Sterling Holiday Resorts India Ltd Directors Report

Your Directors are pleased to present the Twenty-seventh Report together with audited financial statements of your Company for the year ended March 31, 2014.

FINANCIAL HIGHLIGHTS

		(INR in lakhs)
	2013-14	2012-13
Sales	11931	9897
Profit before Interest Depreciation & Tax	(177.83)	(1333.90)
Less: Interest	581.10	122.29
Profit / (Loss) before Depreciation & Tax	(758.93)	(1456.19)
Less: Depreciation	877.00	632.51
Profit / (Loss) before Tax	(1635.93)	(2088.71)
Less Provision for Tax	---	—
Profit / (Loss) for the year	(1635.93)	(2088.71)

OPERATIONS AND FINANCIAL OVERVIEW

For the financial year ended March 31, 2014, your Company declared Positive EBIDTA of INR 627 lakhs on Total Operating Income of INR 13,606 lakhs, as compared to a negative EBITDA of INR 1,358 lakhs in the previous year. Total Operating Income grew by 25% over the previous year from INR 10,868 lakhs to INR 13,606 lakhs. Income from Sales of Vacation Ownership Plans rose to INR 5,993 lakhs, an increase of 13%, while Total Income from Resort Operations rose to INR 4,673 lakhs, up by 27%. The Total Income from Resort Operations includes Income from non-members booking holidays and MICE. Notably, your Companys performance has improved with net losses reducing in FY14 to INR 974 lakhs (before exceptional items), as compared to INR 2,243 lakhs in the previous year.

It is also notable that your Company reported Total Operating Income of INR 3,883 lakhs in the last quarter of FY14, an increase of 35% over the same period of the previous fiscal. Income from Sales of Vacation Ownership Plans grew by 72%, indicating an accelerated momentum in the Companys growth. Your Company declared a Profit after Tax (before exceptional items) of INR 131 lakhs for the quarter.

The significant improvement in your Companys performance in the year is an indicator of the strong resurgence of Brand Sterling, a result of the strategic turnaround initiatives over the last couple of years. The substantial investments your Company made in enhancing the overall customer holiday experience through refurbishment of its resorts and an expanded menu of recreational and culinary experiences have resulted in a healthy rise in the number of Vacation Ownership members and non-members holidaying at the Companys resorts, leading to an increase in resort occupancy to 49% from 41% in the previous year.

Over the course of the year, your Company added a new resort in Yelagiri, taking the total room inventory to 1512 across 19 resorts. With the inventory on hand, and an active member base of over 70,000 Vacation Ownership members, your Company continues to have a healthy customer to room ratio. In FY14, your Company added 3,650 new Vacation Ownership members as compared to 3,409 in the previous year, reflecting a 7% growth. Your Companys member acquisition program during the year was challenged by dampened consumer sentiment caused by an uncertain economic environment and high interest rates negatively affecting discretionary spending power. In the light of this, your Companys performance can be said to be commendable especially since Vacation Ownership Membership prices increased by 7.5% during the year; a move that was taken to communicate the significantly enhanced holiday experience being delivered post investing in an expanded destination network, resort renovation and higher service standards.

During the year, your Company continued to invest in upgrading its existing resorts to global, best-in-class standards. Major refurbishment in your Companys Yercaud property was commenced during the year while renovation of accommodation was undertaken in other resorts across the network. To improve efficiency, your Company began work on Information Technology platforms in the areas of Enterprise Resource Planning, Property Management and Lead Management systems in FY14. In the area of soft skills, your Company continued to invest in Human Resources and Training.

Your Companys performance has been improving consistently over the last couple of years, indicating that it is well on track to achieving the stated goal of becoming the market leader in the Leisure Hospitality and Vacation Ownership industry in India. Already, all the strategic turnaround initiatives taken during the last couple of years have begun to yield positive results with your Company turning EBITDA positive for FY14.

