Fomento Resorts & Hotels Ltd Management Discussions

1. Economic Overview :

In 2019-20, the Indian economy grew by 4.2 per cent against 6.1 per cent expansion in 2018-19.The government imposed lockdown on March 22 to combat Covid-19.

Gross Value Added (GVA) at Basic Prices

Real GVA at Basic Prices is estimated to increase from Rs. 129.07 lakh crore in 2018-19 to Rs. 135.40 lakh crore in 2019-20. Estimated growth of real GVA in 2019-20 is 4.9 per cent as against 6.6 per cent in 2018-19.

The sectors which registered growth rate of over 4.9 percent are, ‘Electricity, Gas, Water Supply and Other Utility Services, ‘Trade, Hotels, Transport, Communication and Services related to Broadcasting, ‘Financial, Real Estate and Professional Services and ‘Public Administration, Defence and Other Services at 5.4 per cent, 5.9 per cent, 6.4 per cent, 9.1 per cent respectively. The growth in the ‘Agriculture, Forestry and Fishing, ‘Mining and quarrying, ‘Manufacturing and ‘Construction is estimated to be 2.8 per cent, 1.5 per cent, 2.0 per cent and 3.2 per cent respectively.

• Services sector is the largest sector of India. Services sector is estimated at 92.26 lakh crore INR in 2018-19. Services sector accounts for 54.40% of total Indias GVA of 169.61 lakh crore Indian rupees.

• With GVA of Rs. 50.43 lakh crore, Industry sector contributes 29.73%.

• While, Agriculture and allied sector shares 15.87%.

Gross Fixed Capital Formation (GFCF) at current prices is estimated to be Rs 40.61 trillion (US$ 587.09 billion) between Apr-Dec 2019.

Total export from India (Merchandise and Services) stood at US$ 528.45 billion in 2019-20,Share of Top Investing Countries FDI Equity Inflows: Mauritius (32 per cent), Singapore (20 per cent), Japan (7 per cent), Netherlands (7 per cent), UK (6 per cent), USA (6 per cent), Germany (3 per cent), Cyprus (2 per cent), France (2 per cent), UAE (2 per cent)

Major Sectors Attracting Highest FDI Equity Inflows:

Services Sector - 17.66%

Computer Software & Hardware - 9.54%

Telecommunications - 8.13%

Trading - 5.81%

Construction Development - 5.55%

Automobile Industry - 5.23%

Chemicals (Other Than Fertilizers) - 3.82%

Drugs & Pharmaceuticals - 3.59%

Construction (Infrastructure) Activities - 3.54%

Power - 3.21%

FDI equity inflow in India stood at US$ 36.79 billion during April-December 2019

Indias total foreign exchange (Forex) reserves stand at around US$ 501.703 billion on 05th June 2020, the highest ever up from 427.678 Billion Last year June.

Indian Mutual Fund industrys Average Assets Under Management (AAUM) stood at INR 27 Lakh Crore (INR 27 Trillion) as against INR 26.77 Lakh Crore (INR 26.77 Trillion) at the end of December, 2020.

Indias Index of Industrial Production (IIP) advanced by 0.1 per cent year-on-year in February 2019, as against a rise of 1.4 per cent year-on-year in January 2019. The cumulative IIP growth for April 2018-February 2019 was 4.0 per cent over the same period in 2017-18.

Indias industrial production grew at the fastest pace in seven months at 4.5 per cent during February 2020 as against 0.1 Percent in February 2019 mainly on account of uptick in mining and manufacturing activity as well as power generation. The cumulative IPP growth during April- February period of the last fiscal decelerated to 0.9 per cent from 4 per cent expansion in the same period of 2018-19.

The Index of Eight Core Industries rose 5.5% in February 20. The growth for January was revised to 1.4% from 2.2% assessed earlier. Growth for the April-February was at 1%, sharply lower than 4.2% in the same period a year earlier.

In the FY 19-20 (April 1, 2019- March 31, 2020), the passenger vehicle sales saw a decline of 17.82 per cent to 27,75,679 units as compared with 33,77,389 units in the previous fiscal this is due to the pandemic that saw a large decline in Q4 of FY 19-20.

Indias current account deficit (CAD) was 1% of GDP in April- Dec of 2019-20 from 2.6% a year ago same period.

The countrys wholesale inflation rose to 3.1 per cent in January, compared to 2.59 per cent during the month of December 2019. The build-up inflation during the financial year 2019-20 rate was at 2.50 per cent, against 2.49 per cent in the corresponding period a year ago

Indias consumer price index rose to 5.9% YoY in March 2020 amid coronavirus-induced nationwide lockdown as compared to 2.86% in March 2019.

Merger and Acquisition (M&A) activity grew 104.5 per cent year-on-year to reach US$ 129.4 billion in 2018. M&A cooled down in the first half of 2019, amid elections and weak economic sentiment. M&A worth only $32.5 billion took place in the first eight months of the current calendar year

Private equity, VC investments hit record high of $48 billion in 2019. PE/VC investments increased by 28 per cent as compared to 2018, while the deal volume increased by 35 per cent.

