies and gentlemen, I continue to be bullish on the sustained growth for the hospitality industry and the leasing industry, especially in the locations that we operate in. Indian hospitality sector is likely to see strong revenue growth in the next few years with margin expansion for companies that navigate the path diligently.
I now welcome Nitin Khanna, our new CFO into the conversation, and he will share additional financial highlights for the quarter. Nitin?
Thank you, Sanjay. Good morning, ladies and gentlemen. I'm happy to take over as CFO of Chalet and hope to interact with the members on the call in person in the near future. As discussed by Sanjay, this quarter has been marked by resilient and stable performance at the back of some challenges faced by the industry during the quarter. Following Chalet's growth trajectory, I'm happy to announce that this was the strongest Q1 performance historically. Coming to the financial updates. In the Hospitality segment, ADRs have been stable at an average of INR 10,446 during the quarter, which is a growth of 1% versus last year's same period.
Occupancy stood 70.5% across the portfolio, which is 85 basis points higher than the last year. As a result, the RevPAR has been up by 2% year-on-year to INR 7,361 for Q1 FY '25. Bangalore, followed by Hyderabad, saw the highest growth overall, while the Mumbai Metropolitan region continues to be the occupancy leader. Excluding the new assets that is on the same-store basis, the occupancy grew by 191 bps and RevPAR grew by 4%. It will be pertinent to note that the total room nights sold were higher by 13.3% during the same period. Hospitality revenue for the quarter was INR 3.3 billion, a growth of 15% led by a combination of rate growth, inventory additions and F&B contributions.
The hospitality segment during the quarter also delivered an adjusted EBITDA of INR 1.3 billion, marking a growth of 12% with a margin of 41.2%. Now given that, number one, the Dukes is still under renovation and for Courtyard at Aravali, this is the season's weakest quarter; and three, the reasons already alluded to by Sanjay, it is now safe to say that we can expect better flow-throughs and higher margins for the rest of the year.
On the rental and annuity front, our leasable area stands at 2.4 million square feet with 1.2 million square feet leased so far. Our revenue for the quarter was at INR 355 million with an EBITDA of INR 264 million. With leasing for the new towers picking pace, as already explained by Sanjay, the unabsorbed costs for these new assets would average out over the course of next couple of quarters. And of course, the flow-through would improve.
Coming to the updates on the residential projects. We have sold 17 new units during the quarter, commanding a rate of INR 21,548 per square feet, which is 14% higher than the rates averaged in FY '24. In all, 138 units have been sold since the relaunch of the projects. We expect the rate buoyancy to continue for the rest of the inventory.
Consolidated revenue for the quarter was INR 3.7 billion, a growth of 17% year-on-year. Consolidated adjusted EBITDA was at INR 1.5 billion with a growth of 14% and margin of 40.2%. Consolidated PBT for the quarter was INR 0.8 billion versus INR 0.4 billion in the same quarter last year. Now coming to debt. During the year, the company spent about INR 1.3 billion across capital expenses, which was majorly met out of internal accruals. The net debt as on 30th June '24, was at INR 15 billion, marginally up from our debt post QIP in April. Majority of this debt is allocable to capital work in progress and assets not yet operationalized of about INR 15 billion. These investments are expected to generate a ROCE of 18% to 20%.
We closed the quarter with a significant improvement in cost of finance standing at 8.43%, a reduction of 44 bps from March '24. I'm also happy to add here that ICRA has maintained positive outlook for Chalet with a new rating of A and upgrade from A-. The company continues to invest in its growth and has a CapEx plan of around INR 15 billion for the next 7 quarters for the announced projects, which will be largely funded through internal accruals. The only exception on this would be the new investments in Goa, which, of course, we would apprise you in due course.
The company is on a strong growth path. Our balance sheet is in a very comfortable position to support further strategic growth opportunities.
With this, let me open the floor for Q&A.
[Operator Instructions] The first question is from the line of Archana Gude from IDBI Capital.