The proposed merger with Thomas Cook and the resultant fresh injection of capital will further strengthen your Companys market position. The investments made will allow your Company to accelerate the pace of expansion into new holiday destinations. The merger will also benefit your Company as there are multiple natural synergies.

CAPITAL EXPENDITURE

In FY14, your Company added INR 2462 lakhs to its gross block, comprising investment in new resorts, renovation of existing resorts and Information Technology. The Capital work in progress as on March 31, 2014 stood at INR 5297 lakhs; an amount representing project expenditure on resorts under renovation.

MATERIAL CHANGES

(1) Merger and De-merger with Thomas Cook Group:

Your Company entered into a composite scheme of arrangement and amalgamation with Thomas Cook Insurance Services (India) Limited ("TCISIL"), having its registered office at Thomas Cook Building, Dr. D. N. Road Fort, Mumbai, Maharashtra - 400001, India and Thomas Cook (India) Limited ("TCIL"), having its registered office at Thomas Cook Building, Dr. D. N. Road Fort, Mumbai, Maharashtra - 400001, India pursuant to which the following shall be undertaken:

(i) the resort and timeshare business carried out by your Company shall be transferred by way of de-merger from your Company to TCISIL, in lieu whereof such number of Equity Shares of TCIL as set out in the Scheme will be issued to the shareholders of your Company; and

(ii) the entire residual business remaining in your Company following the said de-merger shall be amalgamated into TCIL in lieu whereof such number of Equity Shares of TCIL as set out in the Scheme will be issued to the shareholders of your Company.

(2) Open Offer:

Thomas Cook Insurance Services (India) Limited ("Acquirer") with Thomas Cook (India) Limited and Travel Corporation (India) Limited ("Persons Acting in Concert / PAC") have made an Open Offer for Acquisition of up to 23486264 fully paid Equity Shares of the face value of INR 10 each of Sterling Holiday Resorts (India) Limited representing 26% of the Voting Capital, at a price of INR 98 per Equity Share from all the Equity Shareholders of your Company.

SHARE CAPITAL

During the year under review, your Company has raised its Equity Share capital through the following issues as described hereunder:

• INR 230.82 lakhs through issue of 487171 Equity Shares of INR 10 each at a premium of INR 37.38 Under ESPS 2011.

• INR 9.4 lakhs through issue of 20651 Equity Shares of INR 10 each at a premium of INR 35.55 Under ESPS 2011.

• INR 18,686.18 lakhs through issue of 20650000 Equity Shares of INR 10 each at a premium of INR 80.49 under preferential allotment.

Further during the current year, your Company has raised INR 697.86 lakhs through issue of 1023258 Equity Shares of INR 10 each at a premium of INR 58.20 under ESPS 2011.

PROCEEDS OF ISSUES

The details of utilisation of proceeds arising out of various issues made during the year ended March 31, 2014 are set out in Annexure A.

CORPORATE GOVERNANCE REPORT

Your Company has complied with the Corporate Governance Code as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges. A separate Section on Corporate Governance, along with a certificate from the Statutory Auditors of the Company confirming the compliance is annexed.

Salary and perquisite paid to Mr. Ramesh Ramanathan during the year FY14 is given below:

Particulars	Amount in INR
Salary	64,15,200
Provident Fund - Employers Contribution	5,04,000
Medical Reimbursement	2,31,620
Insurance	41,250
Gratuity Liability	2,02,020
TOTAL	73,94,090

During the year ended March 31, 2014, following shares were issued to Mr. Ramesh Ramanathan, Managing Director under the Employees Stock Purchase Scheme 2011:

1) 487171 Equity Shares of INR 10 each at INR 47.38 per share with a discount of INR 28.72 per share.

2) 20651 Equity Shares of INR 10 each at INR 45.55 per share with a discount of INR 14.40 per share.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

A detailed analysis of your Companys operational and financial performance and initiatives taken by your Company in key functional areas is separately discussed under the Management Discussion and Analysis section, as per Clause 49 of the Listing Agreement of the Stock Exchanges.