Transportation in India

Airports: There are 464 airports/airstrips in the country. Among these, the AAI owns and manages 125 airports and 26 civil enclaves at defence airfields and provides air traffic services over the entire Indian airspace and adjoining oceanic areas.

International Airports: Ahmedabad, Amritsar, Bengaluru, Chennai, Goa, Guwahati, Hyderabad, Kochi, Kolkata, Mumbai, New Delhi, Thiruvananthapuram, Port Blair, Srinagar, Jaipur, Nagpur, Calicut. Railways: The Indian Railways network is spread over 108,706 km, with 12,617 passenger and 7,421 freight trains each day from 7,172 stations plying 23 million travellers and 3 million tonnes (MT) of freight daily. Roadways: Indias road network of 4.87 million km is the second largest in the world. With the number of vehicles growing at an average annual pace of 10.16 per cent, Indian roads carry about 65 per cent of freight and 85 per cent of passenger traffic.

2. Hospitality & Tourism Industry Overview:

India is the most digitally advanced traveller nation in terms of digital tools being used for planning, booking and experiencing a journey, Indias rising middle class and increasing disposable incomes has continued to support the growth of domestic and outbound tourism.

During 2019, foreign tourist arrivals (FTAs) in India stood at 10.89 million, achieving a growth rate of 3.2 per cent year-on- year. During January-February 2020, Foreign Tourist Arrivals (FTAs) were 2.1 Million.

In 2019, a total of 2.9 Million tourist arrived on e-Tourist Visa registering a growth of 23.6 per cent.

As of 2019, 4.2 crore jobs were created in the tourism sector in India which was 8.1 per cent of total employment in the country. The number is expected to rise by two per cent annum to 52.3 million jobs by 2028.

International hotel chains are increasing their presence in the country, as it will account for around 47 per cent share in the Tourism & Hospitality sector of India by 2020 & 50 per cent by 2022.

Investments

India is also the third largest globally in terms of investment in travel & tourism with an investment of US$ 45.7 billion in 2018, accounting for 5.9 per cent of national investment.

During the period April 2000-December 2019, the hotel and tourism sector attracted around US$ 14.42 billion of FDI, according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

3. Local Market Overview:

Goa is one of the fastest growing states in the country. The Gross State Domestic Product of Goa at current prices increased at a Compound Annual Growth Rate (CAGR) of 9.08 per cent from 2011-12 to 2019-20. Goas net state domestic product (NSDP) was Rs 641.50 billion (US$ 9.95 billion) in 2017-18. Goas economic growth is driven by the strong performance of industrial sectors such as mining, tourism and pharmaceuticals.

As of February 2020, Goa had a total installed power generation capacity of 574.96 MW. Goa is also one of the few states in India to achieve 100 per cent rural electrification.

Goa has a well-developed social, physical and industrial infrastructure and virtual connectivity. Tourism is the largest segment in the services sector.

Goa is traditionally known as a tourist paradise for its natural scenery, beautiful beaches and cultural diversity. During January to December 2017, the number of passengers who arrived in the state on the basis of e-tourist visas was recorded to be 133,798. Moreover, the state recorded a total of 851,048 foreign tourists from over 141 countries across the globe. Up to December 2018, the State received 8.01 million tourists. 28 cruise ships with 38,543 passengers arrived in the State till December 2018.It has an international airport that is in line with its importance as a globally-recognised leisure destination. It also has significant port infrastructure. The state has an established base for the pharmaceuticals industry and an emerging destination for knowledge-based industries such as biotechnology and IT.

According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows into the state of Goa, during April 2000 to December 2019, were US$ 1,041 million.

Recent Developments:

• A second greenfield international airport is being developed in Mopa, Goa with an annual capacity to handle 30 million passengers by phase IV. The first phase of the airport is expected to start by end of 2020.

• A new export policy for the state is also being prepared in order to promote exports for manufactured goods and surplus agriculture produce.

• Merchandise exports from the state reached US$ 2.10 billion in 2017-18 and US$ 2.06 billion in FY19.

• As of November 2019, Goa had seven formally approved and three notified special economic zones (SEZs).

• Union Ministry of Home Affairs (MHA) has identified five islands in Goa, namely St George Island, Grande Island, Pequeno Island, Conco Island and Bhindo Island to carry out holistic development.

• Goa government has approved the Rs 981 crore (US$ 144.1 million) proposal for Panaji Smart City which will have a major focus on eco-mobility, public transport system and improvement of conservation zones.

• As per the State Transport Authority, Government of Goa has granted approval for operations of GoaMiles app-based taxi service in accordance with the Guidelines for App Taxi operators in the State.

• For the development of ‘Ease of doing business and ‘investor friendly ecosystem initiatives in the state, the state government has proposed to establish an EMS (Electronic Monitoring System).

4. Opening of New Property and Future Expansion Plans: Taj Hotel & Convention Centre, Goa (THCCG)

The Company has opened a new hotel under brand name "Taj Hotel & Convention Centre, Goa" at Survey no.246/1, Vainguinim Plateau, Dona Paula, Goa. This is the second hotel of the company which consists of 299 keys and associated facilities , catering to the meetings, incentives, conferences and exhibitions(MICE) segment.

