MANAGEMENT DISCUSSION AND ANALYSIS Economic and Sector Overview 2014 has been a landmark year for India both economically and politically. The country elected a majority Government at the Centre after three decades, leading to significant optimism and improved sentiment. On the other hand, the economy witnessed considerable dynamism with 7.3% growth in a sluggish global economic scenario. This growth has been largely driven by a revival in the services sector. Industrial growth, along with agriculture, has also started gathering momentum. With the Government of India's focus on pro-growth legislations, proactive clearances to large-scale infrastructure projects, lowering the fiscal and current account deficit and taming inflation, there are expectations of a major economic revival. According to the Government of India's latest Economic Survey, the share of stalled projects as a proportion of GDP is steadily declining. In the next one or two years, a uniform Goods and Services Tax (GST) across India and enhanced focus on federalism are expected to create even stronger multipliers of growth across the country. The global ratings agency Moody's has improved the investment outlook of India from 'Stable' to 'Positive'. This signals a positive sentiment on the part of global investors to invest in India and be a part of its growth story. The travel and tourism industry has emerged as one of the key growth drivers among the services sector in India. According to the World Travel and Tourism Council (WTCC), the industry is expected to witness 7.5% growth in 2015, exceeding the 6.9% growth that the forum has brdicted for the South Asian region. Despite such brdictions, the overall contribution of India's travel and tourism sector to the country's economy is still relatively low. This sector has contributed 6.7% to India's GDP, compared to a global average of 9.8%, highlighting the immense opportunity available in the Indian hospitality sector. The sector's long-term outlook will remain positive on the back of an increase in disposable incomes, rising discretionary spending and the burgeoning middle class. The Government of India has emphasised on various measures in the 2015-16 Union Budget for the advancement of tourism industry, which would in turn benefit India's hospitality industry. The Government has played a pivotal role in making India an attractive tourist destination through visa-on-arrival enabled electronic travel authorisation for 43 countries. It is likely to further extend the facility to 150 countries in a phased manner. The focus is also on revamping major heritage sites. The Tourism Ministry was allocated Rs. 1,573 crore in the 2015-16 fiscal vis-a-vis the revised estimates of Rs. 1,183 crore for the brvious fiscal. This investment escalation will lead to the development of major locations as tourist destinations and infrastructure, thus attracting more tourists. Business Overview The Byke Hospitality Limited (Byke) is a rapidly growing hospitality company with a pan-India brsence. The Company's unique 'asset-light' business model allows it to leverage high profitability from a low capital base. This model has helped the Company to register significant growth even during a downturn in the hospitality sector. The business can be broadly classified into two segments: Owned & Leased (O&L) and Room Chartering (RC). Own + Lease Business The Company operates eight properties under this business model. While two of those properties are owned (Byke Heritage, Matheran and Byke Sunflower, Goa), the remaining six are on a long-term lease under the 'Byke' brand. In 2015, the Company added a property in Jaipur, Byke Grassfield, which has 54 rooms, three restaurants, three lawns/ banquets and three conference rooms. As on March 2015, the Company had 519 rooms under its management, of which 102 are owned. Room Chartering Business Under this particular business, the Company books third-party rooms at popular tourist destinations, including religious locations across India. In 2015, the Company sold 373,250 room nights, compared to 345,000 in 2014 across almost 50 cities in India Growth Strategy With the adoption of the 'asset-light' strategy in 2011, the Company has proactively added rooms in both lease and room chartering businesses. The Company's O&L segment is growing steadily, with 519 rooms in 2015, vis-a-vis 182 rooms in 2011. Similarly, the room chartering business has grown with 398,000 room nights purchased in 2015 from 105,950 room nights in 2011. Simultaneously, there has been a steady increase in the occupancy level and Average Room Rent (ARR). The average occupancy in O&L business has been competently increasing from 61% in 2012 to 70% in 2014. Although it declined to 67% in 2015, primarily due to the launch of the new Byke Grassfield at Jaipur, the occupancy for the hotel is projected to increase in the brsent financial year 2015. The ARR saw an increase of ~8-10% in all the hotels, leading to an overall ARR of Rs. 3,769 in 2015, a rise of 4% over the brvious year's ARR of Rs. 3,617. The rising occupancy and ARR in the O&L business