Congrats on the good set of numbers. Sir, I have a few questions. Firstly, somewhere the new CFO mentioned about the Goa market, so anything going on concrete on that front? I'm just curious to understand.
Archana, good to have you back. Look, we've just announced this morning that we have had a committee approval to conclude a process for acquisition of a land parcel in Goa. Those details have been put up in a notice and I referred to them in my opening statement. Just as a very quick macro overview on this transaction. It's 11-acre site on the beach front and we expect to get about 188 beds converting to about 170-odd rooms. This acquisition opportunity comes with approvals on the plot already. So our time to have shovels in the ground post acquisition will be very short. Goa, as you know, is a very strong market.
Right, sir. Absolutely. I think that is outperforming most other markets. So secondly, on Hyderabad market, I don't have this absolute number for occupancy. But when we look at this presentation at this double-digit growth of occupancy one ADR being negative. So is that a prudent call from the management to focus more on occupancy part to boost the RevPAR or that was just one-off?
So these are all tactical initiatives that are taken depending on market conditions, Archana. When we see months that are slightly stretched, we tend to, in advance, decide to go with the occupancy-led strategies to fill up the hotel. But Hyderabad had another thing at play. We added a new hotel, the second hotel, which is 100% occupancy. So blended occupancy for Hyderabad will show higher growth than last year because of the new hotel with 100% occupancy at play over here.
Yes. Right. And sir, lastly, on the rental market, how the situation in Mumbai market? Do we see some momentum going ahead?
Yes. So look, we've got 2, 3 deals, which are literally on the verge of closing, but the formal closing has not happened, so we've not been able to announce them. I know it's a little frustrating that it's going slower than we expected it to. But we are very confident that the -- out of the 2.4 million square foot of office portfolio that we have. By the end of the calendar year, we would have around 90% of the portfolio leased out already. Bangalore is moving very well.
The next question is from the line of Jaiveer Shekhawat from Ambit Capital.
Mr. Sethi, firstly, on the Hyderabad market, we have seen other hotel companies sort of see healthy RevPAR growth there. Now we understand that the new hotel, which came in was already contracted at double-digit rate acceleration. So if you could just point out why we have seen growth decline there? Is it largely because of the election impact? Or is there anything else that play there?
No, just to highlight here, we haven't seen a decrease in the Hyderabad market. In fact, our old [indiscernible] which is the Mindspace with 427 rooms, we have reported 13% RevPAR growth with an equal mix of rate and occupancy led growth in that hotel. And then, of course, Westin HITEC, which is a new hotel, has had 100% occupancies with rate growing by 15% over there.
So what you'll see there is because it is already 100%. It was 100% last year, you did not see any occupancy growth, but the rate is growing by 15%. As a result, the RevPAR growth even in the Westin HITEC, which is the second hotel, is 15%. So to summarize, Hyderabad Mindspace 13% RevPAR growth, Hyderabad HITEC 15% RevPAR growth.
Sure. So the reason why we are seeing a decline in the ADRs, the blended ADRs because the Westin the new one has lower ADRs. Is my understanding right?
Lower rate, yes, so.
Understood. Just on the Goa plans that you have. So could you talk about the time lines as well as the branding and price points that you might be looking at?
So look, from a time line perspective first, we expect to conclude the deal in the next couple of weeks. We are required to have a Board resolution authorizing the same when we go to the registrar. That's where we are right now. So we've taken that approval this morning, and we'll be submitting the documents to the registrar there. We expect to conclude in 2 weeks' time.
As far as the market is concerned, Goa continues to be a very strong market. This is a beachfront property with a proper beach in the front and a really good quality beach and water.
From a positioning perspective, I think we've already said it will be a 5-star deluxe hotel, which is a top category in India. There's nothing higher than that as well. Classification committees -- classification ratings go. And we expect to compete with the best over there. And because we're getting this hotel with approvals already in place, this particular land, this approval is already in place. Time to move from acquiring it to starting construction is going to be a few months only, it's only a very short period. My guess is that we're looking at maybe having shovels in the ground as soon as the monsoon hits.