Investment in hotel at Aarvli

The civil and construction work is complete and civil finishes works are in progress for setting up a 5 star (luxury) 32 room boutique resort at Aarvli, Sindhudurg, Maharashtra.

5. Financials:

The operations of the existing Five Star Deluxe Resorts viz. Cidade de Goa was taken over by IHCL w.e.f. 1^st April, 2019 for managing and operating the hotel based on management contract signed with IHCL by the Company on 11^th February, 2019. The hotel is known as Cidade de Goa ‘IHCL - SeleQtions w.e.f. April 1, 2019.

The turnover and the financial performance of Cidade de Goa is as below:

Cidade de Goa - IHCL SeleQtions Performance for the F.Y. 2019-20

Revenues: Total income has increased by 2.09% to Rs.6,914.41 lakhs from Rs. 6,754.55 lakhs in the previous year, despite the Corona Pandemic crisis & lock down that saw cancellations resulting in loss of business at the end of Q4 FY 2019-20.

The room revenues increased by 4.26% to Rs. 4,157.47 lakhs from Rs. 3,987.51 lakhs in the previous year despite cancellation of revenues as mentioned above.

The Food & beverage saw a slight decline of 1.23% to Rs.2,339.98 lakhs from Rs. 2,369.19 lakhs in the previous year mainly the loss caused due to the pandemic.

The total Operating expenditure increased by 0.30 % to Rs. 4,427.06 lakhs from Rs. 4,413.64 lakhs as against the previous year.

Taj Hotel & Convention Centre, Goa (THCCG)

The newly constructed hotel of the Company "THCCG" commenced business operations at end of February,2020. However, had to close operations from the last week of March, 2020 due to the lockdown pan- India on account of COVID-19 situation. The performance of the new hotel for the above period was as follows:

Total Income Rs. 230.36 lakhs

Operating Cost Rs. 438.74 lakhs

EBITDA Rs.(208.38) lakhs

Earnings before Interest, Depreciation, Tax and Amortisation (EBIDTA) for the Company as a whole for the FY 2019-20:

EBIDTA registered a decrease of 23.40% to Rs. 1,963.40 lakhs from Rs. 2,562.48 lakhs as against the previous year.

Profit before Tax:

The PBT decreased by 39% to Rs. 984.39 lakhs from Rs. 1,606.63 lakhs in the previous year. The decline is mainly on account of the increase in the depreciation by Rs.291 Lakhs due to capitalization of the new Hotel "THCCG" in the month of March, 2020. The decrease is also on account of negative EBITA of the new hotel "THCCG" as stated above which started operations at the end of FY 2019-20.

Profit after Tax:

The PAT decreased by 47.02% to Rs. 486.30 lakhs from Rs. 917.97 lakhs in the previous year.

Key Financial Ratios

Sr. No. Particulars	FY 2020	FY 2019
1 Debtors Turnover Ratio	3.69	4.26
2 Inventory Turnover	5.49	7.50
3 Interest Coverage Ratio	3.51	30.69
4 Current Ratio	1.28	1.31
5 Debt Equity Ratio	3.96	2.74
6 Operating Profit Margin	16.74%	21.31%
7 Net Profit Margin	13.46%	23.03%

6. Competition from International Hotel Chains:

The hotel Cidade de Goa is managed and operated by Indian Hotels Company Limited w.e.f. April 1, 2019 pursuant to the hotel operating agreement executed between the Company and the Indian Hotels Company Limited (IHCL) to operate the existing hotel Cidade de Goa and the new hotel ‘Taj Hotel & Convention Centre, Goa which has commenced operations w.e.f. March 1, 2020.

Even though the Indias stock market remains in bear territory, economic fundamentals have shown improvement on account of the fiscal cushion provided by the reduction in oil subsidies, prudent monetary policy by the Reserve Bank, and an uptick in domestic consumption demand.

The Company perceives stiff competition from the international hotel chains who are opening doors at a rapid pace and are generally treated as superior than the local enterprises. These new entrants even poach the trained human resources of the local enterprises. These severely affect the working of the local enterprises. The increase in supply, if not offset by a corresponding increase in demand will put pressure on margins as a consequence of rising costs and falling Average Room Rate.

7. Risks and Concerns:

The risk and safety management system adopted by the Company will enable the Company to identify problem areas with respect to regulations, competition, business risk, development risks, investments, acquisition and retention of talent, health & safety. Business risk, inter- alia, further includes financial risk, political risk, fidelity risk, legal risk, employee, guest, asset safety and safety of community and to establish a prevention system to safeguard the future.

