What portion of your salary should you spend on loan EMIs?
Most people buy a house or a car by taking a loan from the bank, but do you know what is the maximum portion of your salary that you should spend on EMI? What is the 40 percent EMI rule? What are the disadvantages of spending more on EMIs? Among home loan, personal loan, auto loan and credit card bills, which loan should you eliminate first?
The rising pace of vaccination and gradual reopening of the economy is music to the ears of the hotel industry as revenge travel is fast taking the front seat. One company that is on the cusp of an elongated recovery cycle is Chalet Hotels that have implemented various cost-saving measures coupled with expansion projects. That apart the green shoots in leisure and domestic business travel, international travel would put the company back on the recovery trajectory over FY22-23, followed by the ARR (Average Room Rent) improvement.
Green shoots
“Occupancies have bounced back after the 2nd wave of COVID-19. The leisure segment led the recovery with green shoots in domestic business travel. Domestic business travel should continue to gain traction with the resumption of work in offices (over 2HFY22) and acceleration in vaccinations. However, international business travel could see an elongated recovery over FY22-23. The 3rd wave concerns are mitigated by the sharp recovery seen after the 2nd wave,” said Roshan Paunikar of JM Financial.
Margin improvement
According to JM Financial Chalet’s aggressive cost-saving measures during the lean period helped contain losses. Management estimates a permanent reduction of 10% in the overall cost structure. In addition, recovery in ARR (full recovery factored in FY24) and increased contribution (30% to revenue) from the annuity portfolio should drive margins for Chalet in FY24.
Commercial projects prioritized
Chalet has resumed capex on its commercial projects due to the stability of cash flows in the segment. It is expected to incur Rs 700-750 crore on 1.2msf (million square feet) of commercial space across two projects over FY22-23E.
“This would increase leverage in the medium term (net debt of Rs 2,470 crore in FY24E). However, servicing the debt obligation (Rs 350 crore in FY22) will not be a concern as Chalet has Rs 850 crore of liquidity across undrawn lines of credit and cash. Further, it has received in-principle approval for USD 50-75mn of debt from IFC,” noted a report released by JM Financial.
Value unlocking
Chalet has incremental value unlocking potential in its portfolio of assets – 88 rooms in Pune and 178 room in Hyderabad in 4-6 months with nominal capex, Koramangala residential project (resolution expected by FY22 end) and repurposing of The Orb.
JM Financial values the company on discounted cash flow basis and arrives at a target price of Rs 300 over the next one year with an implied EV/EBIDTA (Enterprise Value to Earnings Before Interest Depreciation Tax & Amortisation) of 17x.
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