STOCK OPTIONS

EMPLOYEE STOCK OPTION SCHEME / EMPLOYEE STOCK PURCHASE SCHEME

Under the Employees Stock Purchase Scheme 2010, 657019 Equity Shares were allotted. The balance 1442981 Shares are yet to be allotted.

Under the Employees Stock Purchase Scheme 2011, 1931569 Equity Shares were allotted. The balance 1568431 Equity Shares are yet to be allotted.

Under the Employees Stock Option Scheme 2012, 750000 Options were granted. Balance of 250000 Options are available for future grants.

The details of Equity Shares issued under ESPS 2010 and ESPS 2011 and Stock Options granted under ESOS 2012 are given in Annexure B in accordance with SEBI (Employees Stock Option Scheme & Employees Stock Purchase Scheme) Guidelines, 1999.

DIRECTORS

Mr. Sidharth Shankar, Vice Chairman shall retire by rotation at the ensuing Annual General Meeting and being eligible, offer himself for re-appointment.

Mr. Madhavan Karunakaran Menon, Mr. Harsha Raghavan, Mr. Mahendra Kumar Sharma were appointed as Additional Directors on the board of your Company with effect from March 14, 2014. Your Company has received notices under section 160(1) of the Companies Act, 2013 from the members signifying their intention to propose Mr. Madhavan Karunakaran Menon, Mr. Harsha Raghavan, Mr. Mahendra Kumar Sharma as candidates for the office of Directors.

Mr. Pradipta K. Mohapatra and Mr. Anil Kumar Madhok were appointed as Additional Directors on the board of your Company with effect from April 25, 2014. Your Company has received notices under section 160(1) of the Companies Act, 2013 from the members signifying their intention to propose Mr. Pradipta K. Mohapatra and Mr. Anil Kumar Madhok as candidates for the office of Director.

As stipulated in Clause 49 of the Listing Agreement with the Stock Exchanges, brief resume of the above Directors is provided in the report on Corporate Governance, which forms part of this Annual Report.

Mr. Siddharth Mehta, Chairman, Mr. K. Chandrasekaran, Mr. M. N. Rangamani, Mr. Utpal Sheth, Directors resigned from the Board of your Company with effect from March 14, 2014 and Mr. Shahzaad Siraj Dalal, Director resigned on April 25, 2014. The Board of Directors recorded their sincere appreciation for their valuable services rendered to your Company.

Mr. Amit Jatia, Director shall retire by rotation at the ensuing Annual general meeting and has expressed that he is not seeking re-appointment. Mr. Darshanbhai Naranbhai Patel, Director was appointed as Additional director on the board of your Company with effect from October 26, 2013 who ceases to hold the office of Director at the ensuing Annual General Meeting. The Board of Directors recorded their sincere appreciation for their valuable services rendered by them to your Company.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that:

1. In the preparation of the Profit and Loss Account for the financial year ended March 31, 2014, and the Balance Sheet as at that date ("Annual Accounts"), the applicable accounting standards have been followed.

2. That the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company at the end of the financial year and of the Profit and Loss of your Company for that year.

3. That the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities.

4. That the Directors had prepared the Annual Accounts for the financial year ended March 31, 2014 on Going Concern basis.

SUBSIDIARY COMPANIES

As on March 31, 2014, your Company had two Subsidiary Companies as below:

1. Sterling Holidays (Ooty) Limited

2. Sterling Holiday Resorts (Kodaikanal) Limited

There has been no material change in the nature of business of the subsidiaries.

As required under the Listing Agreements with the Stock Exchanges, a Consolidated Financial Statement of you Company and all its subsidiaries is attached. The Consolidated Financial Statements have been prepared in accordance with the relevant Accounting Standards as prescribed under Section 211(3C) of the Companies Act, 1956 ("Act"). These financial statements disclose the assets, liabilities, income, expenses and other details of your Company and its subsidiaries.

