Press Release IHHR Hospitality (Andhra) Private Limited March 11, 2021 Ratings Amount Facilities/Instruments# Ratings Rating Action (Rs. crore) CARE BB+ (CE); Stable; ISSUER Revised from CARE BBB- (CE); NOT COOPERATING* Stable [Triple B Minus (Credit Long Term Bank 56.56 [Double B Plus (Credit Enhancement); Outlook: Stable] Facilities Enhancement); Outlook: Stable and moved to ISSUER NOT ISSUER NOT COOPERATING*] COOPERATING category 56.56 Total Bank Facilities (Rs. Fifty-Six Crore and Fifty-Six Lakhs Only) #The above rating is based on the credit enhancement in the form of unconditional and irrevocable corporate guarantee of IHHR Hospitality Pvt. Ltd. (IHHR). Details of instruments/facilities in Annexure-1 Unsupported Rating CARE BB; ISSUER NOT COOPERATING* [Revised from CARE BB+ and moved to ISSUER NOT COOPERATING category] Note: Unsupported Rating does not factor in the explicit credit enhancement Detailed Rationale & Key Rating Drivers CARE has been seeking information from IHHR Hospitality (Andhra) Private Limited (IHAPL) to monitor the rating(s) vide e-mail communications/letters dated February 18, 2021, February 22, 2021 among others and numerous phone calls. However, despite our repeated requests, the company has not provided the requisite information for monitoring the ratings. In line with the extant SEBI guidelines, CARE has reviewed the rating on the basis of the best available information which however, in CARE’s opinion is not sufficient to arrive at a fair rating. The rating on IHAPL’s bank facilities will now be denoted as CARE BB+ (CE); Stable; ISSUER NOT COOPERATING*. Users of this rating (including investors, lenders and the public at large) are hence requested to exercise caution while using the above rating(s). The ratings have been revised on account of deterioration in financial performance of the company. The ratings continue to derive strength from its promoters’ experience in hospitality space, demonstrated financial support from promoters, long track record of operations and operating and marketing tie up with Hyatt Group and favorable location of the properties. However, these rating strengths are partially offset by expected moderation in debt coverage indicators and cyclical nature of the hospitality industry. Key rating Drivers of IHHR Hospitality (Andhra) Private Limited The unsupported rating assigned to the bank facilities of IHHR Hospitality (Andhra) Private Limited has been revised on account of deterioration in financial performance of the company. The ratings continue to be constrained by the modest scale of operations of the company, negative net worth base, competition from the upcoming and existing hotels in the vicinity and cyclical nature of industry with high dependence on economic cycles. The rating, however, derives strength from the experienced promoters, improving PBILDT margins, favorable location of the hotel property and tie-up with international hotel brand. Detailed description of the key rating drivers At the time of last rating on April 06, 2020, the following were the rating strengths and weaknesses (updated for the information available from Registrar of Companies): Key Rating Weaknesses Expected moderation in debt coverage indicators: The financial risk profile of the company is expected to deteriorate, in the near future, due to slow down in the hospitality industry following the Coronavirus outbreak in China. For the immediate quarter and probably the next, growth numbers might get impacted as the hotel may witness a dip in occupancies and revenues on account of conference cancellations and corporate travel restrictions. This coupled with on-going de-merger process for one of the hotel properties- ‘Ananda in the Himalayas’, the financial risk profile of the company is expected to deteriorate with decline in scale of operations and profitability of the company going forward. This is also expected to lead to moderation in the debt coverage indicators of the company especially with ballooning repayments from FY21 onwards. 1 CARE Ratings Limited Press Release Cyclical nature of the hospitality industry: Hospitality industry is characterized by inherently high operating leverage which increases the reliance on remunerative RevPARs to sustain profitability. Also, the fortunes of the industry are linked to general investment cycles in the economy leading to seasonality in revenue generation. The scale of operations of the company has remained fluctuating in the FY17-FY19 period with moderation in FY18 on account of renovation of hotel properties undertaken at Ananda, Amritsar and Bangalore hotels. In FY19, post completion of renovations, the financial performance of the company was expected to improve. However, the quantum of improvement has remained below CARE’s expectations. The PBILDT margins of the company have remained fluctuating in the past with margins declining from 20.34% in FY19 to 15.98% in FY20. Key Rating Strengths Promoters’ experience in hospitality space: The company belongs to ‘Shanti Hospitality’ group, consisting