Press Release

The Indian Hotels Company Limited January 07, 2021 Ratings Bank Facilities Amount (Rs. crore) Rating Rating Action Revised from CARE AA+; Negative CARE AA; Stable Long-term - Term Loan 708.00 (Double A Plus; Outlook: (Double A; Outlook: Stable) Negative) Long-term/Short Term fund Revised from CARE AA+; 90.00 CARE AA; Stable/CARE A1+ based bank facilities Negative/CARE A1+ (Double A; Outlook: Long-term/Short-term non- (Double A Plus; Outlook: 160.00 Stable/A One Plus) fund based bank facilities Negative/A One Plus) 958.00 Total (Rs. Nine hundred fifty eight crore only) Revised from CARE AA+; Negative Non-Convertible Debenture CARE AA; Stable 1495.00 (Double A Plus; Outlook: Issue (Double A; Outlook: Stable) Negative) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The revision of ratings assigned to the bank facilities and instruments of The Indian Hotels Company Limited (IHCL) factor in moderation in the operational and financial performance due to COVID-19 restrictions and slower than anticipated recovery posts the easing of restrictions. CARE expects the RevPAR’s to substantially decline in FY21 and recovery is expected to be slow and gradual. Consequently outlook has been revised from ‘Negative’ to ‘Stable’ The ratings continue to derive comfort from IHCL’s established parentage ( owns 40.75% equity stake including 38.09% held by Private Limited) by virtue of which the company enjoys significant financial flexibility, dominant position of the company in the Indian hospitality sector, its global presence, strong brand image, proven track record of management and increasing focus on asset light model. The ratings also factor in revenue generation from new initiatives such as Qmin, Hospitality@Home, et al. The rating strengths are, however, constrained by significant debt repayment in FY22, exposure to inherent seasonality in the hospitality sector which can adversely impact the business and financial risk profile of the company, dependence on high end luxury segment, losses in subsidiaries and uncertainty over lease rentals dispute with Mumbai Port trust wherein any adverse outcome could impact company’s margins and liquidity.

Rating Sensitivities Positive factors  Sustained improvement in operational performance of properties leading to improvement in margins and debt coverage indicators Negative Factors  Weakening of operational and financial performance of the company and/or increase in debt funded capex leading to deterioration of profitability and debt coverage metrics.  Weakening in linkages with TATA group  NCD issue of Rs. 150 crore and Rs.300 crore has a Put option which can be exercised by the investors if the rating is revised to ‘A+’ or below. CARE has not factored the rating trigger clause in its analysis.

Detailed description of the key rating drivers Key Rating Strengths Dominant position in the Indian hospitality sector with strong brand image and global presence IHCL occupies a leading position in the Indian Hospitality industry through its diversified hotel inventory under ‘, Resorts and Palaces’, Vivanta by Taj, SeleQtions and Ginger brands. IHCL has over period of time strengthened its presence and operations across India and select overseas destinations. The company is also amongst the largest hospitality companies in Asia. The company has repositioned its brands and has a portfolio of economy, upscale, select hotels and luxury segments. This has helped IHCL expand its presence across the economic segments. The company has also strengthened its presence over the past few years from 88 hotels with room inventory of 10,587 at the end of FY08 to 161 hotels with a room inventory of 19,043 rooms as of October 31, 2020. The company also has selective presence in the luxury segment in the USA, the UK, Africa, Sri Lanka, the UAE and Maldives through owned/managed properties.

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Apart from the room income, which accounts for 50% of the total consolidated revenues, the company also generates income from other avenues such as restaurants, spas, banquets and catering services. F&B income for FY20 decreased marginally by 4.2% to Rs. 1,733 crore from Rs. 1,810 crore at the end of FY19.

Strong parentage and strategic importance to the Tata group; demonstrated support from parent, proven track record of management IHCL is a part of the USD 150+ billion Tata Group which comprises over 100 operating companies in seven business sectors namely communications and information technology, engineering, materials, services, energy, consumer products and chemicals. The group has operations in more than 100 countries across six continents, and its companies export products and services to 85 countries. The combined market capitalization of the listed entities of the group was about Rs. 15.62 lakh crore as at December 24, 2020. IHCL is one of the largest companies in terms of market capitalisation within the Tata Group with market capitalization of Rs. 14,438 crore as at December 24, 2020. The company enjoys strong support from its key promoter Tata Sons Private Limited (TSPL) (38.09% stake) and is also an important strategic business for Tata Group. TSL has demonstrated its continued support to IHCL in the form of investments of Rs. ~1,870 crore between FY10-FY15. The proceeds from equity infusion were mainly used to retire debt and also to support the operations of IHCL’s loss making international subsidiaries.

