Sayaji Hotels Limited: Rating upgraded to [ICRA]BBB+

ICRA Limited (Credit Rating Agency) has revised the long term rating to [ICRA] BBB+ (Upgraded from [ICRA] BBB). The outlook is Positive.

The upgrade in rating of Sayaji Hotels Limited (SHL) factors in its strong operating performance in 9M FY2023 (aided by robust demand in the hospitality industry), which coupled with proceeds from the company stake sale in associate Barbeque Nations Hospitality Limited (BNHL; rated [ICRA]A-(Stable)/ [ICRA]A2+) has helped the entity in significant deleveraging of its balance sheet and led to a material improvement in its leverage and coverage indicators. As of January 31, 2023, SHL had a total external debt1 outstanding of ~Rs. 0.10 crore (over ~Rs. 33 crore on March 31, 2022). Even after the stake sale (in March 2022), SHL continued to hold ~30% of equity interest in BNHL, whose market value stands at approximately ~Rs. 820 crore (in February 2023), lending considerable financial flexibility to SHL and provides comfort.

A healthy pick-up in the operating metrics of SHL's portfolio, which saw occupancy levels reach ~90% in November 2022 and improved average room rate (ARR) have resulted in strong cash accruals from business. In 9M FY2023, the company reported revenues of ~Rs. 190 crore, representing a 74% increase over 9M FY2022. Additionally, the cost saving initiatives started during the pandemic have helped SHL in maintaining its operating margins at ~30% in 9M FY2023 (over ~32% in 9M FY2023), higher than pre-pandemic levels (~23% in FY2020). The demand in the industry is expected to continue to remain healthy over the near to medium term and would aid SHL in recording healthy operating performance, going forward.

ICRA continues to favourably factor in the extensive experience of SHL's promoters and their demonstrated track record of funding support, the entity's geographically diversified portfolio, reputed name in the F&B and banqueting segment, along with strong brand recall of Sayaji and Effotel in the operative micro-markets. ICRA notes that the company has nearly 22 management contracts in the pipeline currently, which are expected to become operational over the next 2-3 years. This is in line with the management's stated strategy of leveraging its brand name and expanding its presence through an asset-light model. However, given that most of these properties have a small inventory (average 55 rooms), the benefits from this portfolio will likely get realised gradually.

The rating, however, remains constrained by the inherent cyclicality and seasonality in the hospitality industry, which exposes SHL's revenues to risks associated with economic slowdown and exogenous shocks (although the same is partially mitigated by SHL's geographically diversified portfolio). While a sharp recovery in social MICE2, and subsequent gradual ramp up of corporate MICE activities have supported recovery for the property's operating metrices over the last few quarters, there remains a high dependency within the portfolio on the F&B events (primarily social events like weddings), which account for over ~50% of its total revenues and have traditionally been highly seasonal. Going forward, the company's ability to sustain the improvement in profitability margins of its properties, pace of its future renovation and expansion plans and the consequent impact on its business and financial risk profile will remain key monitorable.

SHL's ability to amicably resolve the ongoing legal dispute with Indore Development Authority (IDA) for its flagship Indore property, over the alleged violation of lease terms by the company, also remains a monitorable. Any adverse verdict in the matter can impact its credit profile and remains an event risk. Additionally, as on December 31, 2022, the promoters held ~75% equity stake in the company, of which around ~24.8% was pledged or encumbered. The pledge position has not increased on a YoY basis and would remain monitorable.

The rating continues to be on watch, pending approval/implementation of a proposed scheme of arrangement, which seeks to realign the businesses currently under SHL and its promoters. As per the company management, approvals have been received from the lenders and stock exchanges and an application has been made to the National Company Law Tribunal (NCLT) for the same. ICRA would continue to monitor the developments in this regard and take appropriate rating action as and when more clarity emerges.

Shares of SAYAJI HOTELS LTD. was last trading in BSE at Rs. 344.65 as compared to the previous close of Rs. 344.95. The total number of shares traded during the day was 163 in over 6 trades.

The stock hit an intraday high of Rs. 344.65 and intraday low of 330.35. The net turnover during the day was Rs. 53962.00.

Source : Equity Bulls

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SAYAJIHOTELS INE318C01014 RatingUpdate