Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Stable/Crisil A1+' ratings on the bank facilities and debt instruments of Chalet Hotels Ltd (CHL).

 

The ratings continue to reflect the company’s strong business risk profile driven by its established position in the luxury hospitality segment with presence in seven cities and tie-ups with marquee hotel operators, and benefits derived from diversification into commercial real estate segment. The ratings continue to factor in the comfortable financial risk profile of the company and the extensive experience of the promoter, the K Raheja Corp Group, in commercial real estate development. These strengths are partially offset by susceptibility to cyclicality in the hospitality industry, asset concentration risk with more than 50% of revenue coming from the Mumbai Metropolitan Region (MMR), and sizeable capital expenditure (capex) plans for the medium term.

 

CHL owns 11 luxury hotels with 3,314 keys across Mumbai, Hyderabad, Bengaluru, Navi Mumbai, Pune, Rishikesh and Delhi-NCR (Aravali). It has management tie-ups with the Marriott and Accor groups for nine of these hotels, operates one hotel under the franchise model and one is self-operated. CHL plans to add ~650 keys to its hotel portfolio over the next three years, with 75 keys through brownfield expansion at existing hotels and 575 keys through the greenfield route. It is setting up with two new hotels — Taj at Terminal 3, Delhi International Airport, and New Upper upscale hotel in Varca, Goa — which are expected to be operational in fiscals 2027 and 2028, respectively. Furthermore, the company has acquired The Westin Resort & Spa in Rishikesh, which will aid geographical diversification and support long-term growth.

 

The hospitality portfolio had strong performance in fiscal 2025, with revenue of Rs 1,521 crore (Rs 1,293 crore in fiscal 2024) and earnings before interest, tax, depreciation and amortisation (Ebitda) margin (including corporate expenses) of 40.4% (39.8% in fiscal 2024). The improvement in performance was driven by 13% increase in average room rate (ARR) to Rs 12,094 in fiscal 2025 from Rs 10,718 in fiscal 2024 while occupancy stood at a healthy 73%. Strong demand and limited supply in the cities in which CHL operates will help sustain healthy operating performance in fiscal 2026.

 

The company has constructed 2.4 million square feet (msf) of rent-generating commercial assets in proximity to its hotels in Mumbai and Bengaluru. As on March 31, 2025, ~71% of total area was leased (~46% as on March 31, 2024). The commercial segment generated revenue of Rs 197 crore in fiscal 2025 (Rs 124 crore in fiscal 2024) with Ebitda margin of 78.2% (79.7%). With a major portion of leasing expected to be completed by March 2026, contribution from the rental assets is expected to increase. CHL is also developing 0.9 msf of commercial space in Powai, Mumbai, which is expected to be completed by fiscal 2028.

 

The company has developed a residential project in Koramangala, Bengaluru, comprising 321 units spanning saleable area of 0.85 msf, and a commercial tower for strata sale with total saleable area of 0.15 msf. As on March 31, 2025, on overall project basis, the company incurred cost of Rs 605 crore and sold 80% of the total inventory and collected customer advances of Rs 827 crore. It has received occupancy certificates for 9 of the 11 towers and the company has started booking revenue from fiscal 2026. The project will generate significant cash surplus over the medium term and will boost the company’s cash accrual.

 

In fiscal 2025, overall revenue stood at Rs 1,718 crore, Ebitda margin was 43.3% and net cash accrual was Rs 523 crore.

 

The financial risk profile is comfortable despite debt-funded acquisition in the fourth quarter of fiscal 2025 and expected additional lease rental discounting (LRD) loan to be taken this fiscal. Gearing is expected to be healthy at 0.72 time as on March 31, 2026 (0.86 time a year earlier). Total debt to Ebitda ratio and interest coverage are expected to improve to below ~2.2 times and over 7 times, respectively, in fiscal 2026 from 3.41 times and 4.86 times, respectively, in fiscal 2025. Sustenance of healthy leverage will be a key monitorable. Given the sizeable capex commitment of Rs 2,500-2,600 crore over the next three fiscals, any delay in the projects resulting in cost overrun will be a key monitorable.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of CHL and its subsidiaries. This is because all these companies, collectively referred to as CHL, have strong business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong business risk profile driven by established position in the hospitality and commercial real estate segments: CHL’s market position in the hotel segment is supported by the strategic business/leisure locations of all its assets (proximity of hotels to key hubs, such as airports and commercial buildings) and tie-ups with international operators such as Marriott and Accor. Moreover, despite high geographic concentration in MMR, expected diversification into new geographies and leisure hotels – for instance, through the recent acquisition of The Westin Resort & Spa in Rishikesh and land acquired in Goa for a new hotel project – will strengthen the business risk profile in the hospitality segment.

 

• The company develops hotel-led mixed-use spaces by adding complementary commercial spaces in proximity to certain hotels, thereby generating synergies. For instance, providing the hotels for MICE events helps drive up room occupancy and F&B income. In fiscal 2025, the hospitality and commercial real estate segments accounted for 89% and 11% of revenue, respectively, and 79% and 21% of Ebitda, respectively. The diversified revenue stream has helped cash flow. During downcycles in the hospitality industry, cash flow from the commercial realty segment supported overall cash flow.

 

• Partnerships with renowned international hospitality operators: CHL benefits from long-term management contracts with globally renowned hospitality brands, such as Sheraton, Westin, Novotel, JW Marriott and Marriott, which are part of the Marriott and Accor groups. These partnerships provide CHL with access to the established global branding, marketing and advertising networks of Marriott and Accor. Seven of CHL's nine hotels operate under Marriott's premium brands, while Novotel Pune, acquired in February 2020, is managed under the Accor flag. CHL also leverages the management expertise and sophisticated online reservation systems of these international brands, enhancing its operational efficiency and market reach.

