8/25/22, 3:45 PM India Ratings and Research: Most Respected Credit Rating and Research Agency India

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India Ratings Revises Aria Hotels and Consultancy

Services’ Outlook to Stable; Affirms ‘IND BB+’
Jul 13, 2022 | Consumer / Retail

India Ratings and Research (Ind-Ra) has revised Aria Hotels and Consultancy Services Private Limited’s (AHCSPL)
Outlook to Stable from Negative while affirming its Long-Term Issuer Rating at ‘IND BB+’. The instrument wise rating
action are as follows:

Instrument Type Date of Coupon Maturity Size of Rating/Outlook Rating

Issuance Rate Date Issue Action
(million)

Fund-based - - - INR75 IND BB+/Stable/IND Affirmed,

working capital limit A4+ Outlook
revised to
Stable
from
Negative
Term loan - - December INR5,268.46 IND BB+/Stable Affirmed,
2036 (reduced Outlook
from revised to
INR5,304.10) Stable
from
Negative

The Outlook revision reflects an improvement in AHCSPL’s operating and financial performance in FY22, which Ind-Ra
expects will continue in FY23.

The affirmation reflects the ongoing corporate governance issue at AHCSPL in accordance with the default of its parent
Asian Hotels (West) Limited (AHWL; ‘IND D(ISSUER NOT COOPERATING)’; holds 99.98% stake in AHCSPL). Both
companies continue to have a common promoter; although the shareholding of the promoter is lower in AHCSPL than
AHWL. Furthermore, the two directors, who resigned from AHWL, continue to be independent directors in AHCSPL. Also,
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one of the lenders of AHCSPL has a cross-default clause in the loan agreement, which is not a part of the consortium.
However, the same has not been invoked till date as the lender has drawn comfort from the company’s improved
performance coupled with timely servicing of interest and term loan repayment.

Key Rating Drivers

The ratings reflect a significant improvement in AHCSPL’s occupancy level to 52.88% in FY22 (FY21: 39.48%) coupled
with an increase in the average room rent to INR6,923 (INR4,794) due to an increase in tourist footfall on account of
easing of COVID-19-led travel restrictions, as well as increase in bookings of banquet halls and lounges for corporate
meetings and marriages. As a result, the revenue surged to INR1,637.34 million in FY22 (FY21: INR968.53 million). Of the
total revenue in FY22, the hotel segment contributed INR1,388.40 million (FY21: INR842.13 million), followed by the
commercial space lease segment at INR248.94 million (INR126.39 million). In 1QFY23, the company booked revenue of
INR701.8 million with an average occupancy rate of 79% at an average room rent of INR9,195 and a lease income of
INR39.50 million from the commercial tower. FY22 numbers are provisional.

AHCSPL’s EBITDA margin improved to 28.12% in FY22 (FY21: 8.90%) on account of the cost optimisation measures
adopted by the company to reduce the direct expense in the overall cost, along with moderate absorption of the same with
the increase in the revenue. The interest coverage (operating EBITDAR/gross interest expense + rents) improved to 0.73x
in FY22 (FY21: 0.17x, FY20: 2.09x) and the net leverage (adjusted net debt/operating EBITDAR) to 10.59x (28.64x, 4.25x)
due to an improvement in EBITDA, and a decline in the debt to INR5,112.43 million (INR5,307.90 million, INR5,279
million) and the consequent fall in interest costs. Ind-Ra expects the credit metrics to improve further over the medium on
account of absence of any major debt-funded capex and a likely further improvement in the operating EBITDA.

Liquidity Indicator- Adequate: AHCSPL's average maximum utilisation of the fund-based limits was 44.14% during the
14 months ended May 2022 with no instance of overutilisation. The cash flow from operations turned positive to
INR186.36 million in FY22 (FY21: negative INR215.40 million) due to the improvement in the operating EBITDA to
INR460.48 million (INR86.23 million) and the decline in the interest cost to INR628.10 million (INR724.91 million). Ind-Ra
expects the cash flow from operations to improve further in FY23 on account of a likely improvement in the operating
EBITDA. It had an unencumbered cash balance of INR105.50 million at 1QFYE23 (FYE22: INR145.55 million, FYE21:
INR340 million). The company has scheduled long-term debt repayments of INR125.30 million and INR180.90 million for
FY23 and FY24, respectively.

Moreover, AHCSPL has undisbursed sanctioned working capital term loan of INR1,350 million availed under the
Guaranteed Emergency Credit Line Scheme. The company prepaid and closed its lease rental discounting facility in
December 2021. It does not have any capital market exposure and relies on banks and financial institutions to meet its
funding requirements.

However, the ratings are constrained by the ongoing corporate governance issue with respect to the default of its parent
company and continuation of the common promoter. Any adverse action by the regulator on the corporate governance
issue or the ability of the company to resolve the corporate governance issue will remain a key monitorable.

The ratings, however, draw comfort from its tie up with Marriot Hotels India Private Limited for branding, operating and
marketing of the hotel under the JW Marriot brand. Furthermore, the company gets the locational advantage as the hotel is
situated in the hospitality district at Delhi Aerocity, adjacent to the Indira Gandhi International Airport and is well connected
with the central business districts of Delhi and Gurugram.

Rating Sensitivities

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Negative: Any substantial deterioration in the liquidity position or operating performance or any adverse action by
the regulator on the corporate governance issue could lead to a negative rating action.

Positive: A continued improvement in the operating performance, along with resolution of the corporate
governance issue could lead to a positive rating action.

Company Profile

Incorporated on 11 May 2007, AHCSPL has developed a 523-room five-star hotel at Delhi Aerocity that became
fully operational in April 2015. The hotel also has a commercial block of about 132,940 square feet of super area.

FINANCIAL SUMMARY

Particulars FY22 (Provisional) FY21

Revenue (INR million) 1,637.34 968.53
Operating EBITDA (INR million) 460.48 86.23
EBITDA margin (%) 28.12 8.90
Interest coverage (x) 0.73 0.17
Net leverage (x) 10.59 28.64
Source: Ind-Ra, AHCSPL

Solicitation Disclosures

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer,
and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold
any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or
any issuer.

Rating History

Instrument Type Current Rating/Outlook Historical Ra

Rating Type Rated Limits Rating 18 June 2021 12 Marc

(million)
Issuer rating Long-term - IND BB+/Stable IND BB+/Negative IND BBB/

Term loans Long-term INR5,268.46 IND BB+/Stable IND BB+/Negative IND BBB/

Fund-based working capital limit Long-term/Short- term INR75 IND BB+/Stable/IND A4+ IND IN
BB+/Negative/IND BBB/Nega
A4+ A3

Complexity Level of Instruments

Instrument Type Complexity Indicator

Term loans Low

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Fund-based working capital limit Low

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

Contact

Primary Analyst
Abhisek Kumar
Analyst
India Ratings and Research Pvt Ltd
DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
+91 124 6687254
For queries, please contact: infogrp@indiaratings.co.in

Secondary Analyst
Dhruv Mahajan
Senior Analyst
124 6687217

Chairperson
Abhash Sharma
Director
+91 22 40001778

Media Relation
Ankur Dahiya
Senior Manager – Corporate Communication
+91 22 40356121

APPLICABLE CRITERIA

Evaluating Corporate Governance

Corporate Rating Methodology

D E TA I L E D F I N A N C I A L S U M M A R Y

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