Wide spread portfolio across geographies and price points As of October 31, 2020, IHCL has vast room inventory of 19,043 rooms spread across 88 locations in India and is present in geographies such as India, Asia, USA, Middle East, Africa and UK. The company offers rooms across different price points through its different brands Taj (luxury), Vivanta (upscale) and Ginger (economy). The wide spread portfolio makes the company better placed to overcome downturn as well as any adverse geographical impact.

Key Rating Weaknesses Moderation of operational performance in FY20; significant drop in FY21 Occupancy levels declined to 63% in FY20 from 66% in FY19. ARRs also dipped marginally to Rs. 8,634 in FY20 from Rs. 8,979 in FY19. The hospitality industry has been reeling under pressure since second half of Q4FY20 on account of international travel restrictions leading to complete nationwide lockdown towards the end of March 2020 in the wake of COVID-19. The standalone operational parameters have significantly deteriorated in H1FY21 Standalone FY20 Q1FY21 Q2FY21 Occupancy Rate (%) 67 20.5 32.3 ARR (Rs.) 10734 4848 5424 RevPAR (Rs.) 7160 992 1751

The company has taken certain new initiatives like Qmin, Hospitality@Home, et al to counter the loss in revenue to lower occupancy.

Moderation in credit profile due to COVID-19 IHCL’s financial risk profile is characterised by comfortable capital structure and debt coverage ratios. However, on account of COVID-19, the company had to raise additional debt in Q4FY20 and in H1FY21 to offset the reduction in cash generation ability of the company and maintain its liquidity profile. Total debt (excl. lease liabilities) increased from Rs. 2,326 crore as on March 31, 2019 and Rs. 2,602 crore as on March 31, 2020 to Rs. 3,462 crore as on September 30, 2020. Consequently, IHCL’s overall gearing (excl. impact of lease liabilities) also deteriorated from 0.59x and 0.61x to 0.74x respectively. The company's debt coverage ratios such as total debt to GCA and interest coverage ratios have also moderated in FY20 vis- à-vis FY19 to 4.03x from 3.86x and to 2.97x from 4.78x respectively. The company has also undertaken certain cost control initiatives which has led to total savings of 51% in H1FY21. The company has been able to reduce non-variable costs such as admin costs by 60%, manpower costs by 40% and also secured lease rental waiver to the tune of Rs. 92 crore. Although Q3FY21 and Q4FY21 might witness sequential improvement in the performance of the company, FY21 as a whole is expected to witness significant fall in revenues and erosion of profitability due to the impact of COVID-19.

Future expansion plans with continued focus on asset light strategy IHCL has been expanding its footprint mainly through management contracts. The company aims to increase its inventory to 23,000 rooms by FY22 from current level of 19,043 rooms and improve its consolidated EBIDTA margins to 25% from 22.36% in FY20 with more than 60% of its inventory held through management contracts. During FY20, the Company earned Rs. 212.70 crore through management and operating fees on consolidated basis. Although it accounts for ~5% of its consolidated revenue, the income from management contracts is expected to increase gradually.

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The management has stated that the focus for its international operations shall be addition of properties through the asset light management contract route.

U.S. subsidiary and Roots Corporation continue to make losses IHCL’s two major operating subsidiaries – Roots Corporation Ltd. (RCL) and United Overseas Holdings Inc. (USA) (UOH, Inc.) continued to post losses in FY20 as well. The company operates the economy brand ‘Ginger’ through RCL which has a room inventory of 3,659 rooms, whereas it operates 2 hotels and 299 rooms through UOH. IHCL provided financial support to RCL in FY19 of Rs. 50.11 crore. IHCL holds UOH, Inc. through its wholly owned subsidiary IHOCO, BV (Netherlands). UOH has been a loss making subsidiary and the cash losses are funded by IHCL every year which are subsequently impaired. In FY19, IHCL transferred Rs. 149.84 crore to UOH and has provided for impairment of Rs. 31.71 crore and Rs. 68.98 crore in its standalone financials in FY19 and FY20 respectively from its investments. In RCL, the company is looking to continue its strategy of focusing on asset light model and divest its select properties. No additional funding support is envisaged towards this subsidiary in FY21. With regard to UOH, Inc. the company as a strategy will continue to support the operations through infusion of funds. The company has also started an exercise wherein it is repositioning the ‘Ginger’ brand from ‘economy’ hotel to ‘lean-luxe’ hotel and increasing ARRs by Rs.1,000-1,500.

