Economic Environment An Overview
Global Economy:
After a tumultuous couple of years, 2023 is finally granting some
reprieve and normality across many industries, hospitality being one of them. The world is
slowly returning to familiar paths, and organisations are finally able to focus on what
they do best once again.
The hospitality sector was one of the most impacted areas during the
Covid-19 pandemic because of restrictions on travel, halting their entire businesses and
on-going trends. Now that things have started moving forward however, these dynamic
developments will start appearing in full force soon enough. Some of the key influencers
on travel and tourism in recent years have been globalization, digitalization,
sustainability, and the coronavirus (COVID-19) pandemic. Ease of mobility, increased
awareness of new destinations, and the internet as a source of information and commerce
have caused this market to grow exponentially. After being hit hard by the health crisis,
the travel and tourism industries are now gradually recovering. When it comes to the
future of this market, increased mobile usage in travel, implementation of new
technologies, and a less marked difference between business and leisure trips are all
examples of changing consumer interests in the post-pandemic world.
The baseline forecast is for growth to fall from 3.4 percent in 2022 to
2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are
expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3
percent in 2023. In a plausible alternative scenario with further financial sector stress,
global growth declines to about 2.5 percent in 2023 with advanced economy growth falling
below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent
in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core)
inflation is likely to decline more slowly. Inflation s return to target is unlikely
before 2025 in most cases. (Source: World Economic Outlook)
The global economic outlook is skewed to the downside. Global growth is
set to lose momentum as monetary policy actions tighten financial conditions and as
consumer confidence weakens with the rising cost of livelihood. Inflation remains elevated
and persistent across countries as they grapple with food and energy price shocks and
shortages. More recently, however, there are some signs of moderation in price pressures,
which have raised expectations of an easing in the pace of monetary tightening. Alongside
easing in sovereign bond yields, the US dollar has come off its highs. Capital flows to
emerging market economies (EMEs) remain volatile and global spillovers pose risks to
growth prospects. (Source: RBI Bulletin - Monetary Policy Statement-2022-23)
The travel and tourism industry was worth $ 10 trillion globally in
2019, as per World Travel and Tourism Council ("WTTC"). At the end of the year
2023 it is estimated to get back to about $ 9.2 to 9.3 trillion. This is majorly because
the world after the pandemic has opened in stages. China, which represents 15% of all
travel and tourism visitor spends globally, has just opened at the beginning of this year.
(Source: World Travel and Tourism Council).
According to the S&P Global Sector Purchasing Managers Index, the
Tourism and Recreation sector led a pick-up in global business activity amongst all
sectors recording its sharpest pace since May, 2022. (Source: S&P Global Sector PMI
April 2023)
Indian Economy:
India s growth continues to be resilient despite some signs of
moderation in growth. It is worth noting that although significant challenges remain in
the global environment, India was one of the fastest growing economies in the world. The
overall growth remains robust and is estimated to be 6.9 percent for the full year with
real GDP growing 7.7 percent year-on-year during the first three quarters of fiscal year
2022-23. There were some signs of moderation in the second half of FY 2022-23. Growth was
underpinned by strong investment activity bolstered by the government s capex push and
buoyant private consumption, particularly among higher income earners. Inflation remained
high, averaging around 6.7 percent in FY 2022-23 but the current-account deficit narrowed
in quarter three on the back of strong growth in service exports and easing global
commodity prices.
The World Bank has revised its FY 2023-24 GDP forecast to 6.3 percent
from 6.6 percent in December 2022. Growth is expected to be constrained by slower
consumption growth and challenging external conditions. Rising borrowing costs and slower
income growth will weigh on private consumption growth, and government consumption is
projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal
support measures. Although headline inflation is elevated, it is projected to decline to
an average of 5.2 percent in
FY 2023-24, amid easing global commodity prices and some moderation in
domestic demand. The Reserve Bank of India has withdrawn accommodative measures to rein in
inflation by hiking the policy interest rate. India s financial sector also remains
strong, buoyed by improvements in asset quality and robust private-sector credit growth.