Right. [indiscernible] really the other hotels, luxury hotels might take 5, 6 years. Do you think you will be able to do that in 3, 4 years?
Yes. I mean, we are very confident that 3 years will be up and about because a large part of Goa development process gets -- time use gets -- time gets used up in approvals. This particular line has come with the approval in place. So it's only construction that we have to do. Design is already in place.
Sure. Last question, I'm just trying to resolve the dilemma. So if you see the results across hotel companies over the last fourth quarter as well as this quarter, I mean, let's remove the election impact. What we have seen is moderation over the RevPAR growth front despite the fact that a lot of supply, which has been announced is not yet in the market. And we have still started seeing moderation in RevPAR growth to say single digits. Now what's the outlook for the rest of the year? And do you think next year it could actually accelerate and reasons for the same.
Jaiveer, I actually expect it to sort of start improving from this quarter itself. And obviously, Quarter 3 and Quarter 4 will be very strong. And it's a little incorrect to compare Q4 to Q1 because...
We are actually seeing Y-o-Y growth rates in both quarters.
We've got our same-store growth rate at 9% on revenue, which is despite the election impact and election impact took us by surprise, I must admit that. I got that wrong. I thought the impact will be minimal. But somewhere during the election process, I think the mood and dynamics and the tone and tenor changed, which caused everyone to wait and watch. And that sort of slowed down travel for a lot of people in India. We're seeing this impact across industries. Q1 has not been the best of quarters.
And when our feeder industries don't do well, we tend to have a slight slowdown. So I don't think that Q1 is a trend. Q1 is an aberration and the trend will continue down with growth quarter-on-quarter in the coming quarters even on a same-store basis.
The next question is from the line of Vikas from Antique.
Yes. So my first question is, how should we think about rates from current levels? We have seen ADR growth lowest in past 3 years and understandable because of the election and heatwave. One of your peers did talk about in the earnings call that they have seen a very strong recovery with rates moving more than 20% in the past 3 weeks. So what kind of outlook, are we seeing a very similar kind of a bounce back? Or is it more gradual for us?
Look, we don't give numbers that we have not disclosed, but I can tell you, July is looking very strong.
Okay. Okay. Sure. And secondly, if we -- if I talk about our medium-term growth type. So obviously, rates are going to land somewhere in the mid-single digits once maybe from next year onwards. So on organic basis, is it a right understanding that we should also grow in a very similar range, a new addition could take our revenue to be in the double-digit growth?
So I just want to highlight again to you, Vikas, that even in the quarter that was affected by elections, heat and no wedding dates in this quarter, we've managed to give on a same-store basis, 9% growth. And I'm pretty confident that in the subsequent quarters, we will get the double-digit growth that we are targeting.
Okay. Okay. And finally, on this Goa addition. So especially, I know last year, we did talk about adding more rooms in this leisure market. But last year, Goa was looking very attractive. Now with the other Asian markets easing up visa restriction, and I think Goa was the biggest hit in Q1. So do you think that this path adding more properties in this market is still the right way to go. This is my last question.
So Vikas, while Goa has seen some softening in rates, the waterfront or seafront properties continue to get a premium and they continue to do very well. And when you say that the rates there have softened, they softened from a very high number. I think the range that is taking a little bit of a hit is that INR 25,000 to INR 40,000 price point range. There's no resistance to the INR 15,000 to INR 20,000 price point range. So we believe that this will continue to do well and the scarcity of seafront, beachfront assets is what is going to drive business for the acquisition opportunity that we have. So there's a scarcity of assets on that category of hotels in Goa. A lot of them are moving into a landward side because beachfront properties are not available.
And this is in south or north, which area we are...
It's in south Goa.
The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Limited.
