Advani Hotels & Resorts (India) Ltd Management Discussions

The discussion covers the financial results between April 1, 2024 and March 31, 2025. Some statements may be forward looking.

1. Global and Indias Economy

In April 2025, the International Monetary Fund, in its ‘World Economic Outlook reported that the GDP of the World grew by 3.3% in 2024. They have forecast a reduced global growth of 2.8% in 2025 and 3.0% in 2026 due to the implementation of sweeping tariffs by the USA, particularly targeting countries with high tariff barriers. Thus, geopolitical events and heightened uncertainty, need to be factored in when planning for the future. India is the 4th largest economy and is the fastest growing major economy in the world. The GDP growth for India for the next two years is projected at 6.2% in 2025 and 6.3% in 2026 – maintaining a solid lead over global and regional peers. As per the IMF, Indias Per Capita Nominal GOP is expected to grow at a CAGR of 9.2%. Indias exports to the USA will decrease after the significant tariffs already announced. The loss of export earnings can be mitigated if earnings from tourism increase.

2. Tourism and the Hospitality Industry in India and Goa

As per the World Travel & Tourism Council, Indias travel and tourism sector will contribute INR 22 trillion in 2025 to Indias economy and employ more than 48 million. International visitor spend is expected to reach INR 3.2 trillion, while spending from domestic travelers will be INR 16 trillion. As such, Indias hospitality industry is not reliant on foreign visitors as there is a growing market within India itself. India will not be severely impacted even if there is an escalation of war in the Middle East or in Ukraine. Travel and Tourisms contribution to the national economy is forecasted to reach INR 42 trillion by 2035 and employ 64 million.

As per HVS Anarock, Indias economic momentum is fueling rapid growth in the countrys tourism and hospitality sector. They have projected that foreign tourist arrivals would increase from 9.2 million in 2023 to 15 million by 2030. As per a FICCI Report entitled ‘How to grow inbound tourism in India, the main concerns for tourists are about safety and security, travel costs, affordability, food, cleanliness issues and lack of information. They concluded that strategic messages about safety, improved infrastructure would help. Tourists chose to visit India for its history and natural beauty, including beaches. 84% of the respondents in their survey stated that they came for ‘Leisure. The study found that 89% of the foreign tourists stay in 4 and 5 star hotels and pay US $ 145 per night for their stay in India. We need to encourage foreign tourism by reducing the GST rate of hotels to less than 5% if the guests pay their bills in foreign currency.

Disposable incomes in India are increasing as a result of tax cuts announced in the Union Budget, reduced inflation and a reduction in interest rates. As per HVS Anarock, domestic tourists would more than double from 2.5 billion in 2023 to 5.2 billion in 2030. According to their findings, the hotel industry recorded an occupancy rate of 63 to 65 percent and an average room rate of INR 7,000 to 9,000 in calendar year 2024. Moreover, Goa led with the highest ARR of INR 12,500, followed by Mumbai and New Delhi.

Our industry can provide substantial jobs. There is a growing gap between the buoyant demand for hotel rooms and the present inventory. New hotel projects are being planned across the country. According to a HVS Research Report entitled ‘ARR Trends Across Key Indian Markets, Goa and Kolkata are the only 2 of 13 cities that registered a decline in Average Room Rates for the year. Goa has recently had a substantial drop in tourist arrivals as compared to the last year. Some of this was as a result of fewer flights operating to Goa after Air India reduced its flights. Occupancy of our resort has been lower than last year but at a higher average room rate. Part of this decline in occupancy was due to domestic tourists traveling abroad, especially to countries in South Asia, which offered ‘Visa on Arrival and cheap hotel rooms.

3. Opportunities and Threats

Opportunities

- The hospitality industry is expected to grow as there is a demand versus supply imbalance.

- Foreign tourist arrivals are likely to increase, especially if the GST rates on hotels are reduced.

- The cost of land for building new hotels has increased. The cost of constructing and furnishing hotels has also gone up. Existing hotels have an advantage in that, they can offer lower rates and still make reasonable profits. We are refurbishing the guest rooms in one of the wings to the latest international standards.

- The wedding segment is achieving a larger share of our profits partly due to the "WED IN INDIA" initiative started by our Honourable Prime Minister, Shri Narendra Modi. Since large weddings require an alternate venue in addition to our beachfront lawns, our Company has initiated the process of building a larger banquet hall. This will also be useful in holding larger conferences, especially in the monsoon months.

- The road network within Goa has improved and thus has reduced the travel time from both Dabolim and Mopa airports.

- Expansion of the Dabolim Airport terminal is nearing completion.

- Ro Ro trains from Mumbai to Goa will commence from December.

- There are various world events such as the ‘Chess Championship, which are scheduled to be hosted in Goa.

Threats

- The ceasefire of the war between India and Pakistan is holding. However, there may be events, which may once again lead to a potential confrontation.

- The threat of a war between Israel and Iran has reduced, but may restart if Iran enriches uranium to build a nuclear bomb.

- The Ukraine war appears to be limited to conventional warfare and not tactical nuclear weapons, but there is much uncertainty.

- There are various new hotel projects coming up in Goa in the near future.

4. 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.

5. Risks and concerns

The hotel business is dependent on global and domestic economic conditions, which may get adversely impacted due to war or a new pandemic in any part of the world. Further, your Company has the risk of dependence on only one hotel in Goa. There is also the risk of dependence mainly on the luxury segment. However, the Companys hotel enjoys a premium over many other competitors due to its repeat client base, made over a period of 35 years, its prime beach-front location, service reputation and superior architectural design.

