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Economic Environment and Industry Insight

GLOBAL ECONOMY: THE YEAR IN REVIEW

The global economy witnessed a recovery in 2022 following two years of a pandemic-inflicted environment. The International Monetary Fund (IMF) in their report of April 2023 estimates growth in global Real Gross Domestic Product (GDP) for 2022 to increase by 3.4% on the back of a 6.3% increase in 2021. A higher-than-usual growth in

2021 was due to a low-base effect of 2020 as a result of the global pandemic during which GDP contracted by 2.8%.

2022 saw inflationary trends across the globe, particularly in developed economies of United States of America (US), United Kingdom (UK) and Europe, which resulted in tighter monetary interventions by central banks which in turn stifled growth. Continuing invasion of Ukraine by the Russian Federation disrupted supply chains causing an increase in food, commodity and energy prices. Finally, a resurgence of COVID-19 in China weighed on the global economy in 2022.

IMF forecasts global growth for 2023 to decelerate to 2.8% from 3.4% in 2022 before rising to 3.0% in 2024. This forecast is lower than expected growth rates a year ago. The economic slowdown in 2023 is concentrated in advanced economies especially the Euro Area and UK where growth is expected to fall to 0.8% and -0.3% in 2023. A lower growth in 2023 is attributable to prevailing tight monetary and financial conditions, recent signs of stress in the banking system, rising debt levels in certain countries including lower and middle-income countries, rising geoeconomic fragmentation, stickier than expected inflation and no signs of truce in the Russia-Ukraine war. In contrast, emerging and developing economies are showing stronger economic prospects than advanced economies. In the medium-term, the IMF forecasts global inflation to fall to 7.0% in 2023 and to 4.9% in 2024 on the back of gradual softening of interest rates, unwinding supply chain disruptions and a fully reopened Chinese economy putting the global economy back on the growth track. (Source: IMF - World Economic Outlook Update, April 2023). The World Banks Global Economic Prospects report of January 2023 was more conservative in its estimates by forecasting global economic output to decelerate sharply to 1.7% in 2023 and thereafter grow by 2.7% in 2024.

Real GDP, Year-over-Year % Change

	Actuals	Estimate	Projections
	2020	2021	2022	2023	2024
World Output	-2.8	6.3	3.4	2.8	3.0
Advanced Economies	-4.2	5.4	2.7	1.3	1.4
United States of America	-2.8	5.9	2.1	1.6	1.1
United Kingdom	-11.0	7.6	4.0	-0.3	1.0
Emerging Market & Developing Economies	-1.8	6.9	4.0	3.9	4.2
Emerging and Developing Asia	-0.5	7.5	4.4	5.3	5.1
India	-5.8	9.1	6.8	5.9	6.3
China	2.2	8.4	3.0	5.2	4.5
Emerging and Developing Europe	-1.6	7.3	0.8	1.2	2.5
Sub Saharan Africa	-1.7	4.8	3.9	3.6	4.2
Middle East and Central Asia	-2.7	4.6	5.3	2.9	3.5

Source: IMF World Economic Outlook, April 2023. Year is a calendar year except for India which is presented on fiscal year basis with FY 2022-23 shown in the 2022 column.

Among the advanced economies, US grew by 2.1% in 2022 and is estimated to grow at a slower pace by 1.6% in 2023 and 1.1% in 2024. The UK grew by 4.0% in 2022 but is estimated to contract by 0.3% in 2023 and thereafter grow by 1% in 2024. UKs contraction is mainly due to tighter fiscal and monetary policies, financial conditions and high energy prices. The Chinese economy grew by 3.0% in 2022 and is estimated to grow by 5.2% in 2023 and 4.5% in 2024. Chinas economy has been opening up since the withdrawal of its zero-tolerance policy on Covid-19. It reported a good first quarter growth of 4.5% backed by growth in exports, infrastructure investment as well as a rebound in retail consumption and property prices. Indias growth rate was 6.8% in 2022 and is estimated to grow by 5.9% in 2023 and 6.3% in 2024 supported by resilient domestic demand. The economies of Maldives and South Africa grew by 12.3% and 2.0% respectively while Sri Lanka contracted by 8.7% in 2022 In 2023 Maldives and South Africa are estimated to grow by 7.2% and 0.1% respectively while Sri Lanka is projected to contract by 3.0%. (Source: IMF - World Economic Outlook, April 2023).

INDIAN ECONOMY: THE YEAR IN REVIEW

India is now the fastest growing, major economy in the world. The First Advance Estimates of National Income released by the National Statistical Office (NSO) of the Government of India in January 2023 estimates Indias GDP to have grown by 7.0% in FY 2022-23 following a growth of 8.7% in FY 2021-22. Total Consumption grew by 7.0% in FY 2022-23 mainly due to private consumption. Growth in exports for FY 2022-23 seems to have plateaued at 12.5%

while Imports grew by 20.9% in FY 2022-23. By sectors, agriculture grew by 3.5% during FY 2022-23 after a growth of 3.0% in FY 2021-22. Mining grew by 2.4%, manufacturing by 1.6% and construction by 9.1% while electricity, gas water supply and other utilities services grew by 9.0% in FY 2022-23. Services sector exhibited the strongest growth in FY 2022-23 at 9.1%. Within services, trade, hotels, transport, communication and broadcasting related services constituting about a third of overall services, grew by 13.7%. Indias service exports have nearly doubled in a decade to US$ 322.72 billion for FY2022-23 according to provisional data of the Ministry of Commerce. Indias foreign currency reserves stood at US$ 578.45 billion as of March 31, 2023 covering approximately 9 months of imports due to timely interventions of the Reserve Bank of India (RBI). The consensus of GDP growth for FY 2022-23 was in the range of 6.5% to 7.0%. (Source: India Economic Survey 2022-23 - January 2023 and National Statistical Office estimates)

Indias economic recovery from the pandemic exhibited a K-Shaped recovery where certain sectors like information technology, e-Commerce and financial services registered healthy recoveries while other sectors such as retail trade and consumer discretionary were highly impacted. Travel and hospitality remained beneficiaries of such recovery. Indias service exports have risen at a staggering pace since the pre-pandemic period. Service exports have increased by more than US$60 billion per year as India gains global market share. Exports are not only of Information Technology services but also professional management and consultancy, research and development and expanding Global Capability Centres.

