Barbeque-Nation Hospitality Ltd Management Discussions

ECONOMIC REVIEW Global economy

The year 2021 could be broadly portrayed as one of both uncertainty and hope. It saw the rise of the new Delta and Omicron variants of the coronavirus; yet, it also witnessed global immunisation coverage through the remarkable discovery of effective vaccines. Furthermore, governments and central banks the world over opened the gates of monetary stimulus with a view to mitigate the worst effects of the virus, especially on vulnerable segments, such as contact-intensive businesses and low-income households.

Even so, continued pandemic flare-ups, including rising caseloads in countries like China that have articulated a zero-COVID tolerance policy, highlight the fragility of economic recovery, which has been further compounded by two major global events comprising the Russian invasion of Ukraine and rising inflationary pressures. Both of these have enforced a sharp rise in global commodity prices, including crude oil and natural gas, so much so that central banks the world over have reversed their policy stance much earlier than anticipated - from an accommodative monetary policy to now raising rates with the spectre of inflation spiralling out of control.

Notably, increased vaccination pace and progressive withdrawal of lockdown measures has contributed to the return of consumer sentiment, which, together with release of pent-up demand has lifted economic growth and swung it into positive territory. Moreover, the pick-up in industrial activity and trade and commerce has also contributed to the uptick in growth.

As far as the global growth outlook is concerned, the tail end of 2021 witnessed the emergence of Omicron, which pressed countries to reimpose shutdowns and mobility restrictions, though on a partial scale. The sense of fear also resurfaced, especially on account of the more contagious nature of the variant, and hence consumer sentiment took a hit, with the result that the global economy entered 2022 in a weaker position.

The pandemic has also led to a sizeable increase in sovereign debt. In emerging market middle income economies, the debt-to-GDP ratio reached 60% in 2021. Moreover, 60% of low-income developing countries are in debt distress or are at high risk.

These factors are likely to postpone a full-fledged recovery and cause global economies to remain in a state of flux in 2022 that will be characterised by cautious optimism, yet the expectation of heightened vigilance.

According to the International Monetary Funds World Economic Outlook (WEO) of April 2022, global growth is projected to slow down from an estimated 6.1% in 2021 to 3.6% in 2022.

The Russia-Ukraine war has also had a deep economic impact on a global scale, with war-induced commodity price increases and broadening price pressures leading to inflation. Earlier, primary commodity prices had already risen by about 24% between August 2021 and February 2022. Crude oil prices increased by 36% during the same period.

Before the war, inflation had already become deep seated with soaring commodity prices and pandemic-induced demand and supply imbalances. The IMF projects 2022 inflation levels at 5.7% in advanced economies and 8.7% in emerging markets and developing economies.

The inflationary shock waves felt across the globe are primarily due to supply constraints of commodities from the two countries at war, which has led to a sharp increase in prices. Russia is a major supplier of oil, gas and metals, and Ukraine of wheat and corn, and the anticipated decline in the supply of these key commodities has shored up their prices, leading to heightened inflation.

Although the economic fallout due to the war will ease eventually as global production will pacify price rise and new capacity becomes operational, supply shortages would remain in some sectors, leading to elevated inflation. The central banks will be in a dilemma to contain price pressures or safeguard growth. Interest rates are expected to rise, exerting further pressure.

There has been a significant chasm between the economic recovery of advanced economies and the emerging market and developing ones. These price pressures have led to a tightening of monetary policy in many countries. Risks to economic prospects have risen and policy implementation has becoming more challenging.

World Economic Outlook projections (% change)

	2021	2022(P)	2023 (P)
World Output	6.1	3.6	3.6
Advanced Economies	5.2	3.3	2.4
• United States	5.7	3.7	2.3
• Euro Area	5.3	2.8	2.3
• Japan	1.6	2.4	2.3
• United Kingdom	7.4	3.7	1.2
Emerging Market and Developing Economies	6.8	3.8	4.4
• Emerging and Developing Asia	7.3	5.4	5.6
• China	8.1	4.4	5.1
• India3	8.9	8.2	6.9
• Middle East and Central Asia	5.7	4.6	3.7

Source: IMFs WEO, April 2022 P: Projection

3: For India, data and forecasts are presented on a fiscal year basis, and GDP from 2011 onward is based on GDP at market prices with fiscal year 201112 as a base year.

