Economic Environment And Industry Insight:
GLOBAL ECONOMY: THE YEAR IN REVIEW
The global economy witnessed a recovery in 2022 following two years of a
pandemic-inflicted environment. The International Monetary Fund (IMF) in their report of
April 2023 estimates growth in global Real Gross Domestic Product (GDP) for 2022 to
increase by 3.4% on the back of a 6.3% increase in 2021. A higher-than-usual growth in
2021 was due to a low-base effect of 2020 as a result of the global pandemic during which
GDP contracted by 2.8%. Year 2022 saw inflationary trends across the globe, particularly
in developed economies of United States of America (US), United Kingdom (UK) and Europe,
which resulted in tighter monetary interventions by central banks which in turn stifled
growth. Continuing invasion of Ukraine by the Russian Federation disrupted supply chains
causing an increase in food, commodity and energy prices. Finally, a resurgence of
COVID-19 in China weighed on the global economy in 2022.
IMF forecasts global growth for 2023 to decelerate to 2.8% from 3.4% in 2022 before
rising to 3.0% in 2024. This forecast is lower than expected growth rates a year ago. The
economic slowdown in 2023 is concentrated in advanced economies especially the Euro Area
and UK where growth is expected to fall to 0.8% and -0.3% in 2023. A lower growth in 2023
is attributable to prevailing tight monetary and financial conditions, recent signs of
stress in the banking system, rising debt levels in certain countries including lower and
middle-income countries, rising geo-economic fragmentation, stickier than expected
inflation and no signs of truce in the Russia-Ukraine war. In contrast, emerging and
developing economies are showing stronger economic prospects than advanced economies. In
the medium-term, the IMF forecasts global inflation to fall to 7.0% in 2023 and to 4.9% in
2024 on the back of gradual softening of interest rates, unwinding supply chain
disruptions and a fully reopened Chinese economy putting the global economy back on the
growth track. (Source: IMF - World Economic Outlook Update, April 2023). The World Banks
Global Economic Prospects report of January 2023 was more conservative in its estimates by
forecasting global economic output to decelerate sharply to 1.7% in 2023 and thereafter
grow by 2.7% in 2024.
Among the advanced economies, US grew by 2.1% in 2022 and is estimated to grow at a
slower pace by 1.6% in 2023 and 1.1% in 2024. The UK grew by 4.0% in 2022 but is estimated
to contract by 0.3% in 2023 and thereafter grow by 1% in 2024. UKs contraction is mainly
due to tighter fiscal and monetary policies, financial conditions and high energy prices.
The Chinese economy grew by 3.0% in 2022 and is estimated to grow by 5.2% in 2023 and 4.5%
in 2024. Chinas economy has been opening up since the withdrawal of its zero-tolerance
policy on Covid-19. It reported a good first quarter growth of 4.5% backed by growth in
exports, infrastructure investment as well as a rebound in retail consumption and property
prices. Indias growth rate was 6.8% in 2022 and is estimated to grow by 5.9% in 2023 and
6.3% in 2024 supported by resilient domestic demand. The economies of Maldives and South
Africa grew by 12.3% and 2.0% respectively while Sri Lanka contracted by 8.7% in 2022. In
2023 Maldives and South Africa are estimated to grow by 7.2% and 0.1% respectively while
Sri Lanka is projected to contract by 3.0%. (Source: IMF - World Economic Outlook, April
2023).
INDIAN ECONOMY: THE YEAR IN REVIEW
India is now the fastest growing, major economy in the world. The First Advance
Estimates of National Income released by the National Statistical Office (NSO) of the
Government of India in January 2023 estimates Indias GDP to have grown by 7.0% in FY
2022-23 following a growth of 8.7% in FY 2021-22. Total Consumption grew by 7.0% in FY
2022-23 mainly due to private consumption. Growth in exports for FY 2022-23 seems to have
plateaued at 12.5% while Imports grew by 20.9% in FY 2022-23. By sectors, agriculture grew
by 3.5% during FY 2022-23 after a growth of 3.0% in FY 2021-22. Mining grew by 2.4%,
manufacturing by 1.6% and construction by 9.1% while electricity, gas water supply and
other utilities services grew by 9.0% in FY 2022-23. Services sector exhibited the
strongest growth in FY 2022-23 at 9.1%. Within services, ‘trade, hotels, transport,
communication and broadcasting related services constituting about a third of overall
services, grew by 13.7%. Indias service exports have nearly doubled in a decade to US$
322.72 billion for FY2022-23 according to provisional data of the Ministry of Commerce.
