advani hotels resorts india ltd Management discussions

This discussion covers the financial results of your Company between April 1, 2022 and March 31, 2023. Some statements may be forward looking. Actual results will be dependent on many factors such as changes in Government policies at the Centre and in the State of Goa, the health of the Indian economy and exchange rate of countries from which your Company receives its guests, supply and demand for guest rooms in Goa among other issues.

1. Industry structure and developments:

a) Tourism and the Hospitality Industry Worldwide:

The World Travel and Tourism Council (WTTC) has estimated that this sector will contribute USD 9.5 trillion or 9.2% of the worlds GDP in 2023 as compared to a lower contribution of only 7.6% in 2022. The number of jobs in this sector in the World is expected to increase by 8.2% to 320 Million which will equals 9.6% of all jobs in the World in 2023. Most of the leaders of the worlds international hotel chains gathered at the Annual Hotel Investment Conference in New York City in June felt that the industry will do exceedingly well in the next few years as there would be a limited addition in hotel rooms- since no one had considered adding rooms in the last two years. Moreover, the demand for hotel rooms was continuing to increase especially forResort locations. There were very few hotel transactions as no one wanted to or wanted very high values for their hotels.

b) The Tourism and Hospitality Industry in India and Goa:

The World Travel and Tourism Council (WTTC) has conducted a research study on India which shows that this industry will contribute 6% of India‘s GDP or INR 16,486.6 Billion. It will provide 38.85 million or 7.9% of all jobs in 2023. Their analysis revealed that the majority of the earnings (88.4%) were from domestic spending. Spending by international tourists were only 11.6% in 2022 as compared to 18% of total spend in 2019. There has been an increase in the proportion spent in 2022 on leisure which is 95.3% versus only 4.7% on business travel. Indians are able to travel to foreign countries now and as per WTTC their favourite destination is the UAE followed by the USA. However, airfares from India to the USA and Europe have increased substantially.

The most favoured destination in India is Goa. Since there has been a limited supply of new hotels, existing hotels have increased their room rates substantially due to increased demand. Conferences are back. Wedding groups are hesitant to hold their Event overseas. Individuals have a choice of flying to two Airports in Goa after the opening of MOPA Airport in North Goa in January. Both airports are doing well. The demand for travel to Goa has increased. Since MOPA Airport is a 90 minute car ride to our hotel, we are also picking up guests who fly to MOPA. The new Zuari Bridge has opened and has made it quicker to go from our resort to the night life of North Goa.

Goas occupancy and ADR are the highest in India as displayed by a study conducted by HVS. There were 8 meetings of the G20 held in Goa- the highest of any State in India. This has made Goa even more popular in G20 countries.The Vande Bharat Express train has started to bring passengers from Mumbai to Margao (10 minutes from our hotel) in a shorter period of 7 hours.

2. Opportunities and Threats Opportunities:

The Central Government is giving importance to Tourism and also appropriating substantial financial resources for improving the infrastructure of our Country. Large number of Airports are coming up in tier-2 cities in India. A new International Mopa Airport has become operational from January 2023. This has opened up the ability for Goa to be connected from new cities in More scheduled airlines will be able to land in Goa in future. The almost completed Expressway will make it possible to drive from Mumbai to Goa in 7 hours, which will increase the size of potential market from Mumbai and Pune. The new Vande Bharat Luxury express train from Mumbai lands in Margao, which is only 10 minutes drive from our resort. The Marmagao Harbour is 45 minutes from our resort, which is expecting more cruise ships this season. Also, as a result of the Russia Ukraine war, more international tourists are expected due to disturbance in Europe specially Turkey.

The Central Government has recognized Tourism as an important industry to generate employment and earn valued foreign exchange and has rationalized tax structure for Tourism sector.

With the Government clear in its agenda for further economic liberalisation, it is expected that India will get further integrated with the world economy. This will lead to increase in international and domestic business traffic in future.

Threats:

Any economic disturbance, due to a Pandemic or war like situation in the World is likely to affect the inflow of foreign travellers to India.

