MANAGEMENT DISCUSSION AND ANALYSIS Your Company has been reporting consolidated results taking into account the results of its subsidiaries, joint ventures and associates. This discussion, therefore, covers the financial results of the Company during April, 2015 to March, 2016. Your Company being part of the Taj Group (Group), this section also includes important developments and initiatives undertaken during the above period at the Group level which has a bearing on the performance and business of your Company. Some statements in this discussion describing the projections, estimates, expectations or outlook may be forward looking. Actual results may, however, differ materially from those stated, on account of various factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which your Company conducts its business, exchange rates and interest rates fluctuations, impact of competition, demand and supply constraints, etc. Global Economic Environment and Outlook Major macroeconomic realignments are being witnessed across countries and regions. These include the slowdown and rebalancing in China; a further decline in commodity prices, especially for oil, with sizable redistributive consequences across sectors and countries across the globe leading to a related slowdown in investment and trade; and declining capital flows to emerging market and developing economies. These realignments, together with a host of noneconomic factors such as geopolitical tensions and political discord, are generating substantial uncertainty. On the whole, they are consistent with a subdued outlook for the world economy—but risks of much weaker global growth have also risen. (Source: IMF: Recent Developments and Prospects, April 2016). Preliminary data suggest that global growth during the second half of 2015, at 2.8%, was weaker than brviously forecast, with a sizable slowdown during the last quarter of 2015. The unexpected weakness in late 2015 reflected to an important extent softer activity in advanced economies, especially in the United States, Japan and other advanced Asian economies. The picture for emerging markets is quite diverse, with high growth rates in China and most of emerging Asia, but severe macroeconomic conditions in Brazil, Russia, and a number of other commodity exporters resulting in an overall decline in the rate of growth in emerging economies for the fifth consecutive year. (Source: IMF: Recent Developments and Prospects, April 2016; ICRA Bulletin, Money & Finance, April 2016). Additionally, financial market volatility, which had subsided in October-November, increased again in December and especially in early 2016, amid rising global risk aversion, substantial declines in global equity markets, widening of credit sbrads, and historically low yields for safe.haven government bonds. These developments were triggered by concerns about lack of policy space in advanced economies to respond to a potential worsening in the outlook, worries about the effects of very low oil prices, and questions about the speed at which China's economy is slowing as well as its authorities' policy intentions. (Source: IMF: Recent Developments and Prospects, April 2016). Within the emerging economies, India is expected to outperform other economies with GDP growth of 7.3% for 2015, with forecast GDP growth of 7.5% in each of 2016 and 2017. The thrust to the Indian economy is due to a combination of low inflation, debrssed commodity prices (with specific emphasis on oil), relatively stable currency and its continued ability to attract capital flows. (Source: IMF: Recent Developments and Prospects, April 2016). Overview of the Global & Indian Tourism Industry The year under review proved to be a successful year for the Travel & Tourism sector, off the back of a modestly stronger economic environment. As per the United Nations World Tourism Organisation (UNWTO), it is estimated that international tourist arrivals grew by 4.4% in 2015 reaching a total of 1.18 billion. International tourism receipts were estimated to be US$1,232 billion (UNWTO world tourism barometer). In addition to income generated from international passenger transport, total receipts stood at US$ 1.4 trillion. Demand for International tourism was strongest for destinations in the Americas (+5%), Asia and the Pacific (+5%) while the increase in Europe (+5%), the Middle East (+4%) and Africa (.3%) was at a slightly more modest pace. By sub region, South East Asia and Oceania (+7%) saw the best results, Central America and the Caribbean, all increasing by 7%. China, United States and United Kingdom led outbound tourism last year fueled by their strong currencies and economies. The last few years have seen an upsurge in travelers from Asian countries like China and India. The total contribution of travel and tourism to GDP is expected to be around 3.7% and the forecast is that it would rise to 3.8% pa by 2025. It is estimated that the travel and tourism industry generated about 107,519,000 jobs which is 2% more than last year. The number of jobs added is forecast to grow at 2% annually till 2025. (Source: World Travel & Tourism Council). The long term outlook for the Indian hospitality business continues to be positive, both for the business as well as the leisure segments with potential for economic growth, increases in disposable incomes and the burgeoning middle class. 