The upgrade reflects GHSRL's improved performance over the last two financial years as a result of operating at full capacity post renovation works and the fact that there are no major capex plans over the next two to three years. The ratings continue to benefit from Golkonda's long operating history of 22 years, prime location and its increasing occupancy levels over the past five years.
The ratings are constrained by increased competition resulting in low average room rent over the past two years, volatile EBITDA margins and high adjusted debt/EBITDA of 5.6x in the financial year ended March 2011 (FY10: 4.9x). The high leverage was due to its corporate guarantee extended for a term loan of INR106.5m (FY10: INR95m) of the sister company, Golkonda Resorts Private Ltd.
A positive rating action may arise from adjusted leverage being sustained below 4.5x. Conversely, a negative rating action may result from adjusted leverage exceeding 6.5x on a sustained basis.
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