This growth is expected to bring in higher employment, higher disposable income and thus a higher propensity to spend by white-collar people working in such sectors. This is an important factor in making economic growth broad- based and inclusive. HSBCs Economic Research believes that there is a growth relay at play. It reported - "The formal sector drove growth from the pandemic lows and is now passing the baton to the informal sector, which was weak for several years but has started to grow across the rural and urban sectors. As a result, for now, overall growth remains stable." (HSBCs Global Economic Research, March and April 2023)

The outlook for FY 2023-24 is optimistic. Retail inflation ebbed out to 5.6% in March 2023 from a peak of 7.79% in April 2022 and is expected to moderate to 5.2%. Core inflation which remained above 6% for the year eased to 5.8% in March 2023. Among the high frequency indicators, direct and indirect tax collection has shown strong momentum, bank balance sheets are strong, adequately capitalised and credit offtake during the year was highest since FY 2011-12. RBI paused increase in interest rates in April, 2023 after a 250 basis points increase during FY 2022- 23 citing reasons of resilient economic activity and expected moderation in inflation. The Indian Rupee is stable, the Current Account Deficit is expected to remain moderate and consumer sentiment is high. (Source: RBI Monetary Policy, April 2023, Revised Estimates - Ministry of Finance, April 2023).

The southwest monsoon is a critical lever in Indias growth prospects and the timing, quantum and distribution of rainfall will play an important role in the countrys crop production and hence both, inflation and rural demand.

The S&P Global India Services PMI Business Activity Index at 57.8 for March, 2023 was in growth territory for the twentieth successive month due to favourable demand conditions and new business gains. The February 2023 Index was at a 12 year high of 59.4. (Source: S&P Global India Services Purchasing Managers Index (PMI) report, March, 2023). Service exports are burgeoning. Indias investments in digital are now beginning to show results. Events such as Indias G20 Presidency are adding to its visibility on the global stage. After factoring the downside risks of domestic inflation, slowing global growth and geopolitical situation, India is expected to grow at the fastest pace among large economies at a rate ranging between 6.0% to 6.5% in FY 2023-24.

The outlookfor FY 2023-24 is optimistic.

Retail inflation ebbed out to 5.6% in March 2023 from a peak of 7.79% in April 2022 and is expected to moderate to 5.2%. India is expected to grow at the fastest pace among large economies.

INDUSTRY INSIGHT

Global Hospitality and Tourism Industry

Global tourism is steadily improving towards pre-pandemic levels consequent to the relaxation of travel restrictions across countries and increase in demand for travel. Tourist arrivals internationally for 2022 were 917 million, double that of 2021 but recovering to 63% of pre-pandemic levels of 2019, according to data from the United Nations World Tourism Organization (UNWTO). Europe with the largest share of global inbound tourism registered a 92% increase over 2021 to reach nearly 80% of pre-pandemic levels. The Middle East had the strongest relative increase among all regions due to large international events such as Expo 2020 Dubai and the FIFA World Cup in Qatar. Even with a 241% increase in tourist arrivals in 2022 over 2021, Asia and the Pacific remained the weakest in terms reaching prepandemic levels. However, within the region, international tourist arrivals in South Asia at 25.5 million, were higher by 158% over 2021 and achieved 76% of pre-pandemic levels (Source: UNWTO, Barometer January 2023). 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. Transportation recorded the third fastest growth behind software services (Source: S&P Global Sector PMI April 2023).

Outlook

The UNWTO expects international tourism to consolidate its recovery in 2023 more specifically in Asia and the Pacific region. It attributes this growth to the recent opening of

several source markets and destinations including China, which was the worlds largest outbound market in 2019. In December, 2022,116 destinations had no COVID-19 related restrictions. In addition, improved performance of air traffic and robust travel demand from US markets for European holidays backed by a strong US Dollar are expected to be the other contributors to global growth. Domestic tourism will continue to be a key driver of recovery of the tourism sector through 2023. 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. UNWTOs scenarios expect international tourist arrivals to reach 80% to 95% of pre-pandemic levels in 2023 (Source: UNWTO, Barometer January 2023).

Indian Hospitality and Tourism Industry

FY 2022-23 continued to be a year of strong recovery in the Indian travel and tourism industry. Restrictions on flights were relaxed in most countries into and from India. Travel restrictions, documentation and certifications were also progressively relaxed for travel within India. Consequently, demand for accommodation grew significantly, mainly arising from domestic leisure travel, weddings, social events, conferences and resumption of business travel within the country. Foreign tourist arrivals were 6.19 million for the calendar year 2022 in comparison with 1.52 million in 2021.

This constituted 57% of 2019 foreign tourist arrivals at 10.93 million (Government of India, Ministry of Tourism Annual Report - 2022-23). Domestic air traffic passengers for 2022 were at 123 million, growing by 47% over 2021 to 85% of pre-pandemic levels. As per Horwath HTLs India Hotel Market Review 2022, calendar year occupancy for 2022 was 59.8% in comparison with 43.5% in 2021. The average daily rate (ADR) for 2022 was Rs6,103 and revenue per available room (RevPAR) was Rs3,648 as against Rs4,429 and Rs1,924 respectively for 2021. Like-for-like hotels reported an occupancy of 67.8% and an ADR of Rs6,498 during 2022.