(Source: India Development Update by the World Bank)
In a survey by Mobility Market Insights about Travel and Tourism in
India the following findings were published:
l Revenue in the Hotels segment is projected to reach 0.62
trillion in 2023.
l Revenue is expected to show an annual growth rate (CAGR 2023-2027)
of 10.62%, resulting in a projected market volume of 0.92 trillion by 2027.
l In the Hotels segment, the number of users is expected to amount
to 61.33 million users by 2027. l User penetration is 3.0% in 2023 and is expected
to hit 4.0% by 2027. l The average revenue per user (ARPU) is expected to amount to
13.38 thousand. l In the Hotels segment, 59% of total revenue will be
generated through online sales by 2027. l In global comparison, most revenue will
be generated in the United States (8,532 billion in 2023).
Outlook:
Notable increases in international tourism receipts have been recorded
across most destinations, in several cases higher than their growth in arrivals. This has
been supported by the increase in average spending per trip due to longer periods of stay,
the willingness by travellers to spend more in their destinations and higher travel costs
due to inflation. However, major risks threatening the ongoing recovery of tourism in 2023
remain economic, health and geopolitical risks. Prime among these are high inflation and
interest rates, spike in oil and food prices, higher transport and accommodation costs,
fear of a global recession, intermittent COVID-19 virus recurrences and the Russian
aggression against Ukraine causing unrest through Europe. UNWTO s scenarios expect
international tourist arrivals to reach 80% to 95% of pre-pandemic levels in 2023 (Source:
UNWTO, Barometer January 2023).
The outlook however for the Indian hospitality industry during 2023
remains positive. The upsides working in favour of the hospitality industry in India are
good macro- economic environment evidenced by a positive GDP growth, superior performance
by the services sector of the Indian economy, abating COVID-19 fears, continuing
infrastructure development projects within the country, growth in air and railway
passenger traffic and growth in demand for branded rooms outpacing a tepid growth in
supply of those rooms to provide long-term sustainable demand. The industry has learnt to
work with volatility and adopt leaner cost structures thus contributing to higher
profitability. Balance Sheets of large corporates have also strengthened over the past few
years.
Indian Hospitality and Tourism Industry:
The start of 2023 has been promising, and the Indian hospitality
industry s outlook remains positive. Domestic demand will remain strong, and international
travel will increase, despite the threat of a recession in the United States and Europe,
growing global geopolitical issues, and an increase in Covid-19 cases in some countries.
Furthermore, India s G20 presidency and the fact that India is hosting a number of
international events, including the ICC Men s World Cup, will increase demand for hotels
in the cities where these events will be held.
In their new report titled, India Hospitality Industry Overview 2022
hospitality research firm HVS ANAROCK, Mandeep Singh Lamba President (South Asia) says
"We expect India-wide occupancy to improve to 66 per cent in 2023, which coupled with
a 16-17 per cent increase in ARR will push revenue per available room ("RevPAR")
to 4,690 during the year, almost 18 per cent higher than the pre-pandemic RevPAR recorded
in 2019,"
In the tourism sector, the hotel occupancy rate was at 63 per cent in
March 2023 compared to the post-pandemic record high of 71 per cent in February 2023.
Despite a sequential fall, the average room rate (ARR) grew 40 per cent year on year
("y-o-y") in March, leading to a growth in RevPAR by 44 per cent y-o-y.