of a portfolio of 24 hotels, including, Ananda in the Himalayas, Rishikesh, Shanti Maurice, Nira Alpine, Nira Caledonia, Four points by Sheraton, Delhi etc. The company is held by Mr. Sudhir Choudhrie and family possessing 85% stake in the company and remaining 15% stake held by family of Mr. Ashok Khanna (former president and chief executive officer of Indus Hotels Corporation). Demonstrated financial support from promoters: There has been a steady improvement in total net worth of the company from Rs.301cr in FY14 to Rs.364.40cr in FY20, despite losses at net level in the past. The promoter group has extended continuous financial support to the company and its business in the past. Long track record of operations and operating and marketing tie up with Hyatt Group: IHHR has entered into a 20-year agreement with Hyatt group (Hyatt) dated Oct-12, for trade mark, strategic oversight and hotel operations service for four of its hotels under ‘Hyatt Regency’ brand. Favorable location of the properties: All the five properties under IHHR are located at prime locations in cities of Pune, Hyderabad, Bangalore, Rishikesh and Amritsar. Rishikesh and Amritsar have been famous tourist destinations while Bangalore and Hyderabad have benefitted from growth in IT/ITes space. The hotel in Pune is located at Nagar road and enjoys proximity to major transportation hubs including Pune Airport and railway station. Analytical approach: CARE has analyzed IHAPL’s credit profile by considering the financial statements of the IHHR Hospitality Private Limited owing to the unconditional & irrevocable corporate guarantee from IHHR Hospitality Private Limited for the bank facilities of IHAPL. Applicable Criteria Policy in respect of Non-cooperation by issuer Criteria on assigning Outlook and credit watch to Credit Ratings Financial ratios – Non-Financial Sector CARE’s policy on default recognition Rating Methodology - Hotel Industry Criteria for Rating Credit Enhanced Debt Rating Methodology: Consolidation and Factoring Linkages in Ratings About the Company- IHHR (Guarantor) IHHR Hospitality Pvt Ltd (IHHR) was incorporated in 1998 with Mr. Sudhir Choudhrie and family possessing 85% stake in the company. IHHR started operations in the year 2000 by launching a destination spa under the name “Ananda in the Himalayas” at Rishikesh (Uttarakhand). Currently, IHHR owns five properties (including one in a subsidiary-IHHR Andhra Private Limited) with total inventory of 844 rooms. The de-merger process for “Ananda in the Himalayas” is on-going post which IHHR would have a total inventory of 766 rooms. The company had availed moratorium as per RBI guidelines. About the company- IHHR Hospitality (Andhra) Pvt Ltd IHHR Hospitality (Andhra) Pvt Ltd, incorporated in 2005, is a subsidiary of IHHR Hospitality Pvt Ltd (74% stake). The company owns a single hotel- ‘Hyatt Hyderabad’, a 166 keys five-star hotel built on a site admeasuring 15.39 acres. The hotel became operational in the year 2007 and comprises Conference and Banquet halls, SPA & Wellness Centre and dining hall with 139 seats, Specialty hall with 73 seats and Lounge with 46 seats spread in an area of 6550 sq. ft. Brief Financials (Rs. crore)-IHHR FY19 (A) FY20 (A) Total operating income 180.62 123.03 PBILDT 36.74 19.66 PAT 0.92 -15.17 Overall gearing (times) 0.48 0.60 2 CARE Ratings Limited Press Release Interest Coverage 1.36 0.80 A: Audited Brief Financials (Rs. crore)-IHAPL FY19 (A) FY20 (A) Total operating income 48.10 50.01 PBILDT 10.04 12.56 PAT 2.82 -3.50 Overall gearing (times) NM NM Interest Coverage 1.39 1.75 A: Audited; NM: Not Meaningful Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Complexity level of various instruments rated for this company: Annexure-3 Annexure-1: Details of Instruments/Facilities Size of the Name of the Date of Coupon Maturity Rating assigned along with Issue Instrument Issuance Rate Date Rating Outlook (Rs. crore) CARE BB+ (CE); Stable; ISSUER Fund-based - LT-Term Loan - - November 2032 53.56 NOT COOPERATING* Fund-based - LT-Bank CARE BB+ (CE); Stable; ISSUER - - - 3.00 Overdraft NOT COOPERATING* Un Supported Rating-Un CARE BB; ISSUER NOT - - - 0.00 Supported Rating (Long Term) COOPERATING* *Issuer did not cooperate; Based on best available information Annexure-2: Rating History of last three years Current Ratings Rating history Date(s) & Date(s) & Date(s) & Date(s) & Name of the Type Rating Sr. Amount Rating(s) Rating(s) Rating(s) Rating(s) Instrument/Bank No. Outstanding assigned assigned assigned assigned Facilities (Rs. crore) in 2020- in 2019- in 2018- in 2017- 2021 2020 2019 2018 1)CARE 1)CARE 1)CARE CARE BB+ (CE); BBB- (CE); BBB (SO); BBB (SO); Fund-based - LT- 1. LT 53.56 Stable; ISSUER NOT Stable - Stable Stable Term Loan COOPERATING* (06-Apr- (11-Dec- (13-Jul-17) 20) 18) 1)CARE 1)CARE 1)CARE CARE BB+ (CE); BBB- (CE); BBB (SO); Fund-based - LT- BBB (SO) 2. LT 3.00 Stable; ISSUER NOT Stable - Stable Bank Overdraft (13-Jul-17) COOPERATING* (06-Apr- (11-Dec- 20) 18) 1)CARE Un Supported CARE BB; ISSUER BB+ 3.