As shown in the chart above, during FY 2022-23 RevPAR of all destinations surpassed pre-pandemic levels of FY 2019-20 with growth ranging from 15% to 54%. Similarly, occupancies of all destinations except Gurugram exceeded that of FY 2019-20. Mumbai registered the highest RevPAR and occupancy at Rs7,532 and 78%. Goa registered the highest growth in RevPAR of 54% to Rs7,049, also the second highest RevPAR among all destinations.

Outlook

The outlook 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 6%+ 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. Moreover, 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. Growth in the industry is largely expected from domestic demand which is expected to remain strong through FY 2023-24 even as international travel has shown green shoots of recovery and provides scope for further growth in demand. Additionally, the Indias G20 Presidency and an opportunity to host international events, including the ICC Mens World Cup, is expected to increase demand for hotels in the cities hosting the events. Growth in Indias service sector and higher disposable income of people working in it, referred to in HSBCs Economic Research paper above is also expected to increase demand for corporate travel and holidays. All segments of leisure, weddings, conferences events, airline crew layovers and corporate travel are expected to grow further during the year.

Business Review

IHCLs vision is to be The Most Iconic and Profitable Hospitality Company in South Asia. The Company succeeded in executing its plans under Aspiration 2022 up to March 2020 when the Covid-19 pandemic impacted the global economy by contracting demand, restricting supply chains, mobility and significantly causing distress to lives and livelihoods. The Company immediately deployed R.E.S.E.T. 2020 which stood for Revenue growth, Excellence, Spend optimisation, Effective asset management and Thrift and financial prudence. RESET focused on multipronged tactical initiatives to capture market share in a competitive landscape, scale new businesses built during the pandemic and continue its initiatives of fiscal prudence. FY 2022-23 was a year where the Company focused on exceeding its pre-pandemic levels of financial performance, establishing its market leadership through a recognised brand ecosystem, focus on meaningful contributions through new businesses and continued to monetise non-core assets. In May 2022, the Company unveiled its strategy Ahvaan 2025 to build on new opportunities, minimise risks and return on the journey of sustainable profitable growth. The key initiatives of Ahvaan 2025 are Re-engineer Margins, Re-imagine Brandscape and Re-structure Portfolio and its key tenets are:

RESTRUCTURED PORTFOLIO STIMULATING GROWTH

Expansion continued as a high priority on IHCLs agenda of growing its portfolio and pioneering new destinations in India. IHCLs portfolio had 263 hotels, including 188 operational hotels. Its pipeline stood at 75 hotels and represented 32% of the portfolio of room inventory. IHCL witnessed the highest- ever hotel signings and openings during a year with 36 signings and 16 openings. In addition, 21 ama Stays & Trails were opened during the year. On average, the Company signed 3 contracts per month while hotel openings averaged at more than one hotel per month. IHCLs strategy targets a portfolio mix of 50:50 between owned/leased and managed hotels. During FY 2022-23 it achieved this balance in the portfolio driven by greater additions of management contracts to the pipeline. The other additions to the pipeline predominantly comprise operating leases for the Ginger brand and a few select investments in Ekta Nagarand Lakshadweep.

FY 2022-23 saw addition to IHCLs leisure offerings with the opening of Sawai Man Mahal and Taj Amer in Jaipur, Taj Wayanad, Kerala, Anand Kashi by the Ganges, Rishikesh, Norbu The Montanna, Dharamshala, Jaagir Manor, Dudhwa, Baragarh Resort & Spa, Manali and Taj City Centre New Town in Kolkata.

ICONIC BRANDS AND AN ECOSYSTEM OF HOSPITALITY SERVICES

The Company has re-imagined its brandscape to become a House of Brands. Several newly launched brands have created alternative revenue streams to expand its hospitality ecosystem. While the Company created new brands like Qmin, ama Stays & Trails, Seven Rivers microbrewery, niu&nau, existing brands like Ginger and The Chambers were re-imagined and re-positioned within the markets. Several Food and Beverage brands such as Bombay Brasserie,

Shamiana, Southern Spice, Golden Dragon, etc. were opened in new and existing hotels across destinations. The Company aims to scale up these brands to a sizeable portion to complement mainstream revenue and enhance profitability. The Companys partnership as a founding member with Tata Neu Loyalty Programme enables it to increase its brand presence among millions of new customers synergising opportunities to cross-sell across the Tata Group.

The Companys flagship brand achieved an important milestone of 100 hotels in its portfolio with 81 in operation and 19 in the pipeline and continues to grow and drive revenue and profitability for the enterprise. In comparison with FY 2016-17, the portfolio of Taj grew 2x of its inventory, doubling in room strength to more than 11,000 rooms through new builds and brand migrations from renovations and upgrades. The portfolios contribution to enterprise revenue is

now reaching 72% from 52% six years ago and contributes 66% to enterprise EBITDA. Brand Finance, the worlds leading brand valuation consultancy, ranked Taj as the Worlds Strongest Flotel Brand 2022 for the second successive year in its Hotels 50 Report 2022. Taj was also ranked as Indias Strongest Brand 2022 across all sectors in its India 100 Report 2022 for the second year, the first being in 2020.

GINGER

Now has a portfolio of 85 hotels across 50+ locations, including 26 under development.

Within its portfolio, several properties are being taken up for upgradation to a Lean Luxe model, now constituting 50% of its portfolio. Ginger has followed a strategy of city/place clustering for growth to optimise management and operating costs. The opening of a large-format 371 room Ginger at Santacruz, Mumbai expected this year is an important milestone for the brand. Among other initiatives, cafes at Ginger are now being Qminised i.e. a Qmin cafe in place of outsourced food and

beverage facilities. Ginger recently joined the Tata Neu Loyalty Programme and successfully integrated property clusters within regional structures of the Company subsequent to becoming a wholly owned subsidiary. In FY 2022-23, Ginger achieved its highest turnover surpassing Rs300 crores with EBITDA margin (before IHCL fees) of 39% and a highly profitable bottom line, a first in its history. With its robust portfolio and a continuously expanding pipeline, Ginger is well-positioned to expand nationwide and has tremendous potential for growth in the future.

