ICRA Nepal assigns LBB and A4+ rating to long-term and short-term loans of Hotel Mystic Mountain respectively

ICRA Nepal has assigned the long-term rating of [ICRANP] LBB (pronounced ICRA NP L Double B) to the NPR 540-million long-term loans (including proposed limits) of Hotel Mystic Mountain Private Limited (MMH). ICRA Nepal has also assigned the short-term rating of [ICRANP] A4+ (pronounced ICRA NP A Four Plus) to the NPR 35-million short-term loan limit of MMH.

The assigned ratings factor in hotel’s location in a popular tourist destination nearby Kathmandu, the capital city of Nepal. Strong marketing efforts by the company and business linkages of the promoters have helped the hotel generate good visibility during its short track record of operation despite not being affiliated to established hotel chain or franchise. This is also reflected in MMH registering good occupancy rate in its first year of operation (FY2018), albeit on a smaller room base. The rating also factors in good proportion of corporate business (meetings and conferences related occupancies) received by MMH in FY2018 (~25% of annual revenue), which, going forward, could support occupancy and help offset the seasonality of the business to some extent. The ratings also factor in improvement in tourism outlook of the country, following relative improvement in political environment and good growth in tourist arrival in last two years.

However, the ratings remain constrained by MMH’s high gearing and consequently lower debt coverage indicators. Rating concerns also arise from the hotel’s small scale of operation (72 keys). MMH is a single property hotel which limits the segment and geographical diversification and remains a rating concern. Given the small scale of operation and high debt burden, any slack in occupancy could render the business cash flows inadequate to service the debt obligations in a timely manner. MMH’s ability to maintain high occupancy is challenged by intense competition among the hotels in Nagarkot area. The ratings also remain constrained by the seasonality of hotel business which exposes MMH to volatile cash flows. Going forward, ability of the company to maintain or improve occupancy and average room rates (ARR) and protect operating margins will have a bearing on MMH’s debt servicing ability.    

Strengths:

Prior hotel experience of the owner remains a positive 

Good occupancy during short track record of opeartion

Improvement in tourism sector outlook

Challenges:

High leverage leading to moderate debt coverage indicators 

Limited geographical/ segment diversification and competitive intensity

Seasonality of the business

About the company:   

Hotel Mystic Mountain Private Limited (MMH) was incorporated in May 2013. Its registered office is located at Mandan Deupur, Kavrepalanchowk. MMH owns and operates a four-star resort-type hotel. The 72-room hotel commenced operations with 33 rooms on 28th July 2017. The hotel property is located ~30 kilometers east from Kathmandu, in Nagarkot, a small town in the hills surrounding the Kathmandu valley. The property is developed over a plot size of ~3.5 acres and consists of two blocks housing 72 rooms (including 71 rentable rooms). The hotel is under the sole ownership of Mr. Bal Krishna Dhoju, a second-generation hotelier. 

MMH is an independent hotel without any affiliation to foreign or domestic hotel chains. The hotel has been certified as a four-star property by Department of Tourism, Nepal in March 20, 2018 which is valid for a 5-year period. 

(ICRA Nepal)