Management Discussion and Analysis Mahindra Holidays & Resorts India Limited (‘Mahindra Holidays’or ‘the Company’) is a leading player in the leisure hospitality industry. Founded in 1996, it has established vacation ownership in India, and is the market leader in the business. It offers holidays to its customers that are designed for the discerning and differentiated needs of families. Apart from providing quality rooms in the form of furnished apartments and cottages at resorts in unique and popular destinations, Mahindra Holidays offers its members family-friendly amenities including dining, holiday activities, spa and wellness facilities for a complete holiday experience. This chapter brsents an overview of the markets and opportunities as well as the operational and financial performance of the Company during 2015-16. It also highlights Mahindra Holidays’ strategy, and discusses important initiatives taken by the Company during the year to achieve its growth and performance objectives. Introduction and Key Achievements Mahindra Holidays’ focus during 2015-16 was to achieve continued success in its strategic objective: ensuring that its growing membership gets the best holiday experience. Although the macroeconomic environment witnessed steady improvement, consumer confidence and disposition towards high-value discretionary spends were relatively weak. Despite this, Company’s focus on unique family vacation experiences, generating referrals from existing members and focus on digital lead generation, deployment of technology and execution yielded significant improvement in results. The key highlights are: • Mahindra Holidays added around 16,200 members to its vacation ownership business in 2015-16 — taking the total membership base to close to two lakh at the close of 2015-16. This performance is creditable given the subdued consumer sentiment and was made possible by the Company’s successful execution of its marketing strategy, brand building initiatives and a responsive sales organisation. These are discussed in greater detail in the sections on ‘Markets and Opportunities’ and ‘Business Performance’. • Mahindra Holidays added 87 new units to its room inventory. Total room inventory touched 2,879 units across its 45 resorts. Pace of room inventory growth is expected to increase in the near future in line with its long-term strategy for expansion, primarily through own projects and acquisitions. Four projects that are in the pipeline alone are expected to add around 500 units in the next two years. Further details are provided in the section on ‘Properties and New Projects’. • Mahindra Holidays increased its stake in Holiday Club Resorts Oy, Finland (HCR), to 85.6 per cent. HCR is a leading vacation ownership company in Europe with around 50,000 members and 31 resorts in Finland, Sweden and Spain. This investment is in line with the Company’s vision to widen its international footprint and opens up growth opportunities in Europe and Middle East. Besides, ‘Club Mahindra’ members will now also have the option of visiting HCR’s resorts in Europe. • Occupancy rates remained stable around 81 per cent and member satisfaction improved considerably, both in terms of member services and the holiday experience at the resorts. These are reflected in improved customer-as-promoter and post-holiday feedback scores. A more exhaustive discussion on the initiatives carried out by the Company and their impact can be found in the sections on ‘Member Relations’ and ‘Resort Operations’. • Information technology (IT) continued to actively contribute to the Company’s growth and performance. During the year, improvement in online services contributed to significant increase in usage by members — online bookings increased from 52 per cent in 2014-15 to 66 per cent in 2015-16. Better integration and deployment of advanced lead analytics solutions have improved the conversion of digital and referral leads, increasing their contribution to over 50 per cent of sales during the year. More information on important technology-driven initiatives can be found in the section on ‘Information Technology’. Mahindra Holidays markets a high-value discretionary product. In a milieu of subdued consumer spending and sentiment, the Company registered creditable results. The key financial results (standalone) for 2015-16 are given below: • Total income (including other income) grew by 19.2 per cent from Rs. 80,756 lakh in 2014-15 to Rs. 96,261 lakh in 2015-16. • Profit before Taxes (PBT), before considering the exceptional item in the brvious year, grew by 35.7 per cent from Rs. 12,684 lakh in 2014-15 to Rs. 17,209 lakh in 2015-16. • Profit after Taxes (PAT) grew by 48.5 per cent from Rs. 7,902 lakh in 2014-15 to Rs. 11,735 lakh in 2015-16. • Diluted EPS for the standalone entity increased from Rs. 8.98 in 2014-15 to Rs. 13.29 in 2015-16. The rest of this chapter provides details of markets and opportunities, operational and financial performance of the Company, initiatives in the areas of quality, CSR, sustainable development, and key functional areas such as human resources and information technology. The chapter ends with a discussion on risks and concerns, and the Company’s outlook for the future. Markets and Opportunities Mahindra Holidays is a leading player in the leisure hospitality industry in India. Built on the vacation ownership model, the Company’s principal business is to offer vacation ownership products that provide holiday entitlements to its members over the life of the product. India’s macroeconomic scenario witnessed a steady improvement in 2015-16. According to the advance estimates released by the Central Statistical Organisation (CSO), India’s GDP growth is expected to be 7.6 per cent in 2015-16, as compared to 7.2 