Diversification of Topline - a Cornerstone of IHCLs Competitive Advantage

Strong macro-economic factors, a robust recovery in the industry and persistent adherence to its strategy has empowered the Company to register industry leading RevPAR growth, industry leading brand and portfolio growth, industry leading expansion in margins, free cash flows and a strong balance sheet. IHCLs differentiated strategy of a diversified topline places it in a unique position to navigate economic cycles. The asset-intensive business consisting of owned and leased properties gives IHCL a high operating leverage and hence significant contribution to margins on the upside. Its asset-light business of managed properties contributes to margins and gives the Company the necessary hedge in a downturn thus enabling it to stretch the economic cycle and minimise risks associated with it.

Revenue from accommodation grew comfortably, well above pre-pandemic levels. IHCL improved RevPAR over previous benchmarks as well as widened the RevPAR premium over its competitive set by active revenue management across cities and destinations. Growth in room revenue was supported both by higher occupancies and improved prices. A favourable demand-supply equation helped the industry increase prices during the year. IHCL commanded a premium in pricing over the market even while it increased its market share.

The premium it generates over the market is well supported by its product and service philosophy.

It continuously and systematically invests in renovation, refurbishments and upgradation of its properties. The Company has a philosophy of service excellence Tajness which is imbibed in all its people and embedded in its recognition policies. It also has a comprehensive brand

Strong macro-economic factors, a robust recovery in the industry and persistent adherence to its strategy has empowered the Company to register industry leading RevPAR growth, industry leading brand and portfolio growth, industry leading expansion in margins, free cash flows and a strong balance sheet.

management strategy with Brand Custodians to ensure effective deployment of strategic and operational initiatives across brands to consistently safeguard the quality of its brands. The Company regularly engages with its stakeholders to communicate the execution of its strategic actions on brands and updates on progress.

Food and beverages form a significant proportion of total revenue. The Company has more than 450+ restaurant bars and restaurants, including signature restaurants providing authentic cuisines from across the globe. Several of the Companys restaurant brands referred above are recognised world-over and are now being opened in new properties.

The drive for excellence in serving guests unique experiences draw individuals both resident within the hotel and those residing or visiting the locality. The app-based delivery model under Qmin, created in the recent past, provides additional revenue to restaurants by using existing capacity and developing newer customers. The Company also has exceptional banqueting facilities for catering social events, trade and corporate conferences across its properties. Food and beverage services has provided IHCL with a stable source of revenue over the years. Both restaurants and banqueting have performed exceedingly well in comparison to prepandemic levels.

The Company has built a substantial stream of revenue through management fees from asset-light expansions with a high flow-through to earnings. During the year the number of managed hotels in the portfolio was 50% of the total portfolio, up from 42% in FY 2019-20. The Company continues to maintain a proper mix of expansions in line with its asset-right growth strategy. Fee from management of hotels for the year at Rs399 crores was 73% higher than the previous year. In addition, it maintained a continued focus on

growing the member base of The Chambers, an exalted club of acclaimed achievers on invitation. The Chambers also has a significantly high flow-through to margins.

IHCLs portfolio has now expanded geographically to over 125 locations in India. It has properties under several brands and at multiple price points. Key brands including the performance of IHCLs largest brand Taj and fastest growing brand Ginger was discussed above in the section on IHCLs brands. With this diversified base and development of infrastructure within the country, newer possibilities are emerging along with new tourist circuits. The Company is consistently looking to sweat its assets by building sustainable revenue streams from existing assets and capitalise on the opportunities within the markets in which it operates.

In Summary...

A balanced portfolio of owned, leased and managed properties, iconic brands and a robust, well-diversified top line gives IHCLthe competitive advantage to lead markets and expand its business. The Companys continued focus on costs, productivity and overheads has made it lean and flexible while an adequately capitalised, deleveraged and strong balance sheet strengthens its financial position.

Its framework to drive sustainability and social measures Paathya has several short- and long-term goals to be fulfilled by 2030. Collectively, all these factors enable IHCL to improve its margins and sustain long-term, profitable and responsible growth.

Funding, Capital Structure, Investor Interests and Simplification

The Company raised fresh capital through two equity issues in the previous year amounting to Rs3,981.97 crores. Funds raised are being utilised to repay debt as and when it comes up for maturity. The Company was cash positive throughout the year with more than Rs1,000 crores of liquidity. The Company has maintained its focus on generation of free cashflow to sustain its position of zero net-debt it achieved in the previous year.

IHCL was included in the MSCI India Standard Index, a widely recognised benchmark index in November 2022. This makes IHCL an attractive investment opportunity within Indias hospitality sector leading to increased demand for its shares, potentially higher liquidity and better valuation. It also enhances IHCLs visibility and

credibility among global investors as the Index is considered a leading benchmark for Indian equities.

The Company continues to pursue opportunities for simplification and consolidation among its group entities to enhance efficiency, optimise costs, manage risks and further strengthen the balance sheet.

Capital Allocation

IHCLs capital allocation process is aimed at creating value by funding and allocating capital to meet its strategy set out in Ahvaan 2025. This process is based on the following four planks:

1. Build a strategic reserve fund with a strong cash position to meet any contingency the Company may face.

2. Operating capital expenditure for replacement of assets, renovations and refurbishmentsto be in line with annual depreciation.

3. Maintain a meaningful and sustainable dividend and maximise dividends from subsidiaries with no debt to optimise cash positions.

4. Greenfield projects with superior returns funded through selective mergers and acquisitions or project debt, including green debt, to strengthen the balance sheet structure of the Company.

COMPLIANCE

IHCL deploys a robust internal check process to prevent and limit the risk of non-compliance. The Company approaches compliance from a proactive standpoint and believes in responsive intervention. Compliance with laws and regulations is an essential part of its business operations and it adheres to all national and regional laws and regulations in such diverse areas as product safety, product claims, trademark, copyright, patents, competition, employee health and safety, the environment, corporate governance, listing and disclosure, employment and taxes. Nevertheless, it is focussing on increasing awareness, documentation and supplementing the expertise of internal professionals with that of independent consultants, as may be required from time to time.

