| Jewel Classic Hotels Private Limited | ||||
| Rating reaffirmed at 'CRISIL BB+ '; outlook revised to 'Positive' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Jewel Classic Hotels Pvt Ltd (JCHPL) to ‘Positive’ from ‘Stable’, while reaffirming the rating at ‘CRISIL BB+’.
The revision in outlook factors improvement in business risk profile during the third quarter of fiscal 2021, with estimated revenue of Rs 11 crore, as against Rs 4.5 crore reported in the subdued first half; operating margin has been stable around 39.8% for the first nine months of fiscal 2021. Easing of norms related to social gatherings and postponing of weddings and other functions from the first to the second half of fiscal 2021, have supported operating performance. As a result, room occupancy also improved to 44-45% in the third quarter, from around 25% during the April-September 2020 period. Sustenance of performance in the last quarter as well should keep the business risk profile stable in fiscal 2021, though slightly weaker than in fiscal 2020. Further, performance of the London restaurant should support the business risk profile in fiscal 2022, even as timely stabilisation of operations and mitigation of demand risk will be key rating sensitivity factors.
The rating also factors in the moderate financial risk profile, with capital structure likely to weaken slightly in fiscal 2021, owing to the debt-funded capital expenditure (capex) for the London restaurant. Incremental interest obligation, and lower operating efficiencies amidst the nascent stage of operations in London, may moderate debt protection metrics too, however, they will still continue to remain comfortable.
The rating on the bank facilities of the Jewel group reflects the extensive experience of its promoter in the hospitality industry, established brand presence and a moderate financial risk profile. These strengths are partially offset by low occupancy and demand risk associated with London restaurant. |
Analytical approach: Previously standalone approach was followed to arrive at the rating of JCHPL, however, CRISIL Ratings (this time) has consolidated the business and financial risk profiles of JCHPL and its wholly owned subsidiary, Noor Group of Hotels (UK) Ltd (Noor), together referred to as the Jewel group, to arrive at the rating. This is because Noor has been setup in the ongoing fiscal, and both the entities are engaged in a similar line of business, under the same promoters |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoter and established brand presence Benefits from the promoter’s experience of around three decades in the hospitality industry and the group’s established brand presence (Hotel Jewels and Hotel Noor Mahal) will continue. Location advantage of the hotels has helped tide over demand risk posed by the pandemic. Both the hotels are based in Karnal, Haryana, which has been minimally impacted by the pandemic, compared with Delhi-NCR and other major cities in the vicinity. Resultantly, revenue and operating margin are estimated to be over Rs 15 crore and 39.8%, respectively, over April-December 2020.
Moderate financial risk profile Capital structure is expected to be slightly leveraged, following the debt-funded capex undertaken towards the London restaurant. Total outside liabilities to tangible networth (TOL/TNW) ratio, though comfortable, will increase to 1.4 times as on March 31, 2021 (from 1.2 times a year before). Debt protection metrics could moderate, led by incremental interest cost and lower operating efficiencies of the restaurant; interest coverage and net cash accrual to total debt ratios are likely to decline to 3.6 times and 0.16 time, respectively, in fiscal 2021, from 4.3 times and 0.3 time, respectively, in fiscal 2020.
Weaknesses Low occupancy: The group’s operating efficiency remains constrained by low room occupancy, averaging around 52% during fiscal 2020. Though occupancy levels rose to around 44% in the third quarter of fiscal 2021, from 25% during the first half, overall occupancy was lower at 36.5% during the April-December period. Consequently, revenue contribution from room rent also moderated to 29% during fiscal 2021 (April-Dec period), from 43% in fiscal 2020. Though incremental revenue from other segments such as banquet halls and restaurants made up for the shortfall in revenue from room rent, pick-up in occupancy remains critical for overall operating efficiency, and hence, a key monitorable over the medium term.
Exposure to demand related risk: JCHPL is undertaking capex for setting up a restaurant in London, and commercial operations may commence from April or May 2022. The nascent stage of operations, coupled with ongoing challenges arising from the Covid-19 pandemic, make the group vulnerable to demand risk. Timely stabilisation of operations is a key rating sensitivity factor. |
Liquidity: Stretched Liquidity will remain supported by the unutilised reserve of Rs 7.5 crore as on December 31, 2020, and sufficient net cash accrual vis-a-vis maturing debt. Net cash accrual of Rs 9-12 crore is expected over the medium term, against maturing term debt of Rs 6-7.2 crore per annum. Ongoing capex of around Rs 10 crore will be covered through term debt of Rs 7.5 crore and the balance, via internal accrual. Under the Reserve Bank of India’s Covid-19 relief package, the group had availed moratorium and emergency credit line of Rs 5 crore. |
Outlook Positive CRISIL Ratings believes the Jewel group’s business performance should benefit from the strong brand of its hotels and expected revival in the hospitality industry. Additionally, financial risk profile, particularly liquidity, will remain supported by presence of unencumbered reserves and expectation of healthy net cash accrual. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Set up as a proprietorship firm (Jewels) by Mr Manbeer Chaudhary in 1994, JCHPL was reconstituted as a private limited company in 1997. It operates four- and five-star hotels in Karnal, Haryana, with 54 rooms and 125 rooms, respectively. The hotels operate under the names Hotel Jewels and Hotel Noor Mahal.
In fiscal 2021, the group has set up Noor Group of Hotels (UK) Ltd, as a wholly owned subsidiary of JCHPL. The said entity will have manage the operations of the proposed restaurant in London, which is expected to commence from April or May 2022. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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 various bank facilities | ||||||||||||||||||||||||
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