Royal Orchid Hotels Ltd Management Discussions.

ECONOMIC OUTLOOK

2020 was a year everyone wanted to forget in a hurry. A press release by the IMF stated the that the global economic down turn caused by the pandemic was the “ Worst Economic Downturn Since the Great Depression". Last years nationwide lock downs, mobility restrictions and social distancing led to unparalleled disruptions in the supply-chain and to make matters worse, the overall drop in consumer demand further impacted the economy.

What is encouraging though is that 2021 started of on a brighter note. The dark clouds hovering over the economy started to drift away as the economic activity across the country slowly and steadily started to gather steam with consumers demonstrating greater confidence in stepping out and spending. An RBI report on the Indias economic output in Q4 FY 2021 showed an uptick in gross domestic product (GDP) growth. Indias GDP grew at 1.6 per cent. This comes on top of a 0.5 per cent growth in the previous October-December quarter.

The second wave of the pandemic initially posed a great threat to the countrys nascent economic recovery. A recent poll amongst economist conducted by Reuters indicated that they would be cutting their buoyant outlook only slightly despite the onslaught of the second wave. The United Nations however, raised Indias growth forecast to 7.5 per cent for calendar year 2021, marking a 0.2 per cent increase from its projection in January.

In the report, titled “Strengthening the recovery: The need for speed", Organization for Economic Co-operation and Development (OECD) projected the Indian economy to bounce back as a result of the fiscal measures announced the government.

In an article released in April 2021, Deloitte had stated that “ We continue to remain optimistic about growth despite the rising number of infections. This is because of the strong rebound in manufacturing and several services sectors. We are cautiously optimistic and expect growth to touch 11.7% in FY2022. Growth in FY2022 will likely be a story of two halves, with economic activity picking up rapidly in the second half".

In the same article Deloitte highlighted the five key drivers that will steer growth over the next two years

• The rapid pace of vaccination and low death rates despite high infection

• Strong growth in private investment, and its rebound stimulated by reforms and schemes

• Pent-up demand backed by savings made by high- and mid-income consumers who are waiting to spend

• Fiscal spending on building assets and infrastructure (that have a high multiplier effect on income, jobs, and private investments) that will likely start gaining momentum on the ground

• Global economic rebound in late 2021, especially driven by the United States, as predicted by their US economists.

Global Tourism

Having lost over $4.5 trillion and 62 million jobs in 2020, global tourism industry was desperately hoping to make come back this year. The fallout of the second and third waves and the ever-mutating virus led to further setbacks for global tourism. In Q3 of FY 2021, destinations around the world welcomed 180 million fewer international arrivals compared to the Q1 of last year. Asia and the Pacific continued to suffer the lowest levels of activity with a 94% drop in international arrivals over the three-month period. Europe recorded the second largest decline with - 83%, followed by Africa (-81%), the Middle East (-78%) and the Americas (-71%). This all follows on from the 73% fall in worldwide international tourist arrivals recorded in 2020, making it the worst year on record for the sector.

However, the Secretary-General of United Nations World Tourism Organisation (UNWTO), Zurab Pololikashvili is confident that things will get better. In a recent press release he commented “There is significant pent-up demand and we see confidence slowly returning. Vaccinations will be key for recovery, but we must improve coordination and communication while making testing easier and more affordable if we want to see a rebound for the summer season in the northern hemisphere."

The latest survey of the UNWTO Panel of Tourism Experts shows prospects for the May-August period improving slightly. Alongside this, the pace of the vaccination rollout in some key source markets as well as policies to restart tourism safely, most notably the EU Digital Green Certificate, have boosted hopes for a rebound in most markets. Overall, 60% expect a rebound in international tourism only in 2022, up from 50% in the January 2021 survey. The remaining 40% see a potential rebound in 2021, though this is down slightly from the percentage in January.

A McKinsey report on when global tourism is expected to bounce back shows that all is not lost and we are well on way to reach pre covid levels in the next 2 years

Tourism in India

UNWTO highlights the potential of domestic tourism as a way to boost economic and tourism recovery in destinations around the world. They explain that as global travel restrictions begin to ease, destinations all over the world are focusing on the growing domestic travel, with many offering promotions for travelers to meet and visit their own countries as an ideal opportunity for destinations and tourism businesses - in both developed and developing countries - to recover from the social and economic impacts of the COVID-19 pandemic.

