© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening, everyone, and a warm welcome to our earnings conference call for the quarter ended 30th June 2018. Along with me, I have Mrs. Akhila Balachandar, our Chief Financial Officer. I hope you have had the opportunity to take a look at our quarter 1 FY '19 results as well as the investor presentation, both of which have been uploaded on our website and stock exchanges.Let me start the call by giving an update on the changes in the accounting standards. The accounts up to 31st March 2018 were prepared according to Indian Accounting Standard 18 where nonrefundable admission fee of 60% was accounted for as income in the year of sale; and 40%, which is the entitlement fee, was deferred over the tenure of the membership. Government of India via notification dated 28th March 2018 has mandated that from 1st April 2018, the accounts have been prepared in accordance with Indian Accounting Standard 115, which talks about revenue from contracts with customers. As per this new standard, income from vacation ownership contracts need to be recognized over the tenure of membership, and only incremental costs incurred for obtaining the membership need to be deferred over the tenure of the contract. Other costs have to be charged to profit and loss for the period. For the purpose of comparison of our business performance, we have shared financials as per Indian Accounting Standard 18 as well.Having said this, let me highlight the business fundamentals will remain the same, our profitability will remain the same over the tenure of membership. Unit economics does not change, operating cash flows remain the same. There will be a significant increase in deferred revenue in the balance sheet. And balance sheet remains strong in terms of our asset base as earlier. Though as a result of production of Indian Accounting Standard 115, income and profit are lower. It gives me immense pleasure now to announce that we have maintained our growth momentum in terms of member additions. We have added 4,577 members for the quarter ended June 2018, which is 14.3% growth year-on-year. As per Ind AS 18, our income from operations grew by 7.7%, 287.6 crores versus 267 crores. Our resort income grew at 11.8%, clocking a healthy revenue of INR 64 crores for the quarter. Our occupancy was robust at 89.4%. Coupled with improvement in other operational metrics, we have seen a growth of 13.8% in profit after tax to INR 36.8 crores as compared to INR 32.3 crores last year same quarter. Based on the new accounting standard 115, our total income was at 243 -- INR 242.3 crores and profit after tax stands at INR 13.73 crores.Coming to our business performance in the first quarter of FY '19, I would like to share some highlights. As you know, our focus has been on acquiring quality members through higher upfront payment and reducing EMI tenures. As you know, that we have discontinued 10% down payment Blue Studio 48 EMI option. This helps us to increase member lifetime value with us of the members that we acquired. Our focus on sourcing leads through digital and referral continues. We are also following a focused market strategy and increasing our customer acquisition activities in Tier 2 and Tier 3 towns. We have also done an innovation by doing [ it by letting using ] the artificial intelligence tool in GCC markets, which has given us encouraging results in terms of lead generation. Truly digital.Our member engagement initiatives like Heart to Heart in cities are helping us improve our referrals in select markets. Also our social media engagement helps us in acquiring leads through social media on digital. Member engagement in our resorts through host program and all-inclusive F&B packages and new F&B options is helping us increase our resort revenues.Our 12% resort income growth is due to focused efforts in F&B, holiday experiences and room revenue. Yet another notable achievement was that our resort costs have grown at a much lower rate as a result of improved operational efficiencies. As I mentioned, our occupancy remains robust at 89.4%. Our focus on digitalization of consumer-facing processes is yielding significant benefits. Our booking penetration through our mobile app, which was launched last year stands at 41.3%, while the overall online penetration, which means all the bookings and all the transactions that members do, is at 89% on our mobile app and website. We continue to adopt new technologies and innovative strategies to provide the best experience to our members. As a marketing initiative, we embrace May 15 as World Family Day wherein we believe we own the day and change the times of India market to the family times of India. Our new product, Bliss, is gaining momentum. This is a 10-year product, points-based product and now being sold in 14 cities and targeted at 50-plus -- 50-years-plus segment. And the interesting part of this product is that we do not sell this product without accepting minimum 30% down payment.Our construction of new resorts adding to 200 units at Goa and Kerala continues as planned. Curated experiences and Dreamscapes, which are in-city experiences, are available to our members on our website as a part of our strategy of building an experience ecosystem for our members. We have been ranked 66th among the Top 100 Companies to Work for India by the Great Place to Work Institute. Last year, our rank was 98th, and this is a significant moment upwards for us, and this is the second consecutive year where we have been certified as a Great Place to Work. Recently, we have been awarded the Porter Prize for creating distinct value in the travel and tourism industry for the second consecutive year. This achievement showcased that our teams have not only been maintaining the highest standard set, but also surpassing them year after year.I would now like to conclude my speech and would open the floor for questions-and-answers. Mrs. Akhila Balachandar is there with me, our CFO, to answer any questions related to accounting standard and any other questions that you may have, which are very specific to financials.
