The quarter marked a significant setback for the Delhi-based hospitality company, which operates under the Hotel Surya brand. The operating profit margin before depreciation, interest, tax, and other income plunged to negative 26.70% in Q2 FY26 from a positive 20.20% in the year-ago quarter, reflecting severe operational stress. The company's net sales declined 7.75% year-on-year to ₹31.65 crores whilst employee costs surged 11.75% to ₹10.08 crores, creating a damaging combination of falling revenues and rising expenses.
With a negative book value of ₹22.08 per share and shareholder funds standing at negative ₹121.02 crores as of March 2025, CHL's balance sheet remains under considerable strain. The company's debt burden continues to be substantial, with long-term debt at ₹242.41 crores, resulting in a debt-to-equity ratio that reflects the company's precarious financial position.
Financial Performance: Deteriorating Trajectory
CHL's quarterly financial performance has followed a volatile pattern over the past seven quarters, with the September 2025 quarter representing the nadir of operational performance. Net sales of ₹31.65 crores in Q2 FY26 marked a marginal 0.67% sequential increase from ₹31.44 crores in Q1 FY26, but the year-on-year comparison reveals a troubling 7.75% decline. The company's inability to maintain revenue momentum during what is traditionally a stronger period for the hospitality sector raises concerns about competitive positioning and demand dynamics.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Operating Profit (₹ Cr) | Margin % | Net Profit (₹ Cr) | PAT Margin % |
|---|---|---|---|---|---|---|
| Sep'25 | 31.65 | +0.67% | -8.45 | -26.70% | -12.04 | -38.04% |
| Jun'25 | 31.44 | -10.71% | 4.73 | 15.04% | -0.82 | -2.61% |
| Mar'25 | 35.21 | -9.97% | 6.21 | 17.64% | -1.21 | -3.44% |
| Dec'24 | 39.11 | +13.99% | 11.60 | 29.66% | 2.51 | 6.42% |
| Sep'24 | 34.31 | +16.38% | 6.93 | 20.20% | -2.27 | -6.62% |
| Jun'24 | 29.48 | -7.76% | 5.38 | 18.25% | -3.33 | -11.30% |
| Mar'24 | 31.96 | — | 7.72 | 24.16% | 16.09 | 50.34% |
The operating profit excluding other income turned sharply negative at ₹-8.45 crores in Q2 FY26, a dramatic reversal from the ₹6.93 crores posted in Q2 FY25. This represents a swing of over ₹15 crores in operating profitability within a year, driven primarily by margin compression and cost escalation. Employee expenses as a percentage of sales surged to 31.84% in the September quarter from 26.29% a year earlier, indicating deteriorating operational efficiency and potential overstaffing issues.
Interest costs remained elevated at ₹5.14 crores in Q2 FY26, representing 16.24% of net sales, whilst depreciation stood at ₹3.62 crores. The company's profit before tax came in at negative ₹13.41 crores, and even after a marginal tax write-back of ₹1.37 crores, the net loss for the quarter reached ₹12.04 crores. The PAT margin of negative 38.04% underscores the severity of the profitability challenge facing the organisation.
Operational Challenges: Cost Inflation Outpaces Revenue Growth
The hospitality sector's recovery trajectory post-pandemic has been uneven, and CHL's operational metrics suggest the company is struggling to capitalise on industry tailwinds. Whilst the company reported 25.08% sales growth on a five-year compounded basis, this figure is heavily influenced by the depressed base of FY21 during the height of COVID-19 disruptions. More concerning is the company's inability to translate revenue growth into sustainable profitability, with average return on capital employed languishing at just 2.33% and return on equity at effectively zero.
Critical Operational Concerns
Margin Collapse: Operating margin (excluding other income) deteriorated from positive 20.20% in Q2 FY25 to negative 26.70% in Q2 FY26, representing a 46.90 percentage point decline. This severe margin compression reflects fundamental operational inefficiencies that extend beyond normal business cyclicality.
Cost Structure Imbalance: Employee costs surged 11.75% year-on-year whilst revenues declined 7.75%, creating a toxic combination that destroyed profitability. The company's inability to align its cost base with revenue trends suggests weak operational controls and inflexible cost structures.
The company's debt burden remains substantial, with long-term debt of ₹242.41 crores as of March 2025 against negative shareholder funds of ₹121.02 crores. The debt-to-EBITDA ratio averaged 14.11 times over recent periods, indicating that current earnings levels are wholly insufficient to service the debt load. Interest coverage, measured by EBIT to interest, averaged effectively zero, meaning the company is unable to cover its interest obligations from operating profits.
