MANAGEMENT DISCUSSION AND ANALYSIS Overview This discussion aims to brsent a macro view of the operations of the Company, in the light of general, socio, economic and political conditions brvailed during the year and their impact on the hospitality Industry. 1. Industry Structure and Developments World Tourism The sector for Travel & Tourism in 2014 in the world was very positive, with Total Travel & Tourism GDP growth forecast to reach 4.3%. Much of this growth is being driven by higher consumer spending as the recovery from recession gathers pace and is becoming firmly established. Tourists are expected to spend more per trip and stay longer on their holidays in 2014, while long haul travel, especially among the European markets, is also expected to gain a greater share of international tourism demand. Travel & Tourism forecasts over the next ten years also look extremely favourable, with brdicted growth rates of over 4% annually that continue to be higher than growth rates in other sectors. (source - WTTC world) The travel and tourism sector has developed into an industry with anannual economic report (direct, indirect and induced) ofaround US$ 6.5 trillion worldwide. The global hotel industry generates approximately between US$ 400 - 500 billion in revenue each year, one third of that revenue is attributable to the United States. Tourism in India According to India Brand Equity Foundation, the tourism and hospitality industry is one of the largest segments under the services sector of the Indian economy. Tourism in India is a key growth driver and a significant source of foreign exchange earnings. In India, the sector's direct contribution to Gross Domestic Product (GDP) is expected to grow at 7.8 per cent per annum during the period 2013-2023. The direct contribution of Travel & Tourism to GDP was INR 2,478.2 bn (2.2% of total GDP) in 2014, and is forecast to rise by 7.6% in 2015 and to rise by 7.2% pa, from 2015-2025 to INR 5,339.2 bn (2.5% of total GDP) in 2025 ( source - WTTC). The total contribution of Travel & Tourism to GDP was INR 7,642.5 bn (6.7% of GDP) in 2014, and is forecast to rise by 7.5% in 2015, and to rise by 7.3% pa to INR 16,587.2 bn (7.6% of GDP) in 2025 (source-WTTC). Travel & Tourism investment in 2014 was INR 2,107.2 bn, or 6.2% of total investment. It is expected to rise by 9.3% in 2015. Travel & Tourism generated 5.5% of total employment directly in 2014 and this is forecast to grow by 1.9% in 2015. The number of Foreign Tourist Arrivals (FTAs) to India, has grown steadily in the last three years reaching around 7.46 million during January-December 2014. (Source - India Brand Equity Foundation). The Tourist Visa on Arrival (TVoA) scheme enabled by Electronic Travel Authorisation (ETA), launched by the Government of India on November 27, 2014 for 43 countries has led to a growth of 1,214.9 percent recently. For example, during the month of January 2015, a total of 25,023 tourist arrived by availing TVoA as compared to 1,903 TVoA during the month of January 2014. (Source - India Brand Equity Foundation). Government Initiatives The Indian Government has realised the country's potential in the tourism industry and has taken several steps to make India a global tourism hub. Some of the major initiatives taken by the Government of India to give a boost to the tourism and hospitality sector of India including: The Government of India has set aside Rs. 500 crore (US$ 79.17 million) for the first phase of the National Heritage City Development and Augmentation Yojana (HRIDAY); Under 'Project Mausam' the Government of India has proposed to establish cross cultural linkages and to revive historic maritime cultural and economic ties with 39 Indian Ocean countries; Extension Visa on Arrival Facility (VoA) to 150 countries in stages from the current 43, is a big step to promote tourism; Availability of Medical Visa for tourists coming into the country for medical treatment; 100 per cent FDI allowed through automatic route in hotel and tourism sector. (source - IBEF) The Indian tourism and hospitality industry has materialized as one of the key drivers of growth among the services sectors in India. It contributes to 6.23 per cent to the National GDP and 8.78 percent of the total employment in the country. Constant transformation, functional growth and improving standards have gained the hospitality industry of India approval all over the world. Hospitality The Indian tourism and hospitality industry has emerged as one of the key drivers of growth among the services sector in India. The Indian hospitality industry has recorded healthy growth fuelled by robust inflow of foreign tourists as well as increased tourist movement within the country and it has become one of the leading players in the global industry. ICRA Ltd., rating agency expects the revenue growth of Indian hotel industry strengthening to 9-11 per cent in 2015-16. India is projected to be number one for growth globally in the wellness tourism sector in the next five years, clocking over 20 per cent gains annually through 2017, according to a study conducted by SRI International. The hospitality sector has begun to see some improvement in the October - December quarter. Hospitality companies expect the trend to get stronger in the coming year. Slowing economic growth and a glut in supply of new rooms had led to lower occupancy rates in the post-crisis years. The official count of branded/organised hotel rooms crossed one lakh during 2014, creating a huge mismatch between demand and supply in the market. Overall, 2014 was quite a challenging year for the industry. According to veterans, the average occupancy during the year stood at 55 - 60 per cent, though some hotel chains outperformed the market in certain pockets. ICRA Ltd. rating agency expects the revenue growth of Indian hotel industry strengthening to 9 - 11 per cent in 2015 - 16. India is projected to be number one for growth globally in the wellness tourism sector in the next five years, clocking over 20 per cent gains annually through 2017, according to a study conducted by SRI International. 