SAPTARISHI HOTELS PRIVATE LIMITED - ICRA
SAPTARISHI HOTELS PRIVATE LIMITED - ICRA
SAPTARISHI HOTELS PRIVATE LIMITED - ICRA
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<strong>SAPTARISHI</strong> <strong>HOTELS</strong> <strong>PRIVATE</strong> <strong>LIMITED</strong><br />
Analyst Contact<br />
Subrata Ray<br />
subrata@icraindia.com<br />
+91-22-3047 0027<br />
Girish Rathor<br />
girish.rathor@icraindia.com<br />
+91-22-3048 1074<br />
Relationship Contact<br />
Jayanta Chatterjee<br />
jayantac@icraindia.com<br />
+91-80-4332 6401<br />
Website<br />
www.icra.in<br />
Rating<br />
<strong>ICRA</strong> has assigned an [<strong>ICRA</strong>]BB- (pronounced <strong>ICRA</strong> double B minus)<br />
rating to the Rs. 150.0 crore 1 long term loans of Saptarishi Hotels<br />
Private Limited (SHPL) 2 . <strong>ICRA</strong> has also assigned an [<strong>ICRA</strong>]A4<br />
(pronounced <strong>ICRA</strong> A four) rating to the Rs. 20 crore non-fund based<br />
bank facilities of SHPL. The outlook on the long term rating is stable.<br />
(Refer Annexure for Rating History)<br />
1 100 lakh = 1 crore = 10 million<br />
2 For complete rating scale and definitions, please refer to <strong>ICRA</strong>’s website<br />
www.icra.in or other <strong>ICRA</strong> Rating Publications.<br />
November 2011<br />
<strong>ICRA</strong> Credit Perspective
<strong>ICRA</strong> Credit Perspective Saptarishi Hotels Private Limited<br />
Credit Strengths<br />
� Hotels to be managed under the Double Tree by Hilton brand; benefits from the worldwide<br />
marketing and reservation systems of Hilton<br />
� promoter’s past experience of hotel construction; equity partners in FII investor Indus Hotel Reality<br />
(Mauritius) Limited<br />
� Project has achieved financial closure for 100% of the debt and about 50% of the equity already<br />
brought in; agreement in place with FII investor for the remaining equity<br />
� Hotel strategically located to benefit from the business demand from both the IT hubs of<br />
Gachibowli and Hitec city in Hyderabad<br />
� Proposed Hilton Academy in the hotel premises to earn regular rental income and regular<br />
occupancy for the hotel apart from a possible revenue share from the academy<br />
Credit Concerns<br />
� Small scale of operations with single property with 200 rooms hotel and 40 key service apartment<br />
� Project at initial stages of construction<br />
� Ability to complete the project in time critical for debt servicing<br />
� Any significant cost over-run could create funding gap<br />
� Growing competitive pressures in the Hyderabad hotel market with the entry of numerous new<br />
players; local issues such as Telengana separation movement adversely impacting the business<br />
sentiments in the city<br />
Rating Rationale<br />
The ratings take into consideration the current status of project which is at nascent stages with excavation<br />
work still going on. The ability of the promoters to complete the project on time will remain critical for the<br />
debt servicing of the company as currently there is only a six month cushion between the COD and<br />
commencement of debt repayment. Furthermore, any cost overrun could create a funding gap. The ratings<br />
also take into consideration the small scale of operations of the company with a single hotel property, the<br />
growing competitive pressure in the Hyderabad hotel market with the entry of numerous new players and<br />
the negative impact the local issues such as Telengana separation movement have had on the business<br />
sentiments in the city.<br />
The rating however favourably factors in the hotel’s management contract with Hilton Worldwide for their<br />
‘Double Tree by Hilton’ brand and the expected benefits from Hilton’s global marketing and advertising<br />
network. The hotel is favourably located in Gachibowli and is expected to benefit from the business<br />
demand from both the IT hubs of Gachibowli and Hitec city in Hyderabad. The ratings also take into<br />
consideration the promoter’s past experience in the hotel projects, the fact that the project has achieved full<br />
debt tie up, and half the equity has been brought in with remaining being tied up with FII investor Indus<br />
Hotel Reality (Mauritius) Limited and the proposed Hilton Academy at the hotel premises which would to<br />
earn regular rental income and stable occupancy for the hotel apart from a possible revenue share for the<br />
company.<br />
Land and lease agreement<br />
The proposed development is a part of the National Institute of Tourism & Hospitality Management<br />
