the byke hospitality ltd Management discussions

A. INDUSTRY STRUCTURE AND DEVELOPMENTS.

INDIAN ECONOMY

Indias economy has firmly established itself as the worlds fastest-growing major. In the fiscal year 2022-23, India experienced a remarkable GDP growth rate of 7.0%, following an impressive 8.7% growth in the previous year. This exceptional performance was primarily driven by robust private consumption, resulting in a significant 7.0% increase in overall consumption.

While export growth stabilized at 12.5%, imports surged by an impressive 20.9% during the same period. Among the sectors, agriculture witnessed a growth rate of 3.5%, followed by mining at 2.4%, manufacturing at 1.6%, construction at 9.1%, and utility services at 9.0%. The services sector emerged as the star performer, exhibiting a remarkable growth rate of 9.1%. Notably, the trade, hotels, transport, communication, and broadcasting services subsector stood out with an impressive growth rate of 13.7%.

As per provisional data, Indias service experienced a phenomenal surge, nearly doubling in a decade and reaching an impressive US$322.72 billion in FY 2022-23. Moreover, Indias foreign currency reserves stood at a robust US$578.45 billion as of March 31, 2023, ensuring a healthy coverage of approximately 9 months of imports, thanks to the timely interventions of the Reserve Bank of India (RBI).

The countrys recovery from the pandemic followed a distinctive K-shaped pattern. Sectors like information technology, e-commerce, and financial services demonstrated remarkable resilience and experienced strong rebounds. Conversely, the retail trade and consumer discretionary sectors faced significant challenges. However, the travel and hospitality industry emerged as beneficiaries of the recovery. The exponential growth of Indias service exports was pivotal in driving the nations economic expansion, encompassing diverse sectors such as information technology services, professional management, consultancy, research and development, and expanding global capability centres.

This remarkable growth is anticipated to generate substantial employment opportunities and increase disposable incomes among white-collar professionals in these sectors. Consequently, it is expected to foster broad-based and inclusive economic growth. While the formal sector initially spearheaded the growth, it has now facilitated the transition to the informal sector, which has demonstrated promising growth across both rural and urban areas.

The outlook for FY 2023-24 remains highly optimistic. Retail inflation is projected to moderate to 5.2%, while high- frequency indicators, including tax collections, robust bank balance sheets, and significant credit uptake, indicate a strong momentum in the economy. In April 2023, the RBI paused interest rate increases after implementing a 250 basis points increase during FY 2022-23. The resilient economic activity and the expectation of inflation moderation drove this decision. Other positive factors include a stable Indian Rupee, a moderate current account deficit, and high consumer sentiment.

The southwest monsoon is pivotal in shaping Indias growth prospects, as rainfall significantly impacts crop production, inflation, and rural demand. The S&P Global India Services PMI Business Activity Index consistently points to growth, with the March 2023 index at a robust 57.8 and the February 2023 index reaching a remarkable 12-year high of 59.4.

Indias service exports continue to expand rapidly, while the countrys investments in digital initiatives yield fruitful results. Events such as Indias G20 Presidency enhance Indias global visibility and reputation. Despite potential downside risks, including domestic inflation, slowing global growth, and geopolitical factors, India is expected to maintain its status as the fastest-growing major economy, with growth projected to range between 6.0% to 6.5% in FY 2023-24.

(Source: India Economic Survey 2022-23 - January 2023 and National Statistical Office estimates)

INDIAN TOURISM & HOSPITALITY SECTOR:

Indias travel and tourism industry witnessed a remarkable resurgence during the fiscal year 2022-23. The relaxation of flight restrictions, both domestically and internationally, fuelled a surge in demand for accommodation. The growth was primarily driven by various factors such as domestic leisure travel, weddings, social events, conferences, and the resumption of business travel within the country. As a result, foreign tourist arrivals reached an impressive 6.19 million, a substantial increase from the 1.52 million recorded in 2021, representing 57% of the pre-pandemic levels in 2019.

The domestic air travel sector also experienced significant growth, with a notable rise in passenger numbers. In 2022, the count reached 123 million, reflecting a 47% surge compared to the previous year and 85% of pre-pandemic levels. The positive momentum extended to the hotel industry, where calendar year occupancy rates soared to 59.8%, substantially improving from the 43.5% recorded in 2021. Notably, like- for-like hotels achieved even better performance, boasting an impressive occupancy rate of 67.8% and an ADR of INR 6,498 throughout 2022.

