Walled City Hotels Private Limited

February 19, 2019

Summary of rated instruments Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Long-term Cash Credit 2.00 3.00 [ICRA]BBB (Stable); Reaffirmed Long-term Term Loan 38.00 27.85 [ICRA]BBB (Stable); Reaffirmed Unallocated - 9.15 [ICRA]BBB (Stable); Reaffirmed Total 40.00 40.00 *Instrument details are provided in Annexure-1

Rationale The rating takes into account the extensive experience of the promoter in the hospitality industry supported by a professional management team, its moderately diversified portfolio with two hotels one in Jodhpur and the other at Udaipur with offerings in the upscale and premium segment. Continued improvement in the company’s top line supported by RevPar improvement, coupled with healthy operating margins, has led to a healthy financial risk profile as reflected by low gearing and strong debt coverage indicators. Further, the rating draws comfort from the strong liquidity as reflected in the undrawn working capital limits, liquid investments and the fact that the company is maintaining debt service reserve account (DSRA) equivalent to one quarter of principal and interest obligations.

The rating, however, is constrained by the moderate scale of current operations and the pressure on occupancy of both the properties due to intense competition in these markets. The rating is further constrained by the modest return on capital employed (RoCE) due to lower occupancy at the Udaipur hotel. Further, the company faces the risk of high geographical concentration as all its assets are at the two locations and any volatility in demand could affect revenue generation. As inherent in the industry, the company is exposed to seasonality and cyclicity and is vulnerable to risks such as geopolitical disturbances, disease outbreaks and the consequent travel advisories.

The company’s ability to scale up its revenues, utilise the maximum capacity as well as manage the working capital requirements is the key rating sensitivity. Its ability to scale up the new Udaipur unit and generate satisfactory returns from the same will also be monitored.

Outlook: Stable The Stable outlook reflects ICRA’s belief that WCHPL will continue to benefit from its locational advantage with most revenues being generated from foreign tourists. The outlook may be revised to Positive if there is substantial growth in revenues and improvement in gearing and accruals result in higher net worth levels. The outlook may be revised to Negative if there is a decline in revenues and coverage indicator, and a weakening of the liquidity position.

Key rating drivers

Credit strengths Experienced and well-qualified management with an established track record in the hospitality industry – The management of WCHPL is well qualified and the promoters have extensive experience in the hospitality industry as well as acquiring and turning around the operations of new hotels.

Comfortable capital structure and adequate interest coverage – The capital structure of WCHPL was comfortable in FY2018 with low gearing of 0.56 times. The interest coverage was also healthy at 2.87 times in FY2018.

Locational advantage due to presence near Mehrangarh Fort and Delwara – The Jodhpur hotel is located at the base of the Mehrangarh Fort, which is a major tourist destination. Similarly, the Udaipur hotel is located near Delwara, which offers various sight-seeing opportunities like Indra Kund, Hunting Tower, temples etc.

Credit challenges Modest scale of operations – The operating income was low at Rs. 36.78 crore in FY2018 on account of intense competition from nearby hotels and newly established Udaipur hotel.

Geographical-concentration risk – The hotels are located in Jodhpur (Rajasthan) and Udaipur (Rajasthan) and hence face high geographical-concentration risk owing to presence in only two locations. Any volatility in demand could affect the company’s revenue generation.

Seasonal nature of operation – Hotel industry operations are usually seasonal in nature with the highest occupancy rate during winter and spring. This could result in cash flow mismatch.

Liquidity position The debt of the company comprises term loan and car loan. The gearing was low at 0.56 times in FY2018. Its liquidity remains comfortable with undrawn working capital limit, healthy year-on-year cash accruals and DSRA with ICICI Bank.

Analytical approach

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Entities in the Hotel Industry Parent/Group Support Not applicable Consolidation /Standalone The ratings are based on the standalone profile of the company

About the company Walled City Hotels Private Limited (WCHPL) was incorporated in 2007, while its operations started in 2009. The company has two hotels – one in Jodhpur and the other in Udaipur – named Raas Jodhpur and Raas Udaipur. Raas Jodhpur is based around an original 18th century haveli, which Mr. Dhananjaya Singh (promoter of the company) bought and turned into a hotel. It is located in Jodhpur and is situated at the base of the Mehrangarh Fort. It has a total of 40 rooms built across an area of 6,000 square metres. The company also acquired Devigarh Hotel at Udaipur that is a heritage property with a legacy of 15 years. It also has 40 rooms.

Key financial indicators (Audited)

FY2017 FY2018

Operating Income (Rs. crore) 34.81 36.78 PAT (Rs. crore) -1.95 0.42 OPBDIT/ OI (%) 39.42% 35.77% RoCE (%) 4.32% 7.48%

Total Debt/ TNW (times) 0.62 0.56 Total Debt/ OPBDITA (times) 2.53 2.39 Interest Coverage (times) 2.89 2.87

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years

Chronology of Rating History for the Current Rating (FY2019) past 3 years Date & Date & Date & Date & Rating in Rating in Rating in Rating in Amount Amount FY2019 FY2019 FY2017 FY2016 Rated Outstanding February January Instrument Type (Rs. crore) (Rs. crore) 2019 2019 1 Cash Credit Long- 3.00 - [ICRA]BBB [ICRA]BBB - - term (Stable) (Stable) 2 Term Loan Long- 27.85 27.85 [ICRA]BBB [ICRA]BBB - - term (Stable) (Stable) 3 Unallocated Long- 9.15 - [ICRA]BBB Term (Stable)

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 Amount Instrument Date of Issuance Coupon Maturity Rated Current Rating and ISIN No Name / Sanction Rate Date (Rs. crore) Outlook NA Cash Credit - - - 3.00 [ICRA]BBB (Stable) NA Term Loan September 2015 - March 2021 27.85 [ICRA]BBB (Stable) NA Unallocated - - - 9.15 [ICRA]BBB (Stable) Source: Walled City Hotels Private Limited

Annexure-2: List of entities considered for consolidated analysis Company Name Ownership Consolidation Approach Not applicable Not applicable Not applicable

ANALYST CONTACTS K. Ravichandran Manish Ballabh +91 44 45964301 +91 124 4545 812 [email protected] [email protected]

Gaurav Singla Sanjay Pal +91 124 4545 366 +91 124 4545 348 [email protected] [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.

For more information, visit www.icra.in

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