The adopted approach involves identification and characterization of threats, development of a safety policy, risk assessment, development and implementation of risk control strategies, consultation and training, followed by formulation, maintenance and review of strategies. The Principles of risk management should:

• Create value

• Be an integral part of the organizational process Be part of the decision making process Explicitly address uncertainty and assumptions Be systematic and structured process Be based on best available information Capable of customization

The Board of Directors of the Company determines Companys tolerance for risk and is committed to a risk management system that balances the need to preserve long term values, prudently manages the hotel properties, maintain good relationships with stakeholders and facilitates a culture of innovation. The Companys risk management system is designed to assist the Company to achieve its strategic and operational objectives with the vision, strategy, processes, technology and governance of the Company and provides for:

a. appropriate levels of risk taking

b. an effective system for the management of risk.

c. protection against incidents causing personal injury and property damage

d. development of risk management and control plans to reduce or minimize unforeseen or unexpected costs

e. ability to identify, prioritize and respond to risk in a manner that maximizes opportunities.

f. reliable financial reporting and compliance with laws, regulations and standards

g. sound insurance management practice

h. protection of assets from planned and unplanned events The risk management function is supported by the risk management committee.

RISK STRATEGY

The Company believes that risk cannot be eliminated. However, it can be:

• Transferred to another party, who is willing to take risk, say by buying an insurance policy or entering into a forward contract

• Reduced, by having good internal controls

• Avoided, by not entering into risky businesses

• Retained, to either avoid the cost of trying to reduce risk or in anticipation of higher profits by taking on more risk

• Shared, by following a middle path between retaining and transferring risk

For managing risk more efficiently, the Company would need to identify the risks that it faces in trying to achieve its objectives. Once these risks are identified, these would need to be evaluated to see which of them will have critical impact on the Company and which of them are not significant enough to deserve further attention. As a matter of policy, these risks are assessed and steps as appropriate are taken to mitigate the same.

RISK MANAGEMENT FRAMEWORK

Objectives must be clearly defined before management can identify potential risks affecting their achievement. Risk management ensures that management has in place a process to set objectives and that the chosen objectives support and align with the entitys mission and are consistent with its risk appetite.

The objectives of the Company can be classified into:

• Strategic:

• Organizational Growth

• Sustenance and growth of strong relationships with guest/customers/clients/ vendors.

• Operations:

• Consistent revenue growth

• Consistent profitability growth

• High quality hotel and guest services

• Attract and retain quality, trained employees and associates and augmenting their training

Reporting:

• Maintain high standards of Corporate Governance and public disclosure

Compliance:

• Ensure stricter adherence to policies, procedures and laws/rules/regulations/ standards.

In principle, risks always result as a consequence of activities or as a consequence of non-activities. Risk Management and Risk Monitoring are important in recognizing and controlling risks. The entirety of enterprise risk management is monitored and modifications are made as necessary.

Controlling of Risk/Risk mitigation is an exercise aiming to reduce the loss or injury arising out of various risk exposures.

The Company adopts systematic approach to mitigate risks associated with accomplishment of objectives, operations, development, revenues and regulations. The Company believes that this would ensure mitigating steps proactively and help to achieve stated objectives.

The Company has constituted a Risk management Committee which submits its report to the Audit Committee/ Board about the measures taken for mitigation of Risk in the organization.

The activities at all levels of the organization are considered in the risk management framework. All these components are interrelated and drive the Risk Management System with focus on three key elements, viz.

1. Risk Assessment

2. Risk Management

3. Risk Monitoring

RISK ASSESSMENT

Risks are analyzed, considering likelihood and impact, as a basis for determining how they should be managed. Risk Assessment consists of a detailed study of threats and vulnerability and resultant exposure to various risks.

To meet the above stated objectives and for exploiting opportunities, effective strategies are evolved and as a part of this, key risks are identified and plans for managing the same are laid out.

RISK MANAGEMENT AND RISK MONITORING

In risk management and monitoring, the probability of risk is estimated with available data/ information and appropriate risk treatments are worked out in the following areas:

1. Economic Environment and Market conditions

The hospitality industry is prone to impacts due to fluctuations in the economy caused by changes in global and domestic economies, changes in local market conditions, excess hotel room supply, reduced international or local demand for hotel rooms and associated services, competition in the industry, government policies and regulations, fluctuations in interest rates and foreign exchange rates and other social factors. Since demand for hotels is affected by world economic growth, a global recession could also lead to a downturn in the hotel industry.

2. Socio-political risks

In addition to economic risks, the Company also faces risks from the socio-political environment and is affected by events like political instability, conflict between nations, threat of terrorist activities, occurrence of infectious diseases, extreme weather conditions and natural calamities, etc. which may affect the level of travel and business activity.

3. Competition

The Indian subcontinent and the state of Goa with vast opportunities and potential for high growth has become the focus area of major international chains. Several of these chains have established and others have their plans to establish hotels to take advantage of these opportunities. These entrants are expected to intensify the competitive environment. The success of the Company will be dependent upon its ability to compete in areas such as room rates, quality of accommodation, service level and convenience of location and also to some extent, the quality and scope of other amenities, including food and beverage facilities.

4. Revenue Concentration

High concentration in any single business segment exposes the Company to the risks inherent in that segment. The quest for diversified activities within the existing realm of overall management after due consideration of the advantages and disadvantages of each activity is consistent with company policy of increasing business volumes with minimum exposure to undue risks. Concentration of revenue from any particular brand or segment of industry is sought to be minimized over the long term by careful extension into other activities, particularly in areas where the Company has some basic advantage.