The data highlights a noteworthy trend for all destinations during FY 2022-23, surpassing the pre-pandemic levels of FY 2019-20. The growth ranged from 15% to an impressive 54% across different locations.

Overall, Indias travel and tourism industry showcased a robust recovery throughout FY 2022-23, driven by significant advancements in domestic and foreign tourism. The upturn accompanied increased occupancy rates and improved financial performance for hotels across various destinations.

(Source: STR and Government of India, Ministry of Tourism Annual Report - 2022-23).

Outlook for indian hospitality sector:

Indias hospitality industry is poised for a promising future in 2023. With a robust macroeconomic environment and the thriving services sector, confidence in its potential is high. A renewed enthusiasm for travel has emerged post the covid lull. Ongoing infrastructure projects and increased air and railway passenger traffic further contribute to its positive outlook.

The industry benefits from a surge in demand for quality rooms, surpassing supply, which lays a solid foundation for long-term growth. Adaptability and lean cost structures have enhanced profitability, supported by the financial stability of major players. While domestic demand will be the primary driver, international travel shows signs of recovery, driven by Indias G20 Presidency and prestigious events like the ICC Mens World Cup: the flourishing service sector and rising disposable incomes fuel demand for corporate travel and leisure holidays.

Robust growth is expected across various segments, including leisure, weddings, conferences, events, and corporate travel. Indias hospitality industry is ready to embark on an exciting journey in 2023, leveraging a favourable economic climate, resurgent travel, and prestigious events. With adaptability, cost efficiency, and a commitment to exceptional experiences, the industry is poised for sustained growth, catering to the evolving needs of travellers and guests.

B. SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE BUSINESS OVERVIEW:

The Byke Hospitality Limited is a renowned hospitality brand that has successfully captured the needs of Indias midmarket segment. With a strong presence 09 States and 12 Cities with 1031 Rooms, the company owns, asset manages and operates 15 hotels through lease and management contracts. The Byke is committed to providing a unique experience with exclusively vegetarian food at its restaurants and banquets. This catering choice has struck a chord with a diverse range of Indian travellers and foreign visitors, making The Byke a preferred choice in the hospitality industry.

The BYKE has achieved tremendous success by genuinely understanding its customers expectations and delivering a unique value proposition to all stakeholders. As one of the fastest-growing hospitality chains in the expanding mid-market segment, the companys asset-light approach to operations and expansion has been instrumental in overcoming the challenges posed by the pandemic. Despite more than two years of difficult circumstances, The BYKE has continuously grown, showcasing its unwavering commitment to growth and excellence. The BYKE continues to set new benchmarks in the industry, creating value for its stakeholders and forging a path of success.

We have come across the remarkable resilience of our establishment as we proudly announce a staggering 25% revenue growth, a testament to our unwavering commitment to surpassing the pre-COVID levels. Our goal is to expand the presence by establishing 100 Hotels & Resorts nationwide by the year 2030. We have made progress towards this objective by successfully acquiring 4-5 properties, which will soon be operational. We have additional projects in progress and aim to scale up our functionality across a broader range of perspectives.

Our company is driven by a vision of continuing its steady growth. Our commitment to adaptability and proactivity enables us to navigate challenges and seize opportunities, ensuring our sustained progress and success.

Owned, Leased and Management Contract Business:

The company operates 15 properties of which 2 are owned, 13 are on long-term lease, and 1 is under a Management Contract primarily for The Byke Brand. This Business contributed revenue of Rs. 114 Crores during the year under review. Rooms generated Rs. 59 Crores in revenues; revenues from food and beverages (restaurants and bars) and events generated Rs. 55 Crores in revenues. The Company generally manages properties around long-term operating leases (10 - 20 years). The refurbishment and rebranding is completed during the rent-free period of 3 - 6 months, followed by a focus on better management, marketing, and distribution capabilities across room sales and F&B/event revenues. In FY 2022-23 under this segment the company currently possesses a total of 15 operational properties that are successfully functioning.

c. WAY FORWARD

The travel landscape in India is witnessing significant shifts, with domestic leisure travel taking precedence while business travel steadily grows. Most domestic travellers seek shorter stays for celebrations, special occasions, long weekends, and festive retreats. In this dynamic market, the mid-market segment immensely appeals to price-conscious Indian consumers.