Indian economy

Although stalled by the devastating impact of the Delta wave of the coronavirus that swept through the country in April-May 2021, the Indian economy has since exhibited a sharp swing-back and is expected to record GDP growth of 9.2% in real terms in FY2021-22, as per the Governments Economic Survey 2021-22, thus positioning the nation as amongst the fastest growing economies of the world. GDP growth had contracted by 7.3% in the previous fiscal year. In 2021-22, Indias nominal GDP (at current prices) was estimated at US$ 3.12 trillion.

India GDP growth over the years

Financial year	GDP growth (%)
2017-18	7%
2018-19	6.1%
2019-20	4.2%
2020-21	-7.3%
2021-22	9.2%*

* Provisional estimate

Source: Ministry of Statistics and Planning

Some of the key factors that contributed to the sharp rebound include progressive lifting of lockdown measures, return of consumer sentiment with subsiding caseloads, and release of pent-up and discretionary demand. Furthermore, pace of vaccination in the country has also been creditable, with over 1.8 bn doses having been administered, rendering 62% of the adult population as fully vaccinated. Besides, precautionary/ booster doses and lifting of all restrictions (from March 31, 2022) have created favourable present conditions.

For instance, the country is fostering a conducive and enabling business climate for entrepreneurial energy to thrive, which is evident in the nation emerging with the third-largest unicorn (privately held startup companies with above US$ 1 bn valuation) base in the world, with its unicorns cumulatively valued at about US$ 280 bn. Further, FDI inflow into India remained relatively robust despite the challenges, with RBI data indicating cumulative FDI inflow of US$ 74.01 billion in calendar year 2021, as compared to US$ 87.55 billion in calendar year 2020.

Among the major initiatives of the government has been the focus on infrastructure development towards economic revival. This is also evident in the national monetisation pipeline that, over a 4-year period, envisages mobilising Rs 6 lakh cr. Real estate revival is a cue for economic recovery. Housing sales increased by nearly 13% QoQ in the first quarter of FY2022. In fact, sales rebounded significantly by 40% on a yearly basis.

Further, with an outlay of Rs 1.97 lakh cr for the Production Linked Incentive (PLI) schemes for 14 key sectors, the government aims to create national manufacturing champions and 6 mn new jobs, with an additional production output of Rs 30 lakh cr during the next 5 years. The financial incentivisation program is the bedrock of the "Make In India" and "Atmanirbhar Bharat" vision of the government.

Also, with Indias merchandise exports (about US$ 300 bn in the April-December 2021 period) surpassing pre-pandemic levels, foreign exchange reserves reached US$ 634 bn as of 31 December 2021, as per data by the Department of Economic

Affairs, with India also becoming the worlds fourth-largest forex reserve holder as of November 2021 (after China, Japan and Switzerland). This provides the necessary buffer for the country to tide over any crisis in the future. India also recorded the highest GST collections since inception of the tax regime, touching Rs 1.42 lakh cr during March 2022. Collections now have hit an all-time high, reaching Rs 1.68 lakh cr in April 2022, indicating strong economic recovery.

Meanwhile, the RBI has maintained support all through the challenging period. It ensured that systemic liquidity remains in surplus, with the repo rate being maintained at 4% in 2021-22. Furthermore, to provide additional liquidity, the RBI also took many initiatives, including the G-Sec Acquisition Program and Special Long-Term Repo Operations.

Together with external support, resilient economic recovery led to the revival of sectors most affected by the pandemic, which have already recovered to pre-COVID levels. For instance, during the first half of 2021-22, the services sector grew by 10.8%, whereby the Gross Value Add of the services sector crossed the pre-pandemic level in the second quarter of 2021-22. It was estimated to grow at 8.2% in 2021-22, as per the Economic Survey.