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 internal audit process (Taj Positive Assurance Model), based on the audits of operating units and corporate functions, provide positive assurance. It converges the process framework, risk and control matrix and a scoring matrix, covering all critical and important functions inter alia revenue management, hotel operations, purchase, finance, human resources and safety. A framework for each functional area is identified based on risk assessment and control, while allowing the unit to identify and mitigate high-risk areas. These policies and procedures are updated periodically and monitored by the Group Internal Audit.

The Company aligns all its processes and controls with best practices.

Internal controls are reviewed through the annual internal audit process, which is undertaken for every operational unit and all major corporate functions under the direction of the Group Internal Audit. These reviews focus on:

• Identification of weaknesses and improvement areas

• Compliance with defined policies and processes

• Compliance with applicable statutes

• Safeguarding tangible and intangible assets

• Managing risk environment, including operational, financial, social and regulatory risks

• Conformity with the Tata Code of Conduct

The Boards Audit Committee oversees the adequacy of the internal control environment through periodic reviews of audit findings as also of the resolution mechanism for critical audit issues. The statutory auditors have opined in their report that there are adequate internal controls over financial reporting at IHCL.

MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONS

The Annual Report contains financial statements of the Company, both on a standalone and consolidated basis. An analysis of the financial affairs is discussed below under summarised headings.

RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2023 Standalone Financial Results

The following table sets forth financial information for the Company for the year ended March 31, 2023

(Rs Crores)

	Year ended
	March 31, 2023	March 31, 2022
Income
Revenue from Operations	3,704.24	2,003.34
Other Income	107.08	149.08
Total Income	3,811.32	2,152.42
Expenses
Food and beverages consumed	304.59	172.99
Employee benefit expenses and payment to contractors	761.63	624.48
Depreciation and amortisation expenses	207.85	203.03
Other operating and general expenses	1,248.31	817.60
Total expenses	2,522.38	1,818.10
Profit/(Loss) before finance costs and tax	1,288.94	334.32
Finance costs	128.29	304.50
Profit/(Loss) before exceptional items and tax	1,160.65	29.82
Exceptional items	(21.68)	(56.93)
Profit/(Loss) before tax	1,138.97	(27.11)
Tax expense/(credit)	295.94	7.34
Profit/(Loss) aftertax	843.03	(34.45)

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 Crores)
Particulars	Year ended	% Change
	March 31, 2023	March 31, 2022
Room Income	1,594.04	848.19	88
Food, Beverage & Banqueting Income	1,381.47	714.47	93
Other Operating Income	338.08	242.03	40
Management & Reimbursable fees	390.65	198.65	97
Non-operating Income	107.08	149.08	(28)
Total Income	3,811.32	2,152.42	77
Statistical information
Average rate per room (Rs)	13,736	9,717	41
Occupancy (%)	72	53	19% points

i) Room income for the year was higher by 88% from the previous year with an average rate per room (ARR) of Rs13,736 and an average occupancy at 72%. ARR increased by 41% and average occupancy increased by 19% points. In comparison with pre-pandemic levels of FY 2019-20, room income was higher by 40%; ARR was higher by 28% and average occupancy was higher by 5% points. Business increased generally across all customer segments and primarily from transient customers, events and conferences.

ii) Food and beverage income for the year was higher by 93% from the previous year and 27% higher than pre-pandemic levels. Business from banqueting grew by more than 150% over the previous year while the restaurant business grew by approximately 60% over the previous year.

iii) Other Operating Income increased by 40% over the previous year. It primarily comprises income from membership fees, rentals, spa and health club, laundry, transportation, telephone and business centre rents among others. Initiation fees and annual membership fees of The Chambers increased by 17% over the previous year. Membership fees for the dining programme, Epicure increased by 56% while shop rentals increased by 45% over the previous year. Transportation income, spa, salon and other accommodation dependent income increased by 55% over the previous year due to improvement in occupancies.

iv) Management and reimbursable fees at Rs390.65 Crores was higher by 97% compared to the previous year and 79% from pre-pandemic levels. The increase in management fees and reimbursable fees was mainly due to higher business activity levels of managed properties in the portfolio and new managed properties commencing operations.

v) Non-Operating Income decreased by Rs42.00 Crores to Rs107.08 Crores in the current year from Rs149.08 Crores in the previous year. Non-operating income decreased due to higher interest on income tax refunds Rs51.89 Crores, profit on disposal of non-core assets Rs23.01 Crores, lease waivers received Rs16.45 Crores and sale of brands to a subsidiary Rs 9.90 Crores in the previous year. This was partially offset during current year by returns on surplus of funds invested in bank deposits and mutual funds of Rs49.76 Crores and higher dividend of Rs6.26 Crores from investment in subsidiaries.

b) Expenses

Total expenses increased to Rs2,522.38 Crores during the current year from Rs1,818.10 Crores in the previous year. While Total Income increased by 77% from the previous year, Total Expenditure increased by 39% from previous year mainly due to increase in variable costs consequent to increased business activity. Variances under each expenditure head are explained below:

i) Food and Beverages Consumed

(Rs Crores)

Particulars	Year ended	% Change
	March 31, 2023	March 31, 2022
Food and beverages consumed	304.59	172.99	(76)
%To Food, Beverage & Banqueting Income	22	24	2% points

Food and beverages consumed, which is variable in nature, increased with increase in income from food, beverages and banqueting business. Whilst food and beverages income increased by 93% from the previous year, food and beverages consumed as a percentage of food and beverage income was lower at 22% as against 24% in the previous year.

ii) Employee Benefit Expenses and Payment to Contractors

(Rs Crores)

