The quarter witnessed net sales of ₹735.31 crores, marking a substantial 95.02% year-on-year surge, though reflecting a 17.80% sequential decline from Q1 FY26's exceptional ₹894.55 crores. This volatility underscores the seasonal nature of the hospitality business, where Q1 typically captures peak summer travel demand whilst Q2 experiences moderation. The company's positioning in the premium hospitality segment, with a market capitalisation placing it as the fourth-largest player in the Hotels & Resorts sector, provides both opportunities and challenges as it navigates an evolving competitive landscape.
Financial Performance: Margins Hold Firm Amid Revenue Fluctuation
Chalet Hotels demonstrated operational resilience in Q2 FY26, with operating profit (PBDIT excluding other income) reaching ₹299.23 crores, translating to a healthy operating margin of 40.69%—a 75 basis point improvement from Q1 FY26's 39.94% and a substantial 104 basis point expansion compared to Q2 FY25's 39.65%. This margin expansion, achieved despite sequential revenue pressure, reflects effective cost management and operational efficiency gains across the company's portfolio of premium hotels and convention centres.
| Metric | Q2 FY26 | Q1 FY26 | Q2 FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Net Sales | ₹735.31 Cr | ₹894.55 Cr | ₹377.05 Cr | -17.80% | +95.02% |
| Operating Profit | ₹299.23 Cr | ₹357.28 Cr | ₹149.51 Cr | -16.25% | +100.11% |
| Operating Margin | 40.69% | 39.94% | 39.65% | +75 bps | +104 bps |
| Net Profit | ₹154.84 Cr | ₹203.15 Cr | -₹138.49 Cr | -23.78% | +211.81% |
| PAT Margin | 21.06% | 22.71% | -36.74% | -165 bps | +5,780 bps |
The sequential decline in profitability, however, warrants scrutiny. Profit before tax stood at ₹204.95 crores in Q2 FY26, down 23.70% from Q1 FY26's ₹268.61 crores, with the PAT margin contracting by 165 basis points to 21.06%. This compression was primarily driven by the revenue decline, though partially offset by improved operating efficiency. Interest costs remained relatively stable at ₹45.39 crores versus ₹48.54 crores in the previous quarter, whilst depreciation edged up to ₹57.41 crores from ₹53.91 crores, reflecting the company's ongoing capital expenditure programme.
On a year-on-year basis, the transformation is striking. Net sales nearly doubled from ₹377.05 crores in Q2 FY25, whilst the company swung from a net loss of ₹138.49 crores to a profit of ₹154.84 crores. This remarkable turnaround was driven by multiple factors, including normalisation of operations post-pandemic disruptions, improved occupancy rates across properties, and better pricing power in the premium segment. The tax rate in Q2 FY26 stood at 24.46%, significantly more normalised compared to the anomalous 274.40% in Q2 FY25 when the company reported losses.
Operational Excellence: Return Metrics Remain Challenged
Despite the operational improvements, Chalet Hotels continues to grapple with suboptimal return on capital metrics—a persistent concern for investors evaluating the company's capital efficiency. The average return on equity (ROE) stands at 5.87%, whilst the latest ROE of 4.68% signals deteriorating capital efficiency. For a capital-intensive business like hospitality real estate, these metrics reflect the challenge of generating adequate returns relative to the substantial equity base of ₹3,046.25 crores as of March 2025.
⚠️ Capital Efficiency Concerns
Return on Capital Employed (ROCE): The company's average ROCE of 4.53% remains significantly below industry standards, though the latest ROCE of 10.38% shows sequential improvement. With a debt-to-EBITDA ratio of 60.94 and net debt-to-equity of 0.76, the company carries moderate leverage whilst struggling to generate commensurate returns on its capital base. The EBIT-to-interest coverage ratio of 1.77x provides limited cushion, highlighting the need for sustained EBITDA growth to improve financial flexibility.
The company's balance sheet as of March 2025 reveals total shareholder funds of ₹3,046.25 crores, supported by long-term debt of ₹1,552.96 crores—a reduction from ₹1,854.61 crores in the previous year. Fixed assets stood at ₹3,172.56 crores, reflecting the capital-intensive nature of premium hotel properties, whilst investments totalled ₹2,008.02 crores. The company generated operating cash flow of ₹950 crores in FY25, demonstrating strong operational cash generation capability, though this was offset by investing cash outflows of ₹1,354 crores, primarily for property development and enhancement initiatives.