As a forward-thinking company, we are rapidly establishing ourselves as the preferred provider for the diverse hospitality needs of the growing segment of Indian travellers. Our offerings cater to individuals of all ages, demographics, and travel purposes.

With the hospitality sector experiencing a remarkable resurgence across key performance indicators, our focus remains on bolstering our capabilities and expanding our presence across various destinations nationwide. We are committed to enhancing operational efficiency while ensuring our offerings remain compelling and affordable for our target customers.

Our vision is to shape the future of travel in India by staying attuned to evolving trends, embracing market dynamics, and delivering exceptional experiences. We prioritize flexibility in booking options, enabling travellers to plan their trips while maintaining a solid customer-centric approach easily. By consistently adapting to the evolving needs of Indian travellers, we aim to solidify our position as a leading choice in the dynamic and ever-growing Indian travel landscape.

D. RiSKS AND CONCERNS

RiSK MANAGEMENT:

In our industry, delivering an exceptional experience consistently is the cornerstone of our operations. We are deeply committed to generating customer delight, combining various factors such as the quality of our services, the excellence of our amenities, the delectability of our food, the affordability of our offerings, and the unique value-additions we provide. These elements collectively contribute to the recognition and trust our brand enjoys.

Nonetheless, operating in our sector exposes us to a range of risks. Competition, unforeseen events, and service failures lead to the loss of reputation or brand trust - these are critical challenges we acknowledge. To address them effectively, we have developed a robust risk management approach. This empowers us to identify evolving risks and proactively plan and execute appropriate responses to mitigate these potential pitfalls.

By implementing a comprehensive risk management framework, we prioritize the protection of our operations, reputation, and the satisfaction of our valued customers. Our proactive approach ensures we stay ahead of emerging threats, responding swiftly and decisively. Through meticulous planning, strategic actions, and ongoing evaluation, we strive to maintain the highest standards of excellence while mitigating risks, safeguarding our brands integrity, and ensuring our customers continued trust and satisfaction.

Our risk management framework:

At the heart of our risk management approach lies the commitment to business continuity and safeguarding our brand value and trust. Our robust risk management policy forms the foundation of our operations, allowing us to proactively identify, assess, and respond to a broad spectrum of business risks. We continually review our risk assessment performance and adapt internal protocols to mitigate these risks in a targeted and proactive manner. Our Board-level risk management committee oversees this ongoing process.

Transparency is a crucial principle of our risk management framework, ensuring that potential risks are identified and addressed promptly to minimize their impact on our business objectives. We aim to enhance our competitive advantages and bolster our strategic decision-making processes by effectively managing risks. Our comprehensive risk management framework is integral to our commitment to excellence and ensures we navigate the ever-changing business landscape with resilience and foresight.

Key risks faced by the Company:

1. Competition: Our competitive landscape is dotted by a growing interest from major brands in expanding their reach and depth in the market. The sheer size of the mid-market category makes for significant volumes-based business. New contenders also pose competitive risk to your Company, as do smaller, individual players growing by word-of-mouth and through new-age tech-enabled platforms

Mitigation approach: We are constantly working on strengthening our brand through excellent customer experiences and attractive offers and expanding our reach.

2. Unforeseen events denting demand: Socioeconomic stability and growth fuel the growth of travel for both business and leisure. Unforeseen events such as COVID-19 have far-reaching effects on the hospitality industry. Other such events include geopolitical instability, natural disasters, and more.

Mitigation approach: Your Company has chosen to diversify its focus on F&B/ Restaurants/ Events apart from hospitality management and delivery. The business revenue from F&B/ Restaurants/ Events continues to grow at a faster rate than room revenue. Your Company has also been steadily working to improve service standards in order to ensure higher occupancy levels and ARRs.

3. Seasonality and Cyclical of Nature of the Business:

A large majority of travel happens to be seasonal or cyclical in nature, depending on weather and/or major events happening at specific locations. As a result, the demand for hospitality services grows and recedes with the cyclical demand. Our revenues tend to be higher during the second half of each financial year as compared to the first half of the financial year.

Mitigation approach: By undertaking marketing and branding activities throughout the year, we ensure top of the mind recall among our target customer segments; we also focus on floating attractive offers in accordance with the seasonality and the competitive scenario we face.

4. Business Continuity Risk: Unfortunate accidents like fire, natural calamity, breakdown of infrastructure and other such events could adversely affect our business operations.