On a more positive note, the company's cash position improved to ₹39.00 crores as of March 2025 from ₹23.00 crores in the previous year, driven by strong operating cash flow generation of ₹53.00 crores in FY25. This cash generation, however, appears to be driven more by working capital adjustments than sustainable operational improvements, limiting its significance as a positive indicator.
Balance Sheet Analysis: Negative Net Worth Raises Solvency Concerns
CHL's balance sheet presents a concerning picture of financial distress. Shareholder funds stood at negative ₹121.02 crores as of March 2025, deteriorating from negative ₹114.85 crores in the previous year. This negative net worth position means the company's liabilities exceed its assets, raising fundamental questions about long-term solvency. The reserves and surplus account showed accumulated losses of ₹131.99 crores, reflecting years of value destruction.
| Balance Sheet Item | Mar'25 (₹ Cr) | Mar'24 (₹ Cr) | Mar'23 (₹ Cr) | Change YoY |
|---|---|---|---|---|
| Share Capital | 10.96 | 10.96 | 10.96 | — |
| Reserves & Surplus | -131.99 | -125.81 | -132.55 | -4.91% |
| Shareholder Funds | -121.02 | -114.85 | -121.59 | -5.37% |
| Long-Term Debt | 242.41 | 248.74 | 267.62 | -2.54% |
| Current Liabilities | 163.96 | 142.36 | 114.78 | +15.18% |
| Fixed Assets | 269.09 | 272.64 | 278.40 | -1.30% |
| Current Assets | 67.38 | 50.45 | 50.20 | +33.55% |
Fixed assets of ₹269.09 crores represent the company's hotel properties, which have been gradually depreciating. Current assets increased to ₹67.38 crores from ₹50.45 crores, driven primarily by the improved cash position. However, current liabilities surged 15.18% to ₹163.96 crores, creating a negative working capital position that constrains operational flexibility. The company's ability to meet short-term obligations remains questionable given the persistent losses and limited liquid resources relative to current liabilities.
Industry Context: Missing the Hospitality Recovery
The broader Indian hospitality sector has demonstrated resilience in recent quarters, with premium and mid-market hotels reporting robust occupancy rates and average room rate improvements. CHL's underperformance relative to industry trends suggests company-specific challenges rather than sector-wide headwinds. The company's one-year stock return of negative 13.46% compares unfavourably to the Hotels & Resorts sector return of negative 12.27%, indicating marginal underperformance even within a challenging sector environment.
The company's operational metrics reveal fundamental weaknesses in execution. Sales to capital employed averaged just 0.56 times over recent periods, indicating poor asset utilisation. This suggests that the company's hotel properties are generating insufficient revenue relative to the capital invested, pointing to either location disadvantages, brand positioning challenges, or operational inefficiencies that prevent the company from capturing market share.
Sector Positioning: Structural Disadvantages
CHL operates in the competitive Delhi NCR hospitality market, where branded chain hotels and well-capitalised independent operators dominate. The company's inability to achieve scale economies, coupled with its financial constraints, limits its ability to invest in property upgrades, marketing initiatives, or service enhancements that could drive occupancy and rate improvements. The micro-cap status further restricts access to capital markets for growth funding or balance sheet restructuring.
Peer Comparison: Lagging on All Key Metrics
A comparison with peers in the Hotels & Resorts sector reveals CHL's significant underperformance across critical financial metrics. The company's return on equity of effectively 0.00% compares poorly with sector peers, whilst its negative book value and loss-making status place it at a substantial disadvantage relative to profitable competitors.
| Company | P/E Ratio (TTM) | Dividend Yield | Return on Equity | Debt to Equity | Price to Book |
|---|---|---|---|---|---|
| CHL Ltd | NA (Loss Making) | — | 0.00% | -2.01 | -1.65 |
| Sayaji Hotels Pune | 12.94 | — | 22.29% | -0.07 | 2.74 |
| Graviss Hospitality | NA (Loss Making) | — | 1.87% | 0.02 | 1.15 |
| Country Club Hospitality | 27.02 | — | 1.44% | 0.07 | 0.71 |
| Phoenix Township | 61.57 | 0.08% | 1.09% | 0.78 | 0.67 |
| Savera Industries | 13.64 | 1.97% | 10.74% | -0.26 | 1.93 |
Whilst CHL's negative debt-to-equity ratio of -2.01 might appear favourable on the surface, this metric is distorted by the negative shareholder funds. In reality, the company carries substantial debt of ₹242.41 crores against a negative net worth, creating a precarious financial structure. The negative price-to-book ratio of -1.65 reflects the market's recognition that the company's liabilities exceed its assets, with the stock trading at a discount to even this negative book value.
