Top pick: Despite negative YTD return, Jefferies India says buy this hotel stock for 15% upside; Target price, rationale

Jefferies India stock recommendations: the brokerage has given a target price of ₹965, up 15% against the current market price despite 7% correction in YTD

Jefferies India stock recommendations: Chalet Hotels shares are among the beaten-down stocks in the Indian stock market. In YTD time, Chalet Hotels' share price has delivered a negative return, correcting by over 7%. Despite this, Jefferies' Indian report has given a 'buy' tag to the hotel stock, with a Chalet Hotels share price target of ₹965. Chalet Hotels' share price today is ₹834.90 per share on the NSE. So, the global brokerage is expecting around 15% upside in the Chalet Hotels shares.

Jefferies stock recommendation

On the rationale behind being bullish on Chalet Hotels shares, the Jefferies India report says, "We hosted Chalet's senior management for meetings in SG. Key takeaways include visibility on strong growth over the next 5 yrs, driven by its existing pipeline (~9-10% keys CAGR) & potential new adds/M&A. Management aims to build Athiva into a leading pan-India premium hospitality brand (1,200-1,500 keys). Co targets higher leisure mix & selective market expansion, while its high-margin CRE portfolio provides recurring CFs that underpin growth & earnings stability."

The Jefferies India report further added that management's vision extends beyond adding room inventory, focusing instead on building a scaled owner-operator ecosystem through large-format asset ownership, selective geographic expansion, growth of its owned brand Athiva, & increased use of franchise-led models. Partnerships such as Marriott's Autograph Collection & IHCL's first Taj franchise with Chalet underscore its rising operating credibility, while stable annuity income from commercial RE provides the capital flexibility to fund future growth.

Execution and pipeline delivery powers revenue growth

The global brokerage said that management outlined its rapid growth plans, supported by its 2,036-key development pipeline (including recent additions in Pune & Hyderabad totalling ~380 keys). Growth is expected to be largely execution-led, with existing assets contributing half of the EBITDA growth over the next 5 years, driven by LFL growth and asset sweating and the other half through new projects/ acquisitions. Management expects RevPAR growth in mid-to-high single digits, supporting overall revenue growth in the mid-teens.

Selective and focused geographic diversification

The Chalet Hotels' management continues to expand beyond its traditional Western India concentration but remains disciplined in market selection. Recent additions in Aravali, the Himalayas & Udaipur, alongside the upcoming Taj property at Delhi Airport, reflect a conscious effort to build a stronger presence in Northern India. Near-term additions include the phased opening of Taj Delhi Airport (starting with ~70 rooms) and Athiva South Goa over the next 18-24 months, following approvals which are expected by Jan-27.

Earnings stability and growth capital

Chalet Hotels' commercial RE portfolio is a key pillar of its growth strategy, generating ~Rs2.5-3bn of annual EBITDA. These recurring CFs provide a stable earnings base, strengthen debt serviceability and support future expansion in Hotels, reducing dependence on the inherently cyclical hotel business.

Chalet Hotels share price target

Giving a 'buy' rating to Chalet Hotels shares, the Jefferies India report said, "Buy rated with a PT (Price Target) of ₹965 (SOTP-based)."

However, the brokerage warned investors, highlighting some key risks, which are as follows:

1] A slowdown in the global/domestic economy;

2] Resurfacing of issues such as a pandemic, and

3] Magnified impact of downcycle, given 100% Asset Owner model.