Yes. Sorry, I have a question on Goa again. Sir, if I heard you right, you mentioned that will open about 170-odd rooms in Goa and within 3 years, the hotel should be complete. Can you share what can be the debut ARR? And what is the total CapEx outlined for this? Hello, am I audible?
The management line has disconnected. We will connect the management line. Ladies and gentlemen, we have the management line reconnected.
Jinesh, are you there, sir?
Yes, sir. Should I repeat my question or you got it?
I heard your question, I was going to starting off on giving you the answer. Jinesh, what we have right now in Goa is, what we can share is that this is a very nice seafront land parcel, which comes with approval 11 acres in size. The current design has about 188-odd rooms drawn up, but those are based. So when we convert and add some suites, et cetera, it might reduce to about 170, 175 rooms. The market is very strong for the location that we are speaking about. It's a premium location and the product will clearly be at the high end.
Sir, by any chance, will you be able to share the CapEx number because land costs you have already shared, any rough indication you would want to give?
No. At this point of time, we'd not like to share those numbers. We will come back to you with final numbers, with a little more diligence potently.
Sure, sir. My second question is on our annuity business. So if I compare our leased area versus last quarter, I think there has been an increase of about 0.1 million square feet. However, our annuity revenue on sequential basis is flat at about INR 35-odd crores. So if you can just glean the reason behind this.
And also, our EBITDA margin has declined to about 74% in this quarter, which is a bit low when I compare it with our earlier quarter. So any comments on that as well?
Yes. I will have Nitin comment on this. On the EBITDA margin, the obvious -- because we have unoccupied inventory, we have to carry the cost of that, and they are not charged off to CAM. And therefore, that's showing that margin impact. But Nitin will come in and give details.
Jinesh, thanks for the question. The annuity business, if you see Quarter 1 FY '24 to FY '25, it has actually increased by 25%. And the reason is the extra inventory, which got leased out. And the reason for cost increase was purely that there is an unabsorbed common area maintenance and property tax.
That will get charged to -- into CAM of tenants, and our margins will then further settle down and improve.
Sure, I got that. But my question was more on the sequential revenue front because sequentially, and according to your PPT, whereby we see that the leased area has increased from about 1.1 million square feet to about 1.2 million square feet. But our revenue, if I look at 4Q and 1Q, they are flat at about INR 35 crores despite increasing area by 0.1 million square feet. So that was the question.
So our revenue has actually increased by 25%. That's what Nitin shared earlier. We were INR 285 million at Quarter 1 FY '24. It has increased to INR 355 million now, which is a 25% increase.
I will take this offline, sir. I'll take this offline. One last question from this side that is with respect to our occupancy in Pune which is down by about 16%, 17% and we mentioned that this is primarily due to the capacity reaching. But if I remember right, we had inaugurated [indiscernible] in October '23 and about 8 to 9 months have already lapsed with this new inventories operational. So I believe it did get some time to stabilize. I just wanted to check if there is something more to read into this occupancy number, which has fallen in double digit.
Sorry, the occupancy has fallen only on capacity addition. The actual occupancy of the old inventory is grown. So on a room -- daily basis, the rooms occupied per day have increased substantially. To your question of when it will stabilize? My view is that the quarter October to December, which will be the complete -- post the completion of 1 year of that new inventory, we will see normalization in that hotel. We are already seeing a very strong move in July this year.
[Operator Instructions] The next question is from the line of Prashant Biyani from Elara Securities.
Sir, on the hotel business, if you look at our number or for the industry, it has been the case that locations where we have seen occupancy increase, rates have reduced. And where ARR has been higher, occupancy has reduced. So it looks like there is demand, but it is waiting to come at a particular rate. What would be your view on the dynamics which is playing out right now on -- in this backdrop?
Prashant, thank you for your question. So look, revenue management is a key initiative that drive efficiencies into the hotel industry business. Seeing that the quarter is looking a little slower. Our strategy in some of the hotels became an occupancy-led strategy as against rate-based strategy for this quarter and especially for this quarter because we had an impact of the election for almost 1.5 months out of the 3 months that we had.