Our Company is totally debt-free and has ample liquid reserves. With a debt-free status, we have reduced our risk profile and are more resilient to face any 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 over a period of time, has taken varied and enhanced 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 customer-centric services on a consistent basis.

6. Internal Control Systems and their adequacy

The Company has adequate Internal Control Systems with documented procedures. The Companys Internal Control System provide reasonable assurance of the effectiveness and efficiency of operations, reliability of financial controls and compliance with applicable laws and regulations.

The Companys Internal Auditors thoroughly examine various aspects of the Hotels operations and submit their reports to the Audit Committee on a regular 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 are shown below:

(Rs. in Lakh)

Some of the key performance indicators of the Financial Year 2024-25 are below:

l Total Revenue of 11,120.62 Lakhs, versus 10,843.78 Lakhs in the previous Financial Year, reflecting an incremental growth of 2.6%.

l Average Net Total Revenue Per Occupied Room (TREVPOR) at 19,725 per room per night, versus 18,799 per room per night in the previous Financial Year, reflecting an incremental growth of 4.9%. These are after the deduction of GST.

l EBITDA Margin of 34.5% versus 34.0% in the previous Financial Year. l EBITDA of 3,842 versus 3,692 Lakhs in the previous Financial Year. l PBT Margin of 31.7% versus 30.9% in the previous Financial Year. l PBT of 3,530 versus 3,349 Lakhs in the previous Financial Year. l Cash Generated from Operations (before tax) of 3,016 versus 3,798 Lakhs in the previous Financial Year. l Earnings per Share of 2.9 versus 2.7 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)

(i) Room Income for the year was 6,151 lakhs with an Average Occupancy at 82.0% and a Total Net Revenue per Occupied Room after deducting GST yielded 19,725 per room per night.

(ii) Food & Beverage Income for the year was higher by 4.2% from the previous year.

(iii) Other Operating Income primarily comprises income from the spa and health club, laundry, guest transportation, telephone, etc. Other operating income increased by 8.6% over the previous year.

(iv) Non-Operating Income increased to 379.87 lakhs from 301.65 lakhs in the previous year. Income in the current year included income from Fixed Deposit Interest of 217.69 lakhs vis-?-vis 52.31 lakhs in the previous year.

(b) Total Expenditure

Total Expenditure increased from 7,482.42 lakhs to 7,579.52 lakhs during the current year. While the Total Income increased by 2.6%, the Total Expenditure increased by 1.3% from the previous year, mainly due to increase in variable costs. Variances under each expenditure head are explained below:

(i) Food and Beverages Consumed

(Rs. in Lakhs)

Food and Beverage Consumed, which are variable in nature, increased with the increase in Income from Food, Beverage and Banqueting. Food and Beverage Income increased by 4.2% from the previous year and Food and Beverage Consumed increased by 2.32%.

(ii) Employee Benefit Expenses and Payment to Contractors

(Rs. in Lakhs)

Employee Benefit Expenses increased by 10.07% from 3,057.10 lakhs in the previous year to 3,365.09 lakhs in the current year. The increase was also attributed towards merit increases, increments paid to employees and in compliance of necessary laws.

(iii) Depreciation & Amortisation Expenses

(Rs. in Lakhs)

Depreciation & Amortisation costs for the year decreased by -9.1% as compared to the previous year, as certain fixed assets have been fully depreciated in earlier years and no further depreciation is charged on them, resulting in reduced depreciation.

(iv) Other Expenditure

(Rs. in Lakhs)

Other Operating Expenses decreased by -6.0% from 3,315.41 lakhs to 3,116.60 lakhs in the current year due to improved cost control measures, optimized procurement strategies, and enhanced operational efficiencies implemented during the current year.

Cash Flow

(Rs. in Lakhs)

Operating Activities

Net Cash Generated from Operating Activities (after tax) during the year was 2,119.87 lakhs, as compared to 2,922.83 lakhs in the previous year due to movement in working capital items.

Investing Activities

During the year, Net Cash used for Investing Activities amounted to 461.43 lakhs compared to a net use of -1,284.31 lakhs in the previous year. The investing activities mainly included the investment of operating profit / surplus funds in secured Liquid Funds / Fixed Deposit with banks.

Financing Activities

During the year, Net Cash used for Financing Activities was 1,772.05 lakhs, as against cash used of 1,650.92 lakhs in the previous year, which is mainly due to higher dividend pay-out of 1,655.50 lakhs during the current year in comparison to last 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 industry, which helps the Company to achieve high performance and numerous awards 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 our guests, whilst seeking to constantly improve our standards.

Industrial relations throughout the year were cordial.

As on March 31, 2025, the total manpower was approximately 565 (including contract labour and fixed term contract employees).

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

(Rs. in Lakhs)

1. Debtors Turnover Ratio has decreased due to a decrease in average trade receivables.

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 when compared to the cost of goods sold.

3. Interest Coverage Ratio has improved and is substantially high due to negligible Finance Costs (Finance Costs are there due to Ind AS accounting of Lease).

4. The Current Ratio increase is primarily on account of an increase in the current assets, in the current year as compared to the previous year, which is mainly due to increase in bank balances (i.e. fixed deposits) as surplus during the year has been parked in Bank / Short term Fixed Deposits.

5. Debt Equity Ratio has remained at same level due to a debt-free status of the Company.

6. Operating Margin Ratio, Net Profit Margin Ratio and Return on Net Worth have decreased due to substantial increase in the Operating costs during the year.