Canary Hotels Private Limited

June 15, 2018

Summary of rated instruments Previous Current Rated Instrument* Rated Amount Amount Rating Action (Rs. crore) (Rs. crore) Long-term – Fund-based -Term Loan 23.56 22.00 [ICRA]A- (SO) (Stable); reaffirmed Long Term / Short Term - Unallocated [ICRA]A- (SO)(Stable)/[ICRA]A2+(SO); 1.44 - Limits Withdrawn Total 25.00 22.00

*Instrument details are provided in Annexure-1

Rating action ICRA has reaffirmed the long-term rating outstanding of [ICRA]A- (SO) (pronounced ICRA A minus structured obligation)1 on the Rs. 22.00-crore2 (reduced from Rs. 23.56 crore) term loan facilities of Canary Hotels Private Limited (Canary or the company). The outlook on the long-term rating is Stable. ICRA has withdrawn the long-term and short-term rating outstanding of [ICRA]A- (SO)/ [ICRA]A2+(SO) (pronounced ICRA A two plus structured obligation) on the Rs. 1.44-crore unallocated limits of the company.

The letters SO in parenthesis suffixed to a rating symbol stands for structured obligation. An SO rating is specific to the rated issue, its terms, and its structure. An SO rating does not represent ICRA’s opinion on the general credit quality of the issuer concerned.

Rationale The rating is based on an unconditional and irrevocable guarantee provided by Lemon Tree Hotels Limited (LTHL rated [ICRA] A-/Stable/A2+)3 for the Rs. 23.50-crore term loan facilities of Canary Hotels Private Limited and an undertaking from the guarantor to ensure that the debt obligations are serviced on or prior to the due date, irrespective of the invocation of the guarantee by the beneficiary.

Outlook: Stable ICRA expects Canary to continue to benefit from the operational and financial support extended by its parent, LTHL and the experience of the Lemon Tree Group in the hospitality industry. The outlook may change in case of any change in the outlook of its parent’s ratings.

1For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications 2100 lakh = 1 crore = 10 million 3Please refer to ICRA’s website www.icra.in for detailed rationale of the guarantor company.

Key rating drivers

Credit strength Corporate guarantee from the parent - The rated facilities are backed by an unconditional and irrevocable guarantee from LTHL, which covers all amounts due under the facilities.

Credit challenge Sensitivity to guarantor's rating - The ratings primarily reflect the credit strength of the guarantor. Hence, any adverse movement in the rating view of the guarantor may result in a rating action on the company’s facilities.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria: Approach to rating debt instruments backed by third-party explicit support

About the company Incorporated in January 2006, CHPL is a 100% subsidiary of LTHL that owns and operates a Lemon Tree property in East Delhi Mall, Ghaziabad (Uttar Pradesh) having an inventory of 55 rooms. Unlike most of the other properties in LTHL’s portfolio, this property derives significant revenues from its banqueting division (~85% of room revenues).

As per provisional results, Canary reported an operating income (OI) of Rs. 8.41 crore and a loss of Rs. 1.80 crore for 9M FY2018 as against an OI and a loss of Rs. 12.17 crore and Rs. 2.20 crore, respectively in FY2017.

About the guarantor: Lemon Tree Hotels Limited Incorporated in 2002 by Mr. Patanjali Keswani and his friends and associates, Lemon Tree Hotels Limited is a publicly listed company that owns and operates hotels under three brands namely, Lemon Tree Premier (upper mid-scale), Lemon Tree (mid-scale) and Red Fox (economy) across 32 Indian cities. In terms of ownership, ~31% stake in the company is held by the promoters (Keswani family), ~12.5% by Warburg Pincus, ~15% by APG (a Netherlands-based pension fund) and the balance is owned by foreign portfolio investors, mutual funds, employees and the public.

The company designs, develops, and manages properties under its own books as well as its subsidiaries’ books (collectively referred to as the Lemon Tree Group). While most of the properties in the portfolio are owned by the company directly or through its subsidiaries, a few are operated on a long-term lease basis. At present, the Group has 28 operational properties and seven properties under development. The total inventory across the operational properties stood at 3,277 rooms as on March 31, 2018. The 1,525 rooms under implementation/negotiation are likely to be added to the portfolio over the next three years.

With a view to facilitate rapid expansion of LTHL’s brands across the country, the Group’s subsidiary Carnation Hotels Private Limited enters into management contracts with the asset owners. As on March 31, 2018, the Group had a portfolio of 20 properties (1,593 rooms) under management agreements, with another 18 properties (with approx. 1,340 rooms) under negotiation.

Key financial indicators of the guarantor LTHL Consolidated FY2017 FY2018 (Prov) OI (Rs. crore) 412.1 484.3 PAT (Rs. crore) -5.0 14.5 OPBDIT/ OI (%) 28.3% 28.1% RoCE (%) 5.0% 5.8%

Total Debt/ TNW + Minority Interest (times) 0.7 0.8 Total Debt/ OPBDIT (times) 6.9 7.4 Interest Coverage (times) 1.5 1.7

OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth + Deferred Tax Liability-Capital Work-in Progress)

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years: Current Rating (FY2019) Chronology of Rating History for the past 3 years Amount Amount Date &Rating Date & Date & Date & Rating Rated Outstanding Rating in Rating in in FY2018 (Rs. (Rs. crore) FY2017 FY2016 crore) Jun-18 Apr-17 Jun-16 Apr-15 Instrument Type Long- [ICRA]A- [ICRA]A- (SO) [ICRA]BBB+ [ICRA]BBB+ 1 Term Loans 22.00 22.00 term (SO)(Stable) (Stable) (SO) (Stable) (SO) (Stable) Long [ICRA]A- [ICRA]A- Term (SO)(Stable)/ (SO)(Stable)/ Unallocated 2 and 1.44 -- [ICRA]A2+ [ICRA]A2+(SO) NA NA Limits short- (SO); term Withdrawn

Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1: Instrument Details ISIN No Instrument Name Date of Coupon Maturity Amount Current Rating and Issuance / Rate Date Rated Outlook Sanction (Rs. crore) NA Term Loan Oct 2017 NA FY2030 22.00 [ICRA]A- (SO)(Stable) [ICRA]A- (SO)(Stable) / NA Unallocated Limits ------1.44 [ICRA]A2+ (SO); Withdrawn Source: Canary Hotels Private Limited

ANALYST CONTACTS Subrata Ray Anupama Arora +91 22 6114 3408 +91 124 4545303 [email protected] [email protected]

Ritu Goswami +91 124 4545826 [email protected]

RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

About ICRA Limited:

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

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