Axis Securities has maintained its BUY recommendation on Chalet Hotels Limited with a target price of Rs 1,120, implying a 25% upside from the current market price of Rs 896. The brokerage firm's confidence stems from the company's robust Q3FY26 performance, which saw revenues surge 27% year-on-year to Rs 582 crore. The hospitality major's Average Room Rate (ARR) climbed to Rs 14,970, marking a 15.7% annual increase, while its commercial real estate annuity business demonstrated exceptional momentum with 29% growth. Despite marginal occupancy softness attributed to new inventory additions in Bengaluru and Khandala, Chalet's diversified portfolio and aggressive Rs 2,500 crore capex pipeline position it favorably to capitalize on India's sustained hospitality upcycle.

Strong Operational Performance Drives Q3FY26 Momentum

Chalet Hotels delivered an impressive performance during the third quarter of fiscal 2026, with consolidated revenues reaching Rs 582 crore—a 27% year-on-year improvement that aligned with analyst expectations. The hospitality division contributed significantly to this growth trajectory, posting a 23% revenue increase supported by approximately 12% Revenue Per Available Room (RevPAR) growth and a 9% expansion in inventory.

The company's ARR improved to Rs 14,970, representing a 15.7% annual increase, with non-Mumbai Metropolitan Region (MMR) assets demonstrating particularly robust growth of 25%. However, occupancy levels moderated to 68%, declining 230 basis points year-on-year, primarily due to the ramp-up phase of recently launched properties in Bengaluru and Khandala. While MMR and National Capital Region properties reported muted ADR growth, assets in Hyderabad, Pune, and Bengaluru delivered strong rate increases.

The company's EBITDA stood at Rs 265 crore, reflecting a margin of 45.6%—an expansion of 86 basis points year-on-year. When excluding residential real estate transactions, EBITDA margins remained flat at approximately 45%, demonstrating operational discipline. Net profit surged 29% to Rs 124 crore, exceeding analyst estimates by 10.9% and reflecting strong operating leverage.

Annuity Business Emerges as Strategic Growth Driver

The commercial real estate segment continued its impressive trajectory, with rental annuity revenues climbing 29% year-on-year to Rs 74 crore. This performance was underpinned by an 83% occupancy rate across leased areas, with the current monthly run rate standing at approximately Rs 24 crore. Management projects this figure to increase to Rs 28-30 crore by FY27, establishing a predictable cash flow stream that serves as the financial foundation for the company's expansion ambitions.

The annuity segment's EBITDA surged 37% year-on-year, with margins expanding by a substantial 461 basis points to reach 83.5%. This high-margin business provides critical support to overall profitability while funding the company's growth initiatives, including brand expansion under the ATHIVA label and selective acquisitions such as the bid for JW Marriott Bangalore.

Ambitious Capex Pipeline Targets Premium Segment

Chalet Hotels has outlined an aggressive capital expenditure plan totaling Rs 2,500 crore over the FY27-FY29 period, targeting expansion across both hospitality and commercial real estate portfolios. Strategic projects include the Taj hotel at Delhi International Airport and Hyatt Regency in Airoli, MMR. The Delhi airport project, initially scheduled for partial launch in H1FY27, has been revised to Q4FY27, while the Hyatt Regency Airoli received environmental clearance during the quarter, improving execution visibility.

The company successfully rebranded the Courtyard by Marriott Aravali Resort as Aravali Marriott Resort & Spa, Delhi NCR during Q3FY26, strengthening its portfolio positioning. Additionally, the Athiva Resorts & Spa in Khandala became fully operational in November 2025 with the addition of the remaining 30 keys, bringing total inventory to 147 rooms. The upcoming rebranding of the Vashi property under the Athiva brand is expected to drive further ADR uplifts.

Management Maintains Optimistic Outlook Amid Industry Upcycle

Company management has articulated a highly optimistic outlook driven by strategic focus on the upper upscale and luxury segments, targeting a portfolio mix of approximately 20% leisure and 80% business hotels. The leadership expects strong revenue and RevPAR growth to continue, supported by the stabilization of new inventory in Bangalore and Khandala over the coming quarters.

This positive outlook is underpinned by the sustained success of the company's "double engine strategy"—combining hospitality and commercial real estate to create a solid financial foundation. The annual commercial real estate cash flow of Rs 3-4 billion provides the resources necessary to pursue growth initiatives, brand expansion with ATHIVA, and selective acquisitions.

According to Horwath HTL, the broader hospitality industry's upcycle is anticipated to be long and sustainable, with demand expected to grow at over 10% annually over the next three to four years while supply continues to lag. Foreign Tourist Arrivals reached 92 lakh in calendar year 2024, and corporate travel expenses under MICE (Meetings, Incentives, Conferences, and Exhibitions) remain below pre-COVID levels, suggesting significant room for expansion.

Valuation and Investment Perspective

Axis Securities values Chalet Hotels at an EV/EBITDA multiple of 19x based on FY28E earnings, arriving at a target price of Rs 1,120 per share. At the current market price of Rs 896, this implies an upside potential of 25%. The brokerage maintains its BUY recommendation, citing the company's strong execution capabilities, diversified portfolio across corporate and leisure hotels, robust annuity assets, and a compelling development pipeline in high-demand metro locations.

Risk Factors Merit Consideration

Despite the positive outlook, investors should consider several risk factors. An economic slowdown in India could impact travel industry demand, while an increase in competitive supply might pressure the company's room rate realizations. Negative operating leverage represents a significant hurdle to sustaining EBITDA margins, and any delays in commissioning planned projects could affect growth trajectories. Additionally, the Delhi airport project timeline has already been pushed back to Q4FY27 from the earlier H1FY27 estimate, highlighting execution risks inherent in large-scale developments.

The company's success in navigating these challenges while capitalizing on India's hospitality boom will determine whether it achieves the revenue growth trajectory above industry averages that underpins the bullish investment thesis. With upcoming catalysts including the World Cup and continued recovery in corporate travel, Chalet Hotels appears well-positioned to benefit from sustained sector tailwinds.