Pursuant to the provision of Section 212(8) of the Act, the Ministry of Corporate Affairs vide its circular dated February 8, 2011 has granted general exemption from attaching the Balance Sheet, Profit and Loss Account and other documents of the subsidiary companies with the Balance Sheet of companies. A statement containing brief financial details of your Companys subsidiaries for the financial year ended March 31, 2014 is included in the Annual Report. The annual accounts of these subsidiaries and the related detailed information will be made available to any member of your Company / its subsidiaries seeking such information at any point of time and are also available for inspection by any member of your Company / its subsidiaries at the registered office of your Company. The annual accounts of the said subsidiaries will also be available for inspection, as above, at the head offices / registered offices of the respective subsidiary companies. The Company shall furnish a copy of details of annual accounts of subsidiaries to any shareholder on demand.

MANCHANDA RESORTS PRIVATE LIMITED

As reported earlier, your Company had filed the petition with the Honble High Court, Madras for sanctioning the Scheme of Amalgamation of Manchanda Resorts Private Limited (Subsidiary Company) with your Company. The Honble High Court of Madras has approved the scheme of Amalgamation vide order dated August 26, 2013.

AUDITORS

The Statutory Auditors of the Company, R. Subramanian and Company, Chartered Accountants (ICAI Registration Number 004137S) and V. Sankar Aiyar & Co., Chartered Accountants, (ICAI Registration Number 109208W) shall be retiring at the ensuing Annual General Meeting of your Company. Your Company has received notices from the Statutory Auditors of their intention of not seeking re-appointment at the ensuing Annual General Meeting of your Company.

Your Company has received a special notice from a member of your Company, in terms of the applicable provisions of the Companies Act, 2013 signifying his intention to propose the appointment of M/s. Price Waterhouse & Co., Chartered Accountants, Bangalore (Firm Registration Number 007567S) as the statutory auditors of your Company from the conclusion of this Annual General Meeting till the conclusion of the next Annual General Meeting. M/s. Price Waterhouse & Co, Chartered Accountants, Bangalore (Firm Registration Number 007567S) expressed their willingness to act as statutory auditors of your Company, if appointed, and have further confirmed that the said appointment would be in conformity with the provisions of the Companies Act, 2013 read with the rules made thereunder.

With reference to the Auditors Remarks in their report dated April 26, 2014, your Directors reply is as under:-

1. Reply to Para 9(a) of the Auditors Report:

The outstanding amount of INR 73.12 lakhs relate to Fringe Benefit Tax to be adjusted against the refund receivable from the Income Tax department on completion of assessment.

2. Reply to Para 10 of the Auditors Report:

Your Company has been continuously infusing additional funds into operation by way of Equity. There has been significant improvement in the overall performance and your Company expects to sustain the growth in the turnover and improve profitability in the ensuing years. The Board of Directors are confident that because of such positive signs, your Company will improve its performance.

PUBLIC DEPOSITS, LOANS AND ADVANCES

Your Company has not accepted any Deposits from the public or its employees during the year under review.

The details of outstanding Loans and Advances are dealt with in the Accounts.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

In terms of the Companies (Disclosure Of Particulars In The Report Of The Board Of Directors) Rules, 1988, the particulars relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo required in terms of Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are given in Annexure C which forms part of the Directors Report.

AUDIT, INVESTOR GRIEVANCES, REMUNERATION AND COMPENSATION COMMITTEES

In terms of Clause 49 of the Listing Agreement entered with the Stock Exchanges and pursuant to the provisions of the Companies Act, 2013 the details pertaining to Audit Committee, Stakeholders Relationship Committee, Nomination and Remuneration Committee, Share Transfer Committee are furnished in the Report on Corporate Governance which is annexed herewith.

PARTICULARS OF EMPLOYEES AS REQUIRED UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 AND RULES MADE THEREUNDER

Your Company had employees who were in receipt of remuneration of not less than INR 60,00,000 during the year ended March 31, 2014 or not less than INR 5,00,000 per month during any part of the said year.