To counter pricing pressures caused by strong competition, the Company has been increasing operational efficiency and continues to take initiatives to move up the guest satisfaction scale besides cost reduction and cost control initiatives.

5. Inflation and Cost Structure

The industry in general has a high operating leverage. At organizational level, cost optimization and cost reduction initiatives are implemented and are closely monitored. The Company controls costs through budgetary mechanism and its review against actual performance with the key objective of aligning them to the financial budgets. The focus on these initiatives will further inculcate across the organization the importance of cost reduction and control.

6. Financial Reporting Risks

Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure can create uncertainty for companies. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time, as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such corporate governance standards.

The Company is committed to maintaining high standards of compliances, corporate governance and public disclosure and complying with evolving laws, regulations and standards in this regard would further help us address these issues.

The Company has followed the Indian Accounting Standard specified under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances including consultation with experts in the field, scrutiny of published data for the particular sector or sphere, comparative study of other available corporate data, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These may carry inherent reporting risks.

7. Risk of Corporate accounting fraud:

Accounting fraud or corporate accounting fraud are business scandals arising out of misusing or misdirecting of funds, overstating revenues, understating expenses etc. The Company inorder to mitigate this risk considers the following:

• Understanding the applicable laws and regulations

• Conducting risk assessments

• Instituting and monitoring code of conduct and Whistle blower/vigil mechanism

• Deploying a strategy and process for implementing the new controls

• Adhering to internal control practices that prevent collusion and concentration of authority

• Employing mechanisms for multiple authorization of key transactions with cross checks

• Scrutinizing of management information data to pinpoint dissimilarity of comparative figures and ratios

• Creating a favorable atmosphere for internal auditors in reporting and highlighting any instances of even minor non-adherence to policies and Standard operating procedures and a host of other steps throughout the organization.

8. Legal Risk

Legal risk is the risk in which the Company is exposed to legal action. As the Company is governed by various laws and has to do its business within four walls of law, where it is exposed to legal risk exposure. Focus is to be given on evaluating the risks involved in a contract, ascertaining our responsibilities under the applicable law of the contract, restricting our liabilities under the contract, and covering the risks involved, so that adherence to all contractual commitments can be ensured.

Management places and encourages its employees to place full reliance on professional guidance and opinion and discuss impact of all laws and regulations to ensure companys total compliance. Advisories and suggestions from professional agencies and industry bodies, etc. are carefully studied and acted upon where relevant.

The Company has established a compliance management system in the organization and the quarterly compliance reports from functional heads are taken and the non compliances and delays, if any, are reported to the Audit Committee and the Board of Directors.

9. Compliance with Local Laws

The Company is subject to additional risks related to complying with a wide variety of local laws, restrictions. The Company strives to place robust process with the help of consultants to mitigate and minimize such compliance risk under municipal laws of the land.

10. Quality and Project Management

Our commitment towards total Quality Management is to forge the Human Resources of our organization into a team that promotes continual improvement in quality of hotels and services. Considerable focus is given to adherence to targeted dates and commitment to quality in every project and customer feedback is studied by adopting various methods including personal interaction, wherever required, during and after project completion.

11. Environmental Risk Management

The Company endeavors to protect the environment in all its activities, as a social responsibility and strives to avoid any situation causing a risk to the environment and community at large.

12. Human Resource Management

The Companys Human Resources (HR) Department adds value to all its hotel units by ensuring that the right person is assigned to the right job and that they grow and contribute towards organizational excellence. Our growth has been driven by our ability to attract good quality talent and effectively engage them in right jobs.

Risk in matters of human resources are sought to be minimized and contained by following a policy of providing equal opportunity to every employee, inculcate in them a sense of belonging and commitment and also effectively train them in spheres other than their own specialization. Employees are encouraged to make suggestions on innovations, cost saving procedures, free exchange of other positive ideas relating to hospitality industry etc. It is believed that a satisfied and committed employee will give his best and create an atmosphere that cannot be conducive to risk exposure.

Employee-compensation is always subjected to fair appraisal systems with the participation of the employee and is consistent with job content, peer comparison and individual performance. Packages are inclusive of the proper incentives and take into account welfare measures for the employee and his family.

We seek to provide an environment that rewards entrepreneurial initiative and performance.

13. Increased outbound travel

Recent competitiveness in international airfares and strengthening financial health of Indian people resulted in destinations like Europe, South East Asia and Australia becoming more affordable to the average Indian traveler. This has increased outbound travel and presents a risk to the domestic segment for leisure resorts.

RISKS SPECIFIC TO THE HOTEL AND THE MITIGATION MEASURES

1) Business dynamics: The key risk is variation of the occupancy rates including seasonal occupancy rates.

Risk mitigation measures: Based on experience gained from the past and by following the market dynamics as they evolve, the Company is able to predict the demand during a particular period and accordingly an advance operational policy is formed for maximum customer satisfaction and to mitigate any consequential losses.