Particulars	Year ended	% Change
	March 31, 2023	March 31, 2022
Employee benefit expenses and payment to contractors	761.63	624.48	(22)

Employee benefit expenses and payments to contractors increased by 22% to Rs761.63 Crores in the current year from Rs624.48 Crores in the previous year. This was mainly due to an increase in employee costs commensurate with increase in business activities. The increase was also attributed towards higher variable salary for employees in line with robust business performance. The Company has been selective in hiring for strategic roles and is focused on building a strong workplace culture and to utilise space efficiently. The Company continued to focus on redeployment of people to newly opened hotels, multi-skilling, clustering and shared service approaches thereby optimising staff to room ratios across its hotels and brands.

iii) Depreciation and Amortisation Expenses

(Rs Crores)

	Year ended	% Change
	March 31, 2023	March 31, 2022
Depreciation and amortisation expenses	207.85	203.03	(2)

Depreciation and amortisation costs increased marginally over the previous year mainly due to renovations completed at hotels during the early part of the year and additional amortisation on right-of-use assets partially offset by decrease in amortisation of intangible assets.

iv) Other Operating and General Expenses

(Rs Crores)

Particulars	Year ended	% Change
	March 31, 2023	March 31, 2022
Other Operating Expenses	685.76	447.72	(53)
General expenses	562.55	369.88	(52)
Total	1,248.31	817.60	(53)

Other operating and general expenses increased by 53% to Rs1,248.31 Crores in the current year from Rs817.60 Crores in the previous year.

Other operating expenses increased to Rs685.76 Crores in the current year from Rs447.72 Crores in the previous year, an increase of Rs238.04 Crores. This was primarily due to increase in variable costs corresponding to higher business volumes. This was reflected in power costs, maintenance, linen, room and catering supplies, transportation, distribution costs in terms of commissions to travel agencies, credit card charges and costs of hosting banqueting events.

General expenses increased to Rs562.55 Crores in the current year from Rs369.88 Crores in the previous year, an increase of Rs192.67 Crores. Primary reasons for such increases were increase in variable lease costs linked to turnover of leased properties, increase in variable costs of inbound reservation centres and managing the loyalty program, insurance, rates, taxes and higher general administration costs including professional fees, travel and rent. Advertising and promotion costs increased with a judicious increase in spends on campaigns relevant to consumer sentiment, emerging and re-imagined brands.

c) Finance Costs

(Rs Crores)

Particulars	Year ended	% Change
	March 31, 2023	March 31, 2022
Finance Costs	128.29	304.50	58

Finance Costs for the current year at Rs128.29 Crores were lower than the preceding year by Rs176.21 Crores or 58%. The reduction was mainly due to repayment of loans and debentures in the previous and current year out of the proceeds of the rights issue and the qualified institutional placement in the previous year. Finance costs include interest cost on lease liabilities of Rs92.00 Crores in the current financial year in comparison to Rs85.63 Crores in the previous financial year.

d) Exceptional Items

Exceptional items include items as under:

(Rs Crores)

Particulars	Year ended
	March 31, 2023	March 31, 2022
Provision for impairment of investment in subsidiaries that incurred losses	(21.68)	(63.22)
Change in fair value of derivative contracts	-	6.29
Total	(21.68)	(56.93)

Exceptional items for the current year comprised of a provision for cash losses of foreign subsidiaries which was lower than the previous year.

e) Tax Expense

Tax expense for the year was Rs295.94 Crores as against Rs7.34 Crores in the previous year mainly due to increase in business profits in the current year as against a loss recorded in the previous year.

f) Profit/(Loss) after Tax

During the current year, the Company generated a profit after tax of Rs843.03 Crores compared to a loss of Rs34.45 Crores in the previous year. This was due to a significant improvement in the operating revenues of the Company.

g) Liquidity and Debt

(Rs Crores)

Particulars	Year ended	% Change
	March 31, 2023	March 31, 2022
Cash and cash equivalents*	760.48	1,004.01	(24)
Current Investments	705.84	896.84	(21)
Total Liquidity	1,466.32	1,900.85	(23)
Gross Debt	450.08	942.53	52
Net liquidity	1,016.24	958.32	6

* includes balances greater than 3 months not earmarked or pledged

The Company maintained a good liquidity position during the year and met all its interest and principal repayment obligations. At the end of the year, the liquidity position represented by cash, cash equivalents and current investments decreased by Rs434.53 Crores over the previous year to Rs1,466.32 Crores. Net liquidity position strengthened from Rs958.32 Crores to Rs1,016.24 Crores. During the year, gross debt decreased by Rs492.45 Crores from Rs942.53 Crores to Rs450.08 Crores. The unutilised proceeds from equity shares issued in the previous year were utilised for repayment of debt and investment in an overseas step-down subsidiary to repay its debts.

Cash Flow

(Rs Crores)

Particularsx	Year ended
	March 31, 2023	March 31, 2022
Net Cash from/(used for) operating activities	1,227.22	693.33
Net Cash from/(used for) investing activities	(646.51)	(1,890.37)
Net Cash from/(used for) financing activities	(700.56)	1,804.00
Net lncrease/(Decrease) in cash and cash equivalents	(119.85)	606.96

Operating Activities

Net cash generated from operating activities during the year was Rl,221.22 Crores as compared to Rs693.33 Crores in the previous year. This is mainly attributable to an improvement in cash operating profit during the year after payment of taxes.

Investing Activities

During the year, net cash used for investing activities amounted to Rs646.51 Crores, compared to Rs1,890.37 Crores in the previous year. The Companys outlay on capital expenditure was Rs329.78 Crores, which was mainly for greenfield projects and renovations. The Company invested an amount of Rs629.67 Crores in its hotel operations in United States for repayment of external debts, Rs99.13 Crores to acquire remaining shares in Roots Corporation Limited to convert it to a wholly owned subsidiary, Rs9.11 Crores to further capitalise its subsidiary Ideal Ice Limited and Rs16.12 Crores in four subsidiaries executing recently acquired greenfield projects. Another Rs347.25 Crores was liquidated from current investments and bank deposits whilst interest and dividend received amounted to Rs41.06 Crores.

