Aruna Hotels Ltd Management Discussions

(a) Industry Structure and Developments

The Indian hospitality sector is one of the fastest-growing industries in the country, making significant contributions to both the economy and employment. As India strengthens its position as a global economic power, the hospitality industry is primed for continued growth. Fueled by domestic and international tourism, the sector includes diverse offerings, from luxury resorts to budget hotels, catering to a wide spectrum of consumer needs.

The post-pandemic recovery has been remarkable, and the industry is witnessing rising demand across various segments. Moving forward, the sector is expected to maintain its resilience, supported by key drivers such as government initiatives, technological advancements, and shifting consumer preferences. As of 2024, the Indian hospitality industry is valued at USD 35 billion, with a branded hotel room supply exceeding 180,000 rooms across various segments. The performance metrics, including Occupancy Rate, Average Daily Rate (ADR), and Revenue per Available Room (RevPAR), reflect strong recovery post-pandemic, with luxury and upscale segments leading the charge. Indias branded hotel supply continues to expand, with demand still surpassing supply, especially in key urban hubs such as Mumbai, Delhi, and Bengaluru. This dynamic is pushing up ADR and overall market performance. Indias hospitality sector is booming. It shows strong growth in early 2025. Investments are expected to reach USD 1 billion by 2028. Revenue Per Available Room increased significantly. Bengaluru leads with impressive growth, boosted by Aero India 2025. Delhi, Mumbai, Chennai, and Hyderabad also show strong performance. New hotel signings indicate continued expansion across the country. Indias hospitality industry, which demonstrated remarkable growth during January-March 2025, is expected to attract USD 1 billion in investments by 2028, a substantial increase from the USD 340 million in hotel transactions recorded last year.

Indias tourism sector, rich in heritage, culture, and diversity, is emerging as a key driver of economic growth playing a vital role in the Indian economy. As per WTTC, the direct economic contribution of the Travel & Tourism sector to the Indian GDP in 2024 was 20.9 trillion (growth of 19.9% over 2019), contributing 6.6% to the overall GDP of the country. Additionally, the sector has contributed appx. 9.1% (46.3 million jobs) of total jobs in 2024, exhibiting a healthy 16.3% growth over 2019.

The hospitality market in India is experiencing growth due to the countrys tich culture and diversity, attracting global guests. The service sector, has seena rise in domestic travel, driven by growing middle class and increased disposable income. The hotel industry is expanding with new projects from international chains, criven by increased travel and government efforts to boost tourism. Indias hospitality sector has undergone significant transformation driven by favorable govemment policies and infrastructure development initatives. The govemment has implemented several measures to boost investments, including allowing 100% FDI through the automatic route and offering tax holidays for hotels located around UNESCO World Heritage sites. The Ministry has established the Hospitality Development and Promotion Board to streamline hotel project clearances and approvals. Additionally, the government has allocated INR 2 billion for developing tourist circuits at pilgrimage sites across the country, demonstrating its commitment to enhancing tourism infrastructure. These initiatives have positioned India among the top 100 countries globaly for ease of doing business, particularly in the hospitality sector. The industry is witnessing a fundamental shift in ownership and operational models, with franchise and lease arrangements gaining prominence over traditional owned-hotel structures. Hotel chains are increasingly adopting asset light strategies, focusing on management contracts rather than property ownership to drive revenue growth. This transformation is particularly evident in the organized hotel sector.

The company has been successfully operating its hospitality business under the brand name “Pharos Hotels,” a unit of Aruna Hotels Limited. This marks a significant milestone in the Companys revival journey and positions it strategically in the competitive hospitality sector.

The initial phase of operations was focused on establishing essential services and facilities, streamlining processes, and laying a strong foundation for future scalability. Efforts were directed toward enhancing guest experiences, implementing operational efficiencies, and aligning resources with business objectives.

(b) Opportunities and Threats

Travel Rebound and Revenge Tourism

Post-pandemic travel demand remains strong, especially in emerging markets.Consumers are prioritizing experiences, leading to increased leisure and luxury travel.

Sustainable and Eco-Friendly Travel

Demand is growing for hotels that offer sustainable practices (e.g. zero-waste policies, renewable energy, local sourcing).

Opportunity to differentiate with green certifications like LEED or EarthCheck Technology Integration and Smart Hotels

Use of AI, IoT, and automation for personalized guest experiences (voice assistants, smart rooms).

Mobile check-in, virtual concierges, and digital room service are becoming standard.

Work-from-Anywhere and Bleisure Travel

Rise of digital nomads and remote workers leads to longer stays.