(NITHM) on land measuring 3.0 acres (12,147 sq. mts.) which NITHM offered for development in<br />
December 2008. The promoters through the group company Maha Hotel Projects Private Limited (MHPPL)<br />
bid for the project and won. SHPL was then incorporated in October 2010 and the Lease Agreements and<br />
Development & Management Agreement were signed in November 2010 subsequent to which the site was<br />
handed over. The project is to be executed on a BOT basis with concession to run the hotel for 30 years<br />
(after 3 years for construction). The lease can be renewed as decided mutually between NITHM and SHPL.<br />
The fees payable by SHPL under the agreement is as follows –<br />
Development Fee – One-time non-refundable Development Fee of Rs. 2.50 crore<br />
Lease Rental - Annual Lease Rental of 5% of Market Value of land determined in December 2008<br />
(with an annual escalation of 5%). Rental for first year starting Nov 2010 was Rs. 1.45 crore.<br />
Additional Development Premium – To be paid after COD at higher of Rs. 0.62 crore or 3% of<br />
Gross Revenue with an annual escalation of 5%<br />
Hotel facilities<br />
The property apart from the hotel and service apartment would also house an all day dining restaurant (230<br />
covers), an Indian Specialty Restaurant (130 covers), a lounge and deli (50 covers), a pub and discotheque<br />
(140 covers), a bar (44 covers), a banquet/conference hall (max 1,200 pax), a small function room (200<br />
pax), four board rooms/meeting rooms (12-20 pax each), health club and spa, outdoor swimming pool,<br />
<strong>ICRA</strong> Rating Services Page 2
<strong>ICRA</strong> Credit Perspective Saptarishi Hotels Private Limited<br />
beauty salon, a shopping arcade with 7,000 square feet retail area and a Hilton Academy (50,000 sq. ft.)<br />
for training of Hilton staff from across Asia.<br />
The academy would be operated by Hilton and would engage in training of Hilton employees for hotels<br />
across the country at the commencement of their assignments. The academy would be Hilton’s first such<br />
venture outside the American subcontinent. It would attain importance considering Hilton’s aggressive<br />
plans of expansion in India from the current portfolio of 7 hotels to about 50 in 5-6 years time. The<br />
modalities of the agreement are yet to be finalized but SHPL would be guaranteed rental income at<br />
prevailing rates for the area it offers. It could also earn a revenue share from the academy but the shares<br />
are yet to be finalized. Apart from such direct income, the hotel is also expected to benefit significantly from<br />
the guaranteed occupancy it would get from the extended stay of the staff that has come for training since<br />
the expenses are to be borne by the respective hotels that send the staff.<br />
Project cost and funding<br />
The total cost for the project is estimated at about Rs. 252 crore for the 240 keys (294 bays) at an<br />
estimated cost of Rs. 1.05 crore per key (Rs. 0.86 crore per bay) which is at par with industry standards for<br />
similar category in Hyderabad. SHPL proposes to fund it through a 60:40 Debt:equity. This entails a debt<br />
requirement of Rs. 150.0 crore which has been fully tied up from Punjab national Bank and Punjab & Sind<br />
Bank. The equity amounting to ~Rs. 102 crore would be brought in. Currently about Rs. 50 crore has been<br />
brought in by the promoters while the remaining would be brought in by dilution of equity into the holding<br />
company MHPPL to FII - Indus Hotel Reality (Mauritius) Limited (Indus was also one of the equity partners<br />
of the promoter’s other hotel venture Golden Jubilee Hotels Limited – rated <strong>ICRA</strong> BB+(stable)/A4+). The<br />
promoters have indicated an agreement with Indus for an equity infusion to the extent of Rs. 75 crore to be<br />
invested into SHPL and other ventures of MHPPL.<br />
Project status<br />
Currently about 70% of the excavation is done. The excavation at one half of the site is complete and is<br />
ready for foundation work. The excavation at the remaining site is expected to be complete by mid Dec<br />
2011. It is estimated that the basement work would be completed by end Feb 2012 and the structure would<br />
be ready by Jan-Feb 2013. Post that the interior work would start, the hotel would be ready for soft launch<br />
in Oct 2013 and full COD by Jan 2014. The timelines seem tight and even a slight delay in any of the above<br />
stages could delay the project which could adversely impact its debt servicing which is currently proposed<br />
to start with a six month moratorium from June 2014 onwards. However considering the past tract record<br />