And I think that's worked favorably for us. And again, I want to repeat, at 9% growth over same quarter last year on a same-store basis, in a quarter that was challenged, I think it's quite a strong performance.
On an overall basis, we've grown by 15%, that's because of capacity addition. And you've got to remember that one of the hotels, Dukes Retreat has been completely out of action for almost 43 days out of the 91-odd days in the quarter. The reason we shut down that inventory was -- I was on the on-site in second week of May. And I felt the guest experience is getting compromised on account of the large construction equity going around. And as a result, because we are starting Phase 2, which involved some breaking up structures -- old structure, I just took a call not to allow guests to have that experience, we shut down the inventory. We are now opening before the 15th August long weekend with 37 new rooms and the new public areas that are ready for guest use.
It will, of course, be a not a full hotel in play. The full hotel in play will only come in during the December month with all its frills and guest experiences. But for now, we're opening 37 rooms with the new restaurant, a new bar, a new cafe, a new reception block and some new suites.
And it would be opening at around INR 15,000 ARR.
Yes. It's public knowledge. You can go to the website and see what rates we have opened hotel out at, post in the second floor.
And sir, on the Goa property, while you have shared all the details that you want to but the kind of property that we want to make there similar property would be charging what sort of an ARR in that location currently?
So look beachfront properties in the 5-star deluxe category, are hovering around the INR 17,000 to INR 25,000 price point. So that's the range, I think, when it opens 3 years from now with an adjusted for inflation for those 3 years, we should be able to open it.
And would the designs be -- we would be about to design it or we have the designs available?
So basic approval to start construction design is already done. All municipal, environment and other approvals are coming as a part of the deal. And we will do the registration. Right now, we are working on the closure of the deals.
The next question is from Sriram Srinivasan, an individual investor.
Many thanks for the opportunity. Hearty congratulations to the management with respect to successful completion of QIP and a reduction of [ sales ] and upgradation in [indiscernible] and developments at Goa are very -- many congratulations first of all, sir.
My question is more on the balance sheet side as well as on the occupancy as we have been expanding our portfolio in the next 3 to 4 years kind of time period. Sir, if I look at from the balance sheet perspective, we have been likely to invest about additional 200 -- INR 130 crores including this Goa asset, which we are planning to [ acquire ] as per today, are they going to happen in about next 3 to 3.5 years kind of a time period. So what is the kind of debt and equity or else internal, externals we have been trying for this [indiscernible] crores of an investment?
I will let Nitin comment and give you.
Yes. Thanks for your question. Look, CapEx for next 2 years, what we are planning is around INR 15 billion. Around INR 650 crores is basically for the new commercial task. Around INR 600 crores is for the hotels, which includes DIAL, Dukes, our Bangalore addition as well. And INR 250 crores, out of which INR 100 crores is a normal repair. So basically, the CapEx funding, if you see basically coming from our internal accrual, sir.
So the repair [ INR 1,500 crores ] What's impact that's more from an internal accruals. Will you have any equipment that's probably on this level.
Yes. The peak debt will remain at the same level. We don't expect more leverage on this, maybe around a little bit, but yes, more or less the peak debt will remain at the same level.
Yes. Sriram, from a cash flow perspective, there might be some increase -- mild increase because you've got to match the cash flow cycle of internal accruals to projects. But it is going to be very much under control and a very, very balanced approach to the treasury and the debt equity management.
Understood, sir. So the other question is that what is the INR 1,500 crores of it what we're carrying? What is the long-term and short-term proposition, sir?
Yes INR 1,500 crores, are you talking about the how many years we will spend this out over, right?
No. At the balance sheet level, what is the long-term borrowing and short-term borrowing sir our of INR 1,500 crores.
Long-term and short-term borrowings. It's all long term.
Yes. they are long-term borrowings.
Okay. So significant debt has been reduced in the short term borrowing. If my understanding is correct.
Yes, you're right.