Litigation with Mumbai Port Trust Furthermore, there is a long-pending lease rental related dispute with Mumbai Port Trust (MPT) on which the Taj Mahal Palace, Mumbai, is located, wherein MPT has demanded an additional rental claim of Rs. 478.98 crore (13 times the previous annual rental) from 2006-07. The hotel stands on a 4000 sqm plot belonging to the MPT. The co. has filed a ‘notice of motion’ before the Honourable Bombay High court for a stay against any further proceedings by the lessor, pending the resolution of this dispute. The matter is sub-judice and any adverse outcome could impact IHCL’s liquidity and profitability significantly.

Sea Rock property still awaiting clearances Since acquiring the property a decade back, IHCL is still awaiting clearances from the Coastal Regulation Zone to rebuild the property. The funding pattern of the capex to rebuild the property will determine the impact on IHCL's capital structure.

Dependence on high end luxury segment of the standalone entity Though the company is focusing on expanding its room inventory in budget hotels segment and management contracts across the segments, high-end luxury segment continues to contribute significantly to the overall revenues and profits of the company. The revenue and EBITDA concentration of this segment is declining gradually. On a standalone basis, in FY20, the revenue contribution from this segment has remained stable ~77% as compared to ~79% in FY18 whereas the contribution to EBITDA is ~73% as against ~79% in FY19. This trend is expected to continue further given the management’s continued thrust on asset light strategy in its domestic as well as international portfolio.

Macro-economic factors and seasonal uncertainty The company is exposed to the changes in the macro-economic factors, industrial growth, and tourist arrival growth in India, international and domestic demand supply scenarios, competition in the industry, government policies and regulations and other socio-economic factors which leads to inherent cyclicality in the hospitality industry. These risks can impact the occupancy rate of the company and thereby the company’s profitability. However, these risks are to an extent mitigated by the company through a judicious mixture of owned and leased hotels and also through its extensive presence across the value chain and a strong brand image.

Indian hospitality industry outlook Hotels According to CARE Ratings’ base case, the occupancy rates should start picking up from Q3FY21 and end the year at around 35% with a full-year average of around 25%. In a pessimistic case where the impact of the pandemic is deeper, the expected occupancy rates would be lower ending at around 25% by Q4FY21. In an optimistic scenario, wherein the spread of pandemic is curtailed earlier, CARE Ratings expects the industry to witness an occupancy rate of around 50% by Q4 with a full-year average of around 35%. Nonetheless, the recovery is expected to be protracted for all the demand segments, and recouping the pre-COVID level occupancy rates might take six to eight quarters. Tourism CARE Ratings believes the FTA is not expected to improve before Q1FY22 as travel bans across the globe are likely to lift only in a phased manner. Notwithstanding the timing of the lifting of such bans or advisories, the discretionary nature of foreign tourist travel is expected to queer the pitch further. The only green shoots are expected in the domestic tourism segment, which is expected to recover faster as compared to the foreign tourism segment. It is noteworthy to mention that around 25

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Press Release million tourists from India travel to international locations annually. Due to the pandemic, this huge population of tourists is expected to stay in the country and explore domestic destinations.

Liquidity: Adequate The company’s liquidity profile has been impacted on account of reduced cash accruals due to COVID-19 and high scheduled debt repayments. The liquidity profile, however, continues to be adequate as the company has headroom available in the form of cash & cash equivalents to the tune of Rs. 520 crore, undrawn long-term bank facilities and low average utilisation of 1.68% for trailing 12 months Nov-2020 of its working capital limits. The company has pending debt repayment of Rs. 13 crore for FY21 and Rs ~1,400 crore for in FY22. In absence of sufficient accruals repayments are expected to be refinanced. By virtue of being a Tata group entity and strong brand image, IHCL has strong financial flexibility in terms of raising low cost debt from the financial institutions and refinance the maturing debt, if need arises.