Contact-intensive segments including hotels, transport, etc., were the worst affected, yet they grew by 18.4% in the first-half of 2021-22. Moreover, demand accumulation was witnessed for services in fields including hospitality and leisure during the pandemic. Now with restrictions having been eased, there has been a resurgence in demand.

On the manufacturing front, the Purchasing Managers Index (PMI) rose from 54.0 in March 2022 to 54.7 in April, highlighting a solid and faster improvement in operating conditions across the board.

Going forward, the IMFs WEO of April 2022 indicates India to be the fastest growing economy among major countries, with GDP growth estimated at 8.2% in 2022-23. Strong revival in economic activity, improving PMI in manufacturing and services, robust exchequer collections, strong housing sales, etc., indicate a positive future outlook.

It is clear that the Indian economy is regaining strength and resilience. Consumer confidence and business optimism are on the rise, as the spread and scale of vaccination expands even further and wider. Besides, structural strengths of the country in terms of a large population, attractive demographics and high per capita incomes, paired by favourable government programs and initiatives, have fostered a sanguine forward outlook.

As mentioned earlier, inflation remains a key concern, buffeted as it is by the build-up of cost-push pressures. Furthermore, signals by the RBI to shift from an accommodative stance means the imminent scenario of rising policy rates. This may create the ground for stagflation. Hence, considering the challenging forward outlook, the Economic Survey pegs the GDP growth for 2022-23 lower at 8-8.5%, which is still amongst the highest economic expansion globally.

INDUSTRY REVIEW

Indias restaurant industry is one of the mainstays of the countrys economy, being a large employment generator with significant exchequer contributions.

Being contact-intensive, the restaurant industry was one of the hardest-hit by the two major consecutive waves of the pandemic and witnessed severe contraction. According to a report by the National Restaurant Association of India (NRAI), the Indian food services industry has likely contracted by about 53% to a size of Rs 2 lakh cr in FY2020-21, as compared to Rs 4.23 lakh cr in FY2019-20. In FY2020-21, restaurants were disallowed to operate for an average of 100 days and over 25% of restaurants have been shuttered, leading to the loss of employment for about 2.3 mn people.

The restaurant industry witnessed a marked decline in average revenue and profitability across formats due to COVID-induced restrictions, both in terms of operating hours as well as seating capacity. Average revenue post the first lockdown witnessed a de-growth of about 46%, with the most significant reduction observed by fine-dining restaurants and pubs, bars, cafes and lounges (PBCL) segments, compared to casual dining restaurants (CDR).

Meanwhile, with consumers switching to digital platforms for reasons of safety and convenience, share of deliveries and takeaways for restaurant players increased rapidly on an average from 13% pre-COVID to 33% amid COVID. The NRAI report indicated that average order value also rose by 43% during the pandemic, especially with the emergence of at-home or off-premise celebrations.

With a view to support the industry to tide over the crisis and stay afloat, the government extended the Emergency Credit Line Guarantee Scheme (ECLGS) to the sector, under which the ceiling of Rs 500 cr in loan outstanding as on 29 February 2020 to be eligible to avail credit was withdrawn. Moreover, under the ECLGS 3.0, hospitality firms could also avail benefits, subject to a maximum assistance of 40% of loan outstanding or Rs 200 cr, whichever is lower.

Seeking more assistance and long-term support, National Restaurant Association of India (NRAI) has reiterated their demand for provision of input tax credit facility to improve operating environment for restaurants. NRAI has also said that there is need to have a level-playing e-commerce policy to prevent aggregators from misusing their dominant position.

The food services industry is on the road to recovery. Between the first and second lockdowns, the industry achieved recovery of 72% of pre-COVID levels, with revenue post the second lockdown witnessing a growth of 33%, as compared to the first lockdown period.