Financing Activities

During the year, net cash used for financing activities was Rs700.56 Crores as against Rs1,804.00 Crores generated in the previous year. The Company repaid outstanding borrowings of Rs495 Crores. The Company also paid dividend of Rs56.65 Crores, interest and borrowing costs of Rs46.63 Crores and lease liabilities of Rs102.84 Crores during the year.

Key Financial Ratios for Standalone Financials

Key financial ratios and their definitions are given below:

(Rs Crores)

Sr No	Particulars	Year ended
		March 31, 2023	March 31, 2022
i	Debt - Equity ratio (in times)	0.05	0.12
2	Debt service coverage ratio (in times)	2.78	0.17
3	Interest Service Coverage Ratio (in times) - (a)	n/m	2.57
4	Current ratio (in times)	1.76	2.48
5	Net capital turnover ratio (in times)	3.25	3.50
6	Trade receivables turnover ratio (in days)	29	38
7	Inventory turnover ratio- (b)	NA	NA
8	Operating profit margin (in 96) — (c)	37.52	19.38
9	Net profit margin (in %)	22.12	(1.60)
10	Return on capital employed (in %)	12.50	3.70
11	Return on equity (in %)	9.96	(0.56)

a) Interest Service Coverage Ratio equals Profit before Tax + Interest on borrowings (Net) + Provision for impairment of investments + Depreciation and Amortisation divided by Interest on borrowings (Net). This ratio is not meaningful (n/m) for the current year as Interest on borrowings (Net) is negative.

b) Inventory turnover ratio has not been presented since the Company holds inventory for consumption in the service of food and beverages and the proportion of such inventory is insignificant to Total Assets

c) Operating profit margin equals Profit/(Loss) before depreciation and amortisation expenses, Interest Tax and Exceptional items less Other Income divided by Revenue from operations.

d) The definitions of other ratios are given in Note 46 of the Notes to Standalone Financial Statements.

The Companys capital structure was healthy as is evident from its ratio of Debt to Equity at 0.05 times. During the year, the Company utilised its cash for repaying its borrowings and was net cash positive. Reduction in debt and improvement in earnings improved the Debt Service Coverage ratio. Current ratio declined to 1.76 times due to decrease in current investments and cash equivalents for repayment of borrowings. Trade Receivables turnover ratio decreased substantially to 29 days in the current year from 38 days in the previous year, even while revenue from operations increased due to higher collection efficiency. Growth in revenue from operations and operating profits improved the Operating profit margin, Net profit margin, Return on capital employed and Return on equity in comparison with the previous year.

Consolidated Financial Results

The Consolidated Financial Statements comprise the Company and its subsidiaries (referred collectively as the Group) and the Groups interest in associates and joint ventures prepared in accordance with Ind AS, as applicable to the Company.

The Consolidated Statements include the financial position of subsidiaries on a line-by-line basis and for joint ventures and associates by applying equity method of accounting.

The following table sets forth the Consolidated Financial results for year ended March 31, 2023.

(Rs Crores)

	Year ended
	March 31, 2023	March 31, 2022
Income
Revenue from Operations	5,809.91	3,056.22
Other Income	138.90	155.16
Total Income	5,948.81	3,211.38
Expenses
Food and beverages consumed	472.89	257.23
Employee benefits expenses	1,582.25	1,150.24
Depreciation and amortisation expenses	416.06	406.05
Other operating and general expenses	1,950.21	1,244.00
Total expenses	4,421.41	3,057.52
Profit/(Loss) before finance costs and tax	1,527.40	153.86
Finance costs	236.05	427.66
Profit/(Loss) before exceptional items, tax, and share of profit of equity accounted investees	1,291.35	(273.80)
Exceptional items	3.29	15.62
Profit/(Loss) before tax, before share of profit of equity accounted investees and non-controlling	1,294.64	(258.18)
interests
Tax expense/(credit)	323.21	(35.78)
Profit/(Loss) aftertax, before share of profit of equity accounted investees and non-controlling	971.43	(222.40)
interests
Add: Share of Profit/(Loss) of associates and joint ventures (net of tax)	81.40	(42.57)
Profit/(Loss) for the year	1,052.83	(264.97)
Less: Non-controlling interest in subsidiaries	50.24	(17.25)
Profit/(Loss) after Tax attributable to Owners of the Company	1,002.59	(247.72)

Income

Revenue from operations increased by 90% to Rs5,809.91 Crores from Rs3,056.22 Crores in the previous year. Total Income exceeded pre-pandemic levels of FY 2019-20 by 30%. All subsidiaries, joint ventures and associates of the Group along with the parent company registered excellent growth in business with the opening up of global economies, increase in cross- border travel and high demand for accommodations and food and beverage services within domestic economies. Among key Indian subsidiaries, PIEM Hotels Limited registered a turnover of Rs504.16 Crores with a growth of 89% over the previous year and Roots Corporation Limited registered a turnover of Rs306.68 Crores with a growth of 71% over the previous year. Among key international subsidiaries, UOH Inc owning US hotels registered a turnover of Rs657.69 Crores and St. James Court Hotel Ltd. owning UK hotels registered a turnover of Rs418.27 Crores during the current year, both doubling over the previous year. Fees from managed properties of Rs398.64 Crores during the current year increased by 72% over the previous year due to increase in turnover and profitability of those properties. Other Income decreased by Rs16.26 Crores to Rs138.90 Crores from Rs155.16 Crores in the previous year.