2015.16 saw the supply grow by 3.9% where as demand increased by 10.5% over last year (Source: STR). The Company is looking at various revenue enhancement and cost containment measures so that it can take advantage of the upswing, as the business and economy recovers and the demand supply imbalance gets corrected. Future Trends In 2016, the industry's contribution to global GDP is expected to grow by 3.3%. In view of the long term trend the industry is expected to support 370 million jobs by 2026 which would equate to 1 in 9 jobs across the world. World Travel & Tourism GDP growth estimated at 3.3% thus rebrsents a stronger rate of growth than the global economic growth estimated at 2.9%, and this trend in GDP growth is expected in over half of the 184 countries covered by the World Travel & Tourism Council's annual economic impact research. South Asia is expected to experience the highest growth in 2015 at 6.9%, whilst Europe and Latin America are the regions with the lowest forecast growth of 2.4%. In 2015, Travel & Tourism was 9.5% of total employment (283,578,000 jobs) and this is expected to rise by 2.2% in 2016 (289,756,000 jobs). Investments in 2015 stood at US$ 774.6 billion or 4.3% of total investment. In 2016 this is expected to rise by 4.7%. India is expected to be a driving force for the global economy in the foreseeable future. It also makes it a ripe market for travel and tourism. The key drivers for international travel demand growth to India include the easier e.visa regime, Swachh Bharat Abhiyan, Make in India and other similar initiatives which are expected to build a positive global image for the country and will thus have a long term impact for the travel and tourism industry. WTTC brdicts that the strong forecast on travel and tourism industry in India will propel it to the 7th spot in terms of travel and tourism GDP by 2026. Leisure travel spending is expected to grow by 5.9% in 2016 to Rs.6,297.5 billion and domestic travel spending is expected to grow by 6.6% in 2016 to Rs.6,284.4 billion. Domestic travel is strong and remains the demand bedrock of the industry; as the economy improves, domestic business, leisure and Meetings, Incentives, Convention, Exhibition (MICE) travel will grow rapidly, sbrading over many cities and towns. Indian Hospitality Industry Landscape and Outlook Across the industry, there are key business, technology and hotel marketing trends that are set to take root and impact the industry as a whole. These range from the rise of the millennial traveler as the dominant consumer group by 2017, to the increased interest in using mobile devices and apps to enable more personalized hotel guest services. Consumers are shopping on multiple platforms and there is an ever increasing transparency in rates and guest reviews driven by booking brands such as Expedia, Priceline, Booking.com, Make My Trip and Trip Advisor. Consumer behaviour has seen a change which is demonstrated in shorter booking windows and consumers seeking unique experiences which in real time are shared on multiple social media platforms. Triggered by these developments, the industry has witnessed consolidation on the supply side such as Marriott's acquisition of Starwood and Accor's acquisition of Fairmont, Raffles and Swissotel brands. Additionally, more and more global chains are expected to be attracted to the low penetration combined with high growth rates in the Indian market and this is expected to further spur competition brssures which will influence the demand supply dynamics. The foreign visitor shall continue to drive the demand and it is expected that an increase in foreign tourists going forward would result in enhanced foreign visitor spend, which is currently low due to the limited number of foreign tourist arrivals, when compared to other global destinations. However, the domestic tourist, characterized by low value and high volume is expected to drive the total growth in demand as the trend of growth in domestic tourists continues. Strategy Your Company's strategic initiatives are guided by the Group's Strategy. The portfolio of brands will continue to be the differentiator, delighting our guests, consistently offering unmatched experiences. Going into the future, there will be concerted efforts to raise the guest experience across all our hotels and achieve excellence in service delivery. Further, applying business intelligence and analytics, we can increase its personalization and customer need anticipation manifolds to achieve even higher degrees of service excellence. The digital journey will also continue to build on the mobile platform with the introduction of an app to better engage with loyalty