However as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Directors Report and Accounts are being sent to all the shareholders of the Company excluding the statement of particulars of employees. Any shareholder interested in obtaining the copy of the statement may write to the Company.

DEMATERIALISATION OF EQUITY SHARES

As mentioned in our earlier Annual Reports, the Companys Equity Shares are in the compulsory Demat mode with effect from August 28, 2000, as per Circular No.SMDRP / Policy / CIR-23 / 2000 dated May 29, 2000 issued by Securities and Exchange Board of India (SEBI). This has been facilitated through arrangement with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). A large number of our shareholders have taken advantage of Dematerialisation facility. The Cameo Corporate Services Limited, Chennai, has been appointed as the Registrar and Share Transfer Agents.

CEO / CFO CERTIFICATION

The Managing Director (CEO) and the Senior Vice President - Finance (CFO) have submitted a certificate to the Board regarding the financial statements and other matters as required under clause 49(V) of the Listing Agreement.

ACKNOWLEDGEMENTS

The Board of Directors take this opportunity to express their sincere thanks to the Central and State Governments, Financial Institutions and Bankers and other Creditors for their valuable support and assistance during this period. The Directors also wish to thank the Shareholders and Timeshare Customers who have supported the Company in this hour of need. Our Directors look forward to receiving continued support from them.

The Directors also wish to thank the employees of the Company for their dedicated performance and place on record their wholehearted commitment to your Company and combined efforts to turnaround your Companys performance.

	For and on behalf of the Board
Place: Chennai
Date: April 26, 2014	PRADIPTA K. MOHAPATRA
	CHAIRMAN

ANNEXURE - A TO THE DIRECTORS REPORT

Details of Utilisation of Proceeds arising out of various Issues made during the year ended March 31, 2014

Particulars	As on March 31, 2014 (INR in lakhs)
Details of Funds raised out of Issue of Equity Shares during the FY14
Allotment of 507822 Equity Shares under Employee Stock Purchase Scheme - 2011	240.22
Allotment of 20650000 Equity Shares under Preferential Allotment	18,686.18
TOTAL	18,926.40
Details of Funds utilised
Investment in Mutual Funds and amounts lying in Bank balances	12,455.16
Utilised for the ongoing expansion programme, completion of projects, general corporate purpose and refurbishment of resorts	6,471.24

ANNEXURE - B TO THE DIRECTORS REPORT

Information to be disclosed under Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 for the financial year ended March 31, 2014.

EMPLOYEE STOCK OPTION SCHEME (ESOS-2012):

The Company had instituted the Employee Stock Option Scheme 2012 (the "Scheme") for employees of the Company by granting options thereunder. Accordingly, the Scheme was formulated in accordance with the SEBI (ESOS & ESPS) Guidelines, 1999.

Disclosures in compliance with Clause 12 of the SEBI (ESOS & ESPS) Guidelines, 1999, as amended, are set below:

S.No.	Particulars	Details
	Total number of Options under the Scheme	10,00,000
	Total number of Options granted	7,50,000
1	Options granted during the year (No.)	Nil
2	The pricing formula	The Exercise price shall not be less than the par value of Equity shares and shall not be more than the price prescribed under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 or the market price which ever is more.
3	Options vested (as of March 31, 2014) (No.)	1,69,620
4	Options exercised during the year (No.)	Nil
5	Total number of shares arising as a result of exercise of Options during the year (No.)	Nil
6	a) Options lapsed / forfeited during the year (No.)	3,25,950
	b) Options surrendered	Nil
7	Variation of terms of Options	No variation in terms of Options during the year
8	Money realised by exercise of Options during the year	Nil
9	Total number of Options in force (as of March 31, 2014) (No.)	4,24,050 (out of the Options granted)
10	Employee wise details of Options granted to:
	(a) Senior Management Personnel	During the year under review no Options were granted to the senior management personnel of the Company.
	(b) Any other employee who receives a grant in any one year of Option amounting to 5% or more of Options granted during that year.	No employee is in receipt of the grant in any one year of Options amounting to 5% or more of Options granted during the year.
	(c) Identified employees who were granted Options, during one year, equal to or exceeding 1% of the Issued Capital (excluding outstanding warrants and conversions) of the Company at the time of grant.	There is no employee who has been granted during one year, equal to or exceeding 1% of the Issued Capital.
11	Diluted Earning Per Share (EPS) pursuant to Issue of Shares on exercise of Options calculated in accordance with Accounting Standard (AS) 20 Earnings Per Share.	INR (2.31)
12	Where the Company has calculated the Employee Compensation cost using the intrinsic value of Stock Options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognised if it had used the fair value of Options. The impact of this difference on profits and on EPS of the Company.	Not Applicable
13	Weighted average exercise prices and weighted average fair value of Options for options whose exercise price either equals or exceeds or is less than the market price of the stock.	INR 96 per Equity Share
14	Description of the method and significant assumptions used during the year to estimate the fair value of Options, including the following weighted average information:	Market price at the time of grant of Options
	i) Risk-free interest rate (%)
	ii) Expected life
	iii) Expected volatility (%)
	iv) Expected Dividends
	v) The price of the underlying share in market at the time of Options grant

EMPLOYEE STOCK PURCHASE SCHEME (ESPS-2010 AND ESPS-2011)

The Company had instituted the Employee Stock Purchase Scheme 2010 and Employee Stock Purchase Scheme 2011 (the "Scheme") for employees of the Company by issuing shares thereunder. Accordingly, the Scheme was formulated in accordance with the SEBI (ESOS & ESPS) Guidelines, 1999.

Disclosures in compliance with Clause 19 of the SEBI (ESOS & ESPS) Guidelines, 1999, as amended, are set below:

S. No.	Description	ESPS-2010			ESPS-2011
	Total number of shares under the Scheme	2100000			3500000
1	The details of the number of shares issued in ESPS Scheme	657019			1931569
2	The price at which such Shares are issued	Price as determined by the Compensation Committee / Board of Directors			Price as determined by the Compensation Committee / Board of Directors
3	Employee wise details of the Shares issued to; a) Senior Managerial Personnel	During the year under review nil Equity Shares were issued / allotted to the senior management personnel of the Company.			During the year 507822 Equity Shares were issued/allotted to Mr. Ramesh Ramanathan, Managing Director of the Company.
	b) Any other employee who is issued / allotted Shares in any one year amounting to 5% or more issued / allotted during that year.	Director / Employee(s) Name	Equity Shares issued during the year	Number of Equity Shares issued	Director / Name Employee(s)	Equity Shares issued during the year	Number of Equity Shares issued
		Mr. Ramesh Ramanathan, Managing Director	2011-12	485000	Mr. Ramesh Ramanathan, Managing Director	2013 - 14	507822
						2012 - 13	475233
						2011 - 12	948514
	c) Identified employees who were issued Shares during any one year equal to or exceeding 1% of the Issued Capital of the Company at the time of issuance.	There are no employees who have been issued equity shares during one year equal to or exceeding 1% of the Issued Capital of the Company at the time of issuance.			Mr. Ramesh Ramanathan, Managing Director was issued 948514 shares exceeding 1% of the Issued Capital of the Company during the year 2011-2012.
	d) Diluted Earning Per Share (EPS) pursuant to issuance of shares under ESPS	INR (2.31)			INR (2.31)
	e) Consideration received against the issuance of Shares during the year	Nil			INR 2,40,22,815

ANNEXURE - C TO THE DIRECTORS REPORT

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988

A. Conservation Energy	: Not Applicable
B. Technology Absorption	: Not Applicable
C. Foreign Exchange Earnings and Outgo
(i) Activities relating to export incentives taken to increase exports development of new export and markets for products and services and export plans	: Nil
(ii) Total Foreign Exchange earned	: Nil
(iii) Total Foreign Exchange used	: INR 4.93 lakhs