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Chalet Hotel CFO says focus on upper upscale and luxury-only, not budget hotels
The company is betting on high entry barriers, a favourable demand–supply gap, and marquee projects in Goa, Delhi, and other prime markets to power its next phase of growth, Nitin Khanna said.
With the hospitality sector buzzing and new players entering the market, Chalet Hotels is keeping its sights firmly on the upper upscale and luxury segments. The company at this point is not looking to enter the budget or mid-segment which has seen increased interest in recent times, said Nitin Khanna, CFO, Chalet Hotels in an exclusive interview with ETCFO.
“We typically don’t look at hotels with fewer than 100 rooms, aim for properties generating Rs 25 crore or more in EBITDA, and target a ROCE above 12%,” said Khanna.
Backed by a Rs 2,000-crore capex plan funded largely through internal accruals, the company is betting on high entry barriers, a favourable demand–supply gap, and marquee projects in Goa, Delhi, and other prime markets to power its next phase of growth, the CFO said.
Khanna also spoke on the demand scenario, strategies of different verticals, capex plan, GST and compliance challenges and upcoming projects.
In Q1FY26, the Chalet Hotels clocked a revenue of Rs 908 crore, up 146% year-on-year (Y-o-Y) — largely due to the one-off sales in the residential segment. The company’s profit after tax (PAT) stood at Rs 203 crore, up 235% Y-o-Y.
Edited Excerpts:
Looking at the next couple of financial years — FY26 and FY27 — now that residential is also contributing, what revenue growth targets have you set?
We do not give forward looking statements, but I can give you a broad idea and some high level targets we are looking at.
Currently, we have three businesses: hospitality, which is the primary driver for Chalet Hotels; annuity business; and the residential business.
From the hospitality perspective, we are looking at around double digit RevPAR growth for FY26, and we expect a similar trend going forward. For the commercial business, our June exit was Rs 25 crore, and for FY26 we are looking at close to Rs 300 crore.
On the residential business, we started handing over flats in the old Bangalore project. The first lot was 95 flats, where the first revenue recognition happened. The balance 58 flats will be handed over in Q2. For Q3 and Q4, we do not anticipate anything more from this project. Next year, the second phase revenue will get recognised. There is also a commercial tower in the same project, likely in FY28.
Additionally, we have a commercial building coming up in Powai — around 9.5 lakh square feet — which should be ready in FY27 or FY28, and that will start contributing positively from then.
In terms of your three business segments — real estate, hospitality, and rentals — what is your strategy for the next three to four years?
For residential, our focus is on handing over flats in phase one and phase two of the Bangalore project and starting the commercial building so it is ready by FY28, ensuring timelines are met under RERA.
In hospitality, we see a double-digit RevPAR growth. Recent additions like Rishikesh with 150 keys, Marriott Whitefield with 121 keys, and the refurbished Dukes near Mumbai will add revenue this year.
For new projects, our priority is to fast-track the Goa properties at Bambolim and Varca and the Delhi Airport Taj property with 380 keys, targeted for FY27.
For operating assets, we are focusing on efficiencies, customer experience, refurbishment, and meeting ESG commitments. These are our top priorities for the next two to three years.
Since you talked about a capex and upcoming projects in construction, what is the capex budget for this financial year? And are there any plans to raise funds in the near future?
The announced projects will see a spend of around Rs 2,000 crore in the next three years, funded from internal accruals. There may be some cyclical blips in our debt profile, but we will manage through internal accruals.
We have an enabling resolution of Rs 1,000 crore, along with headroom in the balance sheet, which can be deployed for acquisitions or greenfield projects. Currently, our debt is two times forward EBITDA, and we are comfortable going up to 3–3.5x, giving us enough headroom.
In terms of regulation and compliance, are there areas where the industry feels a relook from the government is needed?
GST has not been kind to us, especially for five-star hotels where room rates exceed Rs 7,500. Construction GST has to be capitalised and we do not get credit. Licensing remains heavy, from excise to entry frisking, along with stringent ESG, green building, and labour compliances.
Talent shortage is another issue — even hotel management institutes have vacant seats. Local compliances vary by state and municipality, adding complexity. Maharashtra had earlier given us industrial status with benefits in electricity duty, but this has been reversed under the latest MERC circular, adding cost pressure.
With all this CapEx and expansion, is demand the main growth lever right now?
Yes. Any new hotel takes 3–4 years to come up, so supply is predictable. In our upper upscale segment, we do not see serious competition in most cities for the next three years. Entry barriers are high due to land costs, especially in metros, so the demand–supply gap will continue, supporting double-digit RevPAR growth.
Which markets are you looking at for upcoming hotels?
We focus on business districts and leisure destinations within drivable distance from key metros. That is why we acquired The West In Spa and Resort in Rishikesh, Courtyard by Marriot in Faridabad and Dukes in Khandala. On the leisure side, Rajasthan and popular marriage destinations are on the radar. For business hotels, Hyderabad and Bangalore still have room for more supply.
And what about foreign travellers? Have arrivals returned to pre-COVID levels, or has domestic tourism taken over?
We have two big business segments — business hotels and leisure. Over the last three years, we have been looking closely at leisure as part of our strategy.
In leisure destinations, especially those within driving distance from metro cities— the domestic share is much higher, around 95%. But in our business hotels, the contribution of foreign travellers is significantly higher.
On a weighted average, foreign travellers account for about 35–40%. Compared to pre-COVID levels, I still feel there is a small gap that remains.
Source: ET CFO