indicate the satisfaction of customers, as well as the demand for Byke's hospitality services. Similarly, in the RC business, the ARR increased from Rs. 2,175 in 2014 to Rs. 2,404 in 2015, registering a growth of 10%. The occupancy increased from 92% in 2014 to 94% in 2015. The improvement in the ARR and occupancy in the RC business indicate the success of the Company's strategic planning. Key Highlights - 2015 B Byke Grassfield in Jaipur became operational in August 2014 under the O&L model. The hotel has become a popular wedding destination in the city, with 54 rooms, three restaurants, three lawns/ banquets and three conference rooms. The hotel is expected to contribute significantly to food & beverage/ other revenues going forward B Byke Suraj Plaza, Thane has been acquired on a long-term lease and is under renovation. The hotel with 122 rooms is right across Suraj Water Park, a theme water park. The hotel is set to be inaugrated in second quarter of 2016 Consolidated Financial Overview The Byke has experienced an exponential growth in the past few years with its strategic planning and dynamic leadership. Continuing its growth momentum, the Company performed encouragingly in 2015. a Revenues touched Rs. 182 crore in 2015 against Rs. 156 crore in the corresponding period of the brvious year, registering a y-o-y growth of 17% a Owned & Leased (O&L) division clocked revenue of Rs. 92 crore (~51% of total income). The break up is: ¦ Rooms - Rs. 47 crore (~51% of O&L Revenue) ¦ Food & Beverages (F&B)/ Others (events, conferences and weddings, among others) - Rs. 45 crore (~49% of O&L Revenue) a RC division recorded a revenue of ~Rs. 90 crore (~49% of total income) a EBITDA stood at Rs. 37 crore (y-o-y growth of 28%), with EBITDA margin of 20%, up from 19% in 2014 a PAT at Rs. 20 crore; PAT margin of 11% Resources and Liquidity As on March 31, 2015, the consolidated net worth stood at Rs. 100 crore and the consolidated debt was at Rs. 12 crore. The cash and cash equivalents at the end of March 31, 2015 touched Rs. 2 crore. The Company's net debt to equity ratio stood at 0.1 as on March 31, 2015. Risk and Concerns The Company's Managing Board is responsible for formulating an appropriate risk-management strategy. The framework aims to ensure that the extent to which the Company's strategic and operational objectives are being achieved is understood, that the Company's reporting is reliable and that the Company complies with relevant laws and regulations The risk management framework has been designed to achieve maximum integration of the risk management process in the business processes. It provides risk management tools, controls frequently occurring risks in the Company, as well as monitors and reports procedures and systems. 1. Opportunities The travel and tourism industry has emerged as one of the largest and fastest growing industry globally. The domestic tourism sector is set to experience a significant growth, with the expected upswing in the Indian economy. Besides, the growth will further be accelerated by the rising discretionary income of the expanding middle class, changing lifestyles, development of diverse tourism offerings, and policy and regulatory support by the government authorities. The domestic tourism sector will see higher demand setting in at places of leisure and cultural heritage. The Company already has a niche brsence in the mid-level, and can further tap opportunities by expanding both the lease and room chartering businesses in new geographies, which have significant tourist footfalls. While businesses grow with the economy, there will be a growing corporate demand for banquets and conference rooms to perform their activities. This, too, can be tapped by the expansion in popular business tourism locations. With the advent of the internet age, a large population of the country is now connected to the internet. According to a report by the Internet & Mobile Association of India (IAMAI) and IMRB International, India's total internet user base stood at 278 million at the end of October 2014, and is estimated to grow to 354 million by June 2015. With the growth in internet penetration, more and more services will connect to consumers through the internet. The Company's target base includes middle and upper-middle class consumers, and they can be easily reached out to via the internet. This would allow it to bypass agents and thus cut down on expenses. Concurrently, the benefit of these savings can be passed on to the customer who would have an incentive to attach with and stay loyal to the brand. The Company is planning to set up an internet portal to this effect. The Company also seeks to strengthen its agent network in newer geographies. This would help increase occupancy levels. 