Economic Environment and Industry Insight
Towards the end of the fourth quarter of the current fiscal, COVID-19, a coronavirus that originated in a city, spread throughout the world at an alarming rate in a matter of a few months. On March 11, 2020, the World Health Organisation (WHO), declared COVID-19 a global pandemic. The global economy was already sluggish, with growth rates declining due to lower infrastructure spends, increased trade barriers, geopolitical stress and social unrest in many countries. COVID-19 further exacerbated the stress, impacting growth rates even further by bringing ordinary life to a standstill, reducing travel and transportation, interrupting business and threatening lives and livelihoods across the globe.
The International Monetary Fund had forecasted the global growth rate at -4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6 percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.
As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast. The baseline projection rests on key assumptions about the fallout from the pandemic. In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices. For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity. Moreover, the forecast assumes that financial conditions which have eased following the release of the April 2020 WEO will remain broadly at current levels. Alternative outcomes to those in the baseline are clearly possible, and not just because of how the pandemic is evolving. The extent of the recent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects as the June 2020 Global Financial Stability Report (GFSR) Update discusses—raising the possibility that financial conditions may tighten more than assumed in the baseline. (Source: World Economic Outlook, IMF, June, 2020)
Indian Economic and Hospitality Scenario
As per IMF in India, growth has been slowed to 6.1 percent in 2018-19 which further slowed to 4.2 percent in 2019-20, and will be -4.5% in 2020-21. For the calendar year in 2020, Indias growth with be -4.9% (IMF, World Economic Outlook, June 2020).
The service sector in India comprises more than 61.5%, whereas agriculture amounts to 15% and Industry to 23%.
India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships.
Due to the fallout of the US and Chinese relationships and increase in suspicion about Chinese policies after the Covid Pandemic a lot of countries are focusing on moving their supply chains out of China. This on one hand provides a great opportunity for India to emerge as a major production base provided the labour and corporate laws are amended as per established international laws.
India accounts for the highest number of domestic leisure travelers in the world. Business travelers are gradually increasing in number, owing to the rapid growth of the IT sector in India and the emergence of several global companies. The KPIs used by the industry to measure business development and management of hotels are average room rate (ARR) and revenue per available room (RevPAR).
ARR of the hotel industry in India stood at INR 5,844.81 in FY 2019 as against INR 5,527 in FY 2016, RevPAR of Indian hotels stood at ~INR 4,002.76 in FY 2019 The branded/traditional hotel segment, which dominates the organized sector, accounts for about 5% of the overall hotel industry, in terms of room supply.
With the onset of Corona Pandemic Indias hotel industry is estimated to face a whopping business loss of INR 90,000 crore during this calendar year, as all hotels are closed due to the nationwide lockdown to control coronavirus disease, according to a report by HVS and Anarock "The Industry expects the overall revenue of the Indian hotel sector to decline by approximately Rs 90,000 crore in 2020, reflecting an erosion of 57 percent compared to last year," the newsletter said.
Out of total revenue loss likely to be faced by the hotel industry, organised hotel operators are estimated to face a revenue loss of over INR 40,000 crore.
Varanasi, being one of the most prominent religious & cultural cities in India, attracts a huge chunk of tourists every year. Recently the central government launched a policy to encourage tourism in the city, which is expected to boost the sector significantly. In the recent past The Government of India have approved many projects for making Varanasi a smart city including beautification of roads, flyovers, Sanskrit learning, religious work and infrastructure development projects. The government has also implemented the policy for integrated promotion of tourism and culture in Varanasi, in order to fully utilize the opportunity of spiritual and religious tourism along the holy river Ganga.
Estimation uncertainty relating to the global health pandemic on COVID-19
On March 11, 2020, the World Health Organization declared Covid-19 outbreak as a pandemic. Responding to the potentially serious threat that this pandemic has to public health, the Indian Government has taken a series of measures to contain the outbreak, which included imposing multiple lock-downs across the country, from March 24, 2020. All airline, road, and railway travel was suspended and hotels, offices, factories, schools, universities, restaurants, cinema, sports facilities & retail outlets, etc were closed, except for a few essential services/supplies like grocery stores, pharmacies, etc. During the period of the lockdown the hotel was manned by a limited number of staff, who were moved onsite the property, to safeguard and maintain the property, with minimal operations.
Pursuant to the announcement of complete lockdown by the Central and State Government, the hotel units have been shut down on 23rd March 2020. The Company received sharp cancellations of room and banquet bookings and there was virtually no pick up in the business during the lockdown. The hotel unit Taj Ganges, Varanasi got operational around 18th May 2020 to serve quarantine guests for 7 -10 days. The permission for Takeaways/Home deliveries were also allowed from 21st May 2020. The Taj Ganges and Taj Nadesar Palace were allowed to resume hotel operations, which had to follow the Central Governments, UP State, and Varanasi District guidelines, from the 10th of June, 2020, after a lockdown period of 79 days (March 23 - June 9, 2020, including both days).
