Press Release

Samhi (Ahmedabad) Private Limited

April 03, 2020 Ratings Facilities Amount Rating1 Rating Action (Rs. crore) Long term Bank Facilities- 43.00 CARE BBB- (Under Credit watch Rating put under TL with Negative Implications) credit watch Long term Bank Facilities- 18.00 CARE BBB- (Under Credit watch Rating put under CC with Negative Implications) credit watch Total 61.00 (Rupees Sixty one crore only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities of Samhi Hotels (Ahmedabad) Private Limited (SHAPL) are put on Credit Watch with Negative Implications’. The ratings are placed on watch on account of temporary lockdown of properties resulting in adverse impact on hospitality and industry on outbreak of COVID-19. CARE will continue to monitor the developments in this regard and will take a view on the ratings once the exact implications of the above on the credit risk profile of the company are clear. The reaffirmation in ratings assigned to the bank facilities of SHAPL continue to derive strength from promoters’ strong experience in hospitality space, financial and operational support from the parent company Samhi Hotels Limited (SHL, rated CARE BBB+, Stable; CARE A2), tie-up with reputed operator (Marriott Hotels) and favorable location of the properties. The rating also considers improvement in operating income backed by improvement in operational parameter. The rating, however, remain constrained by moderate financial performance marked by continued net loss and cyclical nature of the hotel industry. Rating Sensitivities Positive Factors  PBILDT margin of more than 30% on sustained basis  Positive GCA of more than 15 cr on sustained basis

Negative Factors  Continuation of negative growth in revenue beyond Q2FY21  Deterioration of capital structure on a sustained basis

Detailed description of the key rating drivers

Key Rating Strengths Promoters’ experience in hospitality space SHAPL is a wholly owned subsidiary of SHL. SHL was founded by Mr. Ashish Jakhanwala and Mr. Manav Thadani. The founding team together has strong domain expertise, successful project implementation and management capabilities and long standing global relationships in the hotel industry. SHL has developed a team of highly experienced and technically qualified professionals to handle different departments. The team has people with extensive experience in the hotel and real estate industry through their association with internationally renowned companies.

Continued support from the parent company SHL and SHL’s demonstrated capability to raise funds SHAPL benefits from the operational experience and financial strength of its parent company SHL which, along with its subsidiaries, has developed a portfolio of over 4,341 rooms across 29 properties in 14 Indian cities under

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications 1 CARE Ratings Limited

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8 premium international brands such as ‘’, ‘’, ‘Four Points by Marriott’, ‘ Place’, ‘Hyatt Regency’, ‘Sheraton by Marriott’, ‘ Express’ and ‘Renaissance by Marriott’. SHL has been successful in raising funds to the tune of Rs, 1224.6 crore from global private equity/ investment firms such as Goldman Sachs (GS), International Financial Corporation (IFC), GTI Capital Group (GTI) and Equity International (EI) over the past 8 years till Dec 31, 2019. These global investment firms hold 96.25% equity in the company viz. Equity International (49.35%), Goldman Sachs (28.88%) and GTI Capital Group (18.02%) as on Dec 31, 2019. During FY20, the investors (GS and GTI) have infused additional Rs. 28.6 cr by rights issue on Sep 21, 2019 for funding the expenses related to IPO and general corporate expenses. Being the parent company of SHAPL, SHL also provides financial support to SHAPL for funding construction/ renovation of hotels in the form of interest-free unsecured loans. Furthermore, SHL has provided Debt Service Shortfall Undertaking to SHAPL’s lenders.

Tie-up with Marriott Hotels & and favourable location SHAPL has entered into a 25-year operating, marketing and royalty agreement with Marriott Hotels & Resorts, vide which the company’s Ahmedabad property was rebranded under the brand of ‘’, a mid-scale brand of Marriott portfolio. SHAPL commenced operations of the Hyderabad property under ‘Sheraton’ brand, an up-scale brand of Marriott, in June 2015 under another 25-year agreement with Marriott. Both hotel properties are located near commercial centers to attract targeted business travelers. The Ahmedabad hotel property is situated in the city center within walking distance to Ashram Road, an established commercial business district, while the Hyderabad property is located in one of the financial districts of Hyderabad’s major IT suburbs Gachibowli and is surrounded by office space thereby providing captive demand. The hotel has a good connectivity from Outer Ring Road, airport and city center, Hyderabad.

Growth in operating income backed by improvement in operational parameters, albeit with continued net losses The company achieved 20% growth in operating income in FY19 owing to improvement in occupancy in both hotels (Sheraton Hyderabad and Four Points by Sheraton by Hyderabad). The company reported TOI of Rs. 91.39 cr with stable PBILDT margin of 19.45% in FY19 as against 21% in FY18. However, SHAPL continued to incurred net loss of Rs.39.22 cr in FY19 (adjusted with exceptional expenses) (PY: loss Rs.25.56 cr) on account of high interest and depreciation. The overall gearing of the company moderated to 4.74x as on March 31, 2019 on account of additional drawdown of term loan and erosion of networth due to continued losses. Further, during FY19, SHAPL refinanced its outstanding loan facilities for Sheraton Hyderabad with Piramal Capital & Housing Finance Ltd. (PCHFL) with ballooning repayment schedule and door to door tenor of 15 years (moratorium of 3 years).