Indias foreign currency reserves stood at US$ 578.45 billion as of March 31, 2023
covering approximately 9 months of imports due to timely interventions of the Reserve Bank
of India (RBI). The consensus of GDP growth for FY 2022-23 was in the range of 6.5% to
7.0%. (Source: India Economic Survey 2022-23 - January 2023 and National Statistical
Office estimates)
Indias economic recovery from the pandemic exhibited a K-Shaped recovery where certain
sectors like information technology, e-Commerce and financial services registered healthy
recoveries while other sectors such as retail trade and consumer discretionary were highly
impacted. Travel and hospitality remained beneficiaries of such recovery. Indias service
exports have risen at a staggering pace since the pre-pandemic period. Service exports
have increased by more than US$60 billion per year as India gains global market share.
Exports are not only of Information Technology services but also professional management
and consultancy, research and development and expanding Global Capability Centers.
This growth is expected to bring in higher employment, higher disposable income and
thus a higher propensity to spend by ‘white-collar people working in such sectors.
This is an important factor in making economic growth broad- based and inclusive. HSBCs
Economic Research believes that there is a growth relay at play. It reported - "The
formal sector drove growth from the pandemic lows and is now passing the baton to the
informal sector, which was weak for several years but has started to grow across the rural
and urban sectors. As a result, for now, overall growth remains stable." (HSBCs
Global Economic Research, March and April 2023)
The outlook for FY 2023-24 is optimistic. Retail inflation ebbed out to 5.6% in March
2023 from a peak of 7.79% in April 2022 and is expected to moderate to 5.2%. Core
inflation which remained above 6% for the year eased to 5.8% in March 2023. Among the high
frequency indicators, direct and indirect tax collection has shown strong momentum, bank
balance sheets are strong, adequately capitalised and credit off take during the year was
highest since FY 2011-12. RBI paused increase in interest rates in April, 2023 after a 250
basis points increase during FY 2022- 23 citing reasons of resilient economic activity and
expected moderation in inflation. The Indian Rupee is stable, the Current Account Deficit
is expected to remain moderate and consumer sentiment is high. (Source: RBI Monetary
Policy, April 2023, Revised Estimates - Ministry of Finance, April 2023).
INDUSTRY INSIGHT
Global Hospitality and Tourism Industry
Global tourism is steadily improving towards pre-pandemic levels consequent to the
relaxation of travel restrictions across countries and increase in demand for travel.
Tourist arrivals internationally for 2022 were 917 million, double that of 2021 but
recovering to 63% of pre-pandemic levels of 2019, according to data from the United
Nations World Tourism Organization (UNWTO). Europe with the largest share of global
inbound tourism registered a 92% increase over 2021 to reach nearly 80% of pre-pandemic
levels. The Middle East had the strongest relative increase among all regions due to large
international events such as Expo 2020 Dubai and the FIFA World Cup in Qatar. Even with a
241% increase in tourist arrivals in 2022 over 2021, Asia and the Pacific remained the
weakest in terms reaching pre- pandemic levels. However, within the region, international
tourist arrivals in South Asia at 25.5 million, were higher by 158% over 2021 and achieved
76% of pre-pandemic levels (Source: UNWTO, Barometer January 2023). According to the
S&P Global Sector Purchasing Managers Index, the Tourism and Recreation sector led a
pick-up in global business activity amongst all sectors recording its sharpest pace since
May, 2022. Transportation recorded the third fastest growth behind software services
(Source: S&P Global Sector PMI April 2023).