Hotels offering co-working spaces and work-friendly amenities are in high demand.

Experience-Based Offerings

Guests are looking for cultural, wellness, and adventure experiences rather than just accommodation. Partnerships with local tour providers, chefs, and artists can create new revenue streams.

Data Analytics & Personalization

Enhanced use of CRM and analytics to tailor marketing and services.

Loyalty programs can be optimized using AI for better guest retention.

Expansion into Tier 2 and Tier 3 Cities

Untapped demand in smaller cities and regional tourism hubs offers growth potential.

Threats:

High Operational Costs:

Rising land, labour, and energy costs in Chennai, a major urban centre, challenge profitability, particularly for new hotel projects requiring significant capital investment.

Competition from International and Domestic Chains:

The entry of global brands like Marriott, Hyatt, and Ritz Carlton, alongside domestic players like Taj, intensifies competition, potentially leading to price wars and pressure on RevPAR, especially in the luxury and mid-scale segments.

Alternative Accommodations:

Platforms like Airbnb and homestays are gaining popularity among budget and millennial travelers, posing a threat to traditional hotels, particularly in the economy and mid-scale segments.

c) Segment-Wise Performance

During the year under review, the Company reported a profit before tax of Rs. 16.18 lakhs, a notable improvement compared to the loss of Rs. (373.81) lakhs in the previous year.

d) Outlook

The Indian hospitality sector presents an exciting growth trajectory with ample opportunities for stakeholders. The growth will be driven by increasing tourism, strong government support, and infrastructure development. By 2025, the market is expected to reach USD 55 billion, fueled by both domestic and international demand.

The adoption of innovative technologies and customer-centric business models will be crucial in positioning brands to capture this growth, ensuring long-term success.

Investment & Market Sentiment

Global hotel investment is poised to increase by 15%-25% over 2024, supported by cooling supply growth, improving debt markets, and strong activity in emerging markets such as India and the Middle East .Luxury and select service hotels, particularly in urban and high barrier markets, are attracting the most investor interest .

Technology & Intelligence

AI, IoT, automation, and contactless services are now central?not optional?to hotel operations. Expect smart rooms with voice controls, biometric check in, mobile-first digital experiences, and AI chatbots .Data analytics and predictive tools are transforming operations, enabling dynamic pricing, customization, predictive maintenance, and real-time decision-making thinkdigital. .As OTAs face regulatory scrutiny, hotels are pushing to drive more direct bookings, aiming for >50% mix by 2030, supported by AI powered search platforms like via chat assistants

Guest Experience, Wellness & New Offerings

Hyper personalized experiences are expected?from in room preferences and tailored packages to AR/VR previews and curated local excursions.

Wellness tourism is surging. Hotels are innovating with wellness programming, non-alcoholic beverage options, fitness amenities, mental health services, and regenerative-lifestyle retreats Business leisure (“bleisure”) and extended stays are growing. Properties now offer co working spaces, corporate retreat packages, and extended stay room setups

Sustainability & ESG Factors

Sustainability is now at the core of strategy: green building certifications, waste reduction, energy and water efficiency, carbon neutral goals and local sourcing all increase appeal to eco-conscious guests and institutional investors. ESG compliance is now a major valuation driver in investment decisions .

Profitability & Operational Resilience

Hotels are leveraging AI driven revenue management systems and automation (e.g., robotics and chatbots) to lower labor costs and drive ancillary revenue . However, in key markets such as the U.S., RevPAR growth (~2%) is modest, with labor, wage, insurance, and supply chain cost pressures leading to squeezed margins and profitability trends .

Challenges & Risks

Labor shortages, wage inflation, and stricter immigration enforcement (notably in the U.S.) are increasing costs and complexity.

Regulatory pressure on OTA dominance and data privacy/security concerns (especially around IoT and AI) may drive compliance costs .

Market reliance on tourism growth exposes hotels to macroeconomic risks, geopolitical friction, and consumer sentiment shifts?especially for domestic versus inbound travel demand

(e) Risk & Concern

The Company always ensures that the risk management process is also an integral part of yearly business plan and it involves a systematic approach to identify, assess, manage and monitor risks that can affect the organisations ability to achieve its objectives.

(f) Internal Control Systems and their adequacy

The Company has institutionalized an adequate system of internal controls, with documented procedures covering all corporate functions of the hotel. 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 provides a positive assurance, based on the audits of operating units and corporate functions. It converges processframework, risk and control of covering all critical and important functions inter-alia revenue management, purchase, finance, human resources and safety.