[Operator Instructions] We take the first question from the line of Nihal Jham from Edelweiss.
Sir, my first question is on this India's part, the -- how will the accounting now for our sales and marketing expense happened because as I understand and earlier, we used to book 60%. Do you still have a big upfront marketing spend, which in a way use to compensate us for that? Now will the sales and marketing expense that we do also be amortized over 25 years or 10 years whatever the contract may be?
I would request Akhila to answer this question.
So as for the standard, revenue will be recognized over the tenure of the memberships. Regarding costs, the costs which are fixed in nature, will… [Technical Difficulty]
Hello?
Are you able to hear it?
Excuse me, sir. This is the operator. I'm so sorry to interrupt, but we are unable to hear the speaker.
Okay. Yes.
Hello, are you able to hear now?
Yes, ma'am.
Yes. So as per the standard, only the incremental expenses, which are directly linked to the acquisition of the contract would be deferred over the life of the contract. So expenses, which are not directly linked, will have to be charged in the year of the expenses being incurred. So sales and marketing expenses would need -- sales and marketing expense would get bifurcated into 2 categories. One, which are only directly linked to the acquisition of the contract, and others, which are not directly linked, and therefore, a portion will get deferred and a portion would get charged to the P&L.
But will this allow us to continue with the kind of expenditure we generally incur on S&M? Or will we need to reduce it now that there is this change that has happened?
So in terms of looking at expenditures, I think our focus on controlling expenditures have always been there, irrespective of the accounting standard. So as far as the business imperative is concerned, that continues to be to reduce the cost of acquisition. And that focus will always remain.
So Nihal, let me add to what we have said earlier. A small part of the cost, which are directly linked to the acquisition of the members, would be deferred. The time cost, specifically marketing cost, would not be deferred. Things like commissions, incentives, which are directly linked to the customer, for example, some offers that we give, the schemes that we give, those would definitely get deferred. In terms of profitability, in terms of the lifespan of the customer, the unit economics will still not change. It is just the point of time when they're accounted in the books would get changed.
Sure. Just now getting on the member growth, which has obviously been pretty robust. I just wanted to understand that there are 2 initiatives, which are going on in the last 6 months. And I wanted to understand their contribution in this growth. First of all, is the launch of Bliss -- so the question is that, is it that a big portion of the growth is Bliss related? And secondly, how much traction are we seeing from a Tier 2 and Tier 3 cities?
So as far as the Bliss growth is concerned, obviously, Bliss as an absolute number is still insignificant in terms of our overall product mix because we continue to be selling 25-year product, and that is dominant. So while Bliss is growing, it is gaining acceptance, but it is still insignificant in the overall scheme of things. As far as Tier 2, Tier 3 markets are concerned, we have made significant head roads ahead -- I mean, inroads into the Tier 2, Tier 3 markets, and some of the growth that you're seeing is coming through those initiatives. And we are also focusing on some high-potential markets. And some of these information is -- in terms of -- from a competitive intelligence point of view, confidential, therefore, we don't bring it out. But we have a very clear strategy of going after specific Tier 2, Tier 3 markets where we see potential is high, and where we are using various methods to reach out to those markets, which in our -- which we believe are unique, which is helping us to get this growth.
Okay. Just one last question on this part. Just on the accounting aspect, again, I see that while our members have grown by 14%, again, the VO income growth is at 6%. So is it that [ there has been a falling average registration per member ] that we generally see, or how do we explain this?
Are you comparing with the...
In normal -- Ind AS 18 standard, not the 115. They are also, I think, it's a 6.5% growth in VO, ASF combined, where other members have grown by 14%.
So to some extent, that is a mix of the Bliss also coming in. The average AUR continues for the 25-year product, continues to remain at around 3.3, 3.4, there we have not seen any reduction in the AUR. But the component of Bliss as compared to the previous quarter is definitely on the higher side.
Madam, assuming that it will be an insignificant portion for now, right, to VO income?
The other parts is that the other components of VO income, which include ASF income, they do not grow in proportion to the number of members growth in quarters. So there is an impact of Bliss because we compare Q1 to Q1. The Bliss number was much lesser. Here, the Bliss number is obviously higher, though insignificant in the total scheme of things. But the ASF component, obviously, will not grow at the rate at which the members have grown. So you will see a lower number in revenue compared to the member growth that you'll see.
