Credit Analysis & Research (CARE) has assigned 'A+' ratings against Rs 1 billion long-term bank facilities of Oriental Hotels.
The rating assigned to bank facilities of Oriental Hotels (OHL) derives strength from the longstanding track record of operations of the company with two well-established properties in Chennai, benefits derived from being part of the Taj group including the synergy of operations with the The Indian Hotels Company (IHCL) & its associates and demonstrated funding support from the group.
The rating also favourably takes note of fair degree of financial flexibility of OHL with regards to raising funds, steady increase in operating income and presence of a well- qualified & diversified board of directors backed by an experienced management team.
The rating is, however, constrained by the moderate revenue concentration risk of OHL, moderate financial performance of OHL on account of adverse industry scenario associated with the hotel industry notwithstanding the improvement in operational performance in Q3FY14. The rating also factors in the increase in debt level of the company, primarily due to the partly debt-funded capital expenditure programs undertaken in the past few years.
Going forward, the ability of the company to improve its operating performance amidst the unfavourable industry scenario and high competition in its key market (ie, Chennai), improve the cash flow position while limiting any significant capital expenditure in the near term and rationalise the debt level will be the key rating sensitivities.