The tensions on the borders or the warlike situation in any part of the world affect the tourist industry in India. To take care of such situations, the Company has already focused on the domestic market segment and increased its Sales Team throughout India.

Higher competition due to an increase in hotels would lower the occupancy rates and room tariffs. However, after factoring the high barriers to entry and the unique positioning of the resort and its competitive tariff structure, it will enable the resort to retain the projected occupancy and ARR. Besides, Goa has been termed as one of the top tourist destinations in India. Therefore, there would already be room for competitors. In addition, the tariff offered by the Caravela Beach Resort is lower than that of the other luxury hotels in Goa.

3. Segment – wise or product-wise performance

The Company is primarily engaged in the business of hoteliering, which the management recognises as the sole business segment.

4. Outlook: Economy of the World and India

After two waves of the pandemic, the GDP of the World in 2022 increased by 3.4% instead of 3.6% as previously projected by the

International Monetary Fund. Some of this is attributed to the prolonged war between Russia and Ukraine and the resulting increase in commodity and food prices due to a disruption in the supply chains. Another factor is the slowing down of the Chinese economy. The IMF has projected a lower World GDP growth of 2.8% in 2023 increasing to 3.0% in 2024. India has the 5th highest GDP in the World.

As per the Economic Survey, 2022 - 2023 released by the Ministry of Finance of India, Indias GDP is expected to grow by 6.8% in 2023 - 2024. It further projects a baseline GDP growth of 6.5% in real terms in Financial Year 2023 - 2024. India is now the fastest growing major economy in GDP of all countries. Some sectors of the economy have made strong gains.

As per the Economic Survey 2022 - 2023, Micro, Small and Medium Enterprises (MSME) has grown remarkably well with a growth of over 30%. As per their study, Services which include the hotel industry, were a source of strength. This Sector recorded a growth of 9.1% in 2022-23. The huge spending on Capital Expenditure by the Central Government has contributed to the growth of the Indian economy. This Survey was presented by the Minister of Finance Ms Nirmala Sitharaman to the Parliament. Retail trade may continue to be impacted due to inflation but employment and salaries will continue to grow as a result of the increasing GDP. This will result in higher purchasing power and more money to spend on discretionary items such as holidays.

5. Risks and concerns

The hotel business is dependent on global and domestic economic conditions, which may get adversely impacted due to Pandemic or War in any part of the World. Further, your Company has the risk of dependence on only one Hotel at Goa. There is also the risk of dependence mainly on luxury segment. However, the Companys hotel enjoys premium over many other competitors due to its repeat client base made over a period of 30 years, its beach front location, service reputation and architectural design.

Our Company is totally debt-free and has ample liquid reserves. With debt-free status, we have reduced our risk profile and are more resilient to face any Pandemic or adverse economic condition when compared to other Companies.

Risk Management is an integral part of the Companys business process. The Company has a robust risk management framework to identify, assess, and mitigate potential threats. Risks are continuously monitored and effectively controlled through ongoing efforts to conceive and implement mitigation strategies. Pertinent policies and methods are being reviewed and modified to mitigate such risks. The Company has taken several measures to protect the safety and security of its customers, employees and its assets. In addition to the physical security measures, the Company has also taken adequate and varied insurance covers to meet the financial obligations, which may arise from any untoward incidents. To counter the risk of competition, your Company focuses on providing exceptional guest-centric services on consistent basis.

6. Internal control systems and their adequacy

The Company has adequate Internal Control Systems with documented procedures for main hotel operating functions. The Companys Internal Controls system provide reasonable assurance of the effectiveness and efficiency of operations, reliability of financial controls and compliance with applicable laws and regulations. 105

The Companys Internal Auditors thoroughly examine various aspects of the Hotels operations and submit their reports to the Audit Committee on regularly basis. The Management takes necessary actions based on their observations. Since we have only one unit, the existing controls are adequate for safeguarding Companys assets.