per cent recorded in the brvious year. Inflation and fiscal balance of the government, too, remained stable during the year — prompting the RBI to reduce the policy rate by 100 basis points in the course of the year. However, lending rates of banks did not come down by as much, and improvement in consumer sentiment has been comparatively muted. To that extent, the environment for large discretionary spend categories and consumer confidence to commit resources continued to be relatively weak. The Indian travel and tourism industry is worth USD 112 billion or roughly 7.5 per cent of India’s GDP. This is expected to increase to USD 244 billion by 2024, and 81 per cent of this is expected to be contributed by domestic tourism. As far as the vacation ownership industry in India is concerned, the market penetration is still very low. If one compares the Indian vacation ownership industry with the US in terms of its share in the hospitality sector, the scope for growth in India is around five times of its current size. Similar conclusions can be drawn if one considers other surrogates for the size of the opportunity for the Company’s products such as ownership and sales of cars. Clearly, there is a significant headroom for growth of the business. More so, as holidays have become an essential element in the discretionary spend budget of households. Besides, emerging trends in holidaying brferences are also encouraging from the Company’s perspective. For instance, holidays with extended families, short breaks and the demand for variety in experiences and destinations are things that the Company is well placed to offer to its customers. Business Performance ‘Club Mahindra’ is the Company’s flagship product in the vacation ownership business, which entitles its members a week’s holiday every year for a period of 10 or 25 years depending upon the membership. Mahindra Holidays has recorded a fair growth in its membership over the last few years despite the challenging environment. It believes that there is a significant potential for further growth of the business, especially with the Indian economy witnessing a revival in its growth prospects. Buoyed by early gains of the Company’s pull-based marketing strategy — comprising non-intrusive sales channels such as alliances, digital and referrals — implemented in the brvious year, the focus during 2015-16 was on expanding its coverage and reach with greater vigour. The main objective was to generate high quality leads, prioritise prospects and increase conversion. Several activities were carried out during the year to support this, some of which are outlined below: • The Company launched ‘Heart-to-Heart’, a member engagement initiative in their hometowns. Events and activities are being carried out where members and their families meet other members to enjoy various leisure activities. This helps in creating a strong sense of belonging to the ‘Club Mahindra’ community. This also provides an opportunity to update members, seek referrals and solve any issues they might be facing. • In another initiative to expand the choices available to members in terms of new vacation experiences, the Company made available house boats in Kashmir and sea-facing luxury tents at ‘Festa De Diu’ — the longest beach festival in Asia. Encouraged by the success, it is actively considering expansion of the bouquet of such unique experiences to its members. • ‘India Travelogue’, a 40 episode weekly TV travel-series is being aired on CNBC Awaaz since September 2015. The series showcases the Company’s resorts and the experiences that they offer in the backdrop of the destination’s points of interest. It has garnered positive word of mouth for Club Mahindra and generated considerable interest among prospective vacation ownership customers. • Other engagement and brand building initiatives during the year included setting-up of a mini Club Mahindra resort facility within ‘Kidzania’, the kids edutainment centre inside R City Mall in Mumbai, to give children a sense of what it would be like to work in the hospitality industry. To support these initiatives, the Company also carried out extensive advertising and brand-building campaigns in print and television. ‘Club Mahindra’ was selected as a ‘Super Brand’ for the year 2015 by SuperBrand Council in India. As a result of these efforts, digital and referral leads contributed considerably to sales and now accounts for over 50 per cent of sales during the year. The Company was also successful in expanding its sales network during the year. At the end of 2015-16, it was brsent in 137 locations in India, versus 124 in the brvious year. Its focus on international markets with sizeable Indian population also saw significant progress, with deepening of its brsence in the Middle East by way of two new locations. Contribution of international markets to sales, which was negligible a few years back, also increased to 4 per cent during the year. Going forward, focus will be to expand the footprint, both in India and abroad, as well as to explore alternate channels that are in line with the Company’s strategy. During 2015-16, the Company added around 16,200 members, taking the total membership to close to two lakh as on March 31, 2016. The chart provides details of the growth in membership in the last 10 years. The Company also markets a corporate product called ‘Club Mahindra Fundays’, which allows enrolled organisations to offer holiday entitlements to its employees or group vacations either as a part of their reward and recognition programme or as an employment perquisite or compensation. During the year, this product performed satisfactorily. New clients were added and there was an increase in the number of room nights utilised under the ambit of this