Valuation Analysis: Risky at Any Price
CHL's current valuation metrics defy conventional analysis due to the company's loss-making status and negative book value. The stock trades at ₹32.72, representing a market capitalisation of ₹181.00 crores against negative shareholder funds of ₹121.02 crores. The enterprise value to EBITDA multiple of 28.30 times appears elevated, particularly given the deteriorating operational performance and questionable sustainability of current EBITDA levels.
The company's valuation grade has been classified as "RISKY" since February 2023, reflecting fundamental concerns about financial viability. The enterprise value to sales ratio of 2.90 times suggests the market is pricing in some value for the underlying hotel assets, but this valuation appears optimistic given the persistent value destruction and balance sheet stress.
The stock currently trades 26.64% below its 52-week high of ₹44.60 and 27.27% above its 52-week low of ₹25.71. This trading range reflects significant volatility and investor uncertainty about the company's prospects. The absence of any dividend payments since September 2013 further underscores the company's inability to generate sustainable cash returns for shareholders.
Shareholding Pattern: Stable but Concentrated Promoter Base
CHL's shareholding structure has remained remarkably stable over the past five quarters, with promoter holding steady at 72.84% and no institutional participation. The promoter group, led by Malbros Investments Inc with a 58.90% stake, has maintained its commitment despite the company's financial challenges. The absence of any pledging of promoter shares is a positive indicator, suggesting confidence in the long-term prospects or at least unwillingness to leverage holdings further.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holding | 72.84% | 72.84% | 72.84% | 72.84% | — |
| FII Holding | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Mutual Fund Holding | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Insurance Holdings | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Other DII Holdings | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Non-Institutional | 27.16% | 27.16% | 27.16% | 27.16% | — |
The complete absence of institutional investors—no FIIs, mutual funds, insurance companies, or other domestic institutional investors—is a significant red flag. Institutional investors typically conduct rigorous due diligence and their absence suggests concerns about corporate governance, financial transparency, or growth prospects. The 27.16% non-institutional shareholding represents retail investors and smaller entities, who may lack the resources or influence to effect meaningful change in corporate strategy.
Stock Performance: Consistent Underperformance
CHL's stock price performance has been disappointing across most timeframes, with the shares declining 13.46% over the past year compared to the Sensex's gain of 7.97%, resulting in negative alpha of 21.43 percentage points. The stock has underperformed the broader market in the one-month, three-month, six-month, and one-year periods, reflecting sustained selling pressure and deteriorating investor confidence.
| Period | Stock Return | Sensex Return | Alpha | Assessment |
|---|---|---|---|---|
| 1 Week | +5.18% | +2.94% | +2.24% | Outperformance |
| 1 Month | -1.45% | +0.59% | -2.04% | Underperformance |
| 3 Month | -8.86% | +1.02% | -9.88% | Underperformance |
| 6 Month | -18.18% | +5.27% | -23.45% | Underperformance |
| YTD | -6.17% | -1.36% | -4.81% | Underperformance |
| 1 Year | -13.46% | +7.97% | -21.43% | Underperformance |
| 3 Years | +81.78% | +38.25% | +43.53% | Outperformance |
| 5 Years | +445.33% | +63.78% | +381.55% | Outperformance |
The longer-term returns paint a more complex picture. Over three years, the stock has delivered 81.78% returns, outperforming the Sensex by 43.53 percentage points, whilst the five-year return of 445.33% significantly exceeds the market's 63.78% gain. These longer-term returns, however, are heavily influenced by the extremely depressed base during the COVID-19 pandemic and do not reflect sustainable value creation given the company's current financial distress.
The stock's beta of 1.50 indicates higher volatility than the broader market, with a one-year volatility of 59.86% compared to the Sensex's 11.53%. This high volatility, combined with negative returns, results in a negative Sharpe ratio, classifying the stock as "HIGH RISK LOW RETURN"—an unfavourable risk-reward profile for investors. The stock currently trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), reinforcing the bearish technical outlook.