Presence of Escrow Mechanism and DSRA For both the hotels, the repayment structure for term debt in place ensures that the cash flow are utilized for the repayment and interest servicing through presence of escrow mechanism wherein the cash flows from the hotels are deposited in separate accounts maintained by the company and released for operating expenses, govt dues, DSRA and residual released to the company. Also, there is debt service reserve account (DSRA) equivalent to the debt servicing (interest and principal repayment) of one quarter.

Key Rating Weaknesses

Intense competition in Ahmedabad & Hyderabad market Hyderabad and Ahmedabad markets are highly competitive with addition to room inventory in past 4-5 years. Backed by rising business activities in both markets, there was improvement in RevPAR in FY19. Although the risk is mitigated to some extent owing to the location and positioning of the hotel properties, going forward the pace of the recovery in the economic cycle and stabilization of the hotel properties in competitive markets will be critical for the company’s financial risk profile.

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Liquidity: Adequate: Being in , the company had current ratio of 0.51x as on Mar 31, 2019 (PY: 0.52x) while operating cycle remained negative. The company extends collection period to corporate clients of upto 30 days, maintains inventory of upto 5 days and creditors are usually paid in between 70-80 days. SHAPL had cash and bank balance of Rs. 20.48 cr as on March 31, 2018 (free: Rs. 11.34 cr) and liquid investments of Rs. 4.50 crore. Further, SHAPL had cash & bank balance of Rs. 4.64 cr as on March 31, 2019 and liquid investments of Rs. 1.64 crore.

Analytical approach: Standalone financials of SHAPL factoring financial and operational support from promoter company SHL.

Applicable criteria:  Criteria on assigning ‘outlook’ and ‘credit watch’  CARE’s Policy on Default Recognition  Criteria for Short-term Instruments  Rating Methodology – Hotel Industry  CARE’s methodology for Service Industry  CARE’s methodology for financial ratios (Non-Financial Sector)  CARE’s methodology for Factoring Linkages in Ratings

About the Company SHAPL was incorporated in 2005 as Royal Orchid Ahmedabad Pvt. Ltd. by Royal Orchid Hotels Ltd. Subsequently, the company was acquired by SHL in May 2012 and the name of the company was changed to its present name. SHAPL’s is a 100% subsidiary of Samhi Hotels Ltd (SHL, rated CARE BBB+, Stable; CARE A2) SHAPL owns two hotel properties, viz, 104-key four-star hotel ‘Four Point Sheraton (FPS)’ in Ahmedabad and 272- key (including service apartment) five-star hotel ‘Sheraton’ in Hyderabad. The FPS Ahmedabad became operational under new brand in May 2013, while Sheraton Hyderabad in June 2015. Brief Financials (Rs. crore) FY18 (A) FY19 (A) Total operating income 76.09 91.39 PBILDT 15.98 17.78 PAT -58.42 -59.31 Overall gearing (times) 1.97 4.74 Interest coverage (times) 0.55 0.50 A: Audited

Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Size of the Issue Rating assigned along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Fund-based - LT-Term - - FY2029 43.00 CARE BBB- (Under Credit watch with Loan Negative Implications) Fund-based - LT-Cash - - - 18.00 CARE BBB- (Under Credit watch with Credit Negative Implications)

Annexure-2: Rating History of last three years Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Rating(s) Date(s) & Facilities Outstanding Rating(s) Rating(s) assigned in 2017- Rating(s) (Rs. crore) assigned in assigned in 2018 assigned in 2016- 2019-2020 2018-2019 2017 1. Fund-based - LT- LT 43.00 CARE BBB- 1)CARE BBB-; - 1)CARE BBB-; Stable 1)CARE BBB- 3 CARE Ratings Limited

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Term Loan (Under Stable (30-Mar-18) (19-Apr-16) Credit (03-Apr-19) 2)CARE BBB-; Stable watch with (17-Jul-17) Negative 3)CARE BBB-; Stable Implications (02-May-17) ) 2. Fund-based - LT- LT 18.00 CARE BBB- 1)CARE BBB-; - 1)CARE BBB-; Stable - Cash Credit (Under Stable (30-Mar-18) Credit (03-Apr-19) 2)CARE BBB-; Stable watch with (17-Jul-17) Negative 3)CARE BBB-; Stable Implications (02-May-17) ) 3. Non-fund-based - ST - - 1)Withdrawn - 1)CARE A3 - ST-BG/LC (03-Apr-19) (30-Mar-18) 2)CARE A3 (17-Jul-17) 3)CARE A3 (02-May-17) Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications. Contact us Media Contact: Name: Mradul Mishra Contact no.: +91-22-6837 4424 Email ID – [email protected]

Analyst Contact: Name: Achin Nirwani Contact no.: +91-11- 45333233 Email ID: [email protected]

Relationship Contact: Name: Swati Agrawal Contact no. : +91-11-4533 3200 Email ID: [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

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Disclaimer CARE’s ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE’s ratings do not convey suitability or price for the investor. CARE’s ratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. CARE is not responsible for any errors and states that it has no financial liability whatsoever to the users of CARE’s rating. Our ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and if triggered, the ratings may see volatility and sharp downgrades.

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