product. During the year, the Company introduced ‘Xperience Breaks’, which offers one week of holiday each in India and international destinations within a year of purchase. It is designed to provide customers a first-hand experience of Club Mahindra membership and is aimed at younger audience in large towns and cities. It is conceived as an exclusively online product and is being marketed through online partnerships. Properties and New Projects Mahindra Holidays currently has a pan-India brsence through its extensive network of resorts across destinations including hill stations, beaches, backwaters, wildlife sanctuaries, forts and heritage. It is also brsent in international destinations such as Bangkok, Innsbruck (Austria), Kuala Lumpur and Dubai. In addition, with the increase of the Company’s stake in Holiday Club Resorts Oy, Finland (HCR), members will now have a choice to visit HCR’s 31 resorts in Europe. During the year, Mahindra Holidays added 87 room units to its inventory. This included 12 units in Kanha, 51 in Munnar and 24 in Kashmir. After accounting for inventory retired, the net addition during the year was 63 units — taking the total inventory to 2,879 units across its 45 resorts by the end of 2015-16. The chart provides information on growth in inventory over the last 10 years. In addition, the Company looks for opportunities to provide unique holiday experiences to its members. During the year, it made available luxury tents in Diu and opportunities to experience holidays in multiple locations by virtue of its tie-up with a leading hotel chain. In line with the Company’s strategy, majority of the total inventory is owned by it. In cases where resorts are under long-term lease arrangements, it manages the resorts to ensure delivery of complete range of services to its members. Even in resorts where rooms/units are made available to members through inventory arrangements, sufficient measures are implemented to give members the best holiday experience. Increasing room inventory in line with membership additions continues to be a key focus area. The Company is currently undertaking four projects: Naldhera (Shimla), Assanora (Goa), Ashtamudi (Kerala) and expansion at Kandaghat (Shimla), which are in different stages of planning and development. Besides, it is also considering acquisition opportunities in different parts of the country. It is expected that these initiatives would eventually add around 700 units to the Company’s inventory over the next few years. Apart from this, the Company also has land bank at nine destinations across six states. Efforts are on to expand this further. Some of its existing resorts also have additional land that can be utilised for further expansion. This will provide the flexibility to build such destinations and add room inventory on an ongoing basis. Resort Operations Efficient resort operations are central to delivering a holiday experience that meets the expectations of the members. This encompasses three key areas: infrastructure and facilities, holiday activities, and food and beverage (F&B). As a Company marketing long duration products and services, Mahindra Holidays ensures that quality of infrastructure and facilities are well maintained and upgraded regularly to meet customer expectations. During the year, investments were made to upgrade rooms and common areas across multiple locations. At the same time, focus was also on deploying sustainable and environment friendly technologies such as installation of compost machines and upgrading sewage treatment plants. Spa facilities, which are on offer in 26 resorts, saw introduction of new concepts, therapies and amenities during the year. Holiday activities continue to be an important focus area. All resorts have activities built around the themes of learning, adventure, relaxation and local experiences, depending on the terrain and type of holiday the destination offers. New activities introduced during the year included cricket simulators, virtual golf and wall climbing. These, along with other activities such as archery and trampoline, will be extended to other resorts in the future. In another important initiative, the Company is upgrading soft-play areas for children across all its resorts. These measures will also contribute to greater resort revenues for the Company. With four of the Company’s resorts upgraded to Gold Crown during 2015-16, it has a unique distinction of having 26 RCI Gold Crown and 2 Silver Crown resorts in India, which bears testimony to the high standards of resort facilities, amenities and services that its resorts offer. During the year, five resorts won the Platinum Award from RCI. In addition, the resort at Gangtok received the brstigious ‘Best Resort (Hospitality)’ award from Government of Sikkim. Several of your Company’s resorts have received awards from Trip Advisor and Holiday IQ in various categories over the years. During the year, the resort in Coorg received ‘2016 Traveller’s Choice Hotel Award’ under the category ‘Top Hotels for Families – both Asia and India’; resort in Munnar received ‘2016 Traveller’s Choice Hotel Award’ under the category ‘Top Hotels for Families – India’; and resort in Thekkady received ‘Holiday IQ Award’ for ‘Top Hotel Chain’ and ‘Top Excellent Services’. In the area of food and beverage (F&B), efforts are continuously made to increase the variety and make the dining experience more exciting. During the year, the Company launched new dining concepts and restaurants. One new concept is the extension of ‘Fun Dining’ by bringing together dining with entertainment, music and games for the whole family in an exciting ambience. New restaurants included those featuring cuisines such as Italian, BBQ and Seafood. The Company also introduced ‘live