Royal Orchid Hotels Ltd Management Discussions.

ECONOMIC OUTLOOK

The COVID-19 pandemic has changed the prospects of the global economy for the short-, the medium- and potentially for the long-term. In the short-term, as governments throughout the world introduce stringent measures limiting physical mobility and social activity to slow the spread of the virus and avert a health crisis, economic activities have contracted. This has led to a decline in global GDP during the first half of 2020. Slowly but steadily the wheels of the economy have started moving and are now making a u-shaped recovery versus a projected v-shaped pattern. Various economic thought leaders currently estimate global GDP growth to fall at -4.5 %for 2020 compared to 2019. Medium-term, GDPs of countries like India are expected to return to its pre-COVID-19 levels by May-2021, for mature economies, it is likely to last at least until the end of 2021 before the output fully recovers. Longer-term, beyond 2021, the outlook for the global economy is yet to be ascertained as it is contingent on quelling the rise of the second wave of infections.

India, in particular, which grew 6.8 percent for the fiscal year 2018 is expected to recover at a rate of 5.5 percent in 2021

Developing Economies Real GDP Growth Baseline Forecasts: 2019-2027

Global Tourism

Available data reported by destinations point to a 22% decline in arrivals in the first three months of the year, according to the latest UNWTO World Tourism Barometer. Arrivals in March dropped sharply by 57% following the start of a lockdown in many countries, as well as the widespread introduction of travel restrictions and the closure of airports and national borders. This translates into a loss of 67 million international arrivals and about US$80 billion in receipts (exports from tourism).

Although Asia and the Pacific show the highest impact in relative and absolute terms (-33 million arrivals), the impact in Europe, though lower in percentage, is quite high in volume (-22 million).

Prospects for the year were downgraded several times since the outbreak and uncertainty continues to dominate. Current scenarios point to possible declines in arrivals of 58% to 78% for the year. These depend on the speed of containment and the duration of travel restrictions and the shutdown of borders. The following scenarios for 2020 are based on three possible dates for the gradual opening up of international borders in July, September, and December.

Domestic demand is expected to recover faster than international demand according to the UNWTO Panel of Experts survey. The majority expects to see signs of recovery by the final quarter of 2020 but mostly in 2021. Based on previous crises, leisure travel is expected to recover quicker, particularly travel for visiting friends and relatives, than business travel.

The estimates regarding the recovery of international travel are more positive in Africa and the Middle East with most experts foreseeing recovery still in 2020. Experts in the Americas are the least optimistic and least likely to believe in recovery in 2020, while in Europe and Asia the outlook is mixed, with half of the experts expecting to see recovery within this year.

Tourism in India

According to industry chamber CII, COVID-19 took a toll on the Indian tourism industry by impacting all its geographical segments - inbound, outbound, and domestic, almost all tourism verticals - leisure, adventure, heritage, MICE, cruise, corporate, and niche segments.

The whole tourism value chain across hotels, travel agents, tour operations, destinations, restaurants, family entertainment venues, and air, land, and sea transportation has been impacted. This has affected states like Uttarakhand, Rajasthan, Kerala, Himachal Pradesh, Goa, Sikkim, and other northeastern states which depend extensively on tourism as a source of state revenue.

The volume of international arrivals is traditionally the globally accepted barometer of a tourism economys success. Luckily for some countries, international arrivals are not the predominant driver of tourism-related economic activity. In India, foreign tourists represent less than a percent of tourism activity. The lions share of tourism activity being domestic, Indias travel and tourism sector will largely be insulated from the immediate aftermath of the pandemic.

The silver lining here is that domestic tourism is expected to steadily rise again over the year as domestic flights have resumed and interstate travel restrictions have been rolled back.

Restrictions on international travel will see a spurt in domestic tourism activity. A KPMG India tourism report on Indian domestic travel and tourism estimates that tourism activity will touch 2.8 billion by 2022. The drivers of growth could be two-fold. First, there would be multiple citizens coming out of nearly two months of lockdown who would be itching to travel and experience normalcy. We could see a weekend tourism boom, with people travelling to familiar destinations preferring cars over mass transit options. Second, 40 million Indians who would have otherwise planned to vacation overseas are largely restricted to domestic travel. As confidence in air travel resumes, long haul destinations beyond the ‘four-hour travel barrier will see heightened activity. Together these travellers will generate significant additional revenue for the currently ailing industry.

For perspective, Indians spent a whopping USD 26 billion on international travel last year, as per World Bank estimates. The quantum of money spent by Indians on foreign shores is equal to a tenth of the travel and tourism sectors contribution to the Indian economy. Contrary to what some may presume, Indians are among the most lavish spenders in the world. According to Forbes, an average Indian spends around US$ 1,200 per overseas trip. In contrast, an American spends US$ 700 while a Briton spends US$ 500. The average Indian spends almost four times more than even the Chinese, the biggest volumetric influence of global travel and tourism. With the sheer volume of activity that jet-setting Indians splurge on, there would be a resultant spike in economic activity.

