| Fleur Hotels Private Limited | ||||||
| Ratings upgraded to 'CRISIL A/Stable/CRISIL A1' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded the rating on the bank facilities of Fleur Hotels Private Limited (Fleur, part of the Lemon Tree group) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.
The upgrade in the rating reflects improvement in the business risk profile of the company as reflected in healthy revenue growth and significant expansion of the operating profitability in fiscal 2023. The revenue, at Rs 573 crore stood 61% above the pre-pandemic level (fiscal 2020). This coupled with healthy demand and limited supply augured well for the profitability wherein the operating margins stood at ~44% (~ 121 bps higher than fiscal 2020). The improvement over the last two years was reflected in significant increase in the operating metrics such as average room rent (ARR) and occupancy rates, which stood at around Rs 5,693 and around 66% in fiscal 2023, well surpassing the pre-pandemic levels. CRISIL Ratings expects the operating performance to sustain over the medium term aided by established market position of the company and permanent cost saving measures.
The financial risk profile of the company also improved supported by healthy accruals. The debt to EBIDTA (operating profits before interest, taxes, depreciation and amortization) adjusted for lease liabilities, improved to 5.4 times in fiscal 2023 and expected to improve further due to limited incremental debt and expected healthy profitability. The interest coverage ratio is estimated to remain above 3 times for fiscal 2024 which will be better than ~1.9 times, prior to pandemic (fiscal 2019).
The return on capital employed (RoCE) has remained modest due to capital engaged in the under construction of properties. These debt protection metrics & RoCE are expected to improve with operationalization of the new hotels.
The strengths are partially offset by debt-funded growth in the past, which keeps the financial leverage moderately high. The intention to deleverage and become debt free in the medium-term augurs well for the strong financial credit profile. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Fleur and its subsidiaries, because they have strong business and financial linkages. Fleur and its subsidiaries construct or operate hotels under the Lemon Tree Premier, Lemon Tree, Red Fox, Keys and Aurika brands.
CRISIL Ratings has also applied its parent notch-up framework to factor in the extent of support Fleur receives from Lemon Tree Hotels Limited (LTHL).
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong managerial, financial and operational support from parent, LTHL: Fleur accounted for more than 66% of LTHL's total room inventory in fiscal 2023. It receives operational and financial support from the parent and benefits from management expertise in commissioning and stabilising properties successfully. LTHL has also extended an unconditional and irrevocable guarantee for debt contracted by Fleur. Since all the hotels are under the Lemon Tree brand, Fleur will remain strategically important to LTHL over the medium term.
Established position and healthy revenue diversity: The Lemon Tree group is among the top three hotel chains (by number of rooms) in India. It is present across the upper-upscale, upscale, midscale and economy segments. The group has 88 hotels across 52 cities, of which, 33 are owned, 7 are leased and 48 are under management or franchisee contracts. Diversified service offering provides strength and stability to the business risk profile of the group by reducing the risks associated with a single price point and limited locations. As it expands, the group will continue to benefit from its brand recall.
High financial flexibility with regular equity infusion: The group has raised equity of over Rs 1800 crore between fiscals 2006 and 2023, irrespective of the funding climate, which reflects its high financial flexibility. Consequently, its capital structure remained comfortable, with gearing less than 1.5 times over the years. Also, liquidity is supported by improving net cash accrual due to ramp up of properties, revival from pandemic and long debt tenures leading to manageable yearly debt obligations. Prudent funding policy for capital expenditure (capex) will ensure a stable financial risk profile over the medium term, while the proven ability to raise equity and contract debt on attractive terms will support financial flexibility. The management has also committed to reduction in leverage and the Lemon Tree group intends to be debt free within next five years. Improvement in leverage will support the credit risk profile of the company.
Weaknesses: Aggressive expansion strategy resulting in below-average debt protection metrics and exposure to stabilisation risk: The group started its first hotel in 2004 with 49 rooms. Since then, it has grown rapidly to 40 operational hotels (owned or leased) and around 5,000 rooms. Though expansion was funded through a prudent mix of debt and equity, high interest cost and subdued profitability led to below-average debt protection metrics. Debt to Ebitda and interest coverage ratios were subdued at 14 and 0.8 times, respectively, in fiscal 2022 and were expected to improve as new hotels stabilised. Nonetheless, the easing of travel restriction has resulted in an uptick in ARR and occupancy along with stabilisation of new hotels, which will improve debt protection metrics. The debt to Ebidta ratio is expected to improve to less than 6 times and interest coverage ratio to more than 1.9 times in fiscal 2023 and over the near-to-medium term. Sustenance of recovery in profitability and improved capital structure will be key monitorables.
Large, under-construction or newly constructed portfolio leading to weak RoCE: RoCE has been below 6% since 2009. As a substantial portion of capital is employed in under-construction or newly constructed projects, RoCE is expected to improve over the medium term as currently only two hotels at MIAL and Shimla is under construction and more hotels in stabilised phase over the medium term. Further, expansion through leased and managed properties rather than owned properties should lead to a better RoCE. |
Liquidity: Adequate Expected yearly net cash accrual of around Rs 180 to Rs 300 crore should cover debt repayments of Rs 160-180 crore over the medium term. Liquidity is also supported by the group's available liquid balance in the form of cash, mutual funds and undrawn bank facilities. Further, the proven ability to raise equity and contract debt on attractive terms supports financial flexibility. |
Outlook: Stable CRISIL Ratings believe that credit risk profile will remain stable over the near term, supported by healthy accruals due to rising ARRs and occupancy |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Fleur is a 59% subsidiary of LTHL, with the remaining stake being held by APG. It owns and operates 24 hotels across India under the Lemon Tree and other brands |
About the Lemon Tree group Founded by Mr Patanjali Keswani in September 2002, the Lemon Tree group has 88 hotels across 52 cities - 33 owned, 7 leased, and 48 under management or franchisee contracts. This includes 7 owned and 8 managed Keys Hotels, which were added to the portfolio after the acquisition of BHPL in fiscal 2020. The first hotel commenced operations in Gurugram in 2004. The group has seven brands: Aurika (upscale), Lemon Tree Premier & Keys Prima (upper-midscale), Lemon Tree Hotels & Keys Select (mid-scale), and Red Fox Hotels & Keys Lite (economy). It also has a management arm that leverages the all seven brand and provides managerial and operational services to hotel owners.
In 2012, APG invested in Fleur Hotels. As on March 31, 2022, APG owned 41.09% stake in Fleur Hotels and 15% in LTHL. |
Key Financial Indicators
#Adjusted debt includes lease liability |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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This Annexure has been updated on 08-June-2023 in line with the lender-wise facility details as on 28-Oct-2021 received from the rated entity.
Criteria Details
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