CARE assigns A- rating NCD issue of Viceroy Hotels

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CARE assigns A- rating NCD issue of Viceroy Hotels

CARE assigns ‘A-’ rating NCD issue of Viceroy Hotels Ltd

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CARE has assigned a "CARE A-" [Single A Minus] rating to Viceroy Hotels Limited's (VHL) proposed Non Convertible Debenture (NCD) issue of Rs.50 cr. Instruments with this rating are considered to offer adequate safety for timely servicing of debt obligations. Such instruments carry low credit risk.

The rating derives strength from experienced management, longstanding presence in the hotel industry, management agreement with Marriott bringing associated benefits of brand, marketing support, quality and systems and expected increase in the operations after new hotel projects start operations. The rating is, however, constrained by VHL's relatively small size of operations,  high level of competition in the industry, large size of projects in hand compared to existing size of company and debt funded nature of projects.

VHL presently run a 5 star category hotel, which was re-branded in July 2006 as "Marriot Hyderabad", consequent to the 30-year management agreement entered into with Marriott, Netherlands in January 2006. The hotel presently has 297 operational guest rooms.  The hotel houses a two-level convention hall with a capacity of 2300 pax, three medium size banquet halls, four conference halls, five board rooms and a party lawn with a capacity of 3000 pax. VHL has an Indian restaurant/Coffee Shop, a multi-cuisine restaurant, a Bar, a Cyber Cafe, Barbeque and private dining areas.

The renovation and expansion of the hotel to 297 rooms from 168 rooms was partially completed during the year FY'06. Despite the renovation and expansion, normal operations of the hotel continued, which resulted in the higher turnover for FY'06. ARR increased from Rs. 3807 in FY05 to Rs.5014 during FY06 (32% growth) and with the increase in number of rooms, the room revenue went up by 48%. At the same time, the occupancy rate declined marginally to 65% in FY'06 from 68% in the previous year.

VHL has decided to set up 5 star deluxe category hotels at Chennai (350-room hotel and 200-executive service apartments) and Bangalore (250-room hotel), both of which under the management of Marriott. Besides these, VHL is also proposing to set up hotels in mid sized segment in Hyderabad (164-room hotel in 4-star category) and Visakhapatnam.

VHL's total income grew by 12.50% in FY'06 to Rs.35 cr. The company operated with less room inventory in FY'05 and FY'06 due to the renovation and expansion project. VHL's PBILDT margins ranged between 40-45% during the last five years and dropped marginally in FY06 to 42% (as compared to FY'05) due to increase in personnel cost. PAT margins fell from 6.6% in FY'05 to 4.9% during FY'06. VHL's overall gearing ratio has risen to high levels over the last few years and was at a high 4.19 as on March 31, 2006. Gearing levels have gone up pursuant to the highly debt financed nature of the projects being undertaken. Interest coverage ratio remained comfortable in the last three years, though it declined from 1.80 in FY'05 to 1.69 in FY'06 due to increase in interest outgo.

Sourced From: Careratings