Jindal Hotels Ltd Management Discussions.

The Management Discussion & Analysis covers the details relating to the Industry Structure & Development, Opportunities & Threats, Outlook , Risk & Concerns, discussion on financial performance with respect to operational performance etc.

BRAND DEVELOPMENT

The importance of a brand tie-up in a highly digitalised economy is continuing to become ever more important. Since June 2017 onwards your Company is being managed and operated by ACCOR group of hotels, an international brand that is compatible with the character and culture of our Company to increase business prospects and strengthen the marketing network.

Multiple Demand Drivers to Steer Hotel Business in 2019

There will be multiple factors that will drive the hospitality industry in 2019. Increased connectivity amongst less popular and newer destinations thanks to the UDAN (UdeDeshKaAamNagrik) Scheme by the Government of India and additional flight routes and the launch of operations by airlines to international locations from non-metro and tier 2 towns will drive demand for hotels .Furthermore, Government initiatives like Smart City , Swadesh Darshan, and Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD) , friendly e-visa schemes and the likes, will also propel business and religious travel.

The Indian hospitality market has tremendous growth opportunities and to tap into these, one of our priorities is to densify in key cities and provide quality developments across our various brands. We will continue to grow our most popular brands Novotel and ibis. Our latest offering NovotelVijaywadaVarun (launched in December 2018) and ibis Kolkata Rajarhat (launched in January 2019) will help us showcase our new strategy for the mid-scale and economy segment respectively.

We are also looking at increasing our emphasis on the food and beverage experiences .We have plans to bring in some of the best food and beverage concepts and outlets in India across a number of our properties, which will showcase our popular chefs from across the globe

Prospects & Concerns

The Indian hospitality industry has emerged as one of the key industries driving the growth of the services sector .At the close of 2018, the country saw macroeconomic stability owing to a decline in inflation, and current account deficit (CAD). The Union budget had identified some major pillars that will support economic growth for the country that includes tax reforms, fiscal discipline, investment in infrastructure, ease of doing business, agriculture and farmer welfare, rural sector, social sector, education and job creation. This is said to have translated into an overall pick up in economic activities, thereby having a positive impact on the demand for hotels in the country.

Riding on the back of economic growth due to recovery in the global conditions, resulting in higher movement in the meetings, incentives, conferences and exhibitions (MICE) segment, and the consistently growing middle class having increasingly disposable incomes and a fondness for travel, the hotel industry is expected to post a robust growth. We further expect growth in inflow and potential of tourism due to Statue of Unity - in TIMEs Magazine it has been mentioned as "Greatest Places" to visit. Another factor as a driving force for growth is Indias attractiveness as a medical tourism destination.

2019 Forecast :For better part of this decade, the biggest stumbling block for the hospitality industry was the strong growth in hotel supply, which remained nearly consistent with demand growth. Only recently have the two trend lines started to diverge, with demand outpacing supply. Over the last 2 years, hotel supply grew by 3.7% in 2017 and 3.5% in 2018, whilst demand grew by 7% and 6.8% in the respective years. While both the past years have paved the way for strong growth in demand for 2019 driven by strong economic growth in the country, some headwinds in 2019 are expected to dampen the performance turnout for the year. The first major reason is the countrys general election, during which the commercial market, the main stay for hotels in the country, puts on hold all decision making in anticipation of the election results that could potentially have a material impact on several policy initiatives of the government.

The second major reason is the impact of new hotel supply that is expected to commence operations in the current year. As per estimates, 8,574 keys will enter the market in 2019, a nearly 19% rise over the last two years. Our confidence in the market was reassured by the stellar performance of the first two months of 2019, which recorded a staggering all India growth of nearly 11% in RevPAR, backed by strong growth in both occupancy and ADR in almost all key demand segments in the country. 2020 Forecast While 2019 performance may be dampened by the election, we expect the tide to change in 2020 as market sentiments recover on the assumption that the country will enter the year with a stable government and strong economic growth. Should the above two parameters squarely line up combined with little new supply expected to open in 2020, we anticipate the hotel industry to record its highest occupancy ever since the beginning of the century, outpacing 2006, which was recorded as a superlative year for the industry in this metric.

The value-driven volume customer, seeking a full- service hotel continues to drive the growth in midscale space, leaving far behind the branded economy segment, which is yet to fully find its footing in the Indian market. To add further fuel to fire, the relatively new-kids-on- the-block and considered to be outliers, such as Oyo, Treebo and Fabhotels have very quickly come to dominate the economy segment, setting the goal post a further drift for the mainstream brands.

In times to come, it is assured by Hotel Operator [ACCOR] that these global players have not only strong National but also International Sales and Marketing Set up. With growing number of hotels in each chain, they are also able to tie up with many Airlines, Credit Card Companies and offer attractive loyalty programmes for the customers. The management continues to expect that there will be increment in Online business and improvement in room occupancy rate due to renovation, refurbishment and up gradation of guest rooms, supported by prevalent personalized service and provision of special amenities for guest comfort and also VLU Cards. As an outcome of patronage & loyalty strategies , Company has introduced VLU card for all those who have ever visited Surya Palace in the last 30 years. This card is absolutely free and comes with a host of benefits. A special banquet bonanza wherein VLU card holders can host a wedding and upto half of the guests could dine free subject to certain conditions and discounts at the restaurants, cake shop, takeaway and rooms. Retaining the workforce even through training and development in the hotel industry is a tedious task as attrition levels are too high.