members and new customers. The experience we will curate for the guests shall reflect "Tajness" in everything we do through a high level of personalized offerings unique to the Indian hospitality philosophy. The "Tajness" would be an all pervasive theme at every guest touch point, from the rooms, F&B outlets and service quality. Improved Return on Invested Capital Your Company's strategy is to create and deliver profitable growth for all its stakeholders. Your Company's ability to deliver improved returns on capital would be driven through rigorous asset management, revenue maximization, cost control and reduced leverage and exit from non.core underperforming assets. Human Capital Your Company's employees are its most valuable asset who deliver a level of service that is among the highest in the hospitality industry. Your Company's culture and reputation as a leader in the hospitality industry will drive the effort to attract and retain the best available talent through a combination of talent management strategy combined with a robust and transparent performance management system which leads to an attractive long term compensation philosophy. Some of the key initiatives rolled out by the Group during 2016 towards business promotion includes relaunch of the loyalty program, launch of a new website, implementation of a new organization structure which enables more agility in responding to the customer and market situations, standardization of property management system and implementing revenue management systems in key hotels. Tata Business Excellence Model Two focus areas were identified under the guidelines of the Tata Business Excellence Model and in partnership with Tata Quality Managements Services, specially identified teams worked on the following: 1. Human Resources: A deep.dive on the Performance Management System. The existing performance management system was revisited and aligned to more sharply drive overall business performance across all locations through systematic implementation. 2. Customer: A "Voice of Customer Study" (Qualitative) was conducted for select top accounts of Taj to understand the various elements on how to serve the Customers (Key accounts) better. Brand Standards and Mystery Shopper Audits Keeping the guest experience uppermost in mind, your company has given a deep focus to brand standards through continuous improvement. Competition benchmarks are used effectively to measure performance against best in class hotel brands. Audit mechanisms have been improved to ensure better feedback to hotels. Guest Feedback The introduction of Medallia last year to ensure capture of guest feedback not only during and post stay and but also from online agents and social media. The Net Promoter Scores are carefully monitored and improvement opportunities identified to ensure positive guest experience. Risks & Concerns Industry Risk General economic conditions The hospitality industry is prone to the impact of changes in global and domestic economies, changes in local market conditions, excess hotel room supply, reduced international or local demand for hotel rooms and associated services, competition in the industry, government policies and regulations, fluctuations in interest rates and foreign exchange rates and other social factors. Since demand for hotels is affected by the global economic sentiment, a prolonged global recession could also lead to a downturn in the hotel industry. Socio-political risks In addition to economic risks, your Company faces risks from the socio.political environment, internationally as well as within the country and is affected by events like political instability, conflict between nations, threat of terrorist activities, occurrence of infectious diseases, extreme weather conditions and natural calamities, etc. which may affect the level of travel and business activity. Company specific Risks The following are considered as risks specific to the Company:. Heavy Dependence on India A significant portion of your Company's revenues are realised from its Indian operations, making it susceptible to domestic socio.political and economic conditions. Moreover, within India, the operations and earnings are primarily concentrated in South India with key properties located in Chennai. Competition from Global Hotel Chains The Indian subcontinent, South East Asia and Asia Pacific with high growth rates have become the focus area of major international chains. Several of these chains have announced their plans to increase their brsence in India to take advantage of the demand supply imbalance. These entrants are expected to intensify the competitive environment. The success of the Taj Group of hotels will be dependent upon its ability to compete in areas such as room rates, quality of accommodation, brand recognition, service level, convenience of location and to a lesser extent, the quality and scope of other amenities, including food and beverage facilities and reduced costs. Increased outbound travel Recent competitiveness in