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ICRA downgrades rating of TajGVK Hotels & Resorts Limited

Posted On: 2020-09-28 00:39:22


The ratings of TajGVK Hotels & Resorts Limited has been downgraded from [ICRA]A (Negative)/[ICRA]A1 to [ICRA]A- (Negative)/[ICRA]A2+; outlook on the long-term rating remains negative.

The revision in ratings follows expectations of protracted recovery in the Indian travel and hospitality industry and resultant weakening in TajGVK Hotels & Resorts Limited's (TajGVK) operating and financial metrics in FY2021. The company reported meagre revenues of Rs. 3.3 crore and operating losses in Q1 FY2021, owing to the pan-India lockdown, which resulted in only one of its six properties (apart from Taj Santacruz, which is under a JV with a GVK group company) being operational during the period. During the last rating exercise in June 2020, ICRA had expected economic recovery and improvement in business activities with easing of the lockdown. However, with continued increase in the reported Covid-19 cases, consequent multiple localized shutdowns implemented by various state governments and practically nil discretionary travel, the recovery is expected to be much prolonged. This is expected to weaken the company's financial profile. The company's earnings will be weak during Q2 FY2021 and this trend is expected to continue over the next several quarters with continued muted demand. With sharp fall in operating profits, the debt coverage indicators are likely to deteriorate in FY2021.

The moratorium on debt servicing extended by the RBI for the period of March-August 2020 aided the company in tiding over the financial stress during the period. With the moratorium coming to an end and accruals continuing to be weak, the company has applied for the loan restructuring for a period of two years with its lenders. If approved by the lenders, this would provide liquidity cushion to the company for debt servicing. While ICRA notes that the company has adequate funds in the form of undrawn working capital lines and fixed deposits for meeting its operational commitments in the near term, the company would need incremental debt/equity as the recovery gets prolonged. ICRA would continue to monitor the developments pertaining to the lender's approval of debt-restructuring plan and contours of restructuring plan (if approved) and its impact on the financial profile of the company.

The Central Bureau of Investigation (CBI) has registered a case against M/s GVK Airport Holdings Ltd. (GVK Holdings), M/s Mumbai International Airport Ltd (MIAL), Dr. G.V.K. Reddy, (promoter of GVK Group of Companies and Chairman of MIAL), his son Mr. G.V. Sanjay Reddy (Managing Director of MIAL), nine other private companies and unidentified officials of M/s Airports Authority of India (AAI) for alleged financial irregularities worth ~Rs. 705.0 crore in the development of Mumbai airport. The GVK Group holds a 49.47% stake in TajGVK through Mrs. Shalini Bhupal (daughter of Mr. G.V.K. Reddy, holding a 37.40% stake) and Mrs. G. Indira Krishna Reddy (wife of Mr. G.V.K. Reddy, holding a 12.07% stake). While ICRA understands that TajGVK is not named as a party in the FIR, Dr. G.V.K Reddy is the Non-Executive Chairman of the company. ICRA will continue to monitor the developments in this regard for TajGVK, especially for any governance challenges and any consequent loss of financial flexibility. Any adverse development on this regard may warrant an appropriate rating action.

The ratings remain supported by the operational flexibility enjoyed by the company, by virtue of The Indian Hotels Company Limited (IHCL; rated [ICRA]AA (Negative)) (one of the joint venture partners) being the hotel operator for TAJGVK's hotels. The ratings also factor in the strong brands from the 'Taj Hotels, Palaces, Safaris, Resorts' portfolio, and TAJGVK's dominant position in the Hyderabad market with over ~11% share of available premium inventory in the city. However, TajGVK has high dependence on the Hyderabad market, with ~52% of its total inventory (including Taj Santacruz) and a major portion of its revenues from the Hyderabad market.

Shares of TAJGVK HOTELS & RESORTS LTD. was last trading in BSE at Rs.121.7 as compared to the previous close of Rs. 118.6. The total number of shares traded during the day was 1508 in over 151 trades.

The stock hit an intraday high of Rs. 122.25 and intraday low of 118. The net turnover during the day was Rs. 181945.


Source: Equity Bulls

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