2. Threats, Risks and Concerns The hospitality sector faces a fast-paced growth, and the immense opportunities in the industry lead to a strong competition to attract customers. As occupancy levels in certain hotels peak out, organic growth can only be driven by increasing ARRs. However, increase in rents gets muted due to large competition. Additionally, skyrocketing costs of maintenance, commodities and labour have created brssures on margins. The room chartering business faces geographic threats arising out of seasonal lack of demand or natural calamities. However, due to pan-India brsence, individual risks get mitigated. Internal Control Systems & Their Adequacy The Company's large size and nature of business demands a proper internal control system. Efforts are made by the Management to maintain a sound financial and commercial practice, capable of improving the efficiency of the operation and sustainability of the business. The systems provide for adequate checks and balances; adherence to applicable statutes, accounting policies and approval procedures; and ensuring optimum use of available resources. The systems are regularly reviewed and improved upon. Regular assessments and audits help ensure that every operating unit consistently implements the controls and standards. The Company has robust internal control systems and procedures. The Board' Audit Committee oversees the adequacy of the internal control environment through regular reviews of the audit findings. It also monitors the implementation of internal audit recommendations through compliance reports submitted to them. Human Resources The Company has human relations and industrial relations policies in force. These are regularly reviewed and updated in line with the Company's strategic plans. The Human Relations team continually conducts training programmes for the development of employees. The Company aims to develop the potential of every individual associated with the Company as a part of its business goal. Respecting the experienced and mentoring the young talent has been the bedrock for the Company's successful growth. The age bracket of the Company's employees rebrsents a healthy mix of experienced and willing-to-experience employees. Human resources are the principal drivers of change. They push the levers that take futuristic businesses to the next level of excellence and achievement. The Company focuses on providing individual development and growth in a work culture that enables cross-pollination of ideas, ensures high performance and remains empowering its workforce. Corporate Social Responsibility The Byke Hospitality Limited's Management believes in taking the environment and social responsibility sincerely, and aims to play an active role in contributing towards the society. It endeavours to integrate community development, social responsibility and environmental sustainability into its CSR strategy and formalise the integration of sustainability into its business practices.In pursuance of Section 135 of the Companies Act, 2013 the Company has put in place a formal CSR Policy. At the core, the endeavour is to evolve the eco-system the Company operates in. The Company believes in the concept of inclusive growth by reaching out and empowering the community. Some of the key CSR initiatives undertaken by the Company during 2014-15 are discussed below: B Health and Community Welfare: The Company regularly carries out blood donation and medical check-up camps, awareness sessions in the areas of health, natural remedies, and HIV/ AIDS to benefit the local communities in which it operates. In the area of community welfare, it engaged with several children homes and old-age homes, and provided basic amenities and infrastructural support such as water heaters, refrigerators, blankets and bed sheets. a Education, Skill Development and Livelihood: The Company has adopted rural schools and anganwadis, renovated their infrastructure and strengthened basic amenities at several of its resort locations. Other than these, educational material and amenities are regularly provided to underprivileged students and schools. During the year, the Company has distributed sewing machines to women so as to support skill development and generate livelihood. a Environment: Over 2,700 trees were planted at Kudal District in Maharashtra and Goa during the year in it's an initiative of tree plantation. The Company responded with great resolve to the 'Swachh Bharat Abhiyaan' of the Government, and almost all resort locations carried out cleanliness drives in their vicinity. The Company has been and shall always remain committed to the wellbeing of its neighbouring communities, society, environment and the nation at large. Outlook The Company is proactively looking forward to expand its O&L, as well as RC portfolio in the next three years. Three new hotels, one each at Thane, Shimla and Puri will be added to the O&L portfolio, and they will be operational by the end of 2016. With this addition, the bouquet of rooms will expand to 697 from 519. The Company plans to grow in both its segments and continue to focus on its asset light model. It is well positioned to tap into opportunities in the rising domestic tourist spending in India. Domestic tourist spending constituted 81% of the total tourist spends in India in 2013. The share is projected to touch 85% by 2024 on the back of a rising middle class and increasing discretionary spending. |