and experience of the promoters in such projects, it can be assumed that no major delays would ensue<br />
apart from the unavoidable ones.<br />
Hyderabad 5-star market<br />
Historically, the 5-star market of Hyderabad was primarily clustered towards the Banjara Hills/Begumpet<br />
area. However over the last decade, with the development of new business districts such as Hitec city and<br />
Gachibowli, the movement of airport outside the city to the Shamshabad area and the rapid development of<br />
infrastructure such as expressways connecting the periphery of the city (especially the Hitec city and<br />
Gachibolwi areas) to the new airport, Hitec city and Gachibowli has developed as a major catchment area<br />
for hospitality. The Hitec city is the IT hub of Hyderabad and enjoys IT/ITES traffic and MICE traffic. With<br />
the stabilization of the 3,000 seater Hyderabad International Convention Centre (HICC) and the existing<br />
2,000 seater centre Shilpakala, both in the Hitec city, this area is fast emerging as a MICE location.<br />
The 4/5-star/D hotel market in Hyderabad presently has ~2,660 rooms comprising of 12 hotels out of which<br />
eight hotels (1,458 rooms) are in the old CBD area, three hotels (873 rooms) in the Hitec city/Gachibolwi<br />
area and one hotel (330 rooms) in the new airport area. The properties in the Hitec city/Gachibolwi area<br />
currently include Ista (166), Novotel (287) and Westin (420). While Ista being in Gachibolwi received room<br />
and MICE business from that area, until recently Novotel was targeting the room and MICE business from<br />
the Hitec city area. Post the opening of Westin a major portion of the room business has moved out of<br />
Novotel which currently is focusing on MICE and banqueting business.<br />
We estimate about 50% addition to the existing supply in the city to definitely take place within the next two<br />
years. While the old CBD in the city is expected to see an incremental supply of 40%, the inventory in Hitec<br />
city/Gachibowli is expected to about triple within the next 3-4 years. The hotel is expected to face<br />
significant competition from existing hotels such as Ista and Novotel in 2-3 km radius and also the<br />
upcoming properties of Royal Orchid (207 rooms; interiors going on) and Hyatt Regency (500 rooms;<br />
basement work going on) which would be in the same category and in 3-4 km radius.<br />
<strong>ICRA</strong> Rating Services Page 3
<strong>ICRA</strong> Credit Perspective Saptarishi Hotels Private Limited<br />
Company Profile<br />
SHPL is an SPV company set up to build and own a 200 key 4-star business hotel and 40 key service<br />
apartments at Gachibowli in Hyderabad. The property which is under construction would be operated by<br />
Hilton Hotels Worldwide under its 4-star business brand Double Tree by Hilton and is expected to<br />
commence operations by January 2014. SHPL is an SPV promoted by Maha Hotel Projects Private Limited<br />
(MHPPL) who won this project which is a PPP with National Institute of Tourism & Hospitality Management,<br />
Hyderabad (NITHM).<br />
MHPPL is also the lead developer of the project Trident & The Oberoi at Hitec City, Hyderabad which is<br />
also a PPP project with GoAP that is nearing completion, and for which MHPPL has formed a JV with JP<br />
Morgan Property Fund and Indus Hotel Realty Fund Mauritius named Core Hotel Ventures Private Limited<br />
which in turn is working in technical & equity collaboration with EIH Limited and building the said hotels in<br />
an SPV named Golden Jubilee Hotels Limited (rated [<strong>ICRA</strong>]BB+(stable)/[<strong>ICRA</strong>]A4+).<br />
November 2011<br />
<strong>ICRA</strong> Rating Services Page 4
<strong>ICRA</strong> Credit Perspective Saptarishi Hotels Private Limited<br />
Annexure<br />
Rating History<br />
Instrument Amount Amount Outstanding Rating<br />
In Crore In Crore As on November 2011<br />
Term Loans 150.0 N.A. [<strong>ICRA</strong>]BB- (Stable)<br />
Non-Fund Based Limits 20.0 N.A. [<strong>ICRA</strong>]A4<br />
<strong>ICRA</strong> Rating Services Page 5
<strong>ICRA</strong> Credit Perspective Saptarishi Hotels Private Limited<br />
<strong>ICRA</strong> Limited<br />
An Associate of Moody’s Investors Service<br />
CORPORATE OFFICE<br />
Building No. 8, 2 nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002<br />
Tel: +91 124 4545300; Fax: +91 124 4545350<br />
Email: info@icraindia.com; Website: www.icra.in<br />
REGISTERED OFFICE<br />
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553 9231<br />
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<strong>ICRA</strong> Rating Services Page 6