Analytical approach: Consolidated Applicable Criteria CARE’s policy on Default recognition Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings Rating methodology – Hotels Financials Ratio-Non Financial Sector Policy in respect of Non-cooperation by issuer Rating Methodology – Service Sector Rating of Short Term instruments Rating Methodology: Consolidation About the Company Incorporated in 1903, IHCL is promoted by Tata Sons Pvt Limited. It has long-standing operations spanning over 100 years and operates the largest chain of hotels in South Asia. IHCL, its subsidiaries and associates are widely recognised under the umbrella brand name ‘Taj Hotels Resorts and Palaces’, which has 157 hotels with a room inventory of 18,596 rooms globally across 4 continents, 12 countries and in over 80 locations. This includes presence in India, North America, United Kingdom, Africa, Middle East, Malaysia, Sri Lanka, Maldives, Bhutan and Nepal. IHCL has presence across luxury, upscale and value segments of the market through its various brands i.e. Taj Hotels Resorts and Palaces, Vivanta by Taj, SeleQtions, AMA and Ginger respectively. The group also has presence in air catering, spas, wildlife lodges and service apartments. Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total operating income 4591.31 4500.02 PBILDT 909.04 1006.35 PAT 296.12 363.74 Overall gearing (times) 0.59 1.15 Interest coverage (times) 4.78 2.97 A: Audited; UA: Unaudited

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 Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook CARE AA; Stable / Fund-based/Non-fund- - - - 90.00 CARE A1+ based-LT/ST

CARE AA; Stable / Non-fund-based-LT/ST - - - 160.00 CARE A1+

Fund-based - LT-Term CARE AA; Stable - - March 2026 708.00 Loan

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Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Debentures-Non CARE AA; Stable Convertible Debentures April 23, 2020 7.50% April 23, 2023 150.00

INE053A08107 Debentures-Non CARE AA; Stable Convertible Debentures November 18, 2011 10.10% November 18, 2021 300.00

INE053A07174 Debentures-Non CARE AA; Stable Convertible Debentures July 27, 2011 9.95% July 27, 2021 250.00

INE053A07166 Debentures-Non CARE AA; Stable Convertible Debentures January 20, 2017 7.85% April 15, 2022 495.00

INE053A07182 Debentures-Non CARE AA; Stable Convertible Debentures June 5, 2020 7.95% June 5, 2023 300.00

INE053A08115 Debentures-Non - - - 0.00 Withdrawn Convertible Debentures

Annexure-2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in (Rs. crore) 2020-2021 2019-2020 2018-2019 2017-2018 CARE 1)CARE 1)CARE AA+; 1)CARE AA+; AA; AA+; 1)CARE AA+; Negative / CARE Stable / CARE Fund-based/Non- Stable / Stable / Stable 1. LT/ST 90.00 A1+ A1+ fund-based-LT/ST CARE CARE A1+ (09-Oct-17) (15-Apr-20) (01-Oct-18) A1+ (07-Oct-

19) CARE 1)CARE 1)CARE AA+; AA; AA+; Negative / CARE 1)CARE A1+ 1)CARE A1+ Non-fund-based- Stable / Stable / 2. LT/ST 160.00 A1+ (01-Oct-18) (09-Oct-17) LT/ST CARE CARE A1+ (15-Apr-20) A1+ (07-Oct-

19) 1)CARE CARE 1)CARE AA+; 1)CARE AA+; Debentures-Non AA+; 1)CARE AA+; AA; Negative Stable 3. Convertible LT 350.00 Stable Stable Stable (15-Apr-20) (01-Oct-18) Debentures (07-Oct- (09-Oct-17)

19) 1)CARE CARE 1)CARE AA+; 1)CARE AA+; Debentures-Non AA+; 1)CARE AA+; AA; Negative Stable 4. Convertible LT 200.00 Stable Stable Stable (15-Apr-20) (01-Oct-18) Debentures (07-Oct- (09-Oct-17)

19) 1)Withdrawn 1)CARE AA+; Fund-based - LT-Term 5. LT - - - - (01-Oct-18) Stable Loan (09-Oct-17) 6. Commercial Paper ST - - - - 1)Withdrawn 1)CARE A1+

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(01-Oct-18) (09-Oct-17) 2)CARE A1+ (14-Jul-17) 1)CARE CARE 1)CARE AA+; AA+; 1)CARE AA+; Debentures-Non 1)CARE AA+; AA; Negative Stable Stable 7. Convertible LT 495.00 Stable Stable (15-Apr-20) (07-Oct- (01-Oct-18) Debentures (09-Oct-17) 19)