Employee costs in Q2 FY26 remained relatively stable at ₹69.66 crores compared to ₹69.46 crores in Q1 FY26, representing 9.47% of revenue—a slight increase from 7.77% in the previous quarter but substantially lower than the 14.39% ratio in Q2 FY25. This metric improvement reflects better operating leverage as revenue scales, though the sequential increase warrants monitoring as the company balances service quality requirements with cost optimisation.
Premium Positioning in a Recovering Hospitality Landscape
Chalet Hotels operates in India's premium hospitality segment, which has witnessed robust recovery momentum post-pandemic. The company's portfolio includes strategically located hotels in key metropolitan markets, providing exposure to both business and leisure travel segments. The industry has benefited from pent-up travel demand, improved corporate travel budgets, and a resurgence in MICE (Meetings, Incentives, Conferences, and Exhibitions) activities—segments where Chalet Hotels maintains significant presence.
Industry Dynamics: Tailwinds and Headwinds
The Indian hospitality sector has demonstrated remarkable resilience, with revenue per available room (RevPAR) across premium properties showing sustained improvement. However, the sector faces challenges from increasing supply in key markets, rising operational costs, and seasonality in demand patterns. Chalet Hotels' focus on premium positioning and strategic locations provides some insulation from competitive pressures, though the company must continuously invest in property upgrades and service enhancements to maintain its competitive edge.
The company's five-year sales growth of 23.19% and EBIT growth of 40.98% reflect the recovery trajectory, though these figures are influenced by the pandemic-impacted base years. Looking ahead, the sustainability of growth will depend on maintaining occupancy rates, achieving pricing power, and successfully executing expansion plans whilst managing the capital intensity inherent in the business model.
Peer Comparison: Premium Valuation for Moderate Returns
Chalet Hotels trades at a significant premium to several peers in the hospitality sector, with a price-to-earnings (P/E) ratio of 73.55x and price-to-book (P/BV) ratio of 6.88x. This valuation reflects market expectations of improved performance, though it also embeds substantial growth assumptions that the company must deliver upon to justify current multiples.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity |
|---|---|---|---|---|
| Chalet Hotels | 73.55 | 6.88 | 5.87 | 0.76 |
| Indian Hotels Co | 62.12 | 9.49 | 8.14 | 0.00 |
| ITC Hotels | 64.13 | 0.39 | 0.63 | -0.14 |
| EIH | 32.06 | 5.39 | 8.77 | -0.17 |
| Ventive Hospital | 138.84 | 3.58 | 2.58 | 0.46 |
| Leela Palaces Ho | 306.45 | 0.24 | 0.13 | -0.11 |
Chalet Hotels' ROE of 5.87% positions it favourably against some peers like ITC Hotels (0.63%) and Leela Palaces (0.13%), but lags behind Indian Hotels Company (8.14%) and EIH (8.77%)—both of which operate with minimal leverage and demonstrate superior capital efficiency. The company's P/BV multiple of 6.88x is higher than most peers except Indian Hotels (9.49x), suggesting the market is pricing in significant value creation potential that has yet to fully materialise in return metrics.
The debt-to-equity ratio of 0.76 represents moderate leverage, higher than Indian Hotels (debt-free) and EIH (negative net debt), but lower than Ventive Hospital (0.46). This leverage profile provides financial flexibility for growth investments whilst maintaining manageable debt service obligations, though it also amplifies the importance of sustained EBITDA growth to improve return ratios.
Valuation Analysis: Premium Multiples Demand Execution
At current levels of ₹958.70, Chalet Hotels trades at a P/E ratio of 73.55x—significantly above the industry average P/E of 55x. The price-to-book ratio of 6.88x reflects substantial premium to the company's book value per share of ₹139.45, indicating market expectations of superior future profitability. However, the PEG ratio of 5.39 suggests the stock may be overvalued relative to its growth prospects, as this metric ideally should be closer to 1.0 for fairly valued growth stocks.