GST is a mixed bag of better and easier rules and regulations and increased costs and compliances. The biggest issue for the hospitality industry has been the high rate of 18 per cent GST for hotels charging room rentals upto Rs 7,500. Before GST , the guest used to pay 15% Tax (Service Tax 9% + Luxury Tax 6%) on Rooms Sales and 10.5% of Service Tax on Banquet Sales. Now, post GST the customer has to be 18% of Tax on Rooms as well as Banquet Sales.One of the biggest hurdles for the Indian hospitality and tourism industry, in terms of attracting international tourists is that of not having a competitive tax structure. There should be flat tax as room rates are dynamic and based on demand, and the cost of real estate and labour cost varies across the country.There is lack of Parity with Asian Counterparts. As India becomes an even bigger player in the global hospitality and tourism industry, we need services to be at par with global rates .

Current Year

The year 2019 is expected to be a tricky one, especially since 2018 has seen growth in performance over 2017 in almost all major markets across India, with the momentum carrying into the first quarter of 2019, where performance of January & February 2019 is a stellar 11% higher in RevPAR performance than same period last year. The tricky part though is the impact of elections on the industry combined with a strong growth in hotel supply in the year. Given the headstart that 2019 has received coupled with the general momentum that has built over the last two years, we are of the opinion that RevPars will grow. It is evident that the majority domestic hotel companies have developed a niche for themselves. The listing of the first REIT by Embassy and Blackstone will also be very closely watched as the bucket of assets of the REIT contain hotel assets.

Having weathered many adverse situations in the past three years to post consistent growth, the prevailing sentiment in the Indian hospitality industry is of confidence. The reason for this confidence emanates not very much on the high expectations on inbound visitors, but on numerous domestic factors including the emergence of an aspirational young millennial travellers, revival in corporate and business travel in the country, and rapidly evolving connectivity factor in the country.

It is a fact that the appetite to travel and aspiration for certain lifestyles have taken strong roots and that is expected to further deepen in the middle-class Indian in the coming years. The improving connectivity factor in the form of good roads, express highways, regional air connectivity, etc. will certainly boost travel from cities to the hinterland in the coming years. In an encouraging development, for the first time since the UDAN scheme of Regional connectivity was launched, special bidding for connecting destinations of tourism importance has been rolled out by the government recently, which would definitely address issues of connectivity although not immediately but gradually between tourism destinations.

During the Current year in first one and half month the sales and turnover is maintained at an upward trend as compared to previous corresponding period. Your Company continues in its quest for excellence by constant improvement of the guest experience through better service levels, innovative concepts, product upgrades, sales and marketing initiatives etc.We are focusing on regaining social events which will contribute in Food &Beverage and Room business.

Our main forte and focus has been the popularity of Food and Beverages facilities. The foray of Indian restaurants into a variety of global cuisines and food fusion is having a positive impact on the F&B sector. Customers are more willing to experiment with different cuisines because it is now easily accessible in the cities they live in, and this trend had increased Indian consumers frequency of eating out. Average length of stay (ALOS) The demand for hotel rooms in business destinations is usually concentrated around weekdays, i.e., the ORs [Occupancy Rate] are generally lower on weekends. The ALOS for business hotels is usually in the range of 2-2.5 nights with low levels or double occupancy (fewer occasions where more than one person shares the room). While the hotels in leisure destinations the ORs are higher during the weekends and have ALOS of around 2-3 days. The occurrence of double occupancy is also typically higher in leisure destinations.

Demand is likely to surge in the current year. We expect to have increase in market share with the ACCOR brand - several advantages because of its Central Reservation System (CRS).A strong Guest Relations Management (GRM) (Le-Club Loyalty Programme) and VLU cards initiative has been activated. This will ensure that we retain as well as build upon current businesses and consolidate our market positions.

Your Hotels communication campaign is through leading dailies, magazines, hoardings and social networking (Facebook ,Instagram ,Twitter along with other social media options) also. The management has taken active steps to promote the property with some effective marketing initiatives. We are launching some new services to add to the brand portfolio. Internal skill sets are being honed and developed for better utilization and implementation of available resources. With these efforts, we hope to increase the profitability of your Company in the coming years.

Going forward, it is expected that the industry to register an overall healthy growth on back of economic growth. The sector also faces several challenges in terms of complex regulatory environment and inadequate tourism- infrastructure.

Technology will be game-changer: The first trend that is seen is emergence of mixing business and leisure. Hotels across the world are beginning to shift their focus on millennials who are more prone to extend business trips with leisure time. This will blur the line between business and leisure hotels.

Another change that is overdue is providing Frictionless Guest Experience. From strengthening loyalty programs to providing efficient direct-booking channels all play a role in creating a direct relationship with the guest. Technology also plays a great role in this.