counters’ and ‘regional speciality menus’ in selected resorts, besides carrying out unique food promotions. ‘Gourmet Exbrss’, the Company’s innovative in-room dining offering introduced during the brvious year, was rolled-out in all its resorts and has been received well by the members. Ten of your Company’s resorts have the NABCB Branch Hygiene Code (BHC) certification. This certification is awarded upon meeting brscribed standards of hygiene in all activities related to F&B — from procurement of raw materials to brparation and serving it to the customers. Mahindra Holidays has institutionalised ‘post-holiday feedback’ (PHF), which encompasses all key areas of resort operations. This serves as the measure of its success in delivering quality holiday experience to the members as well as identifying and addressing their concerns. PHF scores have shown consistent improvement since the inception of the programme. During 2015-16, the overall PHF score stood at 4.2 compared to 4.1 in the brvious year. Member Relations – Vacation Ownership As an enterprise that markets what is essentially a long-duration discretionary product, member satisfaction is the key to Vacation Ownership business of the Company. During 2015-16, the Company took significant strides on its path towards excellence in member services. Deployment of technology based solutions has been an important element of its strategy, which continued to contribute tangible results. Online services is one such area. During the year, the Company moved its website to an advanced architecture and added a host of features, which have been detailed further in the section on IT. Consequently, the percentage of online bookings increased to 66 per cent in 2015-16, up from 52 per cent in the brvious year. In absolute terms, online bookings increased by over 75,000 during the year. Better online services have increased the transparency and efficiency of booking process, thereby contributing to a superior member experience. Reservation and payment related grievances also came down significantly. Occupancy rate remained stable around 81 per cent. The Company also achieved significant success in member on-boarding process, with the service level in making the first contact of nearly 100 percent. In addition, the Company reaches out proactively to assist new members in booking their first holiday. The Company has institutionalised a feedback generation mechanism to continuously improve its internal processes. During 2015-16, there has been a steady increase in the loyalty scores based on feedback received through both the Company’s internal feedback generation mechanisms as well as external surveys. Customer-as-promoter score (CAPS), which is determined by IMRB, increased from 31 per cent in 2014-15 to 42 per cent in 2015-16. At the same time, substantial increase in referrals from members and apbrciation in social media are testimony to the improvement in member satisfaction levels. Human Resources (HR) Given the highly specialised nature of the Company’s business and the large number of locations where it operates, attracting and nurturing the right talent is at the core of your Company’s strategy for success and growth. Accordingly, the HR function at Mahindra Holidays is organised into three key areas: customer acquisition, resort operations and corporate functions. During the year, focus was on building capabilities through a structured approach to drive the Company’s performance. This encompassed implementing changes across all components of the HR function: recruitment, employee engagement, reward and recognition, skill upgrading, talent management, organisational culture and employee relations. Key developments are discussed below. In the area of customer acquisition, the Company introduced ‘I-ExCEL’, a sales training workshop for front-line sales executive, which covered 100 percent of eligible employees, and a mentoring programme where around 80 managers underwent extensive training to build capability as mentors. Over 200 executives have subsequently been identified to be trained by these mentors. In the area of resort operations, the Company introduced a combrhensive skills training and certification programme for all key functions: F&B, food brparation, front office and housekeeping. It also rolled-out a fast track programme for top performers, with the objective of grooming supervisory and managerial talent from within the organisation for new resorts. During the year, the Company also carried out a scientific benchmarking exercise to optimise and redeploy people across functions and resorts. On the corporate and organisational development front, the Company regularly nominates executives to participate in development programmes and workshops to enhance their skills. During the year, customised workshops were brpared to align the employees with the culture and business goals of the organisation. Apart from the specific programmes introduced during the year, the Company continues to provide induction and operational training to its employees. During the year, the Company provided 30,000 man days and 35,000 man days of training in the areas of customer acquisition and resort operations respectively. Overall, each employee received an average of 11.1 man days of training in 2015-16, up from 7.5 man days in the brvious year. 2015-16 was an important year where the Company transitioned to a new learning and development paradigm based on assessing and building competencies in a structured manner. Going forward, focus will be on institutionalising these initiatives across the organisation. As on March 31, 2016, there were 3,784 people on the rolls of the Company. Industrial and employee relations remained cordial throughout the year. Quality Mahindra