Yet, one of the biggest challenges facing the restaurant industry today is the spectre of rising inflation. Inflation has breached the RBIs targetted band of 2-6%, with CPI (consumer price inflation) being pegged at 6.95% in March 2022, against 4.21% in February 2022. It has scaled to 7.79% in April 2022, which is beyond the central banks upper tolerance limit. This breach enforced the RBI to withdraw its accommodative monetary stance of the pandemic, with the central bank raising the repo rate by 40 bps in an off-cycle meeting in May 2022, thus signalling its intent to battle inflation. This has also created the ground for a rising interest regime.

Despite the extraneous challenges, the future outlook of Indias restaurant industry appears bright. For instance, the unorganised segment occupied almost 60% share of the food services market in FY2020, which is expected to go down to around 46% by FY2025. On the other hand, the organised markets, including standalone and chain restaurants, is projected to grow at a CAGR of 13% and 20%, respectively, leading to an increased share amounting to around 35% and 16%, respectively. This trend bodes well for the future outlook of the industry.

Today, the industry is pinning hopes on positive consumer sentiment, ramped-up pace of vaccination and withdrawal of all containment restrictions, with expectations pinned on recovery and resurgence to get to about 85% of pre-pandemic levels in FY2021-22.

The future outlook of CDR remains positive, with affordable CDRs likely to have witnessed a relatively lesser de-growth in revenue, as compared to other formats. Today, with all pandemic-related protocols have been eased, more people are stepping out into restaurants and trying different cuisine, heralding better prospects for the future.

GROWTH DRIVERS

• Rising per capita consumption

Indias per capita consumption is expected to grow at a

CAGR of 8.9% between CY2020-25 to reach US$ 2,909 by FY2025. Per capita consumption at current price stood at US$ 1,901 in CY2020. This growth is largely expected to be aided by an increase in the quality of education, rising income levels of the younger demographic groups, an increase in working age population and a shift in socio-cultural factors. (Source: World Bank, IMF)

• Attractive demographics

India has one of the youngest populations globally compared to other leading economies. The median age in India is estimated at 28.1 years in 2021, vs. 38.1 years and 37.4 years in the United States and China, respectively, and is expected to remain under 30 years until 2030. Furthermore, the size of Indias young population is contributing to a decline in the dependence ratio, or the ratio of dependent population size compared to the working-age population size (15 to 64 years of age), which has declined steadily from 64% in FY2000 to 50% in FY2018. This trend is expected to lead to rising income levels per household as well as higher levels of discretionary expenditure. (Source: Census of India 2011, World Bank)

• Urbanisation

I ndia has the second largest urban population in the world in absolute terms at 472 mn in FY2019, second only to China. However, only 34.5% of Indias population is classified as urban compared to a global average of 54%. It is the pace of Indias urbanisation journey that is a key trend influencing economic growth. Moreover, the implementation of Smart City initiative by the Indian government aimed at the creation of new urban clusters is expected to accelerate urban development in India. Currently, the urban population contributes to 63% of the countrys GDP. It is estimated that 37% (541 mn) of Indias population will be living in urban centres by FY2025 and the urban population is expected to contribute 75% of Indias GDP in FY2030.

• Growing middle-class

The average size of households (family members) in FY2018 was 4.5. Out of these, the number of households with annual income between US$ 5,000 and US$ 10,000 has grown at a CAGR of 12% between FY2012-FY2018 and is expected to continue to expand at a CAGR of 12% to reach 153 mn by FY2020. The number of households with annual income between US$ 10,000-50,000 has grown at a CAGR of 25% between FY2012-FY2018 to reach 86 mn households. This growth is expected to drive an increase in discretionary spends, which in turn is expected to cause an increase in spending on premium products leading to higher expenditure in various categories, including food and beverage, etc.

• Nuclearisation

The growth in the number of households has exceeded population growth, which indicates an increase in nuclearisation in India. According to the 2011 census, 74% of urban households have five or less members, compared to 65% in 2001. It is expected that smaller households with higher disposable income will lead to greater expenditure in food services, etc.

