| Lemon Tree Hotels Limited | ||||
| Rating reaffirmed at 'CRISIL A/Stable' | ||||
| 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 its rating on the long-term bank facilities of Lemon Tree Hotels Limited (LTHL, part of the Lemon Tree group) at ‘CRISIL A/Stable’.
The reaffirmation in the rating factors in strong business risk profile of LTHL as reflected in healthy revenue growth of around ~22% in fiscal 2024 over previous fiscal driven by improvement in operating metrics in exiting hotels and commencement of Aurika SkyCity hotel, Mumbai. The average room rent (ARR) and occupancy rates stood ~Rs 5,876 and around 69.9% in fiscal 2024 both improving from ~Rs 5344 and 68.1% in fiscal 2023 respectively.
The operating margins though dipped slightly in fiscal 2024 on account of certain renovation expenses and the stabilization of newly commenced Aurika SkyCity hotel, Mumbai, is estimated to remain healthy at around 50% in the medium term with full year of operation of the new hotel and benefits of renovation.
CRISIL Ratings expects the operating performance to sustain over the medium term aided by the established market position of the company and full year operations of Aurika SkyCity from this fiscal onwards.
The financial risk profile of the company improved, supported by healthy accruals. The debt to EBIDTA (operating profits before interest, taxes, depreciation, and amortization) adjusted for lease liabilities, improved to 3.6 times for fiscal 2024 and expected to improve further with expected healthy accruals and limited debt addition plan in the medium term. The interest coverage ratio stood around 2.2 times for fiscal 2024 and is also estimated to improve with improvement in accruals and reduction of debt on account of repayments.
The return on capital employed (RoCE) of around 11.9% in fiscal 2024, though remained modest, has improved with commencement of the new hotel – Aurika SkyCity, Mumbai and improvement in operational metrices. These debt protection metrics & RoCE are expected to improve further with full year operationalization of the new hotel in the current fiscal.
The strengths are partially offset by debt-funded growth in the past, which keeps the financial leverage moderate. The intention to deleverage and become debt free in the medium-term augurs well for the strong financial credit profile. |
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:
Given the strong demand in the industry led by high quantum of domestic travel, continued strong momentum of economic activities, and estimated increase in foreign tourists coupled with limited supplies, and the placement of the Lemon Tree group in the industry, shall drive sustenance of strong operating margins at around 50% in the medium term.
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.
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.
Weakness:
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 |
Liquidity: Adequate Expected yearly net cash accrual of ~Rs 300 to Rs 500 crore should adequately cover debt repayments of Rs 170-240 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 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(Consolidated - CRISIL Ratings Adjusted)
#Adjusted debt excludes lease liability |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Term Loan | 122 | HDFC Bank Limited | CRISIL A/Stable |
| Term Loan | 63 | Aditya Birla Finance Limited | CRISIL A/Stable |
| Proposed Long Term Bank Loan Facility | 45 | Not Applicable | CRISIL A/Stable |
| Overdraft Facility | 20 | HDFC Bank Limited | CRISIL A/Stable |
Criteria Details
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