Holidays has adopted the principles of Total Quality Management (TQM) under the banner of ‘The Mahindra Way’ (TMW) — the Mahindra Group’s integrated approach to promote excellence in all spheres of its operations. The Company has successfully institutionalised quality systems in all critical business functions. During the year, the Company witnessed a focussed approach to TMW with participation from all functions and sections of employees. Some of the key developments during the year are discussed below. One of the biggest achievements in the area of business excellence and quality during the year was the propagation of the Kaizen culture. In December 2015, the Company launched a Kaizen festival to sensitise employees on quality tools and techniques. Participation in the festival went beyond the customer facing functions — such as member relations (MR), resort operations and customer acquisition — and included finance, purchase, legal, marketing and HR. As a result, the number of Kaizen projects increased over five-fold from 1,000 in 2014-15 to around 6,400 in 2015-16. The Daily Work Management (DWM) and the plan-do-check-act (PDCA) cycle approach continue to help the MR function to reduce complaints and improve customer satisfaction. Also, resorts have been consistently able to retain and improve upon their PHF scores. The skills of the Business Excellence (BE) team, which is responsible for in-house training and development of employees, was enhanced by conducting specialised program in quality tools such as 7QC. During the year, participants from MR function underwent training on the QC story methodology and have successfully completed improvement projects. Failure Mode and Effects Analysis (FMEA) tools continue to be utilised for proactive identification of gaps and implementation of suitable brventive actions. The standardisation process by way of Standard Operating Procedures (SOPs) have already been actively deployed across the resorts. During the year, SOPs were created and adopted for two important support functions, viz. purchase and projects. Audits are an integral part of process improvements. DWM and ISO audits are conducted regularly. With an increased focus on internal audits, the frequency and coverage has also increased significantly. During the year under review, the BE team had created a centralised dashboard for resorts, enabling access to hard data for brventive and corrective action. Several modules were added to the dashboard during the year, increasing its utilisation and efficacy. Overall, TMW practices are getting increasingly integrated in the business functions,and have started contributing to the Company’s performance. Information Technology (IT) Mahindra Holidays believes that technology today plays an active role in providing a competitive edge in the market and contributes directly to meeting business goals. The Company has invested significant resources in upgrading its IT architecture and is benefiting in all key spheres of its operations — be it customer acquisition, resort operations, member relations or internal controls. As mentioned earlier, online services continue to be a key focus area for the Company. During 2015-16, the Company launched an upgraded website on a cloud-based architecture, which increased availability, speed, and peak load handling capacity. For members, a host of features were added: online payments using NEFT and e-wallets, waitlisted bookings, online referral and exclusive online offers. From the point of view of prospects, the new website simplified the process of getting information about products and resorts as well as raising membership related enquiries with the Company. These measures have considerably increased online usage and operational efficiencies. The Company also launched a micro-site for its new one-year product ‘Xperience breaks’, which allows customers to view and buy the product online. Seamless integration with the Company’s payment gateway as well as the inventory and reservation engine has ensured that customers have a smooth experience while purchasing the product and in making reservations. As an exclusively online product, features were built into the website to enable channel partners to access information and increase the visibility of the product. During the year, the Company made significant progress in its bid to integrate its CRM, Web and SAP-based systems — with the ultimate aim of having a unified view of the customer throughout his engagement with the Company. This will help in designing and implementing customer-centric processes, and improving the overall efficiency of operations. For instance, this integration has paved the way for the Company to develop a full-feature mobile app for its members, which is expected to be launched in 2016-17. The brvious year’s report discussed initiatives in the area of business analytics. During 2015-16, the Company implemented advanced models to value and prioritise leads generated from its marketing efforts, referrals and digital channels. These have now been institutionalised in the customer acquisition function resulting in better targeting of effort, and have contributed significantly to sales performance. Another area where the IT infrastructure and analytical prowess has been put to use is the increase in coverage and quality of real-time MIS and dashboards. This has resulted in considerable strengthening of controls in areas of finance, procurement and material management. Corporate Social Responsibility (CSR) As a part of the Mahindra Group, the Company has been at the forefront of taking affirmative action and seeks to contribute to the socio-economic well-being of the communities that it interacts with in carrying out its business. Apart from working with