Understood, sir. And more on the -- from the occupancy levels. As we have been inching towards almost like more than 800 rooms of additions in the next 3 to 3.5 years of time period. So what is the kind of an occupancy that we can able to get there -- we can able to manage at 72% to 75% next 3 years?
So I think now with today's announcement, you can add another 170 rooms to the 800-odd rooms that you -- 850-odd rooms that we're talking about. So roughly, our pipeline is now 1,000 rooms over the next 3 years or so. In terms of occupancy, look, currently, we are -- I think last year, we closed at 72%, 73% occupancy. We expect that to grow by 200 to 300 bps more going forward. But there will always be cycles when we open a hotel, it starts up with lower occupancy and over 4 quarters, it builds up. So those individual hotel impacts will be there on the portfolio level. But on a same-store basis, seeing mid-70% occupancies or maybe even higher in some of the hotels is pretty easy to deliver.
Understood, sir. Understood. Understood. And the last question is that on the sustainability of the margins at upward of 40%. I see -- I think that the industry has been in a very good scape -- I mean in good shape and very good scale. So I hope that we've been able to sustain at more than 40%, 41% kind of margins, sir?
We are confident on growing those margins. Thank you, Sriram.
[Operator Instructions] The next question is from the line of Raghav Malik from Jefferies.
Sorry if I missed this, sir, could you just share some color if possible on RevPAR across cities, like how it's been trending post Q1 in July?
So Raghav, thank you for your question. But we don't give forward-looking details out. What we typically do is if the earnings call is happening post a month of the subsequent quarter, we tend to disclose that on our earnings presentation. But since this is not end of the month, we've not given that as a part of the presentation. And I'll not be able to share the details, but let me assure you that July is looking very strong, both on occupancy and rate front.
Okay. I think I'll go through the presentation. I didn't actually see it through on the BSE. So I'll just go check. Could you also just share the current inventory in terms of hotels and rooms that we have in total?
So currently we have 10 hotels with roughly 3,052 rooms. We have now about 1,000 rooms in the pipeline, and you will find the details of the presentation. What you may not see on the presentation because the presentation got sent out last evening is the addition of Goa in the pipeline. But 10 operating hotels, 2 hotels are getting capacity addition within the same. 2 hotels being added as new inventory. And today, we've announced Goa so that becomes the 13th.
The next question is from the line Adhidev Chattopadhyay from ICICI Securities.
First question is you alluded to the -- actually around 90% leasing in our Powai and Bangalore rental assets by March. So getting into '26, what could be the broadly the exit rental income for '26 rental and EBITDA once this 90% leasing is achieved? That is the first question.
Once we've got the current 2.4 million square foot leased out, we expect roughly mid of INR 280-odd crores from these assets on an annualized basis.
Okay. EBITDA of INR 280 crores which is at 100% occupancy or you are referring to right?
90%, 95% occupancy, 95% occupancy.
Okay. Okay. Fine, fine. That is clear. And sir, just I don't know if you covered it for our NCR hotel, right, any developments over there you'd like to share in terms of what we are doing there or are we going to improve, upgrade the hotel? Or what is the plan over there for the rest of the year?
As I shared last time, we're doing 2 things over there, 2 big initiatives there. One, we are repositioning the Courtyard by Marriott and upgrading it to a Marriott. It requires some amount of minimal CapEx, about INR 8 crores, INR 10 crores, INR 12 crores. And then we've got the 6-acre land parcel. What we're doing now is developing a master plan for this property for going forward, and we will phase out -- phase additional inventory and depending on the occupancy pace up and the demand pace up. So for now, we're developing a master plan, how ultimately this resort can look like, but we will phase additional capacity depending on demand. From a positioning perspective, we expect to have the next 6 acres that we will develop actually reposition the asset even further upwards from where it is right now.
Okay. Sir, and just 1 more question, if I may. Sir, on our Delhi hotel line that is a large one, could you just tell us the broad construction status on that? Where are we on the structure? And when do we start the hotel interiors over there?
