| Lemon Tree Hotels Limited | ||||
| Rating outlook revised to 'Stable'; Rating Reaffirmed | ||||
| 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 Lemon Tree Hotels Limited (LTHL, part of the Lemon Tree group) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL A-’
The outlook revision reflects the recovery in business as reflected in operating performance regaining pre-pandemic levels, which is expected to sustain over the medium term. After the severely impacted fiscal 2021, performance in fiscal 2022 improved despite challenges faced during the two waves of the pandemic. The sequential recovery is strong over the last few quarters and fiscal 2023 started on a strong note with average room rent (ARR) surpassing the pre-pandemic levels and occupancies remaining adequate. Business risk profile is expected to improve further on account of strong recovery in domestic travel and increasing international travel. That said, any new variant emerging that imposes material constraints on travel and hence affects demand would remain a key monitorable.
Apart from a favourable industry outlook, LTHL is expected to benefit from a change in its strategy of ARR led growth to occupancy led growth, which would drive margin expansion as was witnessed during the first quarter of fiscal 2023. Further, structural cost rationalisation measures adopted during the pandemic are expected to sustain the earnings before interest, tax, depreciation and amortisation (Ebitda) margins above pre-pandemic levels.
Financial risk profile is expected to strengthen aided by the healthy operating performance. Interest coverage ratio is likely to be above 2 times in fiscal 2023 after being below unity in the past two fiscals. CRISIL Ratings expects gross debt to not cross fiscal 2022 levels despite the ongoing large project of MIAL, which is expected to be completed by December 2023. The company has focused on deleveraging and intends to become debt free within the next five years, which augurs well for the credit profile.
The rating continues to reflect the established position of the Lemon Tree group in the hotel industry, its diversified revenue profile and healthy financial flexibility. These strengths are partially offset by debt-funded growth in the past, which has increased the financial leverage. Further, a substantial portion of the capital being tied-up in under-construction or newly constructed hotels is leading to below-average debt protection metrics and modest return on capital employed (RoCE). |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of LTHL and its subsidiaries, collectively referred to as the Lemon Tree group, because of strong business and financial linkages. The subsidiaries construct or operate hotels under the Lemon Tree Premier, Lemon Tree, Red Fox, Keys and Aurika brands, and provide services to group companies.
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:
Weaknesses:
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Liquidity: Adequate Expected yearly net cash accrual of around Rs 200 crore should cover debt repayments of Rs 110-160 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 believes that the 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 Founded by Mr Patanjali Keswani in September 2002, the Lemon Tree group has 84 hotels across 54 cities - 33 owned, 7 leased, and 44 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.
In 2019, LTHL completed its initial public offering for 24.9% stake. The promoter continues to own ~ 24% stake.
In fiscal 2020, the Lemon Tree group acquired BHPL, which owned and operated 21 hotels under the Keys Hotels brand across India.
For the three months ended June 30,2022, LTHL reported a net profit of Rs 14 crore on an operating income of Rs 192 crore against a loss of Rs 34 crore on operating income of Rs 42 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators (Consolidated - CRISIL Ratings Adjusted)
#Adjusted debt includes lease liability |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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