Government Initiatives:

The timing could not be more opportune as the Ministry of Tourism has been working tirelessly on strategies to boost domestic tourism. A result of the prime ministers independence-day speech last year, when he exhorted citizens to explore 15 new destinations over the next three years. The ‘Dekho Apna Desh campaign by the ministry is likely to intensify in the coming months as early initiatives and teasers have been well received.

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 ‘Athiti Devo 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 two percent of the worlds share of tourism by 2025.

The ministry has revamped the Incredible India website, showcases India as a holistic destination, revolving around major experiences, such as spirituality, heritage, adventure, culture, yoga, wellness and more. Going forward, the website will be available in Hindi and leading international languages.

Also, the "Adopt a Heritage: Apni Dharohar, Apni Pehchaan" project is a collaborative effort by both the tourism and culture ministry and Archaeological Survey of India, state or UT governments for developing tourist amenities at heritage or the tourist sites and making them tourist-friendly, in a planned and phased manner. The tourism ministry has signed 27 Memorandum of Understanding (MoUs) to date under the Adopt a Heritage project.

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.

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

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

• Ministry of Tourism launched an audio Guide facility App called Audio Odigos for 12 sites in India (including iconic sites).

• Prime Minister, Mr. Narendra Modi urged people to visit 15 domestic tourist destinations in

• India by 2022. • Under Budget 2020-21, the Government of India has allotted Rs 1,200 crore (US$ 171.70 million) for the 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 the development of tourist circuits under PRASHAD scheme.

• In 2019, the Government reduced GST on hotel rooms with tariffs of Rs 1,001 (US$ 14.32) to Rs 7,500 (US$ 107.31) per night to 12 percent and those above Rs 7,501 (US$ 107.32) to 18 percent to increase Indias competitiveness as a tourism destination.

• In September 2019, Japan joined a band of Asian countries, including Taiwan and Korea among others, to enter Indias tourism market

Outlook

COVID has temporarily slowed down the growth of travel, tourism and hospitality but the industry at large is expected to bounce back by May 2021. Tourism in India has significant potential considering the rich cultural and historical heritage, variety in ecology, terrains and places of natural beauty spread across the country. According to WTTC, India ranked third among 185 countries in terms of travel and tourisms total contribution to GDP in 2018. India ranked 34 in the Travel and Tourism Competitiveness Report 2019 published by the World Economic Forum.

India is also 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 income have supported 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 3.20 per cent Y-O-Y. During 2019, FEEs from tourism increased by 4.8 per cent y-o-y to Rs 1,94,881 crore (US$ 29.96 billion). In 2019, arrivals through e-Tourist Visa increased by 23.6 per cent y-o-y to 2.9 million.

With all that is happening, Royal Orchid hotels remains steadfast and committed to delivering exceptional value to all our stakeholders. We are constantly exploring and identifying opportunities to strengthen our position in the mid-market segment. Royal Orchid Hotels also continues to remain amongst the top 20 hotels in India in terms of room inventory.

While our asset-light strategy has put us on a path of increased profitability with minimal increase in costs. Our robust infrastructure, strong brand recall and digital-first policy have aided in winning management contracts through the year.

We at Royal Orchid Hotels remain optimistic because travel has become an important part of everyones life and it is no longer considered a luxury but a necessity to break away from a mundane routine and rejuvenate, we are positive that travel will revive soon.

Details of internal control system and their adequacy and discussion on financial performance with respect to operational performance and employee/ HR details are given in the directors report and financial statements and Disclosures required to be made under Prevention of sexual harassment policy are made under Business Responsibility Report which forms a part of this annual report.

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

(Rs. crore)

Instrument* Previous Rated Amount Current Rated Amount Rating Action
Long-term 46 46 [ICRA]BBB (Stable);
Total 46 46 Rating outstanding

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

(RS. IN LAKHS)

PARTICULARS 2019- 20 2018 -19
ROYAL ORCHID HOTELS LTD AUDIT FEES 46.75 40.25
OTHER SERVICES 0.5
REIMBURSEMENT EXPENSES 1.63 1.38
TOTAL 48.38 42.13
ICON HOSPITALITY PRIVATE LIMITED
AUDIT FEES 5.75 5.75
REIMBURSEMENT EXPENSES 0.2
TOTAL 5.75 5.95
COSMOS PREMISES PRIVATE LIMITED
AUDIT FEES 5.75 5.75
REIMBURSEMENT EXPENSES 0.25 0.21
TOTAL 6.00 5.96
MARUTI COMFORTS & INN PRIVATE LIMITED
AUDIT FEES 5.75 5.75
REIMBURSEMENT EXPENSES 0.64
TOTAL 5.75 6.39