| SOTC Travel Limited | ||||||
| Long term rating downgraded to 'CRISIL A+/Negative' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has downgraded its rating on the long-term bank facility of SOTC Travel Limited (SOTC) to 'CRISIL A+/Negative' from 'CRISIL AA-/Negative'. Further, CRISIL has assigned rating of 'CRISIL A1' on short term bank facility of SOTC. |
| Analytical Approach |
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For arriving at the rating, CRISIL has applied its parent notch-up framework to factor in the extent of financial and managerial support available to SOTC from TCIL. Preference shares allotted to SOTC as a part of the scheme of arrangement have been treated as equity, as the shares were held by Travel Corporation India Ltd (TCI) and the management intends to convert them into equity. Moreover, on conclusion of the restructuring scheme, they are being held directly by TCIL. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strong operational, managerial and financial support from the Thomas Cook group Following the scheme of arrangement between TCIL and SOTC, the inbound business has been consolidated under TCI, and SOTC's operations include outbound leisure, business and domestic travel. A similar business is also housed under TCIL under the retail brand, Thomas Cook. SOTC's operations, including treasury, are closely integrated with TCIL. TCIL has provided guarantees to SOTC's debt. The company regularly receives management support from TCIL. Also, sharing of common backend operations, office space and joint vendor negotiations should benefit operating efficiency. SOTC will continue to play a central role in the Thomas Cook group's growth strategy in the travel segment. * Healthy market position and extensive experience of the management SOTC has presence of around seven decades in the travel sector in India and has been a pioneer in the development of organised leisure travel in the outbound and domestic divisions. Customer focus, innovative packages and operational excellence, supported by a strong management, have made the company one of the leading travel and tourism players. SOTC's footprint currently extends across India, backed by a strong partner network, with 23 branches, 90 franchises, 48 preferred sales agents and 12 general sales agents. The managing director, Mr Vishal Suri, has nearly 14 years of experience in the travel business. * Comfortable capital structure Capital structure remains comfortable because of adequate networth (including preference share of about Rs 86 crore as equity) and low debt of Rs 36 crore as on March 31, 2020. As on March 31, 2020, adjusted gearing (ratio of adjusted debt to adjusted networth) was low at 0.4 time (0.3 time as on March 31, 2019). Furthermore, outstanding bank termdebt has been repaid by SOTC, and there was no long-term debt as on June 30, 2020. Healthy liquidity in the form of cash and equivalents (including current investments in mutual funds) of Rs 69 crore as on March 31, 2020, supported by customer advances and the absence of term debt, aids the financial risk profile. Weaknesses * Weak operating profitability and susceptibility to geopolitical risks and competition Low fixed-asset requirement and limited technology barriers result in high completion in the tours and travel industry, constraining the pricing power of industry players. This, coupled with a relatively smaller scale of operations than the parent, results in low operating margin and, thereby, weak profitability (earnings before interest, taxes, depreciation and amortisation breakeven in fiscal 2020 against operating losses in fiscal 2019) for SOTC. Moreover, operations remain exposed to external events and geopolitical risks. The global travel industry has been severely impacted since January 2020 on account of reduced travel amid the pandemic. Prolonged travel restrictions coupled with continued travel aversion among customers could further impact SOTC and would, thereby, remain a key monitorable. The group's competitive position may improve in the medium term due to the impact of the pandemic on weaker players. However, competition from organised and unorganised players including online ones, along with slowdown in the travel segment globally, may continue to constrain pricing power and profitability. * Risks related to growth strategy through acquisitions Over the years, the parent has grown organically as well as inorganically. SOTC is one of the vehicles for TCIL for travel-related acquisitions. While financial support from the parent is expected for all major acquisitions, the strategy of growth through acquisitions could materially alter credit profiles if there is slower-than-expected ramp-up of acquired businesses and, therefore, remains a key rating sensitivity factor. |
| Liquidity Strong |
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Liquidity remains healthy, with cash and equivalents of Rs 69 crore as on March 31, 2020. As on March 31, 2020, outstanding term loans stood at Rs 9 crore, which were repaid as on June 30, 2020. Need-based support from the parent will continue to support liquidity. |
| Outlook: Negative |
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The outlook is based on CRISIL's rating outlook on TCIL's debt instruments and bank facilities. |
| About the Company |
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SOTC is a leading travel and tourism company that is active across various travel segments, including leisure, incentive and business travel. |
| 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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||
^ Fully interchangeable with bank guarantee (BG) |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
^ Fully interchangeable with bank guarantee (BG) | ||||||||||||||||||||||||||||||||||||
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