2) Business Operations Risks: These risks relate broadly to the Companys organization and management, such as planning, monitoring and reporting systems in the day to day management process namely:

Organisation and management risks, Time, cost and quality risks related to development,

Business interruption risks, Profitability

Risk mitigation measures:

The Company functions under a well-defined organization structure, Flow of information is well defined to avoid any conflict or communication gap between two or more Departments. Proper policies are followed in relation to maintenance of inventories of raw materials, consumables. Effective steps are being taken to reduce cost of services without compromising on the quality of the services on a continuing basis taking various changing scenarios in the market.

3) Credit Risks

Risks in settlement of dues by customers/travel agents, Provision for bad and doubtful debts

Risk Mitigation Measures:

Systems are put in place for assessment of creditworthiness of customers/travel agents, Provision for bad and doubtful debts made to arrive at correct financial position of the Company, Appropriate recovery management and follow up.

4) Logistics Risks

Use of outside contractual sources/vendors

Risk Mitigation Measures:

Exploring possibility of an in-house or better logistic mechanism if the situation demands

5) Market Risks/Industry Risks

Demand and Supply Risks ,Quantities, Qualities, Suppliers, lead time, interest rate risks and Interruption in the supply of products for use in hotels .

Risk Mitigation Measures:

Products are procured from different sources at competitive prices ,Alternative sources are developed for uninterrupted supply ,Demand and supply are external factors on which company has no control, but however the Company makes its plans from the experience gained in the past and an on-going study and appraisal of the market dynamics, movement by competition, economic policies and growth patterns of different segments of users of companys services, The Company takes specific steps to reduce the gap between demand and supply by expanding its customer base, improvement in its product profile, delivery mechanisms, technical inputs and advice on various aspects of debottlenecking procedures, enhancement of capacity utilization etc

Proper inventory control systems have been put in place.

6) Human Resource Risks Mitigation Measures:

Company has proper recruitment policy for recruitment of personnel at various levels in the organization. Proper appraisal system for revision of compensation on a periodical basis is evolved, Employees are trained at regular intervals to upgrade their skills, Labour problems are obviated by negotiations and conciliation, Activities relating to the Welfare of employees are undertaken and Employees are encouraged to make suggestions and discuss any problems with their Superiors.

7) Disaster Risks

Natural risks like fire, floods, earthquakes, etc.

Risk Mitigation Measures:

The properties of the Company are insured against natural risks, like fire, flood, earthquakes, etc. with periodical review of adequacy, rates and risks covered under professional advice, Fire extinguishers are placed at fire sensitive locations, First aid training is given to watch and ward staff and safety personnel, Workmen of the Company are covered under ESI, EPF, etc., to serve the welfare of the workmen .

8) IT System Risks

System capability, System reliability, Data integrity risks, Coordinating and interfacing risks

Risk Mitigation Measures:

Maintenance department maintains, repairs and upgrades the systems on a continuous basis with personnel who are trained in software and hardware, Password protection is provided at different levels to ensure data integrity , Licensed software is being used in the systems, Company ensures "Data Security", by having access control/ restrictions.

9) Legal Risks

These risks relate to the following:

Contract Risks, Contractual Liability, Frauds, Judicial Risks, Insurance Risks, Health and Safety Hazards.

Risk Mitigation Measures:

A study of contracts with focus on contractual liabilities, deductions, penalties and interest conditions is undertaken on a regular basis. The Finance department and Legal team vets and finalizes all legal and contractual documents with legal advice from Legal professionals/ outside counsels as per the requirement. Internal control systems for proper control on the operations of the Company to detect any frauds, Insurance policies are audited to avoid any later disputes, Timely payment of insurance and full coverage of properties of the Company under insurance, Regular medical check-up of the employees located at the hotels to avoid any cause, infection or spread etc. of any communicable diseases.

10) Project Implementation Risk:

The Company may be impacted by delays in implementation of project which would result in increasing project cost and loss of potential revenue.

Risk Mitigation measure:

To mitigate the risk, the Company has in place an experienced project team supported by the leading external technical consultants and dedicated project management team. The Company will endeavour to complete its projects on time at optimal cost so as to maximize the profitability.

RISK TOLERANCE LEVEL

The Companys risk tolerance will always be limited by its focus on the need to maximize long term distributions and the fundamental long term value of its properties and services. The Company has adopted a risk management strategy that aims to identify and minimize the potential for loss, while also maximizing strategic opportunities for growth in enhanced service delivery and profitability.

ROLES AND RESPONSIBILITIES

(a) Board responsibility

The Board is responsible for the oversight of the risk management framework. This includes: policies and procedures related to risk management, risk profile, risk management and assessing the effectiveness of risk oversight and management.

(b) Audit Committee

The Audit Committee is responsible for advising the Board on risk management and compliance management and to assist the Board in fulfilling its risk management and oversight responsibilities.

(c) Risk Management Committee

The Risk Management Committee will drive the process of risk management and report new risks or changes to existing risks to the Audit Committee and will submit its half yearly report to the Audit Committee/ Board about the measures taken for mitigation of Risk in the organization.