The domestic hospitality industry has been one of the worst-hit sectors, severely affected by the COVID-19 pandemic and subsequent lockdowns, which restricted mobility and hotel occupancies in all the major markets, the Icra report stated. Icra research observed that pan-India occupancy hit an all-time low of 18-20 per cent in eight months of the financial year 2021, down from 64-65 per cent in the previous year.

The average room rates (ARR)s was at Rs 3,400-3,500 per night, a discount of 35-40 per cent, while the RevPAR declined by about 80 per cent during the period under consideration. Although some sequential improvement has been witnessed since September 2020.

Domestic tourism in India is helping to soften the blow, at least partially, and the government has taken some action to restore and re-activate the sector, while protecting jobs and businesses. The revenge travel behavior has kickstarted in the India market, with 2020 being a silent year for avid travellers. In the travel world, social distancing has now become the new mantra. People are now looking at unexplored and less crowded destinations, which naturally provides social distancing, for their next vacation.

Icra VP and Sector Head Pavethra Ponniah said "FY22 will see the industry witnessing over 120 per cent growth in revenues and operating margins clawing up to 13-15 per cent supported by pick-up in revenues and some continued benefits of the large-scale cost rationalisation measures undertaken during the pandemic, particularly in staffing".

Indias hospitality industry witnessed a decline of 54.9 per cent in revenue per available room (RevPAR) during January to December 2020, as compared to calendar year 2d9, JLLs Hotel Momentum India (HMI) Q4 2020 said. Goa continues to be the RevPAR leader in absolute terms despite a decline of 33.3 per cent in Q4 2020 compared to Q4 2019.

A press release by Technavio indicates that The travel services market in India is expected to grow by USD 11.11 billion during 2021 -2025, expanding at a CAGR of almost 12%.

Indias travel and tourism industry has the potential to expand by an additional 2.5% on the back of higher budgetary allocation and low-cost healthcare facility according to a joint study conducted by Assocham and Yes Bank.

Government Initiatives

The Indian Government has realised the countrys potential in the tourism industry and has taken several steps to make India a global tourism hub.

Some of the major initiatives planned by the Government of India to boost the tourism and hospitality sector of India are as follows:

• Government is planning to boost the tourism in India by leveraging on the lighthouses in the country. 71 lighthouses have been identified for development as tourist spots.

• The Ministry of Road Transport and Highways has introduced a new scheme called All India Tourist Vehicles Authorisation and Permit Rules, 2021, in which a tourist vehicle operator can register online for All India Tourist Authorisation/Permit. This permit will be issued within 30 days of submitting the application.

• In February 2021, the Ministry of Tourism under the Government of Indias Regional Office (East) in Kolkata collaborated with Eastern Himalayas Travel & Tour Operator Association (resource partner) and the IIAS School of Management as (knowledge partner) to organise an Incredible India Mega Homestay Development & Training workshop. 725 homestay owners from Darjeeling, Kalimpong and the foothills of Dooars were trained in marketing, sales and behavioural skills

• On January 25, 2021, Union Tourism and Culture Minister Mr. Prahlad Singh Patel announced plan to develop an international-level infrastructure in Kargil (Ladakh) to promote adventure tourism and winter sports.

• The Indian Railway Catering and Tourism Corporation (IRCTC) runs a series of Bharat Darshan tourist trains aimed at taking people to various pilgrimages across the country.

• On November 4, 2020, the Union Minister of State (IC) for Tourism & Culture Mr. Prahlad Singh Patel inaugurated the “Tourist Facilitation Centre" facility constructed under the project “Development of Guruvayur, Kerala" (under the PRASHAD Scheme of the Ministry of Tourism).

• The Ministry of Tourisms DekhoApnaDesh webinar series titled 12 Months of Adventure Travel on November 28, 2020, is likely to promote India as an adventure tourism destination.

• On January 26, 2021, Maharashtra Chief Minister Mr. Uddhav Thackeray inaugurated Balasaheb Thackeray Gorewada International Zoological Park in Nagpur. It is Indias largest zoological park spread over 564 hectares and expected to attract ~2.5 million tourists a year.