7. Financial performance with respect to operational performance

The detailed break-up of Financial performance of the Company during the last two Financial Years in shown below:

Particulars	Financial Year ended
	March 31, 2023	March 31, 2022
Income:
Operating Income	9864.09	5134.44
Other Income	198.84	87.69
Total Income	10062.93	5222.13
Expenditure:
Food and Beverages Consumed	684.20	361.86
Employee Benefits Expenses	2450.11	1708.41
Depreciation and Amortization Expenses	262.72	286.80
Other Operating- and General Expenses	2813.36	1986.59
Total Expenditure	6210.39	4343.66
Profit Before Finance Costs and Tax	3852.54	878.47
Finance costs	16.41	6.07
Profit Before Tax	3836.13	872.40
Tax Expenses	975.65	221.59
Profit After Tax	2860.48	650.81

Some of the Key performance indicators of the Financial Year 2022-23 are below:

Net Revenue of 10,063 Lakhs, versus 5,222 Lakhs in the previous Financial Year, reflecting an incremental growth of 92.7%.

Average Net Total Revenue Per Occupied Room (TREVPOR) at 17,556 per room per night, versus 15,585 per room per night in the previous Financial Year, reflecting an incremental growth of 13%

EBITDA Margin of 40.9%, versus 22.3% in the previous Financial Year.

EBITDA of 4,115 Lakhs, versus 1,165 Lakhs in the previous Financial Year, reflecting an incremental growth of 253%.

PBT Margin of 38.1%, versus 16.7% in the previous Financial Year.

PBT of 3,836 Lakhs, versus 872 Lakhs in the previous Financial Year, reflecting an incremental growth of 340%.

Cash Generated from Operations of 3,569 Lakhs, versus 1,464 Lakhs in the previous Financial Year, reflecting an incremental growth of 144%.

Earnings per Share of 6.2 (on a Face Value of 2.0 per share), versus 1.4 in the previous Financial Year, reflecting an incremental growth of 343%.

Return on Assets of 34.7%, versus 9.5% in the previous Financial Year.

An analysis of major items of Financial Statements are given below: a) Income:

The summary of Total Income is provided in the table below:

(Rs. in Lakhs)

Particulars	Financial Year Ended		% Change
	March 31, 2023	March 31, 2022
Room Income	6323.07	3275.67	93.0%
Food, Beverages & Banqueting Income	2849.23	1591.78	79.0%
Other Operating Income	691.79	266.69	159.1%
Non-Operating Income	198.84	87.69	126.8%
Total Income	10062.93	5222.13	92.7%
Statistical Information:
Total Revenue Per Occupied Room (TrevPOR)	17,556	15,585	12.6%

i) Room Income for the year was higher by 93.0% from the previous year with an Average Occupancy at 82.5% and a Total Revenue per Occupied Room after deducting GST yielded Rs.17,556 per room per night . ii) Food & Beverage Income for the year was higher by 79.0% from the previous year. iii) Other Operating Income primarily comprises income from spa and health club, laundry, guest transportation, telephone among others. Other operating income increased by 159.1% over the previous year. iv) Non-Operating Income increased toRs. 198.84 lakhs from Rs. 87.69 lakhs in the previous year. Income in the current year included income from Liquid Fund Investment of Rs. 164.33 lakhs vis-a-vis Rs. 41.46 lakhs in previous year. b) Total Expenditure:

Total Expenditure increased from 4343.66 lakhs to 6210.39 lakhs during the current year. While the Total Income increased by 92.7%, the Total Expenditure increased only by 43.2%, mainly due to increase in employee benefits expense and variable costs consequent to increased business activities. i) Food and Beverages Consumed: ( in Lakhs)

Particulars	Financial Year Ended		% Change
	March 31, 2023	March 31, 2022
Food and Beverages Consumed	684.20	361.86	89.1%

Food and Beverages Consumed, which are variable in nature, increased with the increase in Income from Food, Beverage and Banqueting. ii) Employee Benefit Expenses and Payment to Contractors: ( in Lakhs)

Particulars	Financial Year Ended		% Change
	March 31, 2023	March 31, 2022
Employee Benefit Expenses	2450.11	1708.41	43.4%

Employee Benefit Expenses increased by 43.4% from 1708.41 lakhs in the previous year to 2450.11 lakhs in the current year. This was mainly due to increase in employee strength commensurate with increase in business activities, filling up of all senior operational positions, COD settlements with Union, etc.