NGOs, foundations and trusts, and contributing resources for socially relevant projects, the Company also encourage community service by its employees by involving them through its ‘Employee Social Options Programme’. During the year, 1,682 employees volunteered 9,987 man hours on CSR initiatives. Overall, the Company carried out around 200 different initiatives, which directly benefitted over 18,000 people during the year. Some of the key CSR initiatives undertaken by the Company during 2015-16 are mentioned below: • Education, Skill Development and Livelihood: The Company sponsored the education of 4,531 girls through the ‘Nanhi Kali’ project. In another major initiative to promote education called ‘Gyandeep’, 44 projects involving provisioning and upgrading of infrastructure and amenities at government schools were carried out across multiple locations. As a part of ‘Hunnar’, vocational skill training was carried out at eight locations. Another important initiative of the Company is supporting skill development and generating livelihood opportunities through self-help groups (SHGs). During the year, it supported four SHGs of women across three resort locations in areas such as poultry, fish and goat farming. • Environment: 31,000 trees were planted across 33 locations during the year as a part of ‘Mahindra Hariyali’ — an initiative of Mahindra Group for tree plantation — taking the total trees planted to 249,468 since the beginning of the project in 2010-11. Initiatives under the aegis of ‘Swachh Bharat Abhiyaan’ included building of 16 toilets in three schools, cleanliness drives across several resort locations and distribution of 600 dustbins in the vicinity of its resort in Mahabaleshwar, in collaboration with the Municipal Council. In other important projects, 50 solar lights were installed in a village near Kanha and a sparrow conservation initiative was carried out in nine villages around Munnar. • 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. During the Chennai floods, the Company, in its first response, provided eight metric tonnes of relief material to 269 families; school bags and stationery were also provided to 108 students. It also adopted four hamlets and disbursed relief material to another 329 families in collaboration with NGOs. In other initiatives during the year, the Company supported palliative care in Mumbai and Poovar, and organised road safety campaigns. Sustainability Sustainable development aims at achieving economic growth and improvement in well-being while brserving the natural resources and ecosystem for future generations. As a part of the Mahindra Group (‘the Group’), the Company recognises the importance of sustainability, and is committed to conserve the ecological integrity of its locations through responsible business practices, accountability and transparency. During the year, the Group’s Sustainability Apex Council set the following long term goals for sustainability: • Carbon neutral by 2030 • Water secure by 2030 • Zero waste by 2030 • EP 100 – double energy productivity by 2030 • RE 100 – increase renewable energy by 100 per cent by 2030 Mahindra Holidays’ initiatives in this area are carried out in line with these long term objectives. Accordingly, the Company has set a roadmap that identifies the key areas of focus and parameters that are monitored to measure progress in its sustainability journey. The Company believe that practicing sustainable development makes good business sense and it considers the impact of its actions in making business decisions, thereby demonstrating its commitment to the global sustainable development effort. Some of the key areas that have been identified for implementing sustainable practices include carbon footprint measurement, conservation of biodiversity and assessment, environment, energy and water, sourcing and community development. During the year, a number of activities were carried out across resort locations. These include use of solar power; environment-friendly energy and water saving equipment; timers and motion sensors for lighting of common areas and other loads where continuous power is not required; eco-friendly bio-block sewage treatment plants and organic waste compost machine for wet garbage process. Across the Company’s resorts, all CFLs are being replaced by LED lamps. Other than these, awareness drives were conducted for the employees and members at resorts about climate change, environment and biodiversity. Training programmes for segregation of waste were successfully implemented at several resort locations. Holidaying members also participated in various activities aimed at generating awareness on water scarcity and pollution. The Company actively participates in the Mahindra Group’s journey for Corporate Sustainability Reporting. The ‘Sustainability Report’ of the Group is brpared in accordance with the internationally accepted framework specified by the Global Reporting Initiative (GRI). This framework sets out the principles and indicators that should be used to measure and report economic, environmental, and social performance. During 2015-16, the number of resorts that participated in sustainability reporting of the Group increased from 7 to 14. Standalone Financial Results The standalone results for 2015-16 include the financial performance of three (erstwhile) wholly owned subsidiary companies, which got amalgamated with the Company with effect from March 31, 2016, with an appointed date from April 1, 2015. These are: Competent Hotels Private Limited, Divine Heritage Hotels Private Limited and Holiday on Hills Resorts Private Limited. • Total standalone income, which includes both operating and other income, grew by 19.2 per cent from Rs. 80,756 lakh in 2014-15 to Rs. 96,261 lakh in 