Post on 19-Jan-2015
description
CREDIT PROFILE AND
CREDIT MIGRATION
OF THE HOTEL INDUSTRY
IN INDIA
DHRUVA SAREENROLL NO. 955
B.B.A.LL.B | CANDIDATE OF 2017
NATIONAL LAW UNIVERSITY, JODHPUR
A CREDIT PROFILE IS A DOCUMENT WHICH PROVIDES INFORMATION ABOUT SOMEONE'S CREDIT HISTORY. CREDIT PROFILES ARE USED BY LENDERS AND OTHER AGENCIES WHICH OFFER CREDIT TO DETERMINE SOMEONE'S CREDITWORTHINESS, AND THEY ARE ALSO UTILIZED BY PROSPECTIVE LANDLORDS AND OTHER PEOPLE WHO MIGHT HAVE AN INTEREST IN SOMEONE'S CREDIT HISTORY. A GOOD CREDIT PROFILE WILL MAKE IT EASIER FOR SOMEONE TO ACCESS CREDIT, AND A BAD CREDIT PROFILE CAN BECOME A MAJOR STUMBLING BLOCK.
AN ASSESSMENT OF THE CREDIT
WORTHINESS OF A BORROWER IN
GENERAL TERMS OR WITH RESPECT TO A PARTICULAR DEBT
OR FINANCIAL OBLIGATION. THESE RATING AGENCIES ARE PAID BY THE ENTITY THAT IS
SEEKING A CREDIT RATING FOR ITSELF OR FOR ONE OF ITS
DEBT ISSUES
THE HOTEL INDUSTRY IS A MAJOR PART OF THE HOSPITALITY INDUSTRY. THE MAJOR FIELDS WITHIN THE HOSPITALITY INDUSTRY INCLUDE LODGING, RESTAURANTS, EVENT PLANNING, THEME PARKS, CRUISE LINE, ETC. THE HOSPITALITY INDUSTRY IS A MULTI-BILLION DOLLAR INDUSTRY THAT MOSTLY DEPENDS ON THE AVAILABILITY OF LEISURE TIME AND DISPOSABLE INCOME.
A HOSPITALITY UNIT SUCH AS A RESTAURANT, HOTEL, OR EVEN AN AMUSEMENT PARK CONSISTS OF VARIOUS GROUPS WITHIN IT, INCLUDING FACILITY MAINTENANCE, DIRECT OPERATIONS (SERVERS, HOUSEKEEPERS, PORTERS, KITCHEN WORKERS, BARTENDERS, ETC.), MANAGEMENT, MARKETING, AND HUMAN RESOURCES.
THE GLOBAL HOTEL INDUSTRY IS A PROSPEROUS INDUSTRY AND ACCORDING TO A NEW INDUSTRY REPORT BY GLOBAL INDUSTRY ANALYSTS, INC., THE GLOBAL HOTEL INDUSTRY IS EXPECTED TO REACH US $479 BILLION BY 2015.THE HOTEL INDUSTRY IN INDIA IS SET TO GROW AT 15% A YEAR.
THIS FIGURE IS EXPECTED TO SKYROCKET IN 2015. ALREADY, MORE THAN 50 INTERNATIONAL BUDGET HOTEL CHAINS ARE MOVING INTO INDIA TO STAKE THEIR TURF.
ACCORDING TO THE WORLD TRAVEL AND TOURISM COUNCIL INDIA, INDIA RANKS 18TH IN BUSINESS TRAVEL AND WILL BE AMONG THE TOP 5 IN THIS DECADE6. SOURCES ESTIMATE THAT DEMAND WILL EXCEED SUPPLY BY AT LEAST 100% OVER THE NEXT FEW YEARS.
A HOTEL IS AN ESTABLISHMENT THAT RENDERS LODGING IN LIEU OF PAYMENT. THIS LODGING IS USUALLY GIVEN IN EXCHANGE FOR A SPECIFIED PREDETERMINED AMOUNT OF MONEY. MODERN HOTEL ROOMS COME EQUIPPED WITH CLIMATE CONTROL AND ATTACHED BATHROOMS. HIGHER END HOTELS OFFER GUESTS INTERNET CONNECTIVITY WITHIN ROOMS AND ALSO THROUGHOUT THE PREMISES. A COMBINATION OF MEALS AND ACCOMMODATION COMES AS A PACKAGE IN MOST HOSPITALITY ESTABLISHMENTS. HOTELS ARE USUALLY MANAGED BY PROFESSIONALLY QUALIFIED MANAGERS. JUNIOR WORKERS USUALLY MAINTAIN THE HOTEL. FUNCTIONS LIKE COOKING IS USUALLY DONE BY PROFESSIONALLY TRAINED CHEFS.
CREDIT MIGRATION:
FACTORS AND MORE
FIVE KEY RATING CONSIDERATIONS THAT DRIVE CREDIT RATING OFTHE HOTELS COMPANIES:
1. PROMOTERS/MANAGEMENT ANALYSIS
2. BUSINESS RISK ANALYSIS
3. INDUSTRY RISK ANALYSIS
4. FINANCIAL RISK ANALYSIS
5. RISK ASSOCIATED WITH ONGOING/UPCOMING PROJECTS
PROMOTERS/ MANAGEMENT ANALYSIS
1. REPUTATION & EXPERIENCE OF THE PROMOTER
2. FINANCIAL STRENGTH AND COMMITMENT OF THE PROMOTER
BUSINESS RISK ANALYSIS
1. EVALUATION OF BUSINESS MODEL
2. BRAND STRENGTH
3. HOTEL SEGMENTS
4. SCALE, DIVERSIFICATION AND COVERAGE
5. OPERATIONAL PERFORMANCE
6. LOCATION ANALYSIS
FINANCIAL PARAMETERS
1. REVENUES & PROFITABILITY
2. LEVERAGE & DEBT SERVICING
3.REFINANCING/RESTRUCTURING RISK
PROJECT RISK
INDUSTRY RISK
CREDIT PROFILE OF BIGGER
PLAYERS:
NOT CREDITWORTHY!
