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The Indian Hotels Company Limited December 03, 2019 Ratings Amount 1 Facilities Rating Rating Action (Rs. crore) Long-term Bank Facilities – CARE AA+; Stable 400.00 Assigned Term Loan (Double A Plus; Outlook: Stable) 400.00 Total Facilities (Rs. Four hundred crore only) Proposed Commercial Paper 100.00 CARE A1+ Assigned Issue (Rs. One hundred crore only) (Single A One Plus) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities and instruments of The Indian Hotels Company Limited (IHCL) factor in the 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 strategy model. The ratings also factor in comfortable capital structure and improved operational performance during FY19. The ratings also derive comfort from IHCL’s established parentage (Tata Group owns 39.09% equity stake including about 36.43% held by Tata Sons Pvt. Ltd) by virtue of which the company enjoys significant financial flexibility. The rating strengths are, however, constrained by 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 and uncertainty over lease rentals dispute with Mumbai Port trust wherein any adverse outcome could impact company ’s margins and liquidity. Any substantial debt funded acquisition or capital expenditure, significant change in strategy of pursuing the asset light model and the ability of the company to successfully repay/refinance its maturing debt remain the key ratin g sensitivities.

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 overage metrics.  Weakening in linkages with TATA group

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 ‘Taj Hotels, Resorts and Palaces’, Vivanta by Taj, SeleQtions and Ginger brands. IHCL has over period of time strengthened its presence and operations across various geographical continents and is 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.

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. The group has operations in more than 100 countries across six continents, and its companies export products and services to 85 countries. The combined mar ket capitalization of the listed entities of the group was about Rs. 11.11 lakh crore as at March 31, 2019. The company enjoys strong support from its key promoter Tata Sons Private Limited (TSPL) and is also an important strategic business for Tata Group. TSPL has demonstrated its continued support to IHCL in the form of investments of over Rs. 3,300 crore between FY10-FY18. The proceeds from equity infusion were mainly used to retire debt and also to support the operations of IHCL’s loss making international subsidiaries.

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Wide spread portfolio across geographies and price points As of Sep 30, 2019, IHCL has vast room inventory of 18,020 rooms spread across 82 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.

Improving operating performance as evidenced by increasing occupancy, ARR and RevPAR The company reported increase in revenues and profitability on account of improvement in occupancy rates and ARRs. The hotel industry had been reeling under pressure mainly led by lower occupancy and subdued ARR (driven by room supply exceeding demand). However, in the recent few years, the industry has been witnessing some green shoots mainly led by a decline in room supply and increase in demand.

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 FY23 from current level of 18,020 rooms and improve its consolidated EBIDTA margins to 25% with more than 60% of its inventory held through management contracts. During FY19, the Company earned Rs. 213.17 crore through management and operating fees on consolidated basis. The management has stated that it is IHCL’s endeavour to operate via an asset light model and it is looking to increase the share of management contracts in its operational portfolio.

Key Rating Weaknesses Increase in license cost to retain Taj Mansingh to impact profitability IHCL retained the lease on the property for another 33 years at a licence fee of Rs. 7.03 crore p. m. or 32.50% of the gross income of the property, which is significantly higher than what it was paying earlier. The significant increase in the licens e fees will impact IHCL’s profitability over the medium term.

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. Although, the revenue and EBITDA concentration of this segment is declining gradually, on a standalone basis, in FY19, the revenue contribution from this segment has remained flat at ~79% as compared to FY18 whereas the contribution to EBITDA stood at ~79% as against ~83% in FY18.

Investment towards the GIC platform could lead to weakening of capital structure In May 2019, IHCL entered into a strategic partnership with Singapore’s sovereign wealth fund GIC Pte Ltd to jointly invest around Rs. 4,000 crore over three years and acquire fully operational hotels in the upscale to luxury segments in India. The equity contribution of IHCL will be at 30% and the balance will be contributed by GIC. The company's contribution towards the platform could lead to increase in debt levels and weaken its capital structure. However, the platform is also beneficial for IHCL as it has the option to add its owned hotels to the platform and divest its stake.

Litigation with Mumbai Port Trust The 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. 432.57 crore (13 times the previous annual rental) from 2006-07. 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 and is critical from credit perspective.

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.