Outlook
The UNWTO expects international tourism to consolidate its recovery in 2023 more
specifically in Asia and the Pacific region. It attributes this growth to the recent
opening of several source markets and destinations including China, which was the worlds
largest outbound market in 2019. In December, 2022, 116 destinations had no COVID-19
related restrictions. In addition, improved performance of air traffic and robust travel
demand from
US markets for European holidays backed by a strong US Dollar are expected to be the
other contributors to global growth. Domestic tourism will continue to be a key driver of
recovery of the tourism sector through 2023. Major risks threatening the ongoing recovery
of tourism in 2023 remain economic, health and geopolitical risks. Prime among these are
high inflation and interest rates, spike in oil and food prices, higher transport and
accommodation costs, fear of a global recession, intermittent COVID-19 virus recurrences
and the Russian aggression against Ukraine causing unrest through Europe. UNWTOs
scenarios expect international tourist arrivals to reach 80% to 95% of pre-pandemic levels
in 2023 (Source: UNWTO, Barometer January 2023).
Indian Hospitality and Tourism Industry
FY 2022-23 continued to be a year of strong recovery in the Indian travel and tourism
industry. Restrictions on flights were relaxed in most countries into and from India.
Travel restrictions, documentation and certifications were also progressively relaxed for
travel within India. Consequently, demand for accommodation grew significantly, mainly
arising from domestic leisure travel, weddings, social events, conferences and resumption
of business travel within the country. Foreign tourist arrivals were 6.19 million for the
calendar year 2022 in comparison with 1.52 million in 2021.
Business Review
SHHILs vision is to be ‘Iconic and Profitable Hospitality Company in Hyderabad.
The Company succeeded in executing its plans under Aspiration 2022 up to March 2020 when
the Covid-19 pandemic impacted the global economy by contracting demand, restricting
supply chains, mobility and significantly causing distress to lives and livelihoods. The
Company immediately deployed several plans which stood for Revenue growth, Excellence,
Spend optimisation, Effective asset management and Thrift and financial prudence. These
plans focused on multipronged tactical initiatives to capture market share in a
competitive landscape, scale new businesses built during the pandemic and continue its
initiatives of fiscal prudence. FY 2022-23 was a year where the Company focused on
exceeding its pre-pandemic levels of financial performance, establishing its market
leadership through a recognised brand ecosystem, focus on meaningful contributions through
new businesses and continued to monetise non-core assets. In May 2022, the Company
unveiled its strategy to build on new opportunities, minimise risks and return on the
journey of sustainable profitable growth.
Diversification of Top line – a Cornerstone of SHHILs (Sri Havisha Hospitality
& Infrastructure Limited) Competitive Advantage
Strong macro-economic factors, a robust recovery in the industry and persistent
adherence to its strategy has empowered the Company to register industry leading RevPAR
growth, industry leading brand and portfolio growth, industry leading expansion in
margins, free cash flows, free debt and a strong balance sheet. SHHILs differentiated
strategy of a diversified top line places it in a unique position to navigate economic
cycles. The asset-intensive business consisting of owned and leased properties gives SHHIL
a high operating leverage and hence significant contribution to margins on the upside. Its
asset-light business of managed properties contributes to margins and gives the Company
the necessary hedge in a downturn thus enabling it to stretch the economic cycle and
minimise risks associated with it.
Revenue from accommodation grew comfortably, well above pre-pandemic levels. SHHIL
improved RevPAR over previous benchmarks as well as widened the RevPAR premium over its
competitive set by active revenue management. Growth in room revenue was supported both by
higher occupancies and improved prices. A favourable demand-supply equation helped the
industry increase prices during the year. SHHIL commanded a premium in pricing over the
market even while it increased its market share. The premium it generates over the market
is well supported by its product and service philosophy.
It continuously and systematically invests in renovation, refurbishments and up
gradation of its property. It also has a comprehensive brand management strategy with
Brand Custodians to ensure effective deployment of strategic and operational initiatives
across brands to consistently safeguard the quality of its brands. The Company regularly
engages with its stakeholders to communicate the execution of its strategic actions on
brand and updates on progress.
Food and beverages form a significant proportion of total revenue. The Company has
signature restaurant providing authentic cuisines from across the globe. The drive for
excellence in serving guests unique experiences draw individuals both resident within the
hotel and those residing or visiting the locality. The app-based delivery model adapted in
the recent past provides additional revenue to restaurant by using existing capacity and
developing newer customers. The Company also has exceptional banqueting facilities for
catering social events, trade and corporate conferences across its property. A food and
beverage service has provided SHHIL with a stable source of revenue over the years. Both
restaurant and banqueting have performed exceedingly well in comparison to pre- pandemic
levels.