Yes, a quick update on that. This hotel, as you know, is in a shell lease from Delhi International Airport Limited, the shell is being developed by them and their rental start post a certain period after they complete the shell. So it is in the interest to speed up the shell development because their financials are aligned with us.
Where we stand right now, the work is going on the substructure work. Because this is 3 substructure flows, that's what will take time. Once you get to typical development, which is -- and the hotel is only ground plus 7 storeys, it will move very rapidly. As of now, we expect our team to get into the site by January to start lower floor work on the MEP site. And then as they keep handing over every floor to us, we'll continue improving. Our current target continues to be last quarter FY '26.
Okay. So I understand that the majority of CapEx is scheduled for next year, in the next financial year?
Yes because [indiscernible] is being done by Delhi International Airport Limited.
[Operator Instructions] The next question is from the line of Achal Kumar from HSBC.
I have two, if I may, please. First of all, now given that we see a possibility of interest rate going down, I mean do you think that could have some impact or some positive impact either on the more greenfield projects? Or do you think that, that may not be the case given that any, which ways capital cost remains high.
And in terms of inventory overall, do you have any sort of kind of color in terms of how much growth do you think coming from greenfield, brownfield and how much from the conversion? That is my first question.
And secondly, in terms of demand. So in the last few months, in the last -- at least in the last 4, 5 months, I think the airline demand has significantly softened to 4%, 5%. Do you think that is because of the high fares? Or do you think that's an underlying weakness in demand? And if that is the case, how do you see the demand for the hotels?
Great questions, Achal. So firstly, on the interest, I mean, we don't have any indication of interest rate drop. But if it does happen, it will affect us positively because we are a capital-intensive business. We have a very healthy rate even now. And we -- obviously, when the market drops rates, we will get the benefit -- additional benefit of that. And going forward, we do expect that our cost of capital will continue to move downwards. Also, you must remember that our rating is improving. It's already improved in the last quarter. We expect further changes on this going forward.
So we expect CapEx cost to be well under control. And if interest rates come down, obviously, it will help our IDC and therefore, help the balance sheet.
On the inventory addition, as I mentioned earlier, we have 3,052 rooms now. We've got roughly 1,000 rooms in the pipeline now with 3 additional hotels potentially. And so we are on target for a 4,000 room sort of inventory in the near future of existing operating hotels as well as pipeline. And we expect to add to the pipeline going forward further. So therefore, we expect to be in the growth mode for some time to come.
On the airline demand softening up and the impact on hotels. Look, yes, there is a direct correlation to some extent. The problem is that -- not the problem, the opportunity is that the difference between demand and supply of hotel rooms in key cities in India continues to be favoring the market and the industry. So therefore, that will continue to get growth from.
Airport or airline seats do sometimes choke up demand, and we see that happening or playing a role in Mumbai. And the addition of a new airport in Mumbai, which is expected sometime next year, it's clearly going to be a big positive for this city and it should help the hotel industry in this city immensely. And given that almost 60% of our portfolio at Chalet today is in Mumbai, we expect that, that will help us significantly.
[Operator Instructions] The next question is from the line of Rajiv Bharati from Nuvama.
Sir, this 9% number, same-store that is for the hospitality or for the entire business?
Hospitality.
So your ARR is up 4%, right, on the same-store basis.
That's right.
So remaining is F&B, MICE...
And occupancy loss.
Yes. So I mean on -- especially on the MICE bit, have you seen traction here or that has been slow this quarter?
MICE has been slow given that the elections are on and there were no auspicious dates of weddings. So the wedding dates pushed into the Quarter 2. In fact, if you go through any of the industries that rely heavily on weddings, you will find that they -- their performance last quarter has not been great. Quarter 2 is where they see a lot of movement, and we are seeing the impact of that in our Courtyard by Marriott Aravali, where weddings have started this month, and we're seeing very positive traction. So from a MICE perspective, we'll expect, as always, that H2 will see a serious scale up. That's always the best half for the hotel industry in any case. So we expect occupancies and rates to grow quite sharply starting October.