• Growing women participation in the workforce

Numerous factors, including education and greater focus on workplace diversity are enabling women in India to exercise greater influence on their families and society. These changes are expected to have a broad impact on societal factors, including workforce demographics and economic independence for women. The increase of women in the workforce has accelerated the shift in terms of household activity, including a downward trend in home-cooked meals and an increase in demand for out-of-home meals from households with working couples.

KEY CHALLENGES

The Indian restaurant industry, despite recovering growth prospects, is constrained by some key challenges, a major one including high levels of attrition. Rising competition and low affinity with the workplace, especially at the lower levels, has enforced a war on talent in the industry. Furthermore, being contact-intensive in nature, workers have also shown a disinclination to remain with the industry, having anxiety over catching the virus. Parallel to the industry attrition is the other challenge of workforce quality and the need to invest in training. Skill building and upskilling, which is critical for the industry, is a time consuming and costly affair and is a must, especially for chain restaurants in which food and service standardization is key.

One of the other major challenges facing the industry is lack of a robust supply chain infrastructure, including cold chain, that tends to push up costs. A robust supply chain is critical, especially for large restaurant chains operating in multiple locations, for ensuring quality and cost standardisation and added sense of reliability. Larger companies stepping into the organised market are investing in building backend infrastructure, which bodes well for the industry as a whole.

COMPANY OVERVIEW

Barbeque Nation is Indias leading casual dining restaurant chain with 185 restaurants as on March 31, 2022. The Company owns 168 restaurants in India and 6 restaurants in three countries outside India under the brand name "Barbeque Nation! It also holds a 68.82% stake in Red Apple, which operates 11 fine dining Italian cuisine restaurants under the "Toscano" brand. In November 2018, Barbeque Nation launched "UBQ by Barbeque Nation" restaurant to provide a la carte Indian cuisine in the value segment. At present, UBQ by Barbeque Nation restaurant predominantly caters to the delivery segment. The Company also reimagined and innovated a completely new concept under "Barbeque in a Box" that comprises an affordable buffet packed in a box for dine-in consumption. Barbeque in a Box has been extremely well-received in the market and has contributed significantly to the Companys delivery segment.

Barbeque Nation is a strong brand with a presence in more than 86 cities. Out of total 185 restaurants, 103 are located in the metropolitan cities. These cities remain the highest spenders in terms of eating out/ordering frequencies and average outing/ordering spends. The Company added 23 new restaurants in FY2021-22, thus reactivating its expansion plans. We believe the Company remains on track to have 300 restaurants by FY2025.

Key differentiators:

• Pioneered the format of over the table barbeque

• Popular destination for celebration - fixed price, wide range of offering and prompt service

• In-house chef training school for development of new products

• Strong emphasis on customer service - customer feedback through internally devised and managed Guest Satisfaction Index ("GSI")

• Strong business process and back-end systems leading to efficient operations

• High proportion of revenue from weekday sales and lunch covers

• Successfully scaled-up delivery segment with 23% of revenue from operations being contributed by delivery in FY2022

• Ranked #10 amongst Indias best companies to work for and #30 amongst best large workplaces in Asia 2021 by the Great Place to Work? Institute

BUSINESS AND FINANCIAL REVIEW

Restaurant portfolio

	No. of outlets as on March 31, 2021	New additions in FY2022	Permanent closures in FY2022	No. of outlets as on March 31, 2022	Presence in no. of cities as on March 31, 2022
India
Barbeque Nation	147	21	1	167	82
Toscano	11	2	1	12	3
Overseas
Barbeque Nation	6		-	6	4

As of March 31, 2022, the Company, on consolidated basis, had 185 restaurants, which includes 168 Barbeque Nation restaurants across 82 cities in India, 6 international Barbeque Nation restaurants across four cities outside India, and 11 Toscano restaurants.

