| Iora Hotels Private Limited | ||||||
| Ratings reaffirmed at '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 reaffirmed the rating on the bank facilities of Iora Hotels Private Limited (Iora, part of the Lemon Tree group) at ‘CRISIL A/Stable/CRISIL A1’.
The ratings factor in the established brand of the group in the hospitality sector, operationalization of Aurika SkyCity, and the extensive experience of the promoters.
The reaffirmation in the rating factors in moderate business risk profile of Iora as reflected in revenue of Rs 73 crore and operating margins of ~43% in fiscal 2024. The hotel that became operational in October 2023, and remained operational for around 6 months in fiscal 2024 has achieved ARR of ~Rs 9,000 and occupancy rate of ~53%.
CRISIL Ratings expects the operating performance of Iora to improve over the medium term aided by stabilized and full year operations of the entire 669 keys from the current fiscal onwards.
The financial risk profile of the company is modest, supported by an adequate average Debt service coverage ratio (DSCR) of above 2 times for the full tenor of the debt taken for the hotel. The debt (including promoters debt and excluding lease liabilities) to EBIDTA (operating profits before interest, taxes, depreciation, and amortization), however remains high at 15.6 times due to deployment of capital and partial operations in fiscal 2024, however it is expected to improve significantly in medium term due to full year operations and healthy operational metrices for the hotel.
The rating also factors in the strong operational and financial linkages of Iora with its parent, Lemon Tree Hotels Limited (LTHL, CRISIL A/Stable).
These strengths are partially offset by exposure to hotel stabilisation risks. |
Analytical Approach CRISIL Ratings has taken a standalone approach for the business and financial risk profiles of Iora. CRISIL Ratings has also applied its parent notch-up framework to factor in the extent of support Iora receives from Lemon Tree Hotels Ltd (LTHL). |
Key Rating Drivers & Detailed Description Strengths:
Iora accounted for around 6% of the revenue of the entire Lemon Tree group in fiscal 2024 which is expected to increase to around 15% in the current fiscal aided by full year operationalization of the hotel. It receives operational and financial support from the parent and benefits from management expertise in commissioning and stabilising properties successfully. Since all the hotels are under the Lemon Tree group, Iora will remain strategically important to LTHL over the medium term.
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 104 hotels across 63 cities, of which, 34 are owned, 7 are leased and 63 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.
The group has raised equity of over Rs 1800 crore between fiscals 2006 and 2024, irrespective of the funding climate, which reflects its high financial flexibility. Also, liquidity is supported by improving net cash accrual due to ramp-up of properties, revival from pandemic induced challenges 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 is also committed to a reduction in leverage and the company intends to be debt free within the next five years. Improvement in leverage will support the credit risk profile.
Weaknesses:
The group started its first hotel in 2004 with 49 rooms and grew rapidly to 104 operational hotels (owned, leased or managed) and around 10,000 rooms currently. 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 in past. The debt protection metrices have been improving with increase in accruals and is currently at moderate level with debt to Ebitda (excluding lease liabilities) of 3.6 and interest coverage of 2.2 times, respectively, in fiscal 2024. The same is expected to improve further with increase in operating profitability.
RoCE has been below 10% for quite a long time between fiscals 2009 and 2023. RoCE has improved to around 12% in current fiscal with commencement of operations of the Aurika SkyCity, Mumbai.
Iora Hotels has constructed a new hotel – Aurika SkyCity near Mumbai International Airport. The hotel commenced operations in October 2023 and remained operational for around 6 months in fiscal 2024.
CRISIL Ratings expects the operating performance of Iora to improve over the medium term aided by stabilized full year operations of the entire 669 keys from the current fiscal onwards supported by the established market position of the Lemon Tree group. However, the performance of the hotel for the full fiscal shall remain a key monitorable. |
Liquidity: Adequate Expected yearly net cash accrual of Rs 40-80 crore from the current fiscal should be sufficient to cover debt repayment of Rs 2-15 crore per annum, over the medium term.
Liquidity is also supported by the Lemon Tree group, wherein expected yearly net cash accrual of ~Rs 300 to Rs 500 crore is adequate to cover debt repayments of Rs 170-240 crore over the medium term. Liquidity is further 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 the credit risk profile will remain stable over the medium term, on account of the expected improvement in average room rates and occupancy levels supported by the extensive experience of the LTHL group. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Iora is a 100% subsidiary of Fleur Hotels Pvt Ltd, which is a 59% subsidiary of LTHL, with the remaining being held by APG. Fleur is being developed as the ‘asset-owning’ entity in the group. The new hotel - Aurika SkyCity comes under Iora. Fleur now 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 104 hotels across 63 cities - 34 owned, 7 leased, and 63 under management or franchisee contracts as on March 31, 2024. 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 all seven brands and provides managerial and operational services to hotel owners. |
Key Financial Indicators: Iora Hotels Private Limited
*NA means Not Applicable since the hotel was not operational in fiscal 2023
Key Financial Indicators: Lemon Tree Hotels Limited (Consolidated)
#Adjusted debt excludes lease liability |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Includes letter of credit of Rs 30 crore as a sublimit #Includes standby letter of credit of Rs 20 crore as a sublimit $Includes bank guarantee of Rs 8 crore as a sublimit |
| 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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#Includes standby letter of credit of Rs 20 crore as a sublimit
$Includes bank guarantee of Rs 8 crore as a sublimit
Criteria Details
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