2. Outlook for Royal Orchid The brsent room inventory of Royal Orchid group is 2473 keys and is set to expand to the level of 4000 keys by 2015. We continue to expand through 'asset light strategy' and building the brand portfolio through Management Contracts and Franchise contracts in various parts of the country and abroad. 3. Discussion on financial performance with respect to operational performance Discussion on financial performance During the year under review, the consolidated revenue from operations was Rs. 147.75 crores as compared to brvious year of Rs. 142.04 crores, registering growth of 4.02%. In spite of the adverse market conditions and weak demand, the company could increase its revenues and achieving standalone proits. The industry faced a severe competition and over supply of keys, which reduced the ARR and Occupancy rates. As the company has consolidated its revenue, after the sale of its two units, the company looks forward for better operating profits in the years to come. 4. Risks and Concerns Your Company recognized the major concerns in the industry including: A strong infrastructure is critical to the opening of tourism industry in the country. It has advocated for concrete steps to strengthen connectivity and accommodation facilities not only high-traffic destinations but also remote, far-off destinations. Funding for infrastructure for Hotel business requires long term payback period over 15 years and also do not have a single window clearance for all licenses and permissions required to start a hotel, which adds to the delay of the projects. The State Infrastructure status should be such that hotels should get lower rates of interest on loans and long term debts over 15 years to payback. 5 Management Discussion and Analysis The services of the industry have become expensive due to multiple tax structure. If taxes like VAT, luxury tax and service tax can be rationalized to a reasonable level, it may reduce the cost and would be affordable. Basic infrastructure needs to improve. Especially tourist locations like emerging markets / Tier 2 cities infrastructure in terms of connectivity and clean roadway facilities to refresh will encourage domestic travelers to initiate more travel. Hospitality education infrastructure facilities need to be looked into since there is a shortage of skilled manpower in this industry. Better infrastructure for Tourism will provide employment as well as foreign exchange and more business proits to hotels. 6. Internal Control Systems and Adequacy The Company has already placed strict Internal Control Systems across various functions which are adequate and commensurate with the size of the operations. The operations of each of the individual hotel units are continuously monitored on a daily basis by various functional heads and a well structured Management Information System Report facilitates speedy identification and correction of deviations occur, if any. Under the guidance and reference of the Audit Committee of Directors, an independent firm of Chartered Accountants conducts the internal audits on monthly basis across all the units of the Company and reports generated are reviewed at every meeting of Audit Committee of Directors. The Audit Committee of Directors reviews the scope and extent of audit functions through periodical discussions with the Company's Statutory and Internal Auditors and advises the modifications / improvements in the same, as and when required. 7. Human Resources Initiatives The Company continues to maintain a very cordial and healthy relationship with its workforce across all its units. The total number of permanent employees on rolls as well as contractual as at March 31, 2015 was 3179 across all its units. With the increase in workforce due to expansion in business, envisaging the requirement of adequate on the job training across the various levels of employees, a major thrust to the training and development of multiskilled certification programmes has been initiated with American Hotel and Lodging Educational Institute (AHLEI). The Company has also started technology based learning through online portals which are also synced with mobile phones. To attract and retain good employees in the Company, we are ensuring the best place to work. We are striving towards attracting, retaining, training, multiskilling employees and working towards the welfare of our resources . A dynamic and transparent performance appraisal system along with various positive initiatives towards employee welfare requirements ensures maintaining the employees' morale at greater heights. Under the 'Hotel Royal Orchid Employees Welfare Trust' the Company continues to offer financial support for medical and educational needs of certain category of employees. Under Baljee Foundation Welfare Trust the Company is working towards the well-being of the larger community and assisting them to be self-reliant by honing their skills. 8. Corporate Debt Restructuring During the March 2013, your Company had sought for corporate debt restructuring of loan and ive banks and institutions as CDR members had approved to restructure the loan the tune of Rs. 149.78 crores. Your Company had paid of 80% of the loan amount under the CDR Scheme during the year 2013-14. During the year under review, the Company has settled entire amount outstanding under CDR scheme amounting to Rs. 38.3 crores (including over draft facility of Rs. 4 crores) in December 2014. Cautionary Statement The business of the Hotel industry largely depends on the tourism and business related travel activities. Thus, any impact on the Tourism or general business related travelling activities affects the performance of the hotel industry. In view of the same, the 'forward looking statements' are to be understood in the right perspective. |