Statement of profit and loss

(Amount in Rs. million)

	Consolidated	Standalone
	FY22	FY21	FY22	FY21
Revenue from operations	8,606	5,071	7,611	4,533
Other income	263	460	256	405
Total revenue	8,868	5,531	7,866	4,938
Cost of food and beverages consumed	3,047	1,782	2,791	1,642
Employee benefits expenses	1,886	1,352	1,647	1,181
Other operating expenses	2,335	1,473	2,098	1,311
Total expenses	7,268	4,607	6,536	4,134
Earnings before exceptional items, finance costs, depreciation and amortisation (EBITDA)	1,600	924	1,330	804
Finance costs	653	849	556	706
Depreciation and amortisation expense	1,273	1,212	1,056	1,012
Profit/(loss) before exceptional items and tax	-326	-1,136	-282	-913
Exceptional Items	5	21	3	21
Profit/(loss) before tax	-321	-1,115	-280	-893
Total tax expense	-69	-197	-65	-190
Profit/(loss) after tax Business & financial ratios	-252	-919	-215	-703
EBITDA margin (%)	18.59%	18.23%	17.47%	17.75%
Net profit margin (%)	-2.84%	-16.61%	-2.73%	-14.23%
Trade receivables turnover ratio (times)	205.60	211.50	140.97	127.65
Inventory turnover ratio (times)	12.59	11.54	12.60	11.86
Current ratio (times)	0.78	0.82	0.76	0.88
Debt-equity ratio (times)	1.58	2.47	1.34	1.95

During the year, the Company focused on increasing the dine-in business along with leveraging the base built for delivery business in FY2021. In FY2022, revenue from operations increased by 70%, supported by 54% growth of dine-in segment and 157% growth in delivery segment. FY2022 also witnessed SSSG of 64.7%. Gross margins marginally improved by 20 bps and EBITDA increased by 40 bps on a year on year basis.

Network expansion

The Company restarted its growth plans from FY2022. H1 FY2022 was impacted by second COVID wave. However, in H2 FY2022, the Company opened 19 new restaurants.

Cost optimization

The Company has undertaken various cost optimisation efforts, such as seeking rent reliefs from landlords, renegotiating commercial terms, and realigning store operating costs and structures.

Strengthened digital assets

Share of own channels increased during the year in the dine-in business. Our cumulative BBQ mobile app downloads increased from 2.6 million at FY2021 end to 4.2 million in FY2022, representing 63% increase.

Under our Smiles loyalty program, we currently provide 5% of the bill value (subject to certain terms and conditions) to customers as Smiles points, which can be redeemed within a defined timeline during the customers next dine-in visit or delivery order from the BBQ app or website. Adoption of BBQ loyalty program (SMILES) also increased from 11.6% in Q4 FY2021 to 16.7% in Q4 FY2022. As of March 2022, the average rating of the BBQ app on an internet app store was 4.5 out of 5.0.

Liquidity position

In FY2022, the Company completed a preferential issue of equity shares for an aggregate consideration of Rs. 1,000 millions and an IPO of Rs. 1,800 millions This helped the Company pare down its debt, be better prepared to handle COVID-19-related impact and expand the restaurant network.

As at March 31, 2022, the Company had cash and cash equivalents of Rs. 853 millions and external debt obligations of Rs. 210 millions.

ADEQUACY OF INTERNAL CONTROLS

Barbeque Nation has institutionalized a robust and comprehensive internal control mechanism across all major processes to ensure reliability of financial reporting, timely feedback on achievement of operational and strategic goals and compliance with policies, procedures, laws and regulations. The Companys internal audit function provides independent and reasonable assurance about the adequacy and operating effectiveness of the internal controls to the Board and the Audit Committee. In FY2022, internal audits were conducted by external auditors (EY). All significant audit observations and follow-up actions thereon are periodically reported to the Audit Committee and closely monitored for effective implementation.

The internal audit function also tests and reports on adequacy and operating effectiveness of internal financial controls over financial reporting, in line with the requirements of Companies Act, 2013. The Company has established a sound risk framework to actively manage all material risks faced by the Company, in a manner consistent with the Companys strategy. Aligned with key business decisions, the enterprise risk management framework covers all business risks, including strategic risk, operational risk and financial risk. The Company also has a well-defined risk management policy that aims at establishing a risk-aware culture and governance framework to enable seamless identification, measurement, mitigation and reporting of risks within the Company, in line with the corporate strategy and risk-return trade-offs.