We take the next question from the line of [indiscernible].
Sir, on this revenue, 53 crore impact and an 18 crores expenses impact, is this a prospective or there is an element of trial period items on this? That's the number one.
Yes. So the standard mandates -- what the standard mandates is all open contracts as on 1st April 2018 needs to be restated from the inception. As if we have applied 115 to them from the date of inception, which means basically, we have to restate every contract, retrospectively. So this reduction includes -- will have an impact of that change. The impact of the change up to 31st March 2018 has been taken under the appropriate transition provisions directly to the results. But whatever impact comes in the quarter is what has contributed to the reduction of the 53 crores.
Okay. So there is [ no essential year onetime ] of the previous members, like if I [ below about 2 lakhs ] members who would be impacted, accounting would be impacted and that -- for this quarter it is covered?
Let me reexplain what I'm -- in the past, we have -- we used to recognize 60% upfront and 40% over the life of the membership. Now what we will be doing is -- like even for sales, which have happened in this quarter, the membership fee will be spread over the life of the contract. So I will no longer be recognizing the 60% upfront. I will be directly proportionately recognizing over the life of the contract. What it also does is for the contracts, for which I was taking only [ 1/25 of the 40% ], now I will be taking CFO percentage income. I hope that clarifies.
Yes, I got it. What I wanted is -- I don't know, can you give us the 53 crores bifurcation for the 4,577 new members' impact, and the previous members' impact? Is that possible to share?
Sorry. Can you repeat the question?
This 53 crore revenue impact, it has new 4,577 members, plus earlier members, so can we bifurcate these 2 numbers?
So this will be -- so the way to look at it would be that the [ 2 34 ] -- or the current number is the income that we will be recording -- the current number of 170 crores, income from VO, ASF and others is what we will be recording for the quarter, for the members who have been with us over the [ 2 lakh plus ] members that we have today.
Okay. I got this now...
Let me again -- so basically -- let me reexplain. In the previous accounting standard, it permitted us to recognize the 60% of the nonrefundable admission fee upfront. And the balance is deferred over the life of the membership. Now what we need to do is as and when the sales happens, we will be recognizing the -- proportionately over the life of the contract. And since there have been a retrospective implementation of the contract, which is what the standard mandates us to do, we will be taking credit for even those members who have been acquired in the past. So for those members also, we will be proportionately taking the income over the life of the contract.
I got that. And now coming to the expenses, the 7 crore, which is in employee and 10 crore, it's in other expense, essentially those would be like employee commission to acquire that contract and 10 crore would be majorly the freebies, what you give it to the customer. Is my understanding correct?
That is correct.
Okay. I got that. And one final request. Now since this is a big change in the accounting, can we have a cash from operation and free cash every quarter?
Sure. We can do that.
Can you share on this quarter?
We will add that and upload in the next couple of days.
We take the next question from the line of Vikrant Kashyap from Kedia Securities.
My question relate to growth. With the new initiative taken in FY '18, revenue growth has taken a hit. When we are expecting to get back to our historical level of growth?
So the question is that the revenue growth has taken a hit. Is that the question?
Yes. That's the question. And when we are likely to get back to our historical level of growth?
So let me just explain you that what you are seeing is actually an income growth. As I -- as we -- as you know, that since you're comparing Ind AS 18, when we recognize income that is 60% in the Ind AS 18 model, correct?
Correct.
So we are talking about income growth and not revenue growth, first of all. Second, when we talk of income growth, as explained earlier, that the income growth is impacted for 2 reasons: number one, we have shown you the income growth, which includes ASF, interest, et cetera. So all these components grow at a differential rate. And the membership part, as Mrs. Akhila was mentioning earlier, the AUR have an impact, particularly for the 25-year product. And Bliss product, which is targeted at the 50 plus is growing, and it was not the -- it was very insignificant in the quarter 1 of last year and that is why, to some extent, the revenue is not keeping pace with the membership growth. So in my opinion, as far as we are concerned, please understand that our business is about maximizing member lifetime value. We believe that when a member comes in, as you notice, that our resort income is growing in double digits. As you seen in the investor updates that we have given.
You're right.
