Chalet Hotels IPO fully covered on final day
Photo Credit: Thinkstock

The initial public offering of K Raheja Corp-promoted Chalet Hotels Ltd was fully subscribed on the third and final day of the issue on Thursday, thanks to demand from institutions and wealthy investors.

The offering of 41.3 million was subscribed 1.6 times after getting bids for nearly 65 million shares on Thursday, stock-exchange data showed.

The quota for institutional investors was covered nearly 4.7 times while the non-institutional book was subscribed 1.1 times. Retail investors largely stayed away.

The IPO had made a slow start on Tuesday as institutional and retail investors largely stayed on the sidelines. The issue was covered only 6.7% on the first day.

Ahead of the IPO, Chalet Hotels had raised Rs 492.35 crore ($69 million) from 27 anchor investors that included Blackrock, Goldman Sachs, Kuwait Investment Authority and HDFC Standard Life Insurance Co. It allotted 17.6 million shares at the upper end of the Rs 275-280 price band.

The IPO of Chalet Hotels is the first of 2019 and first large-sized mainboard issue after a four-month gap. Chalet is part of a long list of companies that have been looking to go public.

However, securities advisory and broking firm SP Tulsian said it recommends staying away from the IPO because of the company's high debt and aggressive pricing.

“In uncertain times, one is better-off avoiding aggressively priced midcaps and instead look to accumulate large caps in the secondary market. Hence, one can give this IPO a miss,” SP Tulsian analyst Geetanjali Kedia said in a note to investors. “The company does not own brands and hence cannot adopt the asset-light model to fuel growth,” Kedia added.

After the Rs 720 crore debt payment from fresh issue proceeds, the current net debt to equity ratio of 5.7 will fall to 1.4. Even then the annual cost of servicing will be close to Rs 200 crore.

The IPO comprises a fresh issue of Rs 950 crore and a secondary market sale of 24.685 million shares by the promoter and promoter group. Promoter holding will decline to roughly 71.2% from 100%.

Chalet Hotels, which owns and operates hotel and apartment units such as the Lakeside Chalet Marriott Executive Service Apartments and the Renaissance Mumbai Hotel and Convention Centre, is seeking a valuation of as much as Rs 5,740 crore ($806 million).

The total size of the IPO is estimated at Rs 1,642 crore ($230 million) at the upper end of the price band, significantly lower than the estimated Rs 1,800-2,000 crore it was looking to raise when the company filed its draft prospectus last July.

The markdown reflects Chalet’s quest to attract investors at a time when the secondary markets remain volatile and uncertainty prevails owing to various economic and political factors, leaving issuers and investors cagey.

K Raheja Corp, through its subsidiaries, operates in the real estate, hospitality, retailing and power distribution sectors in India. The group is looking to use Rs 720 crore of the fresh net proceeds to repay debt and the balance amount for general corporate purposes.

Chalet was originally incorporated in January 1986 as Kenwood Hotels Pvt. Ltd. The company owns, develops and manages high-end hotels in key metro cities in India.

It operates five hotels, including one with a co-located serviced residence, in the Mumbai Metropolitan Region, Hyderabad and Bengaluru. It had 2,328 rooms as of 30 September 2018.

Leave Your Comment(s)