Liquidity: Adequate IHCL has adequate liquidity in the form of cash and cash equivalents to the tune of Rs. 311 crore as on Sep 30, 2019, marginally utilised working capital limits (average maximum utilisation for trailing 12 months Oct-19 stands at 13.44%) and

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Press Release expected cash generation of Rs. 565 crore in FY20 as against scheduled debt repayment aggregating to Rs. 603 crore. The company is planning to refinance NCD falling due in December 2019. The company, by virtue of being a Tata group entity and strong brand image has 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

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 152 hotels with a room inventory of 18,020 rooms (145 hotels with a room inventory of 17,145 rooms as at March 31, 2018) 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) FY18 (A) FY19 (A) H1FY20 (UA) Total operating income 4179.53 4591.31 2085.63 PBILDT 747.10 909.04 392.18 PAT 103.52 296.12 74.28 Overall gearing (times) 0.64 0.59 0.65 Interest coverage (times) 2.86 4.78 2.29 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

Name of the Date of Coupon Maturity Size of the Rating assigned Instrument Issuance Rate Date Issue along with Rating (Rs. crore) Outlook Fund-based - LT-Term Loan - - Dec 2025 400.00 CARE AA+; Stable

Commercial Paper - - 7 days to 364 days 100.00 CARE A1+

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) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned in assigned in 2018- assigned in assigned in 2016- 2019-2020 2019 2017-2018 2017 1. Fund-based/Non-fund- LT/ST 90.00 CARE 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; 1)CARE AA+;

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based-LT/ST AA+; Stable / Stable / CARE A1+ Stable Stable Stable / CARE A1+ (01-Oct-18) (09-Oct-17) (16-Jan-17) CARE (07-Oct-19) 2)CARE AA+ A1+ (12-Dec-16) 3)CARE AA+ (08-Nov-16)

2. Non-fund-based-LT/ST LT/ST 160.00 CARE 1)CARE AA+; 1)CARE A1+ 1)CARE A1+ 1)CARE A1+ AA+; Stable / (01-Oct-18) (09-Oct-17) (16-Jan-17) Stable / CARE A1+ 2)CARE A1+ CARE (07-Oct-19) (08-Nov-16) A1+

3. Debentures-Non LT 600.00 CARE 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; Convertible Debentures AA+; Stable Stable Stable Stable Stable (07-Oct-19) (01-Oct-18) (09-Oct-17) (16-Jan-17) 2)CARE AA+ (08-Nov-16)

4. Debentures-Non LT 200.00 CARE 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; Convertible Debentures AA+; Stable Stable Stable Stable Stable (07-Oct-19) (01-Oct-18) (09-Oct-17) (16-Jan-17) 2)CARE AA+ (08-Nov-16)

5. Debentures- LT - - - - - 1)Withdrawn Compulsorily (08-Nov-16) Convertible Debentures 6. Fund-based - LT-Term LT - - - 1)Withdrawn 1)CARE AA+; 1)CARE AA+; Loan (01-Oct-18) Stable Stable (09-Oct-17) (16-Jan-17) 2)CARE AA+ (12-Dec-16)

7. Commercial Paper ST - - - 1)Withdrawn 1)CARE A1+ 1)CARE A1+ (01-Oct-18) (09-Oct-17) (16-Jan-17) 2)CARE A1+ 2)CARE A1+ (14-Jul-17) (12-Dec-16)

8. Debentures-Non LT 495.00 CARE 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; Convertible Debentures AA+; Stable Stable Stable Stable Stable (07-Oct-19) (01-Oct-18) (09-Oct-17) (16-Jan-17)

9. Debentures-Non LT 200.00 CARE 1)CARE AA+; 1)CARE AA+; 1)CARE AA+; - Convertible Debentures AA+; Stable Stable Stable Stable (07-Oct-19) (01-Oct-18) (09-Oct-17) 2)CARE AA+; Stable (24-Apr-17)

10. Commercial Paper ST 100.00 CARE - - - - A1+

11. Fund-based - LT-Term LT 400.00 CARE - - - - Loan AA+; Stable

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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. 77.21% 6 Taj Trade & Transport Co Ltd. 72.74% 7 KTC Hotels Ltd. 100.00% 8 Northern India Hotels Ltd. 48.56% 9 Taj Enterprises Ltd. 74.70% 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% 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. 40.67% 31 Kaveri Retreat & Resorts Ltd 50.00% 32 Taj Madras Flight Kitchen Pvt. Ltd. 50.00% Foreign 33 IHMS Hotels (SA)(Pty) Ltd. 50.00% 34 TAL Hotels & Resorts Ltd. 27.49%

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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