Investment Thesis: Multiple Red Flags Outweigh Limited Positives
The investment case for CHL is severely compromised by fundamental weaknesses across financial, operational, and strategic dimensions. The company's proprietary Mojo score of just 17 out of 100 with a "STRONG SELL" rating reflects the confluence of negative factors: deteriorating quarterly financial trends, bearish technical indicators, below-average quality metrics, and risky valuation. The company's quality grade of "BELOW AVERAGE" is based on weak profitability metrics, high debt burden relative to earnings, and absence of institutional validation.
The financial trend indicator shows "Positive" based on the December 2025 quarter (Q4 FY26), which reported a profit of ₹3.97 crores and improved metrics. However, this assessment does not capture the severe deterioration evident in the September 2025 quarter (Q2 FY26), which forms the basis of this analysis. The technical trend remains firmly bearish, with the stock trading below all major moving averages and showing no signs of trend reversal.
Key Strengths & Risk Factors
Key Strengths
- Stable Promoter Base: 72.84% promoter holding with zero pledging demonstrates long-term commitment and financial stability of controlling shareholders.
- Cash Generation Capability: Operating cash flow of ₹53.00 crores in FY25 demonstrates ability to generate cash from operations despite profitability challenges.
- Improved Liquidity: Cash and cash equivalents increased to ₹39.00 crores from ₹23.00 crores, providing some buffer for near-term obligations.
- Long-Term Growth: Five-year sales CAGR of 25.08% shows revenue expansion capability, albeit from depressed pandemic base.
- Asset Base: Fixed assets of ₹269.09 crores provide tangible collateral and potential value in distressed scenarios.
Key Concerns
- Negative Net Worth: Shareholder funds at negative ₹121.02 crores indicate liabilities exceed assets, raising fundamental solvency concerns.
- Severe Q2 Losses: Net loss of ₹12.04 crores in Q2 FY26 represents 430.40% deterioration year-on-year, indicating worsening operational performance.
- Margin Collapse: Operating margin plunged to negative 26.70% from positive 20.20% year-on-year, reflecting fundamental operational stress.
- High Debt Burden: Long-term debt of ₹242.41 crores with debt-to-EBITDA of 14.11 times creates unsustainable financial leverage.
- Zero Institutional Interest: Complete absence of FII, MF, and insurance holdings signals lack of institutional confidence.
- Weak Profitability: Average ROCE of 2.33% and ROE of 0.00% indicate inability to generate returns on capital employed.
- Technical Weakness: Stock in bearish trend, trading below all moving averages with negative momentum indicators.
Outlook: Critical Monitoring Points
Positive Catalysts
- Successful cost restructuring programme bringing employee costs in line with revenues
- Return to positive operating margins on sustainable basis for consecutive quarters
- Material debt reduction or refinancing at favourable terms
- Strategic partnership or asset monetisation improving balance sheet
- Institutional investor participation signalling improved governance and prospects
Red Flags to Monitor
- Further deterioration in quarterly operating margins below current levels
- Inability to service debt obligations leading to restructuring or default
- Continued absence of institutional investors or promoter stake reduction
- Revenue declining for consecutive quarters indicating loss of market share
- Working capital crisis with current liabilities exceeding current assets substantially
The Verdict: Financial Distress Warrants Caution
Score: 17/100
For Fresh Investors: Avoid initiating positions. The company's negative net worth, deteriorating quarterly performance, and absence of institutional validation create an unfavourable risk-reward profile. The stock's classification as "HIGH RISK LOW RETURN" with risky valuation metrics makes it unsuitable for conservative or growth-oriented portfolios.
For Existing Holders: Consider exiting positions, particularly if holding at a profit from the longer-term rally. The fundamental deterioration evident in Q2 FY26 results, combined with structural balance sheet weaknesses and bearish technical trends, suggests limited near-term upside and substantial downside risk. Any rallies should be viewed as exit opportunities rather than accumulation points.
Fair Value Estimate: Given the negative book value and loss-making status, conventional valuation metrics are not applicable. The stock's enterprise value appears to price in asset liquidation value rather than going-concern assumptions, suggesting limited downside protection even at current levels.
Rationale: The convergence of deteriorating quarterly financials (Q2 FY26 loss of ₹12.04 crores with negative 26.70% operating margin), structural balance sheet weakness (negative net worth of ₹121.02 crores), high financial leverage (debt-to-EBITDA of 14.11 times), and bearish technical trends creates a compelling case for avoidance. Whilst the promoter group's stable 72.84% holding and zero pledging provide some comfort, these positives are overwhelmed by fundamental operational and financial challenges that show no signs of imminent resolution.
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.