iii) Depreciation & Amortisation Expenses:

			( in Lakhs)
Particulars	Financial Year Ended		% Change
	March 31, 2023	March 31, 2022
Depreciation & Amortisation Expenses	262.72	286.80	(8.4%)

Depreciation & Amortisation costs for the year decreased by 8.4% as compared to the previous year.

iv) Other Expenditure:

			( in Lakhs)
Particulars	Financial Year Ended		% Change
	March 31, 2023	March 31, 2022
Other Operating Expenses	2813.36	1986.59	41.6%

Other Operating Expenses increased by 41.6% from 1986.59 lakhs to 2813.36 lakhs in the current year. This was primarily due to an increase in variable costs corresponding to higher business volumes. This was reflected in power costs, maintenance, linen and room supplies, transportation, distribution costs in terms of commissions to travel agencies, credit card charges and costs of hosting banqueting events.

Cash Flow:

Particulars	Financial Year ended
	March 31, 2023	March 31, 2022
Net Cash from / (used for) Operating Activities	2595.43	1304.82
Net Cash from / (used for) Investing Activities	(852.60)	(1315.19)
Net Cash from / (used for) Financing Activities	(1540.33)	(84.99)
Net Increase / (Decrease) in Cash and Cash Equivalents	202.50	(95.36)

Operating Activities:

Net Cash Generated from Operating Activities during the year was 2595.43 lakhs, as compared to 1304.82 lakhs in the previous year. This was mainly attributable to the improvement in our operating profit due to an increase in revenues.

Investing Activities:

During the year, Net Cash used for Investing Activities amounted to 852.60 lakhs compared to a net use of 1315.19 lakhs in the previous year. The investing activities mainly included investment of operating profit / surplus funds in secured Liquid Funds.

Financing Activities:

During the year, Net Cash used for Financing Activities was 1540.33 lakhs, as against cash used of 84.99 lakhs in the previous year, which is mainly due to dividend pay-out of 1571.46 lakhs during the current year.

8. Material developments in Human Resources / Industrial Relations front, including number of people employed:

Your Company strives to attract the best talent available in the Hospitality market, which helps the Company to achieve high performance and excellence in hotel operations. The Company has an effective customer feedback monitoring system, with which high performing employees are given incentives and also awarded with an employee of the month and quarter recognition. This platform helps the team to align all their efforts in delivering high quality services to the guests whilst seeking to constantly improve on standards. Industrial relations throughout the year were cordial. During the Financial Year, the Company has done settlement of 2 pending Union Charters of Demand, which were pending since long.

As on March 31, 2023, the total manpower was 482 (including contract labour and fixed term contractors).

9. Details of significant changes in key financial ratios / Return on net worth:

Ratios	Financial year		% Change
	2022-2023	2021-2022
Debtors Turnover Ratio	10.4	2.72	269%
Inventory Turnover Ratio	NA	NA	NA
Interest Coverage Ratio	240.75	146.40	64%
Current Ratio	2.19	1.69	30%
Debt Equity Ratio	1.46%	0.43%	242%
Operating Margin Ratio	38.28%	16.82%	128%
Net Profit Margin	28.43%	12.68%	124%
Return on Net Worth	45.60%	13.05%	449%

1. Debtors Turnover Ratio has increased with increase in volume of business and credit offered to Foreign Tour Operators.

2. Inventory Turnover Ratio has not been given since the Company holds inventory for the consumption in the service of food & beverage and the proportion of such inventory is insignificant to cost of goods sold.

3. Interest Coverage Ratio has improved due to negligible Finance Cost (Finance Cost is there due to Ind AS accounting of Lease). 4. Current Ratio is higher due to increase in Current Investment, which includes profits of the Current Year invested in Liquid Fund. 5. Debt Equity Ratio has gone up due to utilisation of Overdraft Limit at the year-end 6. Operating Margin Ratio, Net Profit Margin Ratio and Return on Net Worth have increased due to substantial increase in the Operating Profit and Net Profit during the year