Sure. And sir, on this Four Point asset, I thought you plan to renovate that sometime in near future, right? So any update on that?
Yes. So we've almost completed the [ mockup ] room, which is the step 1 to starting renovation of the room part of the hotel. And as soon as that's finished and approved by us, we will get into renovating the hotel. We will probably take 2 or 3 floors at a time, and we should complete the project in around 10 months' time.
And sir, including this asset renovation plus, let's say, the Goa thing, did you mention the peak debt between the call? I missed that number.
So right now, the debt is around INR 1,500 crores. This may go up marginally over some period of time. Very little, but that will probably be the peak. And going with our pipeline right now, I don't think -- we are going too much over that point if I start scaling down in about a year from now.
Sure. And lastly, on this Bangalore ARR improvement. So we used to be at a premium to, let's say, your competitor. And now if the premium is restoring, how much juice was left in this? In the sense do you think we can go another 30%, 40% on business side?
So I think Bangalore's ADR has been a very positive story. And I think occupancy is probably the upside there. Bangalore is again driven by H2 performance, which is the primary half for the hotel, and we expect occupancies to move sharply upwards going forward for Bangalore, and it will continue to improve on rates also.
Another addition update, Rajiv, is that the 130 rooms will also get added to Bangalore in December. Maybe even slightly earlier than that actually.
The next question is from the line of Saurabh Jain from HDFC Life Insurance.
Yes. So just a follow-up on the previous participant's question. So you said that Q1 was weak in terms of MICE demand because of the elections and the heatwaves. But when I see the F&B growth that is higher than the room revenue growth. So can you just explain on that? Why is that?
So look, F&B, we have been unlocking opportunities of F&B in our hotels over the last couple of years. We have sweated the assets by identifying more non-revenue earning areas and developing them into revenue earning areas largely on the office side. For example, in Powai, we squeezed out 4 more rooms, but then I think the big initiative there was opening the 2 Japanese outlets, the Japanese Tappas bar and a Japanese restaurant. Both have been received very well. The Indian restaurants have got renovated.
Then in Q1, we also had the benefit of the outdoor [ food side ] Indian restaurant that we've opened at Sahar. That's been helpful. And banquets, we've managed to do well. All this combination combined together has given us the F&B growth in our hotel.
So look, when room demand gets challenged, we play F&B strategies, we play occupancy-led strategies, and this is the outcome where we've been able to deliver what we've been able to deliver. And this, I'm sure, is not the reference quarter for a trend. The trend will be established in the subsequent quarters.
Ladies and gentlemen, that was the last question for today. We have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Sanjay Sethi, for the closing comments.
Thank you, Jerald. Ladies and gentlemen, the closing comments continue to be on a positive note. The tailwinds for the industry continue to be very strong. The demand supply arbitrage is favorable. Chalet has a very strong growth pipeline, which is asset-led growth. And clearly, will add significant numbers to our P&L balance sheet and with 4,000-odd rooms now on the cards, our BD team will continue to work on additional capacity opportunities in line with our strategic destinations. And I want to repeat those strategic destinations or our strategy for growth.
We'll continue to focus on the traditional Chalet strategy of big box, big city hotels as and when we get opportunity. In addition to that, our leisure play is centered around drivable distances from the big cities of Delhi, Mumbai, Bangalore and Hyderabad and also the deep markets of Goa. And maybe Rajasthan, if we get an opportunity there.
I do want to add that one of the hotels in the pipeline that we haven't spoken too much about is the one in Kerala where we have 42-odd acres on the outskirts of Trivandrum with a beautiful lake front, where we will in Phase 1 develop 150 rooms in the convention center. And then slowly add capacity of cottages or villas going forward.
With that, I conclude this quarter's call. Thank you very much for your support, and feel free to reach out to me and my team for any further information you may need. Thank you.
On behalf of Chalet Hotels Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.