In 2022, the contribution of India s travel and tourism sector to India
s economy was worth Rs 15.7 trillion. By the end of this year, it would be worth Rs 16.5
trillion. "The forecast for the next ten years is worth an enormous almost Rs 37
trillion. This is what we expect India on its current trajectory to achieve," said
Julia Simpson, president and CEO of World Travel and Tourism Council in an interview with
the Economic Times. In 2022, there were 37.2 million people employed in the travel and
tourism sector in India. By the end of this year, it is expected to increase to 39 million
people to be employed in this sector. In 2022, domestic visitor spends in India were
estimated at worth Rs 12.3 trillion while international visitor spends were Rs 1.6
trillion. This year international spending is going to be up to Rs 2 trillion while
domestic spends are estimated at Rs 12.6 trillion.(Source: World Travel and Tourism
Council)
*The Indian Government has taken several steps to make India a global
tourism hub. Some of the major initiatives planned by the Government of India to boost the
tourism and hospitality sector of India are as follows:
l Under Budget 2023-24, the Government has allocated US$ 30.25
million for the development of tourist circuits under PRASHAD.
Since its launch in January 2015, the Ministry has sanctioned 37
projects in 24 states with estimated expenditure of US$ 146.4 million and a cumulative
amount of US$ 91.6 million crore has been released for these projects. 68
destinations/sites have been identified in 30 States/UTs for development under the PRASHAD
Scheme as on March 31, 2022.
l Under the Union Budget 2023-24, an outlay of US$ 170.85 million
has been allocated for the Swadesh Darshan Scheme to develop a complete package of 50
tourist destinations for providing a wholesome tourism experience by facilitating
physical, digital and virtual connectivity, availability of tourist guides and tourist
security.
Internal Control Systems and their Adequacy:
The Company has institutionalised an adequate system of internal
controls, with documented procedures covering all corporate functions and hotel operating
units. Internal controls provide reasonable assurance regarding the effectiveness and
efficiency of operations, the adequacy of safeguards for assets, the reliability of
financial controls, and compliance with applicable laws and regulations.
The audit committee of the Board regularly reviews the internal audit
reports and the adequacy and effectiveness of internal controls.
Discussion on Financial Performance with Respect to Operational
Performance:
During the financial year 2022-23, the Company has continued to recover
at a steady pace from the losses incurred during the Covid-19 pandemic and the same has
been reflected in the current year s revenue, cashflows and profitability. There has been
an almost 83% increase in the revenue during the year as compared to the previous year.
The Company has earned a net profit after tax of Rs. 727 lacs as against net loss of Rs.
198 lacs in the previous year.
Material Developments in Human Resources / Industrial Relations Front,
including Number of People Employed:
Hiring and training the right talent with a focus on up-skilling and
re-skilling remains a key imperative for the company, with employee well-being and
engagement continuing to remain critical to empower the distributed workforce. The Company
currently employs approximately 101 people.
There have been no material developments in the Human Resources /
Industrial Relations Front during the year under review.
Details of Significant Changes in Key Financial Ratios:
1. Current Ratio: During the year 2021-22 the current ratio was
0.55 which has increased 165.24 times to 1.45 in the year 2022-23 due to increase in
current investments from increased revenue and improved collections.
2. Debt Equity Ratio: During the year 2021-22 the Debt Equity
Ratio was 0.0067 which has increased 4.31 times to 0.0069 in the year 2022-23.
3. Return on Equity Ratio: During the year 2021-22 the Return on
Equity Ratio was (1.04) which has increased by 461.74 % to 3.77 in the year 2022-23 which
has been due to increased profitability of the Company.
4. Trade Receivables turnover ratio: During the year 2021-22 the
Trade Receivables turnover ratio was 11.23 which has decreased 14.33 times to 9.62 in the
year 2022-23.
5. Net Profit Ratio: During the year 2021-22 the Net Profit
Ratio was (6.89) which has increased by 300.19 % to 13.79 in the year 2022-23, the
significant improvement has been due to increased turnover and profitability of the
Company.
6. Return on capital employed: During the year 2021-22 the
Return on capital employed was (0.68) which has increased by 751.35% to 4.41 in the year
2022-23, the improvement has been due to increase in the profitability of the Company.
7. Return on Investment: During the year 2021-22 the Return on
Investment was 15.92 which has decreased by 67.82 % to 5.12 in the year 2022-23, the
substantial variation is on account of profit on sale of subsidiary in the previous
financial year. Further, during the year, the current investments have also increased
substantially.
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