Hospitality Unit Credit Rating
Asian Hotels (North) Limited
CARE BBB
Golden Jubilee Hotels Limited
CARE D
Ascent Hotels Private Limited
CARE C
Gayatri Hotels and Theatres Private Limited
CARE D
N M Royale County CRISIL B
ITC ICRA A1+
Oriental Hotels ICRA A1+
Narayani Hotels And Resorts Limited
CRISIL D
Mapple Hotels Ind B+
Dhanlakshmi Hotels Ind BB-
Mansingh Hotels Ind BBB-
Intercontinental hotels (Ind)
Fitch BBB-
Hospitality Unit Credit Rating
Adarsh Realty & Hotels Private Limited
ICRA BB
Adityapur City Centre Hotel Private Limited
ICRA B+
Belaire Hotels Private Limited
ICRA BB
D R Hotels and Resorts ICRA B -
GMR Hotels and Resorts Limited
ICRA BBB
Kaynes Hotels Private Limited
ICRA C+
Lemon Tree Hotels Private Limited
ICRA BBB +
Rockland Hotels Limited ICRAB+
Triton Hotels and Resorts Private Limited
ICRA BBB-
HOTEL INDUSTRY CONTINUES TO FACE A MUTED REVENUE GROWTH, STAGNATED PROFITABILITY AND ELEVATED CREDIT RISK IN FY15, DRIVEN BY LOWER DEMAND GROWTH AND SUPPLY-SIDE PRESSURES, AN INDIA RATINGS & RESEARCH (IND-RA) REPORT SAID.
THE AGENCY EXPECTS MAJOR HOTEL COMPANIES TO REGISTER REVENUE GROWTH OF 5 TO 10 PERCENT IN FY15 DUE TO SLUGGISH DEMAND IN THE NEAR TERM. THIS IS IN LINE WITH THE TREND IN 9MFY14 AND FY13, WHERE WEAK MACROECONOMIC CONDITIONS LED TO MUTED GROWTH IN BUSINESS TRAVELLERS AND FOREIGN TOURIST ARRIVALS.
CORPORATE TRAVELLERS ARE KEY DEMAND DRIVERS FOR HOTELS AS THEY ACCOUNT FOR AROUND 60 PERCENT OF GUESTS.
INDIA RATINGS SAYS THAT THE REVENUE GROWTH OF INDIAN HOTEL COMPANIES IS LIKELY TO REMAIN MUTED IN THE NEAR TERM DUE TO CONTINUED SLUGGISHNESS IN CORPORATE SPENDING AMID WEAK ECONOMIC GROWTH. THIS IS BECAUSE AROUND TWO-THIRDS OF THE GUESTS IN HOTELS (EXCEPT HERITAGE HOTELS) ARE CORPORATE/BUSINESS TRAVELLERS.
AMONG HOTEL SEGMENTS, PREMIUM HOTELS ARE MORE NEGATIVELY IMPACTED BY A GLOBAL ECONOMIC DOWNTURN AS THEY DEPEND MORE ON FOREIGN TRAVELLERS, PARTICULARLY BUSINESS TRAVELLERS. DURING FY08-FY12, HIGH-END HOTEL COMPANIES WITNESSED SLOW GROWTH DUE TO A SLOWDOWN IN KEY FOREIGN MARKETS AND COST PRESSURES ON CORPORATES, TRIGGERING A CUT IN THEIR TRAVEL SPENDING. WEAK DEMAND LIMITED THE ABILITY OF THESE HOTEL COMPANIES TO PASS ON COST INCREASES, WITH WAGES AND POWER COSTS INCREASING OVER 1.5X DURING THE SAME PERIOD.
HOWEVER, INCREMENTAL LENDING TO THE SECTOR DECLINED IN FY12 TO INR35.89BN FROM INR83.19BN IN FY11 INDICATING A DROP IN SECTOR CAPEX DURING THE YEAR. THE DECLINE IN LENDING COULD BE LARGELY ATTRIBUTED TO THE DEFERRING OF CAPEX PLANS BY CORPORATES PRIMARILY DUE TO AN INCREASE IN BORROWING COSTS IN INDIA AMID THE PREVAILING ECONOMIC SLOWDOWN. INDIA RATINGS EXPECTS THIS TREND TO CONTINUE IN THE NEAR TERM AS THE INDIAN HOSPITALITY SECTOR WILL CONTINUE TO DELAY CAPEX PLANS AMID HIGH INTEREST RATES AND SUBDUED DEMAND PROSPECTS.LOCAL DEMAND-SUPPLY DYNAMICS IS LIKELY TO BE THE KEY FOR EXECUTING UPCOMING PROJECTS.. HOWEVER, MOST MARKETS ARE LIKELY TO CONTINUE SEEING CAPACITY ADDITION IN THE LOWER/BUDGET SEGMENT CATEGORY DUE TO HIGHER DEMAND COMPARED WITH THAT OF THE HIGH-END CATEGORY.