OUR HUMAN RESOURCE

At Barbeque Nation, we continue to believe that employees are our true assets and brand ambassadors, which is reflected in the structured, friendly initiatives and policies that help deliver seamless brand and cultural experience to the candidates right from the hiring stage.

The Company was ranked #10 amongst Indias best companies to work for and #30 amongst best large workplaces in Asia 2021 by the Great Place to Work? Institute. This has been possible by excelling on the 5 dimensions of a High-Trust, High-Performance Culture™ - Credibility, Respect, Fairness, Pride and Camaraderie.

We continued to invest in the personal and professional development of our people which can be seen in multiple training and growth programs we offered our employees across levels. In FY22, we introduced an online Learning Management System (LMS) where we offer courses to all our employees to enhance their competence level - from entry-level to outlet leadership. It includes a structured set of learning activities with certifications on technical competencies required for different roles. To further enhance the effectiveness of online LMS, we are engaging with digital-learning-content development partners to develop video-based training modules.

Apart from online LMS, we also introduced "Barbeque Nation Leadership Academy, a program to identify potential leaders and develop them for future roles. Employees are made aware of career growth process, learning & competency requirements and development inputs required for growth. More than 1,500 employees were promoted last year in various roles.

FY22 was again challenging from COVID perspective. Along with various safety measures for our employees, we ensured that all our employees were vaccinated at the earliest. We arranged online doctor consultation facility, testing and hospitalization of affected employees and their families. Through Corona Rakshak initiative, we connected with families of our frontline employees and assured their families about their safety and well-being.

During the year, the Company implemented a new HRMS tool, enhancing employee convenience to manage and track transactions like attendance, leaves, expense reimbursements and payroll related matters. Now employees can use their mobile phones to perform critical HR tasks including marking their attendance using geo-fencing and geo-tagging. This HRMS tool has also significantly improved different processes for the Company from onboarding to exit of employees, including managing transfers and promotions. This also helps the leadership team to access real-time data to make timely decisions.

RISK MANAGEMENT

We recognise risk management as a key building block to our business strategy to proactively manage risks and protect value for our stakeholders. Our institutional risk management framework establishes a culture of conducting business in a responsible manner and provides comfort to the management, the Board and external governance bodies, including auditors and regulators.

Some of the major objectives of our institutional risk management framework ensure protection of the interests of our key stakeholders, adherence to applicable laws and regulations, strong corporate governance culture, proactive identification, assessment, monitoring and reporting of risks, and a structured, comprehensive and dynamic mechanism for conducting business within acceptable risk parameters. The Company has in place a Risk Management policy, along with other risk related policies.

Some of the major risks and their mitigation initiatives as per our institutional risk management framework has been given below:

Operational risk - Risk of loss resulting from inadequate or failed internal processes, people, systems or external events.

Mitigation: Operational risks are managed through proactive risk assessments, where all critical processes/projects are assessed and key risks are evaluated and managed. Furthermore, our specialist experience and expertise in the restaurant business itself represents a strong safeguard against potential operational risks.

Business continuity risk - This risk has been especially accentuated by the COVID-19 pandemic that enforced largescale shutdowns and even curbs on restaurant capacity and operating hours when the lockdowns were progressively lifted.

Mitigation: Harnessing and implementing our insights and learnings of operating amid the pandemic and being dynamic and flexible in our decisions has enabled us to ensure business continuity despite the challenges. We have pivoted our business to capitalise on the key trends shaping consumer behaviour, etc., with Barbeque in a Box being a case in point. Thus, our resilience and ability to adapt have been key to navigate through the challenges of the pandemic and ensure that our business remains operational, while adhering to all the regulatory requirements.

Compliance/regulatory risk - Risks emanating from non-adherence to regulatory, judiciary and legislative mandates and guidelines, leading to fines and penalties.