The enterprise value-to-EBITDA multiple of 24.43x and EV-to-EBIT of 30.67x further underscore the premium valuation, reflecting investor optimism about the company's ability to scale operations and improve profitability. The EV-to-sales ratio of 10.34x is particularly elevated for a hospitality business, typically warranted only for companies demonstrating exceptional margin expansion potential or market share gains.
The stock has delivered returns of 10.63% over the past year, underperforming the Sensex's 5.94% gain by a modest margin, whilst generating alpha of 4.69%. However, longer-term performance has been more impressive, with three-year returns of 159.85% and five-year returns of 593.20%, substantially outperforming the broader market. The stock currently trades 11.23% below its 52-week high of ₹1,080.00 and 48.95% above its 52-week low of ₹643.65, suggesting it remains in a consolidation phase after the strong rally.
Shareholding Pattern: Institutional Confidence Building
The shareholding structure of Chalet Hotels reveals stable promoter holding at 31.93% over the past five quarters, with no changes in promoter stake—a positive signal of long-term commitment. Foreign institutional investor (FII) holding has shown marginal improvement, rising from 7.04% in September 2024 to 5.73% in September 2025, with a sequential increase of 44 basis points in Q2 FY26.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 31.93% | 31.93% | 31.93% | 0.00% |
| FII | 5.73% | 5.29% | 5.24% | +0.44% |
| Mutual Funds | 21.79% | 21.26% | 21.05% | +0.53% |
| Insurance | 1.60% | 2.26% | 2.45% | -0.66% |
| Other DII | 0.01% | 0.40% | 0.43% | -0.39% |
Mutual fund holding has demonstrated consistent growth, increasing from 19.38% in September 2024 to 21.79% in September 2025, with a sequential rise of 53 basis points in the latest quarter. This trend reflects growing institutional confidence in the company's recovery trajectory and long-term prospects. However, insurance company holdings declined from 2.26% to 1.60% quarter-on-quarter, indicating some institutional profit-booking at current valuations.
The total institutional holding of 29.13% provides a stable investor base, with 26 mutual funds and 134 FIIs holding positions in the company. The promoter group comprises entities within the K. Raheja Group, with Casa Maria Properties LLP, Raghukool Estate Development LLP, and Capstan Trading LLP each holding 7.54% stakes, demonstrating distributed ownership within the promoter group.
Stock Performance: Consolidation After Strong Rally
Chalet Hotels has delivered mixed returns across different timeframes, reflecting both the strong recovery from pandemic lows and recent consolidation pressures. The stock has generated 10.63% returns over the past year, modestly outperforming the Sensex's 5.94% gain with an alpha of 4.69%. However, year-to-date performance shows a decline of 2.35% compared to the Sensex's 6.81% gain, indicating relative underperformance in 2025.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 3.06% | -1.38% | +4.44% |
| 1 Month | -1.78% | 2.77% | -4.55% |
| 3 Months | 6.98% | 3.01% | +3.97% |
| 6 Months | 19.32% | 3.67% | +15.65% |
| 1 Year | 10.63% | 5.94% | +4.69% |
| 3 Years | 159.85% | 36.93% | +122.92% |
| 5 Years | 593.20% | 105.48% | +487.72% |
The longer-term performance narrative is considerably more impressive. Three-year returns stand at 159.85% with alpha of 122.92%, whilst five-year returns of 593.20% have generated alpha of 487.72%—reflecting the dramatic recovery from pandemic lows and the successful repositioning of the business. The stock has outperformed the Hotels & Resorts sector by 3.24% over the past year, demonstrating relative strength within its peer group.
From a technical perspective, the stock exhibits a "Mildly Bullish" trend, having transitioned from "Bullish" on September 25, 2025. The stock trades above its 5-day (₹954.87), 20-day (₹951.34), 100-day (₹944.62), and 200-day (₹877.94) moving averages, indicating positive momentum across multiple timeframes, though it remains below the 50-day moving average of ₹988.99. The stock's beta of 1.35 indicates higher volatility than the broader market, with volatility of 33.51% compared to the Sensex's 12.45%.