The company has taken a series of actions focused on health & safety of our employees & customers like sanitization, social distancing, mandatory mask wearing, thermal check at the gate, use of Aarogya Setu App and maintaining proper hygiene at work place. The company has allowed for the work from home facility to its associates, have online meetings, and operating with limited work force, ensuring adequate liquidity and cost optimisation measures. We have judiciously invoked the Force Majeure clauses for relief during the lock down period. Cash Conservations measures have also included deferral of discretionary spending & Capex, unless absolutely required. Further, the company is ensuring compliances of all the guidelines and directives issued by Central and State Government and local authorities from time to time.
The overall demand of the hospitality services has been impacted during lockdown. We expect a recovery in business to be driven by domestic leisure tourism, staycations, domestic business travel and a limited international travel. Our Brands have tremendous Trust with our customers and we have very clear SOPs for ensuring a safe stay for our Guests.
During the year 2019-20, the total revenues were at Rs. 63.84 Crores as against Rs. 60.39 Crores in 2018-19. The operating expenses (excluding Depreciation & Interest) increased from Rs. 42.22 Crores to Rs. 42.88 Crores. The depreciation increased from Rs.5.23 Crores to Rs. 6.38 Crores on account of renovations.
Resultantly, the Profit before tax increased from Rs. 12.18 Croresin 2018-19 to Rs. 13.50 Crores in 2019-20 and Profit after Tax increased from Rs. 8.72Croresto Rs. 10.61Crores. The Board meetings were held 4 times in the year and the results are communicated to the BSE, where the shares were listed.
Internal control systems and their adequacy
Your Company has in place an adequate system of internal controls, with documented procedures covering all functions in the hotel operating units. Systems of internal controls are designed to 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.
Adequate internal control measures are in the form of various policies & procedures issued by the Management covering all critical and important activities viz. Revenue Management, Hotel Operations, Purchase, Finance, Human Resources, Safety, etc. These policies & procedures are updated from time to time and compliance is monitored continuously. The Company continues its efforts to align all its processes and controls with global best practices. The internal audit process through the Taj group unique Taj Positive Assurance Model is an objective methodology of providing a positive assurance based on the audits of operating units. It is a convergence of Process Framework, Risk & Control Matrix and a Scoring Matrix. A framework developed for each functional area is identified on the basis of an assessment of risk and control as also providing a score, allowing the unit to identify and mitigate high- risk areas. The Audit committee of the Board oversees the adequacy of the internal control environment through regular reviews of the audit findings and monitoring implementations of internal audit recommendations through the compliance reports submitted to them.
The Statutory Auditors of your Company report that your company has adequate internal controls over financial reporting.
Certifications and Awards
Your Company has been participating in the globally recognized ‘EarthCheck benchmarking and certification system. EarthCheck certifications are a result of extensive assessments and audits by Independent Environmental Assessors -mapping indicators ranging from energy & water consumption, waste management to sensitivity exhibited vis--vis social and cultural dimensions in all areas of hotel operations. The Company has been certified EarthCheck Gold for Taj Ganges (previously known as The Gateway Hotel Ganges) continuously for the fourth time.
Taj Ganges has earned the 1st position in the first 3 quarters of 2019-20 for the Swachh Bharat mission initiative which was awarded to the hotel by Mr Gaurang Rathi, Municipal Commissioner, Varanasi.
CSR initiative to help the underprivileged section of society- Benares Hotels Limited
COVID-19 pandemic marks an unprecedented time in modern history that will require the best of humanity to overcome. In view of the current Covid-19 crises, with the Government requesting resource assistance to provide poor and needy people with sustenance during this situation, Benares Hotels Limited decided to stand with our distressed fellow countrymen, and actively participate in the national effort to support them at this difficult time.
To provide much-needed relief to the people affected by the viral disease and those who are in distress, Benares Hotels Limited (BHL) has donated Rs 5.00 lakhs towards the District Magistrate Varanasis Covid-19 Relief Fund.
On 4th April, 2020, the Chairman of Benares Hotels Limited, Dr Anant Narain Singh presented cheque of Rs. 5.00 lakhs to the DM, Varanasi, Shri Kaushal Raj Sharma Ji.
Further, The Gateway Hotel, Gondia has made a contribution of Rs. 2.00 Lakhs to PM Cares Funds in June 2020. The building of livelihoods while also conserving and promoting the cultural heritage of Varanasi through support of the handloom weavers of ‘Benarasi Silk Sarees, is an ongoing engagement which the Benares Hotels Limited has been involved since last 15 years. Despite the difficult circumstances of the first quarter of 2020-21, to ensure that the livelihoods of the weavers we support are sustained, we had asked them to continue with the weaving of sarees, despite having no orders for these, which kept them occupied during the lockdown period, since the handlooms are in their houses, assuring them of an income.
Total manpower employed by the company was 289 as on March 31st 2020 as compared to 305 as on March 31st 2019.