Mitigation: The risks are managed through practices such as disseminating regulatory notifications and actionable points and regular follow-ups, thus ensuring holistic implementation of the same. Further, we adopt the highest standards of governance with a zero tolerance approach to deviations. The tone is set from the top, and we have robust surveillance mechanisms in place that thwart any non-compliance, while also enabling identification of the same for appropriate action.

Strategy and planning risk - Risks emanating from non-attainment of strategic objectives, deviation from strategic plans and external and internal factors.

Mitigation: Regular strategy review meetings by leadership team, monthly business review meetings, etc., enable strong cross-functional focus to handhold strategically important projects, such as new restaurant openings, supply chain security, talent management, etc. Further, as part of our broader operating focus, we have a strategic roadmap in place that ensures organisational alignment to reach our goals. While the COVID-19 pandemic did enforce a strategic reset, we have since focused on accelerating our plans that, among others, envisages a 300 restaurant network by the financial year 2025.

Financial risk - Risks emerging from liquidity challenges or credit risks, especially in an inflationary environment.

Mitigation: In FY2022, the Company completed a preferential issue of equity shares for an aggregate consideration of Rs. 1,000 millions and an IPO of Rs. 1,800 millions. This helped the Company pare down its debt, be better prepared to handle COVID-19-related impact. The Company does not have significant trade receivables. The Company had cash and cash equivalents of Rs. 853 millions and external debt obligations of Rs. 210 millions.

Emerging risks - Emerging risks are new or developing risks that can affect the Companys financial strength, competitive position, viability or reputation over medium to long term period but the extent and nature of any potential losses are particularly uncertain due to insufficiency of information. Emerging risks may present a threat or an opportunity for our enterprise.

These key risk categories are geopolitical risks comprising the Russian invasion of Ukraine and global sanctions on Russia, increasing activism for the climate and other environmental preservation causes with changing social and cultural views, regulatory and legal risks, inflation and stagflation risks, etc.

Mitigation:

With the timing of the risks uncertain, the Companys aim is to focus on the key emerging risks and prepare mitigation plans accordingly. While we focus on factors directly under our control, we appraise external factors carefully to assess any probable impact on our Company or operations and take steps accordingly towards mitigation.

OUTLOOK

As per the government, India is likely to become a US$ 5 trillion economy by FY2025-26 on the back of 8-9% sustained growth. GDP in dollar terms has already crossed US$ 3 trillion. The indicators of macroeconomic stability, especially the bounce after the COVID lows, exhibit that India is poised to meet its real GDP growth target of 8-8.5% in 2022-23, which is one of the fastest growth rates in the world.

The Union Budget of 2022-23 has focused on creating a sustainable economic growth path through such plans and initiatives as the PM Gati Shakti and Dedicated Freight Corridors (DFC) that envisage robust multi-modal countrywide connectivity. Moreover, the National Infrastructure Pipeline, Production Linked Incentive (PLI) Scheme and thrust on new energy are some of the other mega growth-supportive projects of the country with large employment generation potential.

Consumption is strongly linked to economic growth, which gives thrust to the restaurant industry. With the complete withdrawal of pandemic-related restrictions, dwindling caseloads, release of pent-up demand, huge and established propensity to eat-out and order-in, and growing experimentation amongst consumers with regards to cuisines bodes well for the long-term prospects of the industry. Furthermore, preference for safe, established and hygienic restaurants will tilt the balance in favour of the organised chains

Within the food services industry, casual dining restaurants (CDRs) are expected to grow at a faster clip against other segments, as consumer food preferences shift on the back of rise in nuclear families and double-income households with busy lifestyles. Additionally, India is a price-sensitive market and looking at its huge middle-income population that loves to eat-out and eat-in makes casual dining the right platform for providing a wholesome and value-driven family experience, thus positioning large and fast-growing food services chains like Barbeque Nation well for the future.

CAUTIONARY STATEMENT

Certain statements in this report regarding our business operations may constitute forward-looking statements. While these statements reflect our future expectations, it is important to remain mindful that a number of risks, uncertainties and other important factors could cause actual results to differ materially from our expectations.