In Summary
A balanced portfolio of owned, leased and managed property, iconic brand and a robust,
well-diversified top line gives SHHIL the competitive advantage to lead markets and expand
its business. The Companys continued focus on costs, productivity and overheads has made
it lean and flexible while an adequately capitalised, deleveraged and strong balance sheet
strengthens its financial position.
Its framework to drive sustainability and social measures has several short- and
long-term goals to be fulfilled by 2030. Collectively, all these factors enable SHHIL to
improve its margins and sustain long-term, profitable and responsible growth.
Capital Allocation
SHHILs capital allocation process is aimed at creating value by funding and allocating
capital to meet its strategy. This process is based on the following planks:
1. Build a strategic reserve fund with a strong cash position to meet any contingency
the Company may face.
2. Operating capital expenditure for replacement of assets, renovations and
refurbishments to be in line with annual depreciation.
COMPLIANCE
SHHIL deploys a robust internal check process to prevent and limit the risk of
non-compliance. The Company approaches compliance from a proactive standpoint and believes
in responsive intervention. Compliance with laws and regulations is an essential part of
its business operations and it adheres to all national and regional laws and regulations
in such diverse areas as product safety, product claims, trademark, copyright, patents,
competition, employee health and safety, the environment, corporate governance, listing
and disclosure, employment and taxes. Nevertheless, it is focussing on increasing
awareness, documentation and supplementing the expertise of internal professionals with
that of independent consultants, as may be required from time to time.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has institutionalised an adequate system of internal controls, with
documented procedures covering all corporate functions and hotel operating unit. Internal
controls 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.
Internal controls are reviewed through the audit process, which is undertaken for
operational unit and all major corporate functions under the direction of the Internal
Audit. These reviews focus on:
• Identification of weaknesses and improvement areas
• Compliance with defined policies and processes
• Compliance with applicable statutes
• Safeguarding tangible and intangible assets
• Managing risk environment, including operational, financial, social and
regulatory risks
• Conformity with the Code of Conduct
The Boards Audit Committee oversees the adequacy of the internal control environment
through periodic reviews of audit findings as also of the resolution mechanism for
critical audit issues. The statutory auditors have opined in their report that there are
adequate internal controls over financial reporting.
HUMAN RESOURCES
We are a people-led organization. We strive to be an employer of choice by encouraging
our employees to reach their highest potential in an engaging, professional work
environment. Our people are our best assets. Their caliber and commitment is our inherent
strength. With the singular objective of always being the employer of choice, we are
encouraging them to discover and realize their true potential. Acquiring diverse
experiences, accomplishing challenging tasks and continually learning and up skilling is
enabling them to deliver their best to the company.
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL
The Annual Report contains financial statements of the Company. An analysis of the
financial affairs is discussed below under summarised headings.
Your Companys Audited Financial Statements are prepared in accordance with Ind AS
prescribed under Section 133 of the Companies Act, 2013 read with Companies (Indian
Accounting Standards) Rules, 2015, as amended. Your Company has earned Profit amounting to
Rs. 149.74 Lakhs as per Audited Financial Statements for Financial Year ended March 31,
2023. Your Company has also taken various initiatives to improve sales and optimize costs
to improve profitability in the forthcoming years.
REVIEW OF THE FINANCIAL PERFORMANCE
TOTAL REVENUE
The Total Income for FY 2022-23 is Rs. 1799.56 Lakhs, which is higher than the previous
years total income of Rs. 909.14 Lakhs.
EXPENDITURE
Total expenses increased from Rs. 901.44 Lakhs to 1594.57 Lakhs during the current
year. While Total Income increased by 97.94%, Total Expenditure increased by 76.89%.
PROFIT/ (LOSS) AFTER TAX
During the current year, the Company has earned Profit of Rs. 149.74 Lakhs against the
profit of Rs. 7.70 Lakhs. This was due to a significant improvement in the operating
revenues of the Company and cost containment measures continued by the Company during the
year.
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