Mitigation approach: We undertake regular maintenance and upkeep of all our properties and diligently adhere to all the applicable rules and regulations pertaining to safety. Our safety audits are conduct periodically at each of our properties. Our pan-India presence allows us to somewhat address the geographic concentration risk, ensuring that we continue to cater to a wide variety of customers across the country.

E. INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY:

Our businesss expansive size and scale demands a systematic approach towards ensuring optimum operational performance, along with sound decision-making capabilities geared to enable business sustainability and growth. Your Company has instituted a multifarious internal control system that encompasses various checks and balances about critical operational practices, ensures 100% compliance to norms and regulations required by the regulatory authorities across multiple aspects of the business, and supports continuous monitoring, maintenance, and upgradation of services, human resource, and information technology infrastructure. The Audit Committee has established our system of internal controls constituted by our Board.

The committee periodically reviews the audit findings and monitors the implementation of internal audit recommendations through compliance reports. Adequate corrective actions are taken when needed and communicated transparently to the Board. Among the key responsibilities of the committee is to assure the Board. Your Company ensures the objectivity and independence of its Internal Audit function by enabling it to report to the Chairman of the Audit Committee.

f. discussion on financial performance with respect to operational performance

The Byke reported the following performance in FY22-23: Revenues were Rs. 114.40 Crore from hotel business in FY22- 23. Overall EBITDA was Rs. 39.83 Crore in FY22-23. EBITDA margin was 35% in FY22-23. PAT was Rs. 2.28 crore in FY22- 23. During the FY 2022-23 PAT Margin was 2%, EPS was Rs. 0.58 per share, Return on capital employed was 0.76% and Return on Equity was 1.43%. The continued to maintain a healthy capital structure as is evident from its ratios of Debt to Equity at 0.17 times. These ratios increased its borrowing to build its liquidity position and to fund its expansion plans.

g. material developments in human resources / industrial relations front including number of people employed

HUMAN RESOURCES:

Our people are the key drivers of our ability to deliver customer satisfaction. Our skilled staff enables us to grow in a highly competitive and dynamic industry. Your Company has built a culture that recognises the criticality of its human resource and ensures a conducive work environment that is growth-oriented and anchored to the human values of fairness, mutual respect, and dignity.

We ensure the health and fitness of our people by adhering to high standards with respect to recruitment, training, and employee engagement. Some of the activities undertaken during the reporting period to engage our employees include:

• Mindfulness training helps our people perform their duties mindfully, enabling them to address personal challenges, lowering stress and overall experience of well-being.

• Orientation sessions for new hires to acquaint them with the Companys culture.

• Training on operational risk, audit, compliance and regulatory aspects for frontline staff

STRATEGY & GROWTH

At BYKE, we focus on learning from our experiences during COVID-19 and even the post Covid era. We are building on our reach and capabilities to net newer opportunities for growth. Rooted in our culture, strong values, and business foundations, we are reaching out to more customers with a more extensive portfolio of hospitality offerings across high- value and rapidly growing geographies. We will continue to be one of Indias most rapidly growing hospitality services companies in one of the most high-potential segments of the industry.

RESOURCES and LIQUIDITY

As on Mar 31, 2023, the Companys net worth stood at Rs. 159.51 Crore, while total debt was Rs. 26.90 Crore. The Company had cash and cash equivalents of Rs. 2 Crore at the end of March 31, 2023.

HEALTH AND SAFETY

Your Company adheres to all safety protocols, rules and regulations set by regulatory authorities regarding fire and building safety, people safety, health and sanitation protocols. We are also committed to providing a safe and conducive work environment to our people. Health and safety is a crucial item on the agenda across all of our Executive Committee and Board meetings, with a robust reporting, monitoring, and implementation mechanism in place.

FOOD SAFETY, HYGIENE AND CLEANLINESS

Your Company is committed to continually improving each propertys Food Safety Management System. Food Safety, Hygiene and Cleanliness audits are conducted regularly, ensuring the implementation of FSSAI guidelines and standards. We conduct periodic training for our staff to apprise them of the importance of adhering to standards and best practices and to help them use technology and other processes to create the best results. We also organise internal food safety workshops to discuss how to implement food safety, hygiene and cleanliness at the hotels.

CAUTIONARY STATEMENT

Statements in the Managements Discussion and Analysis report describing the Companys projection, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that would make a difference to the Companys operations include demand-supply conditions, raw material prices, changes in governmental regulations, tax regimes, economic developments within the country and other factors such as litigation and labour negotiations.