(d) Function Heads and Hotel General Manager responsibility

All Function Heads, and the Hotel General Manager are responsible to ensure that systems, processes and controls in the Company and its hotels are in place to position identified risk at an acceptable level.

(e) Employee responsibility

All employees of the Company must report any new risks or changes to existing risks (if any) to their managers or supervisors as soon as they become aware of the risk.

(f) External auditor

The external auditor is responsible for providing an independent opinion of the financial results of the Company. In undertaking this role, the auditor also provides comments on the management of risk and assists the Company in the identification of risk.

REPORTING

The Risk Management Committee must report new risks or changes to existing risks to the Chairman of the Audit Committee as soon as practicable after becoming aware of such risks. The intended outcomes of the risk management programme include:

a) the establishment of a robust risk management framework and internal control system that enhances Companys ability to meet its strategic objectives;

b) improved operating performance and reliable internal and external reporting;

c) increased awareness and management of risk;

d) compliance with policies and procedures and applicable laws and regulations.

8. Internal Controls:

Your Companys Internal Auditors carryout audit of the transactions of the Company periodically, in order to ensure that recording and reporting are adequate and proper. The Internal Audit also verifies whether internal controls and checks & balances in the systems are adequate and proper.

Corrective actions for any weaknesses in the system that may be disclosed by the Audits are taken. The internal audit is based on an exhaustive list of parameters which identifies the critical issues needing immediate management attention. Processes are strengthened as and where required.

The Audit Committee of the Board reviews the important observations of the Internal Audit and suggests corrective actions for the management to implement. The Internal Audit team also assesses the risk faced by the company, steps taken to mitigate the risk and holds discussions with the management on the subject in order to create awareness of the risks and to take appropriate actions for reducing the impact and frequency of occurrence of the risks.

The Audit Committee of the Company meets periodically to review and recommend quarterly, half-yearly and annual financial statements of the Company. The Committee also holds discussions with the internal auditors, statutory auditors and the management on the matters relating to internal controls, auditing and financial reporting. The Committee also reviews with the statutory auditors, the scope and observations of the audits.

Mystery audits and monitoring systems by an independent external auditor to ensure service parameters are as per international standards, are carried out periodically. Internally cross audits, total quality management and intensive trainings are conducted regularly.

Guest feedback are taken up seriously and responded to within 24 hours to ensure maximum guest delight and repeat business.

9. Human Resources:

As on March 31, 2020 the Company had 234 permanent employees across two hotels, Cidade de Goa - IHCL Selections and Taj Hotel and Convention Centre Goa. Fomento Resorts and Hotels Limited has let out the management of Cidade de Goa to Indian Hotels Company Limited from April 01, 2019. Taj Hotel and Convention Centre Goa was added to the portfolio of Fomento Resorts and Hotels Limited from March 2020. This merger has opened the doors for our employees to grow bigger in their existing roles with the enhanced process orientation and standards. This merger also gives an opportunity to our employees to seek growth opportunities with the other hotels under the IHCL brand.

Our employees continue to be our most valuable assets. In the last year, ‘Building Bridges workshops were undertaken at Cidade the Goa with the objective of not only creating oneness among the existing employees of Cidade de Goa and new employees deputed to the hotel by IHCL, but to also help all employees imbibe the IHCL culture of Tajness. In addition, supervisory and extensive functional skills training has also been conducted. This merger has created a lot of excitement among the employees, especially the ones who wish to grow by relocating into other IHCL hotels. Fast track management development programs existing under IHCL is another area which can be beneficial to all the employees. Q Chats, a performance review process, are conducted every quarter and this forms the base for the annual appraisals. Employees are encouraged to express their feedback on a daily basis about any of the aspects related to their work life through V Connect, an app based continuous engagement initiative. Employee well-being is also another important area which was focused upon in the last financial year through promotion of healthy eating habits and emphasis on fitness regimes. Reward and Recognition is driven through STARS, abbreviation for Special Thanks And Recognition System, wherein employees can earn points through guest engagement, colleague compliments, and by giving their valuable suggestions to the hotel. The employees are rewarded as per the tiers - Platinum, Gold and Silver, that they have reached during the year. A total of 175 employees were touched by STARS in last year with 2 employees on Platinum, 6 on Gold and 14 on Silver levels.

In order to enhance efficiency levels, shared services concept has been implemented to manage both hotels. Multitasked workforce has also been implemented towards attaining this objective. This model focuses on managing 02 hotels within the radius of 500 metres and imparting multi-tasking skills to all these employees in a bid to leverage them as a collective strength, which will thereby be beneficial to both the sister concerns whenever a need arises.

10. Indias travel and tourism industry Outlook

India is a large market for travel and tourism. It offers a diverse portfolio of niche tourism products - cruises, adventure, medical, wellness, sports, MICE, eco-tourism, film, rural and religious tourism. India has been recognized as a destination for spiritual tourism for domestic and international tourists. In his Independence speech from Red Fort, Prime Minister Narendra Modi urged people to visit 15 domestic tourist destinations in India by 2022 to promote tourism. India ranked 34 in the Travel & Tourism Competitiveness Report 2019 published by the World Economic Forum.