1)CARE 1)CARE AA+; 1)CARE AA+; AA+; 1)CARE AA+; Stable Debentures-Non Negative Stable Stable (09-Oct-17) 8. Convertible LT - - (15-Apr-20) (07-Oct- (01-Oct-18) 2)CARE AA+; Debentures 19) Stable (24-Apr-17) 1)Withdrawn 1)CARE Commercial Paper- (31-Dec-20) A1+ 9. Commercial Paper ST - - - - 2)CARE A1+ (03-Dec- (Standalone) (15-Apr-20) 19) 1)CARE AA+; 1)CARE CARE Negative AA+; Fund-based - LT-Term AA; (28-May-20) Stable 10. LT 708.00 - - Loan Stable 2)CARE AA+; (03-Dec- Negative 19) (15-Apr-20) Debentures-Non CARE 1)CARE AA+; 11. Convertible LT 150.00 AA; Negative - - - Debentures Stable (15-Apr-20) Debentures-Non CARE 1)CARE AA+; 12. Convertible LT 300.00 AA; Negative - - - Debentures Stable (28-May-20)

Annexure-3: Name of the companies consolidated with IHCL Sr. No. Subsidiary Shareholding Indian 1 Piem Hotels Ltd. 51.57% 2 Benares Hotels Ltd. 51.68% 3 United Hotels Ltd. 55.00% 4 Roots Corporation Ltd. 63.74% 5 Inditravel Ltd. 78.86% 6 Taj Trade & Transport Co Ltd. 73.03% 7 KTC Hotels Ltd. 100.00% 8 Northern India Hotels Ltd. 48.56% 9 Taj Enterprises Ltd. 93.19% 10 Skydeck Properties and Developers Private Ltd. 100.00% 11 Sheena Investments Private Ltd. 100.00% 12 ELEL Hotels and Investments Ltd. 85.72% 13 Luthria and Lalchandani Hotel and Properties Private Ltd. 87.15% Foreign 14 United Overseas Holdings Inc. 100.00% 15 St. James Court Hotel Ltd. 72.25% 16 Taj International Hotels Ltd. 100.00% 17 Taj International Hotels (H.K.) Ltd. 100.00% 18 Piem International (HK) Ltd. 51.57%

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19 IHOCO BV. 100.00%

Associates Indian 20 Oriental Hotels Ltd. 35.67% 21 Taj Madurai Ltd 26.00% 22 Taida Trading & Industries Ltd 34.78% Foreign 23 Lanka Island Resorts Ltd. 24.66% 24 TAL Lanka Hotels Plc 24.62% 25 Bjets Pte Ltd. 45.69%

Joint Ventures Indian 26 Taj GVK Hotels and Resorts Ltd. 25.52% 27 Taj Kerala Hotels and Resorts Ltd. 28.30% 28 Taj SATS Air Catering Ltd. 51.00% 29 Taj Karnataka Hotels and Resorts Ltd. 44.27% 30 Taj Safaris Ltd. 41.81% 31 Kaveri Retreat & Resorts Ltd 50.00% 32 Taj Madras Flight Kitchen Pvt. Ltd. 50.00% 33 Zarrenstar Hospitality Private Ltd 0.00% Foreign 33 IHMS Hotels (SA)(Pty) Ltd. 50.00% 34 TAL Hotels & Resorts Ltd. 27.49%

Annexure-3: Complexity level of various instruments rated for this company Sr. No. Name of the Instrument Complexity Level 1. Commercial Paper-Commercial Paper (Standalone) Simple 2. Debentures-Non Convertible Debentures Complex 3. Debentures-Non Convertible Debentures Simple 4. Fund-based - LT-Term Loan Simple 5. Fund-based/Non-fund-based-LT/ST Simple 6. Non-fund-based-LT/ST Simple

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.

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Contact us Media Contact Mradul Mishra Contact no. – +91-22-6837 4424 Email ID: [email protected]

Analyst Contact Mr. Pulkit Agrawal Contact no. - 022-67543505 Email ID: [email protected]

Relationship Contact Name: Ankur Sachdeva Contact no. : +91-22-6754 495 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. Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. 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. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is 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. 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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