• The Ministry of Tourism developed an initiative called SAATHI (System for Assessment, Awareness & Training for Hospitality Industry) by partnering with the Quality Council of India (QCI) in October 2020. The initiative will effectively implement guidelines/SOPs issued with reference to COVID-19 for safe operations of hotels, restaurants, B&Bs and other units.

• Ministry of Tourism launched Dekho Apna Desh webinar series to provide information on many destinations and sheer depth and expanse on the culture and heritage of India.

• Statue of Sardar Vallabhbhai Patel, also known as Statue of Unity, was inaugurated in October 2018. It is the highest standing statue in the world at a height of 1 82 metre. It is expected to boost the tourism sector in the country and put it on the world tourism map.

• Under Budget 2020-21, the Government of India has allotted Rs. 1,200 crores (US$ 171.70 million) for development of tourist circuits under Swadesh Darshan for eight Northeast states.

• Under Budget 2020-21, the Government of India has allotted Rs. 207.55 crore (US$ 29.70 million) for development of tourist circuits under PRASHAD scheme.

Company Performance and Other Details:

The details of Financial Performance of Company are given in Clause of Directors report and the details of all the hotels and Management team are given in the Preface of the Annual Report. The Details are also available at the website of the Company (https://www.royalorchidhotels.com/ ).

The details of Internal Control System are given in Clause III (A) of Directors Report.

Details under HR section are given in Annexure III to Directors Report and under Principle III of Section E of Business Responsibility Report.

There were no significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios.

The details of Return on Net worth ( i.e. the amount of profit or earnings a company generates on the sheer strength of its shareholders equity ) are available under Financial Performance and key Financials and Operational Highlights in Directors Report and Note 39 to the Notes to Accounts.

Details of the Credit Rating of the Company are as follows:

(Rs. crore)

Instrument* Previous Rated Amount Current Rated Amount Rating Action
Long-termTerm loan 46 46 [ICRA] Rating: BBB (Stable) Rating Reaffirmed; Outlook revised to Negative from Stable
Total 46 46

Details of Remuneration of the Auditor in the Company and its Subsidiaries are as follows:

PARTICULARS

(RS. IN LAKHS)

2020-21 2019-20
ROYAL ORCHID HOTELS LTD
AUDIT FEES 28.75 40.25
OTHER SERVICES
REIMBURSEMENT EXPENSES 8.13
TOTAL 28.75 48.38
ICON HOSPITALITY PRIVATE LIMITED
AUDIT FEES 5.75 5.75
REIMBURSEMENT EXPENSES
TOTAL 5.75 5.75
COSMOS PREMISES PRIVATE LIMITED
AUDIT FEES 5.75 5.75
REIMBURSEMENT EXPENSES 0.25
TOTAL 5.75 6.00
MARUTI COMFORTS & INN PRIVATELIMITED
AUDIT FEES 5.75 5.75
REIMBURSEMENT EXPENSES
TOTAL 5.75 5.75

Outlook

The second wave of the pandemic might have temporarily slowed down the growth of travel, tourism and hospitality but the industry at large is expected to bounce back with a vengeance. While the suspension of global tourism has hit the Indian industry hard, it is time for us to pay greater attention to the domestic demand. Millions of Indian tourists travel to overseas destinations every year, but, with international destinations being out of bound, they would look for quality domestic alternatives.

Royal Orchid today is poised to seize this opportunity and make good of it. We have already seen a lot of interest being generated in resort destinations, especially our hill station and beach resorts across India. Our innovative and customised packages and deals have caught the attention of the domestic travellers and the bookings have started coming in. Our emphasis is on sustainability and hygiene as well as exclusive experiences as the travellers are increasingly becoming more focused on getting a safe and enriching experience.

In the last couple of months, we went back to drawing board to reset our operations, and re-strategies how we want to conduct processes, business activities and ensure efficiencies in the post-pandemic world. As the months go by, we constantly evolving and becoming more disruptive and agile. Our present strategy is to revive core competencies, facilities and capabilities to create plans and operational infrastructure for the post-pandemic travellers. We completely dropped our short-term gain strategies and focusing solely on value creation in the years to come.