Expenditure

Total Expenditure increased by Rs1,363.89 Crores to Rs4,421.41 Crores in the current year from Rs3,057.52 Crores in the previous year. The increase in expenditure corroborates the increase in business activity across the Group. Total Expenditure for FY 2022-23 was higher by 13% in comparison with FY 2019-20 even while turnover increased by 30% over the same period. The increase in employee benefit costs was mainly due to increase in wage costs and selective re-hiring to meet business volumes. In comparison with FY 2019-20 employee benefit costs increased by 6%. Depreciation charge for the year was higher in the current year due to the impact of completed renovations at hotels and additional amortisation on right-of-use assets. Operating expenses increased in line with increase in business volumes. Variable costs of power costs, maintenance, linen, room and catering supplies, transportation, distribution costs of commissions to travel agencies, credit card charges and costs of hosting banqueting events, all increased in line with business activity. General expenses increased mainly due to variable lease costs linked to turnover of leased properties, advertising and promotion costs, costs of inbound reservation centres, loyalty program costs, insurance, rates, taxes and higher general administration costs including professional fees, travel and rent.

Finance Costs

Finance Costs (including interest on lease liabilities of Rs167.57 Crores) for the year ended March 31, 2023 at Rs236.05 Crores was lower than the previous year by Rs191.61 Crores due to repayment of borrowings during the year out of the proceeds of equity shares issued in the previous year.

Exceptional Items

Exceptional items include the following:

(Rs Crores)

Particulars	Year ended
	March 31, 2023	March 31, 2022
Profit on sale of hotel property in a subsidiary	12.02	7.12
Exchange gain/(loss) on longterm borrowings/assets (net)	(8.73)	2.21
Change in fair value of derivative contracts	-	6.29
Total	3.29	15.62

Profit/(Loss) after Tax attributable to Owners of the Company

Profit aftertax, including share of profit of equity accounted investees attributable to Owners of the Company for the year was Rs1,002.59 Crores as compared to a loss of Rs247.72 Crores in the previous year. Higher operating profits of the Group on account of improved business, higher margins and lower finance costs as well as increased business volumes and margins of joint ventures and associates contributed to the increase in profits. Roots Corporation Limited, a subsidiary company managing the Ginger brand and TajSATS Air Catering Ltd., a joint venture in airline catering recorded exceptional turnaround in profitability during the year.

Consolidated Cash Flow

The following table sets forth selected items from the consolidated cash flow statements:

(Rs Crores)

Particulars	Year ended
	March 31, 2023	March 31, 2022
Net Cash from/(used in) operating activities	1,618.99	671.63
Net Cash from/(used) in investing activities	(144.58)	(1,642.47)
Net Cash from/(used) in financing activities	(1,527.85)	1,658.78
Net lncrease/(Decrease) in cash and cash equivalents	(53.44)	687.94

Operating Activities

Net cash generated from operating activities for the current year was Rs1,618.99 Crores as against Rs671.63 Crores in the previous year. The increase in cash from operating activities was mainly due to improvement in business of the Group and working capital position.

Investing Activities

Cash used for investing activities was Rs144.58 Crores in the current year as against Rs1,642.47 Crores in the previous year. During the year, the Group utilised cash for planned project expenditures amounting to Rs470.59 Crores.

Financing Activities

Cash used for financing activities across the Group was Rs1,527.85 Crores for the current year as against cash of Rs1,658.78 Crores generated in the previous year by raising funds. In the current year, cash was used for repayment of borrowings, payment of lease liabilities, interest and dividends.

Closing Cash Position, Debt and Liquidity

The Group generated its highest-ever free cash flow of more than Rs1,000.00 Crores during the year. The cash position of the Group at the end of March 31, 2023 was Rs1,805.69 Crores comprising cash and cash equivalents of Rs736.39 Crores, current investments of Rs757.33 Crores and balances with banks in call and short-term deposit accounts of Rs311.97 Crores. As against this, the gross debt of the Group was Rs818.26 Crores. Consequently, the net cash position of the Group was Rs987.43 Crores.

Key Financial Ratios for Consolidated Financials

Key financial ratios for consolidated financial statements and their definitions are given below:

(Rs Crores)

Sr No	Particulars	Year ended
		March 31, 2023	March 31, 2022
i	Debt - Equity ratio (in times)	0.09	0.26
2	Debt service coverage ratio (in times)	1.48	0.11
3	Interest Service Coverage Ratio (in times) - (a)	74.19	1.76
4	Current ratio (in times)	1.56	1.87
5	Net capital turnover ratio (in times)	5.38	7.21
6	Trade receivables turnover ratio (in days)	22	21
7	Inventory turnover ratio - (b)	NA	NA
8	Operating profit margin (in %) -(c)	31.06	13.24
9	Net profit margin (in %)	16.33	(6.93)
10	Return on capital employed (in %)	12.96	1.43
11	Return on Equity (in %)	12.92	(4.44)

a) Interest Service Coverage Ratio equals Profit before Tax + Interest on borrowings (Net) + Provision for impairment of investments + Depreciation and Amortisation divided by Interest on borrowings (Net).

b) Inventory turnover ratio has not been presented since the Company holds inventory for consumption in the service of food and beverages and the proportion of such inventory is insignificant to Total Assets

c) Operating profit margin equals Profit/(Loss) before depreciation and amortisation expenses, Interest Tax and Exceptional items less Other Income divided by Revenue from operations.

d) The definitions of other ratios are given in Note 46 of the Notes to Standalone Financial Statements.

The Groups capital structure was healthy as is evident from its ratio of Debt to Equity at 0.09 times as compared to 0.26 during the previous year. The Group utilised its cash for repaying its borrowings during the year and was net cash positive. Reduction in debt and improvement in earnings improved the Debt Service Coverage and Interest Service Coverage ratios. Current ratio declined to 1.56 times due to decrease in current investments and cash equivalents utilised for repayment of loans. Net capital turnover ratio settled at a healthy level of 5.38 times. Trade Receivables turnover ratio increased marginally to 22 days in the current year from 21 days in the previous year. Growth in revenue from operations and operating profits improved the Operating profit margin, Net profit margin, Return on capital employed and Return on equity in comparison with the previous year.