Total contribution by travel and tourism sector to Indias GDP is expected to increase from Rs 15.24 lakh crore (US$ 234.03 billion) in 2017 to Rs 32.05 lakh crore (US$ 492.21 billion) in 2028. Total earning from the sector in India is targeted to reach US$ 50 billion by 2022.

As of 2019, 4.2 crore jobs were created in the tourism sector in India, which was 8.1 per cent of the total employment in the country. International Tourists arrival is expected to reach 30.5 billion by 2028. e-Visa facility was offered to 169 countries as of December 2019.

During 2019, foreign tourist arrivals (FTAs) in India stood at 10.89 million, achieving a growth rate of 3.20 per cent y-o-y. During 2019, FEEs from tourism increased 4.8 per cent y-o-y to Rs 1,94,881 crore (US$ 29.96 billion). During 2019, 10.89 million foreign tourists arrived in the country. In 2019, arrivals through e-Tourist Visa increased by 23.6 per cent y-o-y to 2.9 million.

Under the Swadesh Darshan scheme, 77 projects have been sanctioned of worth Rs 6,035.70 crore (US$ 863.60 million). In Union Budget 2020-21, the government has allotted Rs 1,200 crore (US$ 171.70 million) for the development of tourist circuits under Swadesh Darshan for Northeast.

The launch of several branding and marketing initiatives by the government of India such as ‘Incredible India! and ‘AthitiDevo Bhava has provided a focused impetus to growth. The Indian government has also released a fresh category of visa - the medical visa or M-visa, to encourage medical tourism in the country. The government is working to achieve one per cent share in worlds international tourist arrivals by 2020 and two per cent share by 2025.

The government is also making serious efforts to boost investment in the tourism sector. In the hotel and tourism sector, 100 per cent FDI (Foreign Direct Investment) is allowed through the automatic route. Hotel & Tourism sector has received cumulative FDI inflow of US$ 13.210 billion between April 2000 and December 2019. In Union Budget 2019-20, the government introduced a Tax Refund for Tourists (TRT) scheme in line with countries like Singapore to encourage tourists to spend more in India and boost tourism. The government of India also announced to develop 17 iconic tourist sites in India into world-class destinations as per Union Budget 2019-20.

11. Guest Experience:

Inspired by traditional Indian hospitality, IHCLs unique service philosophy has been honed over 100 years. IHCLs service revolves around being personalized and providing a strong sense of place to guests. The experience standards are periodically refined to provide the brands promise and be relevant.

12. Sales & Marketing Initiatives:

The Indian Hotels Company Limited has global sales teams located across 13 locations including India, US, UK, Dubai and Australia. They are responsible for driving sales for all the brands of IHCL.

Experienced teams with strong relationships with Corporates, Travel Consortia, Travel Management Companies, Meetings Incentives, Conferences and Events organizers including Professional Conference Organizers and 3rd party sites.

A special team focuses on Weddings and social events. Travel Industry Sales focuses on Key wholesalers, tour operators, travel agencies and luxury travel specialists. In addition manage programs with Luxury specialists such as Virtuoso, Signature, Traveler Made and Amex Fine Hotels and Resorts.

Our Revenue Management and Distribution team provide solutions for managing pricing and inventory to ensure maximization of revenues and profits for the hotels. The various distribution systems include the Taj Reservations Worldwide providing 24 x 7 toll free reservation services for all hotels, Global Distribution Systems, Direct web distribution and third party websites. IHCL has close associations and partnerships with leading consortia and global agents. Our Corporate Marketing drives a range of dynamic, innovative and market specific initiatives including strategic customer and B2B advertising, omni channel media outreach and strong marketing products to ensure a globally reputable brand.

13. Awards and Accolades:

In fiscal 2020, the following OTA awards were conferred: Cidade de Goa

Expedia - Top New Hotel Partner

Make My Trip - Star Partners Award 2019

14. Safety, Health And Environment:

Safety and Security is critical to safeguarding the lives of Guests, Associates and all stakeholders as well as protecting the Companys assets. The Company is committed to ensuring compliance with all applicable Safety and Security regulations and codes. Employees will protect their Health, Safety and Security by following policies, procedures, rules and instructions as prescribed.

Sustainability is a prerequisite for our operations. Teams work behind the scenes to maximize resource efficiency, ensuring that water and energy are used judiciously and waste is reduced. To enable our guests to enjoy their stay while limiting their carbon footprint, we maximize our use of renewable energy, invest in water efficient infrastructure and constantly work towards ambitious targets for emissions reduction.

15. Cautionary Statement:

Statement in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable securities law and regulations. Actual results would differ materially due to impact of supply and demand forces, price conditions in domestic and overseas market. As forward looking statements are based on certain assumptions and expectations of future events over which the Company exercises no control, the company cannot guarantee their accuracy nor can it warrant that the same will be realized by the company. The company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent development or on event of any loss that any investor may incur by investing in the shares of the company based on the" forward looking statements."