The agency upgraded the company's short term rating to “[ICRA] A2+” from “[ICRA] A2”.

ICRA said that the revision in the ratings and outlook on the long-term rating factor in the healthy improvement in Chalet Hotels Limited's (CHL) performance in FY2023 and expectation of a sustained performance improvement in the same, going forward.

The hospitality segment, which represents approximately 54% of the total assets, reported healthy revenues of Rs. 1,028.1 crore in FY2023, 13% higher than pre-Covid levels, aided by traction in demand. The commercial real estate (CRE) segment, accounting for approximately 46% of the total assets, also witnessed healthy traction in demand, resulting in an overall revenue growth of approximately 14% over pre-Covid levels.

Improved operating leverage and sustenance of cost optimisation measures undertaken by the company during the Covid period resulted in healthy margins of 40.6% in FY2023, higher than the pre-Covid margins of 36.9%. Going forward, the demand for both hotels and CRE remain healthy.

In addition, incremental inventory in hotels, multifold increase in leasable office area to 2.2 million sq. ft. by FY2024 from 0.5 million sq. ft. in FY2023, and sale of residential apartments from the ongoing project in Koramangala, Bangalore, are likely to support cashflows. CHL's margins are expected to remain healthy going forward, as scale and share of revenues from the higher margin CRE segment increase.

The ratings remain supported by CHL, being a part of the K Raheja Corp (CL Raheja) Group, an established name in the hospitality, commercial and residential real estate businesses. The ratings also factor in CHL's healthy financial flexibility and adequate liquidity, its diverse business mix, and management tie-up with reputed international hotel brands like Marriott International Inc. and Accor Hotels.

CHL, however, has relatively high geographic concentration with approximately 54% of its inventory in Mumbai, exposing it to region-specific exogenous shocks and risks. Its tenant concentration also remains high with approximately 80% of revenues coming from a single lessee.

However, the anticipated hotel inventory addition and likely addition of new tenants in the upcoming commercial properties in Mumbai and Bangalore are expected to reduce the risks, going forward.

Chalet Hotels, promoted by the K. Raheja Corp Group (C. L. Raheja Group), is engaged in hospitality and real estate development. The promoter group is one of the leading business houses in the country with a presence in real estate development, retail and hospitality segments. The company's existing hotel properties comprise of 2,802 keys as of 30 June 2023.

The company reported a consolidated net profit of Rs 39.26 crore in Q4 FY23 as compared to net loss of Rs 11.56 crore in Q4 FY22. Revenue from operations soared 128.28% to Rs 337.87 crore in 31 March 2023 as compared with Rs 148.01 crore posted in corresponding quarter last year.

The scrip rose 0.68% to currently trade at Rs 453.50 on the BSE.