The establishment of an effective corporate governance and internal control system is essential for sustainable growth and long-term improvements in corporate value. To ensure that, the Company has created an adequate system of internal controls.These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls for ensuring reliability of financial reporting, monitoring of operations, protecting assets and compliances with regulations and minimising of losses wherever possible.

The Company has appointed a professionally experienced internal audit firm to carry out periodical internal audit. The internal auditors appointed by the Company submit their reports with observations to the Management regularly. All the significant internal audit observations and corrective action plans are presented to the Audit Committee.

(g) Discussion on financial performance with respect to operational performance.

The company has been successfully operating its hospitality business under the brand name “Pharos Hotels,” a unit of Aruna Hotels Limited. This marks a significant milestone in the Companys revival journey and positions it strategically in the competitive hospitality sector. During the year under review, the Company reported a profit before tax of Rs. 16.18 lakhs, a notable improvement compared to the loss of Rs. (373.81) lakhs in the previous year.

(h) Material developments in Human Resources:

Material development in human resources for hotels is crucial to ensuring the hospitality staff is well-trained, motivated, and equipped with the necessary skills to provide excellent service to guests. Here are some specific areas of material development in human resources for hotels:

Customer Service Training: Develop training modules and materials focused on customer service skills, including handling guest inquiries, resolving complaints, and maintaining a positive attitude.

Standard Operating Procedures (SOPs): Create comprehensive manuals that outline the hotels standard operating procedures for various departments, such as the front desk, housekeeping, food and beverage, and maintenance.

Hospitality Etiquette and Communication: Provide resources that guide employees on proper etiquette, professional communication, and the use of language to create a warm and welcoming atmosphere.

Technical Skills Training: Offer training materials that cover specific technical skills required in different departments, such as food preparation, housekeeping techniques, or event planning.

Health and Safety Training: Develop materials on health and safety protocols, including emergency procedures, fire safety, food handling safety, and workplace ergonomics.

Cultural Sensitivity and Diversity Training: Create resources to promote cultural awareness and sensitivity, given the diverse backgrounds of both staff and guests in hotels.

Upselling and Sales Training: Provide materials to enhance the sales skills of staff, such as techniques for upselling room upgrades, additional services, or special packages.

On boarding Kits: Prepare comprehensive onboarding kits for new employees, including welcome materials, company culture information, and an overview of their job responsibilities.

Language Training: If the hotel serves an international clientele, offer language training materials to help staff Leadership Development: Develop materials to support the growth and development of supervisors and managers, focusing on leadership skills, team management, and performance coaching.

Technology Training: Provide resources to help staff become proficient in using hotel management software, reservation systems, and other technology tools used in the hotel industry.

Guest Experience Enhancement: Develop materials that guide employees on enhancing the overall guest experience, including personalized service, anticipating guest needs, and exceeding expectations.

Environmental Sustainability: Create materials that promote sustainability practices within the hotel, encouraging staff to be environmentally responsible and reduce the hotels ecological footprint.

Conflict Resolution and Stress Management: Offer resources to help employees manage conflicts effectively and cope with stress in high-pressure situations.

Career Development Plans: Provide materials that outline career paths within the hotel, offering guidance on advancement opportunities and skill development.

Regularly updating and refreshing these materials based on employee feedback, industry trends, and guest expectations is essential to ensure the hotels human resources strategy remains effective and aligned with the organizations goals. Additionally, integrating interactive and engaging elements into the training materials can enhance the learning experience and retention of information.

During the under review, Total number of people employed was 130 employees out of Permanent (on roll): 14; Contract employees: 104;Temporary employees: 12.

(i) Details of Significant Changes in Key Financial Ratios

Particulars	Current year (2024-2025)	Previous year (2023-2024)	Varience (%)
Debtors turnover	3.30	4.20	21.49
Inventory turnover	72.88	63.02	-15.65
Interest coverage ratio	2.01	-0.16	1376.69
Current ratio	0.14	0.15	7.17
Debt Equity ratio	4.44	4.68	5.24
Operating Profit margin	0.19	0.10	-95.99
Net profit margin	0.04	(0.26)	116.82
Return on capital employed	0.01	-0.03	123.18

The above comparison is on Standalone Financial Statement. The details of Key Financial ratios with explanation is provided in Note :28 of standalone financial Statement.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis Report with regard to projections, estimates and expectations have been made in good faith. The achievement of result is subject to risks, uncertainties and even less than accurate assumptions. Market data and information are gathered from various published and unpublished reports; their accuracy, reliability and completeness cannot be assured.