international airfares and strengthening financial health of Indian people resulted in destinations like Europe, South East Asia and Australia becoming more affordable to the average Indian traveler. This has increased outbound travel and brsents a risk to the domestic segment for leisure resorts. High Operating Leverage The industry in general has a high operating leverage which has further increased with on.going renovations, increased staff costs and cost of light, power and fuel. Risk Mitigation Initiatives Your Company employs various policies, processes and methods to counter these risks effectively. By extensively improving its service standards, as also progressively renovating its properties, across the multi brand portfolio, your Company counters the risk from growing competition and new supply. Internal control systems and their adequacy Your Company has in place an adequate framework of internal controls, with documented procedures covering all corporate functions and hotel operating units. Systems of internal controls are designed to 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. Adequate internal control measures are in the form of various policies & procedures issued by the Management covering all critical and important activities viz. Revenue Management, Hotel Operations, Purchase, Finance, Human Resources, Safety, etc. These policies & procedures are updated from time to time and compliance is monitored by Group Internal Audit. The Company continues its efforts to align all its processes and controls with global best practices. The internal audit process, through its unique 'Taj Positive Assurance Model', which is an objective methodology of providing a positive assurance based on the audits of operating units and corporate functions, is a convergence of Process Framework, Risk and Control Matrix and a Scoring Matrix. A framework developed for each functional area identified on the basis of an assessment of risk & control as also providing a score, allowing the Unit to improve on high risk areas. The effectiveness of internal controls is reviewed through the internal audit process, which is undertaken for every operational unit and all major corporate functions under the direction of the Group Internal Audit department. The focus of these reviews is as follows: • Identify weaknesses and areas of improvement • Compliance with defined policies and processes • Safeguarding of tangible and intangible assets • Management of business and operational risks • Compliance with applicable statutes • Compliance with the Tata Code of Conduct The Audit Committee of the Board oversees the adequacy of the internal control environment through regular reviews of the audit findings and monitoring implementations of internal audit recommendations through the compliance reports submitted to them. Management Discussion and Analysis of Operating Results and Financial Positions The Annual Report contains Financial Statements of your Company, both on a stand.alone and consolidated basis. An analysis of the financial affairs is discussed below under summarized headings. Operating Expenses The operating expenses increased by 6.50% from Rs.28,270 lakhs to Rs.30,108 lakhs. Payroll expenses were higher than the brvious year due to annual increments. Repairs and Maintenance expenses were higher due to increased brventive maintenance, adherence to safety and security measures and upkeep undertaken at the hotels. Finance Costs Finance costs for the year ended March 31, 2016, amounts to Rs.2,290 lakhs. Profit before Tax & Exceptional Item Loss before Tax & Exceptional Item at Rs. 1,005 lakhs. Exceptional Items Exceptional items consists of profit on sale of investments amounting to Rs.177 lakhs and provision made for advances recoverable to the tune of Rs.374.92 lakhs. Profit (Loss) before Tax The Loss before Tax for the year was at Rs.1,203 lakhs, as compared to the brvious year's loss of Rs.603 lakhs. Profit (Loss) after Tax The Loss after Tax for the year was at Rs.793 lakhs, as compared to the brvious year's loss of Rs.299 lakhs. Investing Activities During the year under review, your Company incurred Rs. 1,996 lakhs towards capital expenditure, as well as the new IT initiatives and renovations at certain hotels. Consolidated Financial Results Your Company has consolidated its Financial Statements with those of its Subsidiaries, Joint Ventures and Associates in accordance with Generally Accepted Accounting Principles brvailing in India Consolidated Profits Before Finance Cost and Exceptional Items: Profit before Finance Costs and Exceptional items amounts to Rs.2,074 lakhs as compared to Rs.3,134 lakhs in the brvious year. Finance Costs: Finance costs for the year ended March 31, 2016, amounts to Rs.2,486 lakhs as against Rs.3,199 lakhs in the brvious year. Loss after Tax, Minority Interest and Share of Associates: Loss after tax, Minority Interest and Share of Associates for the year was lower at Rs.(60.53) crores as compared to Rs.(378.10) crores for the brceding year. |