2015-16. Income from sale of vacation ownership products, which is the largest component of the Company’s operating income, grew at 21.4 per cent to Rs. 53,911 lakh. Resort income, which includes revenues from F&B, resort activities and rooms, grew at 31 per cent to Rs. 17,273 lakh. • Total expenditure for the standalone entity grew by 16.1 per cent from Rs. 68,072 lakh in 2014-15 to Rs. 79,052 lakh in 2015-16. Employee and Sales & Marketing expenses, which account for around half of the Company’s expenditure, grew at 18.5 per cent from Rs. 33,661 lakh in 2014-15 to Rs. 39,894 lakh in 2015-16. Financial expenses remained negligible. Debrciation grew by 9.1 per cent from Rs. 6,541 lakh in 2014-15 to Rs. 7,133 lakh in 2015-16. • The Company registered a substantially higher profitability during the year. Profit before Taxes (PBT) for the standalone entity, even before considering the exceptional item in the brvious year, grew at 35.7 per cent from Rs. 12,684 lakh in 2014-15 to Rs. 17,209 lakh in 2015-16. Profit after Taxes (PAT) of the standalone entity increased from Rs. 7,902 lakh in 2014-15 to Rs. 11,735 lakh in 2015-16 — rebrsenting an increase of 48.5 per cent over the brvious year. Accordingly, diluted EPS for the standalone entity increased from Rs. 8.98 in 2014-15 to Rs. 13.29 in 2015-16. • The liquidity situation of the Company remained comfortable during the year and the Company has no long-term debt. Consolidated Financial Position As on March 31, 2016, for the purpose of consolidated financial results of the Company, 41 Subsidiaries, 1 Joint Venture and 4 Associates were considered. This includes results of Holiday Club Resorts Oy, Finland (HCR) with effect from September 2015, which became a subsidiary after the acquisition of a majority stake by the Company through its subsidiary Covington S.à.r.l, Luxembourg. Prior to this, HCR was an Associate of the Company and the Share of Profit of Associate pertaining to HCR is for the period before September 2015. As a consolidated entity, your Company’s total income (including other income) stood at Rs. 1,60,382 lakh in 2015-16. During the year, the consolidated PAT was Rs. 9,906 lakh and the Diluted EPS was Rs. 11.22. Internal Controls The Company has an adequate internal control system, commensurate with the size and nature of its business. The system is supported by documented policies, guidelines and procedures to monitor business and operational performance which are aimed at ensuring business integrity and promoting operational efficiency. During the year under review, the Company engaged a reputed firm specialising in implementation of internal controls to test the effectiveness of existing controls (both manual and system-based) and to fix any issues related to financial reporting and key non-financial processes. The Company has an Internal Auditor who oversees the entire internal audit function. However, given the size of its operations in terms of number of resort locations and nature of its business, it also uses services of independent audit firms to conduct periodic internal audits in line with an audit plan that is drawn at the beginning of the year. This audit plan, brpared by the Internal Auditor, is approved by the Audit Committee and the Board of Directors. The scope of the exercise includes ensuring adequacy of internal control systems, adherence to management policies and compliance with the laws and regulations of the country. The Internal Auditor also reports on the implementation of the audit recommendations. The Company’s ERP system has appropriate controls embedded in its processes and systems to reduce the need and reliance for compensating manual controls. These have also been strengthened from time to time, and the standardisation has been a significant source of comfort given the number of locations in which the Company operates. Internal audit reports are placed periodically before the Audit Committee of the Board of Directors, which reviews the adequacy and effectiveness of the internal control systems and suggests improvements for strengthening them. Threats, Risks and Concerns Mahindra Holidays’ risk management framework consists of identification of risks, assessment of their nature, severity and potential impact, and measures to mitigate them. This framework is in place for adequate and timely reporting and monitoring. Risks are reviewed periodically and updated to reflect the business environment and change in the size and scope of the Company’s operations. Economic Risks Although the macroeconomic situation appears to be stable, cyclical downturns may continue to resurface in the future. Besides, even with the current environment of stable growth and benign inflation, interest rates continue to be relatively high. As a result, consumer confidence to commit resources continue to be relatively weak. As a material portion of the Company’s revenue comes from discretionary spending of consumers, this can adversely impact the Company’s ability to generate sales and affect its growth prospects. The Company recognises these risks and has measures in place to mitigate the impact of adverse macroeconomic situation. This includes focusing on pull-based strategy for customer acquisition through referrals and targeted digital marketing, which allows it to reach the right segments and at the same time ensures higher conversion to sales. The Company is also in the process of ramping up its international marketing network to increase their contribution to the sales mix. Another initiative taken during the year was introduction of a one year product ‘Xperience Breaks’, which allows the Company to reach out to younger prospects who are not ready to commit themselves for the longer duration offerings. Operational Risks Operational