Investment Thesis: Quality Concerns Overshadow Growth Potential
The investment case for Chalet Hotels rests on several pillars: strategic asset positioning in premium markets, improving operational performance, and exposure to India's recovering hospitality sector. The company has demonstrated the ability to generate strong operating margins of 40.69%, reflecting efficient property management and pricing power in premium segments. The five-year EBIT growth of 40.98% showcases the recovery trajectory, whilst institutional holdings of 29.13% provide validation of the business model.
However, significant concerns temper this optimism. The company's average ROCE of 4.53% and ROE of 5.87% remain substantially below acceptable thresholds for a capital-intensive business, indicating challenges in generating adequate returns on invested capital. The PEG ratio of 5.39 suggests the stock is overvalued relative to growth prospects, whilst the debt-to-EBITDA ratio of 60.94 limits financial flexibility. The "Very Expensive" valuation grade, with a P/E of 73.55x against an industry average of 55x, leaves limited margin of safety for execution disappointments.
"Chalet Hotels faces the classic hospitality conundrum: strong operational metrics overshadowed by capital efficiency challenges and premium valuations that demand flawless execution."
Key Strengths & Risk Factors
✓ Key Strengths
- Premium Asset Portfolio: Strategic locations in key metropolitan markets providing competitive moat
- Strong Operating Margins: 40.69% operating margin demonstrates pricing power and operational efficiency
- Impressive Long-Term Growth: Five-year EBIT CAGR of 40.98% reflects recovery momentum
- Institutional Confidence: 29.13% institutional holdings with growing mutual fund participation
- Robust Cash Generation: Operating cash flow of ₹950 crores in FY25 supports growth investments
- Improving Leverage: Long-term debt reduced from ₹1,854.61 crores to ₹1,552.96 crores
- Sector Tailwinds: Recovery in corporate travel and MICE segment providing demand support
⚠ Key Concerns
- Weak Return Metrics: ROE of 5.87% and ROCE of 4.53% significantly below industry standards
- Premium Valuation: P/E of 73.55x and PEG of 5.39 leave limited margin of safety
- High Debt Burden: Debt-to-EBITDA of 60.94 constrains financial flexibility
- Sequential Profit Decline: Q2 FY26 net profit down 23.78% quarter-on-quarter
- Capital Intensity: Business model requires continuous capital investments limiting free cash flow
- Seasonal Volatility: Revenue fluctuations between quarters impact earnings predictability
- Promoter Pledging: 31.93% of promoter shares pledged raises governance concerns
Outlook: What to Watch
Positive Catalysts
- Margin Expansion: Sustained operating margins above 40% with potential for further improvement
- Occupancy Improvement: Rising occupancy rates across properties driving revenue growth
- Debt Reduction: Continued deleveraging improving interest coverage and return metrics
- MICE Recovery: Strengthening corporate events and conferences segment
- Institutional Buying: Growing mutual fund holdings indicating professional investor confidence
Red Flags
- ROCE Deterioration: Further decline in return on capital employed below current levels
- Revenue Volatility: Sustained sequential revenue declines beyond seasonal patterns
- Margin Compression: Operating margins falling below 38% indicating pricing pressure
- Rising Interest Costs: Increasing debt service burden impacting profitability
- Institutional Exodus: Significant reduction in FII or mutual fund holdings
The Verdict: Hold with Caution
Score: 62/100
For Fresh Investors: Avoid initiating positions at current valuations. The stock trades at a significant premium (P/E 73.55x, PEG 5.39) whilst delivering below-par returns on capital (ROE 5.87%, ROCE 4.53%). Wait for either a meaningful correction of 15-20% or substantial improvement in return metrics before considering entry.
For Existing Holders: Continue holding with close monitoring of quarterly performance. The company demonstrates operational strength with 40.69% operating margins and benefits from sector recovery tailwinds. However, set a mental stop-loss around ₹850 (approximately 11% downside) if return metrics deteriorate further or sequential profit declines persist beyond Q3 FY26.
Fair Value Estimate: ₹820-850 per share (12-14% downside from current levels), based on normalised P/E of 55-60x on sustainable earnings of ₹13-14 per share. Current valuation appears stretched relative to capital efficiency metrics and growth sustainability.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The stock market involves risks, and investors may lose their entire investment. The author and publisher are not responsible for any investment decisions made based on the information provided in this article.