 

• Comfortable financial risk profile: Strong revenue growth and healthy profitability resulted in robust cash accrual of Rs 523 crore in fiscal 2025. Healthy accrual across segments is expected to boost the financial risk profile. Despite debt-funded acquisition and expected additional debt to be drawn, gearing is expected to improve to less than 0.8 time this fiscal from 0.86 time as on March 31, 2025. Also, the debt to Ebitda ratio is expected to improve to less than 2.5 times in fiscal 2026 from 3.41 times in fiscal 2025. The debt to Ebitda ratio was higher than expected in fiscal 2025 owing to debt-funded acquisition in the fourth quarter of fiscal 2025. Furthermore, the interest coverage ratio is expected above 7 times, as against 4.86 times in fiscal 2025.

 

• Healthy financial flexibility supported by strong promoter pedigree: The company enjoys strong financial flexibility from being part of the K Raheja Corp group. The promoters will continue to extend timely and adequate financial support, if required. They have infused around Rs 200 crore of preference share capital in the past for the residential project and provided support during challenging times.

 

Weaknesses:

• Exposure to cyclicality in the hospitality industry: The hospitality sector is susceptible to downturns in the domestic and international economies. Business destinations are more sensitive. For example, growth in revenue per available room (RevPAR) in business destinations is more sensitive to macroeconomic indicators, such as nominal growth in gross domestic product. On the other hand, leisure destinations are more sensitive to non-economic factors, such as terror attacks and health-related travel warnings, as seen during the Covid-19 pandemic. Besides, the RevPAR of premium hotels declines more sharply during downturns than mid-sized or economy hotels, but operating cost remains high. Thus, cash flow from these properties is more susceptible to downturns.

 

• Geographic and asset concentration risk: CHL owns 11 hotels with 3,314 keys across Mumbai, Hyderabad, Bengaluru, Navi Mumbai, Pune and Delhi-NCR (Aravali). Over 50% of the keys are in MMR (JW Marriott Sahar, Westin Powai and Four Points by Sheraton, Vashi). In fiscal 2025, JW Marriott Sahar and Westin Powai in contributed to more than 50% revenue, exposing CHL to asset-specific risk. However, the ongoing expansion in Delhi (Taj) and Goa, along with the recent acquisition of The Westin Resort & Spa in Rishikesh, will diversify the portfolio and reduce revenue concentration risk over the medium term.

 

• Expected sizeable capex over the medium term: The company has capex commitment of Rs 2,500-2,600 crore over fiscals 2026-2028. It plans to spend ~Rs 750 crore for the development of a commercial office building in Powai and ~Rs 1,750 crore in the hotel segment. This capex will add 650 keys to its hotel portfolio, including 75 keys through brownfield expansion at existing hotels and 575 keys through greenfield development. Upon completion, the number of keys will increase from 3,314 as on March 31, 2025, to 3,964 keys in fiscal 2028. The capex will be funded through a prudent mix of internal accrual and debt. As some of its properties are still in early stages of construction, any significant cost or time overrun will be monitorable, despite the proven execution capabilities of the promoters. Additionally, while the K Raheja Corp group has a strong track record of property leasing and commercial asset management, any weakness in the economy or lag in pre-leasing could impact the rentals for the upcoming assets and growth in rent.

Liquidity: Strong

Liquidity is supported by healthy unencumbered cash and bank balance of Rs 285 crore as on March 31, 2025. The company is expected to generate cash accrual of Rs 850-1,100 crore over the medium term against debt obligation of Rs 200-350 crore and capex of 2,500-2,600 crore over the next three fiscals (fiscals 2026-2028), which is likely to be funded through internal accrual and external debt. Also, fund-based bank limit of ~Rs 164 crore was utilised at a moderate 31% on average over the 12 months through May 2025, which provides additional cushion. The liquidity position remains strong supported by healthy cash accrual, cushion in working capital limit and financial flexibility owing to the company’s ability to access capital markets.

Outlook: Stable

CHL will continue to benefit from its established market position, tie-ups with reputed international operators, such as Marriott and Accor, and comfortable financial risk profile and financial flexibility.

Rating sensitivity factors

Upward factors:

• Growth in revenue and sustenance of operating margin leading to higher cash accrual
• Debt to Ebitda ratio below 2.0 times (excluding residential real estate segment) on a sustained basis

 

Downward factors:

• Decline in revenue or profitability leading to lower cash accrual, or large, debt-funded capex weakening the credit risk profile
• Cost and time overruns in ongoing projects impacting the debt metrics
• Debt to Ebitda ratio weakening to more than 2.75 times (excluding residential real estate segment) on a sustained basis

About the Company

CHL, part of the K Raheja Corp group, is engaged in hospitality and real estate development segments. CHL is the owner, developer, asset manager and operator of high-end hotels and a hotel-led, mixed-use developer in metropolitan cities, such as MMR, Hyderabad, Bengaluru and Pune. In fiscal 2025, the company diversified into Rishikesh through The Westin Resort & Spa. The company has four operational commercial real estate assets of 2.4 msf, as well as 0.9 msf of commercial property in the pipeline in Powai, Mumbai. CHL also has an ongoing residential project in Koramangala, Bengaluru, wherein it has sold 80% of the area on overall project basis (residential and commercial) and will start booking revenue from fiscal 2026.

Any other information: Not Applicable