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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 250.00 | ACUITE BB+ | Stable | Downgraded | - |
| Bank Loan Ratings | 25.00 | - | ACUITE A4+ | Downgraded |
| Total Outstanding Quantum (Rs. Cr) | 275.00 | - | - |
| Rating Rationale |
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Acuité has downgraded the long-term rating of from ‘ACUITE BBB-’ (read as ACUITE triple B minus) to ‘ACUITE BB+’ (read as ACUITE double B plus) and short-term rating from ‘ACUITE A3’ (read as ACUITE A three) to ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs. 275.00 crore bank facilities of DTU Hotels Private Limited (DTU). The outlook is ‘Stable’.
Rating Rationale Acuite factors in the strategic location of the hotel property i.e. proximity to the Indira Gandhi International Airport located at 4.7 kms from the property mitigating demand risk, support extended by Red Fort Realcon LLP in the form of corporate guarantee on the long term borrowing facility running with IndusInd Bank and mangement's experience in the hospitality sector. Further, DTU has tied up with the Marriot Group for operation and maintenance of the hotel. The above factors are underpinned by the fact that the company has not yet started leasing out its commercial portion wherein the commercial space needs to be leased out as a pre-condition to disburse the loan beyond Rs. 200 crore, this might cause hindrance in disbursement of Rs. 50 crore, which increases the funding risk of the company and remain a key rating sensitivity. |
| About the Company |
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DTU is a New Delhi based company incorporated in May 1991 and is promoted by Mr. Manish Uppal and Red Fort Realcon LLP. Until 2017, DTU was running a 5-star hotel under the name of Uppal’s Orchid. The hotel consisted of 80 rooms. However, in 2017 with the change in the law and the subsequent availability of additional FSI the company demolished the existing structure and is currently undertaking reconstruction of hotel-cum- commercial space. In FY2021, Red Fort Realcon LLP a partnership venture between Dharampal Satyapal Limited (DSL) and Trident Infra homes Private Limited (TIHPL) acquired 50 percent shares in DTU.
The project involves total constructed area of 3,06,551 sq.ft. of which 2,45,495 sq.ft is toward the hotel and the rest has been allocated for the commercial premise. The hotel consists of 133 rooms. The total estimated project cost is Rs. 390.00 Cr. The commercial date of operations (COD) of the project is December 31, 2024. |
| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of DTU to arriving at the rating.
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Key Rating Drivers
| Strengths |
| Extensive management experience and long track record of operations:
The company was incorporated in 1991 and is managed by the promoter Mr. Manish Uppal. Mr. Manish has an experience of three decades in the hospitality segment. Mr. Manish Uppal held 99.78 percent of the total shares until March 31, 2020. However, in FY2021, Red Fort Realcon LLP a partnership venture between DSL and TIHPL acquired 50 percent stake in DTU. Both DSL and TIHPL have substantial experience in the hospitality sector. DTU until 2017 was running a 5-star hotel under the name of Uppal’s Orchid, which was demolished in 2017, as a change in law led to additional FSI being available for expansion. Currently, the DTU is undertaking construction of expanded hotel with an area of 3,06,552 sq. ft and 133 rooms branded under Ritz Carlton. Additional commercial leasing space is also developed. Acuité believes that the extensive experience of the management along with their financial support will help the company to strengthen their business profile.
Strategic project location and tie up with Marriot: The upcoming hotel is strategically located considering its proximity to the Indira Gandhi International Airport. The hotel is 4.7 kms from the Airport. This location advantage will help mitigate some of the demand risk. Further, DTU has tied with the Marriot Group for operation and maintenance of the hotel until December 2024 with the option of extending the agreement further. Marriott group was found in 1927 and is the largest hotel chain in the world. The group has 14,23,044 rooms and operates across 131 countries. Corporate guarantee extended by Red Fort Realcon LLP The company has undertaken a term loan of Rs. 250 crore from IndusInd Bank which is supported by Red Fort Realcon LLP in the form of corporate guarantee. |
| Weaknesses |
| Intense competition from other premium players:
The company faces intense competition from other premium players located within 2-4 kms from the airport including Roseate House, Lemon tree premier, Centaur Hotel. Since, these hotels have remained operational for some time, this may have an adverse impact on the expected occupancy rates and average room rate once the hotel is operational.
Funding Risk The company has not yet started leasing out its commercial portion wherein the commercial space needs to be leased out as a pre-condition to disburse the loan beyond Rs. 200 crore, this might cause hindrance in disbursement of Rs. 50 crore, which increases the funding risk of the company.
Project Risk The project has achieved 66.37% completion and the remaining projected needs to be comleted within 16 months. The timely completion of the project and its commercial operation remains a risk as the project was delayed in the past and hence, any further delay resulting into cost over-run can negatively impact the company's cashflow. |
| Rating Sensitivities |
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| Material covenants |
| Disbursement amount shall be restricted to Rs. 200 crore until the entire commercial space have been leased out. |
| Liquidity Position |
| Adequate |
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The total project cost is Rs. 398.46 Cr of which Rs. 250.00 Cr shall be funded through fresh project loan and the balance through promoter contribution and unsecured loans. As of March 2023, Rs. 266.63 Cr has been incurred which is funded through promoter contribution of Rs. 82.02 crore, term loan disbursed of Rs. 139.74 crore and Unsecured Loans of Rs. 48.93 crore. The repayment of the project loan shall commence after 3 years from the date of first disbursement.
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| Outlook: Stable |
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Acuité believes that DTU will maintain a 'Stable' outlook over the medium term due to promoter experience strategic location of the project and tie up with the Marriot Group. The outlook may be revised to ‘Positive’ in case of faster than expected completion of the project. Conversely, the outlook may be revised to ‘Negative’ in case further delays in project completion cost escalation or delays in leasing/sale of commercial premise.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 0.10 | 0.04 |
| PAT | Rs. Cr. | 0.01 | (2.83) |
| PAT Margin | (%) | 5.29 | (7987.89) |
| Total Debt/Tangible Net Worth | Times | 2.38 | 0.85 |
| PBDIT/Interest | Times | 0.00 | 0.00 |
| Status of non-cooperation with previous CRA (if applicable) |
| Brickworks vide its press release dated 9th September 2022, had downgraded the company to BWR BB-/Stable/A4; Issuer Not Cooperating. |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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| Term loan includes Capex Letter of credit of Rs. 25.00 Cr as sublimit. |
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| Term loan includes Capex Letter of credit of Rs. 25.00 Cr as sublimit. |
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