risks mainly relate to meeting customer expectations in terms of quality of service and maintaining a balance between the inventory of resorts and growth of customers. These assume significance given the long service duration of the key products. As there are multiple choices, both in terms of location and dates, there could be occasions where the first choice of holiday requested by the customers may not be available, which may result in dissatisfaction. Another operational risk is in the ability to consistently attract, retain and motivate managerial talent and other skilled personnel, especially in a high growth industry with unique characteristics. Further, some of the Company’s resorts are located in remote areas and natural calamities such as earthquake, flood, landslide etc. may affect the accessibility of the resort to members as well as online connectivity. The Company has invested significant resources in systems and processes to mitigate these risks. Customer satisfaction continues to be favourable and on an upward trend. Regarding room inventory, the Company will continue to be judicious in the use of different options — greenfield projects, expanding inventory at existing locations, lease and inventory arrangements — to meet the expectations of its customers and at the same time maintain a balance between demand and supply. Regarding talent management and retention, the management believes that its HR practices enhance employee engagement and satisfaction to effectively mitigate this risk. Financial Risks The Company’s business involves significant investments in building resorts for its operations. These expose it to risks in terms of timely and adequate availability of funds at competitive rates to finance its growth. Besides, the Company offers its customers schemes to finance the purchase of the vacation ownership and similar products, which exposes it to credit risks. Another financial risk that the Company is exposed to is potential non-payment or delayed payment of membership instalments and/or the annual subscription fee by members resulting in higher outstanding receivables. Currently, Mahindra Holidays has no long-term debt on a standalone basis, and has a strong and stable capital structure to raise money for further expansion, if needed. The Company undertakes combrhensive assessment of the profile of its customers and carefully monitors its exposure to credit risk. Besides, several improvements in control and monitoring mechanisms have been made to reduce risks of potential leakages and aid the management in this process. Regulatory and Legal Risks Mahindra Holidays is exposed to regulatory and legal risks. These include cumbersome processes and risks relating to land acquisition, conversion of land for commercial usage and development of properties, environmental clearances, approvals and activities related to development of new resorts. There are also other regulatory and legal risks pertaining to tax proceedings, legal proceedings on properties, customer complaints, non-compliance of regulations including environmental regulations and those pertaining to the hospitality sector. Further, as the Company has investments and operations in different countries, it is also exposed to political and regulatory risks that emanate from its international brsence. The Company has systems and controls in place to mitigate these risks and minimise instances of non-compliance. It also believes that its proactive stance on sustainability will hold it in good stead for future development and growth. Outlook Mahindra Holidays performed creditably in 2015-16. The Company’s strategy to generate more pull-based business and efficiencies in execution has been instrumental in delivering superior performance during the year, even as the Company faced headwinds in the form of low consumer disposition towards high-value discretionary spends. At a fundamental level, the Company believes that penetration of vacation ownership in India is low and there is considerable room for growth. Consistent improvements in member satisfaction and ability to deliver family-friendly experiences on a larger scale have validated the Company’s investments in technology and processes, and at the same time improved its competitive positioning in the leisure travel industry. The Company’s wide brsence with 45 resorts offering a variety of experiences for its members provides it with an unmatched opportunity in the vacation ownership business in India. Four of its greenfield projects currently under execution are on schedule and expected to add another 500 units over the next few years. Equally, the acquisition of HCR opens up growth opportunities in Europe and Middle East besides allowing ‘Club Mahindra’ members to visit HCR’s resorts in Europe. Improvement in the macroeconomic performance expected in 2016-17, is likely to provide a further boost to the Company’s prospects. All of these should augur well for the Company’s performance in the future. Cautionary Statement Certain statements in the Management Discussion and Analysis describing the Company’s objectives, projections, estimates, expectations or brdictions may be “forwardlooking statements” within the meaning of applicable securities laws and regulations. Actual results could differ from those exbrssed or implied. Important factors that could make a difference to the Company’s operations include poor macroeconomic growth and consumer confidence, inability to add resorts and increase the inventory of room, cyclical demand and pricing in the Company’s principal markets, changes in tastes and brferences, government regulations, tax regimes, economic development within India and the countries in which the Company conduct its business and other incidental factors. |