If the deal goes through, this will be the first acquisition by the Mumbai-based firm and mark a departure from the existing strategy of expanding through greenfield projects. Chalet is the asset manager for properties, including JW Marriott, Sahar, Mumbai; Marriott Hotel, Whitefield, Bengaluru, The West in Hyderabad Mindspace; Four Points by Sheraton, Vashi in Navi Mumbai, and Renaissance.
An analyst said given the up-cycle witnessing the hospitality sector, the deal pipeline in the sector would be a busy one in the coming months.
"Quite a few family offices, high net worth individuals, institutional investors are evaluating hotel transactions. It looks like within the next six months around 7 to 10 sizeable hotel transactions will be completed," he said.
Ahead of the holiday season, the sector got a shot in the arm with the reduction in goods and services tax (GST) rate to 18 per cent from 28 per cent. It is expected to further boost occupancy and average room rate and help firms in pumping fresh investments in portfolio expansion.
In an earlier interaction with Business Standard, Sanjay Sethi, managing director and chief executive at Chalet Hotels, had said acquisition would be an important pillar of company's growth strategy as it seeks to expand presence beyond Mumbai, Bengaluru, and Hyderabad and have presence in Pune, Goa, and Chennai. Sethi had said a buyout, rather than building projects ground-up, would make better sense as the "industry is in the midst of an up-cycle."
Even as there are quite a few assets available below the replacement costs, Chalet will be prudent in its buyouts Sethi had said. It will only pursue the ones that meet its criteria of high returns. The assets should add earnings before interest, tax, depreciation, and ammortisation (Ebitda) of Rs 40-50 crore each.
According to the analyst cited earlier, the hospitality industry has gone through the learning curve where owners have realised that hotel valuations are linked to its business cash flow. "Optimum net operating profit is a must for the realization of optimum valuation," he said. An investor who is willing to invest in these markets is willing to pay up to 10 to 15 times of Ebitda, subject to variables like city, micro-market, future supply, nature of traveler, property age, asset classification, cost of acquisition above asset price.
From the issue price of Rs 280 in February 2019, Chalet Hotels' shares have gained 15 per cent. At the end of the trading session on Friday, it closed at Rs 319.65, up 2.17 per cent. The benchmark Sensex gained 0.63 per cent to 39,298.38 points.