Our bigger part of the game is in once the member is in, they start contributing to ASF, which is growing in double digits, as you saw the trends, which are historical trends. If you see the resort revenues, they are growing in double digits. So for us, it is extremely important to acquire members who have the capacity to enjoy the offering that we have. And once they come in and they start enjoying, the annuity income and the lifetime value gets maximized. So I don't think we should worry at all about the revenue growth being lower than the account growth that you are talking about, which is 14%. All of these members, by the way, are also looking over a period of trying to upgrade. In the VO income, please note, that we also have an upgrade income, which is a part of the VO income. So we do upgrade members from lower season to higher season, so when I talk of lifetime value, it is upgrades, it is resorts, it is the interest, it is the annual service fee -- annual subscription fee. So there are multiple streams of income that come to us once members come in. So we should never worry about the revenue growth in VO income that you are mentioning. As long as we keep acquiring members and we keep getting satisfaction, we were able to earn the satisfaction of our members in our resorts, which will help us to grow our resort revenues, which you are seeing is robust.
Right. My second question pertains to our HCR. How is the performance in this segment?
So HCR, if you recollect, we had turned around the company in the last year, and they have done particularly well. Quarter 1 for HCR is generally one of their low seasons, and it is a very seasonal business. The quarter 4 is generally the best season. And in terms of that, I think we are progressing the way we have planned to do so.
Right. And one last question. As we have initiated our new program called, Bliss. Do we have plan to roll out any more new plan -- not for the older one, for, maybe, other category of people?
So as a part of our innovation pipeline, we are looking at a product called Go Zest.
Pardon?
Go Zest. It is a 3-year product. The idea is to pass millennial. We believe that if our -- if millennials are able to experience our offerings, they will become -- they will convert into a 25-year product over a period of time. So this is an experiment that we are planning to do. We are test-marketing this product in some markets as we speak, but it is very, very early to make any comments whether the product will hit the sweet spot the way Bliss has hit as we speak.
We take the next question from the line of Chockalingam Narayanan from BNP Paribas.
Just the same request. If you can upload or disclose on the exchange on the balance sheet and the cash flow statement, given the changes in the accounting standards. That's the only request.
What we will do is we will put up the free cash flow and the cash from operations, and I hope that will help in looking at the numbers better.
Yes. Hopefully. It's on a quarterly -- every quarter basis, so at least we'll be able to make a more -- a better comparison.
Sure, we'll take your inputs. We will take your inputs.
We take the next question from the line of Harshil Gandhi from JHP Securities.
Are there any fresh initiatives to try membership addition?
Okay. As I mentioned in my opening speech, the fresh initiatives are around geographical expansion. Also targeting through the artificial intelligence based-algorithms for generating leads in digital. As I mentioned that we are using social media also to generate leads. And of course, we are using Heart-to-Heart, which is a physical contact program with our members in the cities that they live in, to generate higher degree of referrals. At an overall level, this is the strategy. I would not get into too much detail, because in some manners, this is an important competitive intelligence in this area. I can also mention that we are also working with multiple brands to strike alliances, so that we are able to co-promote their product and our product. And in the process, are able to tap the qualified leads. So these are at a very high level initiatives to drive member growth.
Okay. And any internal target on performance on annualized level that we may have set at a consolidated level?
You have to repeat the question. I missed the last part. There was some problem.
Any internal target on performance at annualized level -- at annualized that we may have set at a consolidated level?
So you have 2 questions: one is stand-alone and one is consolidated. Okay. The first question, let me answer. We do definitely have internal targets. We work -- we have definitely internal targets to drive the business, and that is why we take new initiatives. We normally do not give forward guidance, but there is one way to look at our business. You see our confidence in the way we are adding inventory. You can easily get a sense as to where we are going in terms of our member additions. So that's one way to look at the way we are going forward in terms of our business. And the other part, at a consolidated level, I think, the 2 businesses are very different. When I say consolidation, I mean, Holiday Club. Holiday Club business, as you know, is very different from our business. And they operate in a very different economy. So -- and their inflation rates, their economy growth rates are very different. So their targets are built based on their realities and our targets are built based on the markets that we operate in. I hope that answers your question. We do not normally share what we are driving internally, but the way we are looking at inventory, as I mentioned earlier, you have a fair sense as to where we are going.
Next question is from the line of Nilesh Shah from Envision Capital.
Is there any change in terms of the tax implications because of the change in the accounting policy? I mean, how, basically, at the end of the year, you decide how much tax you have to pay based on actual money you collect and spend? Or is it based on the accounting? How does that work?
If you -- so basically, the notification on the standard has come only on March 28, 2018. And we've had a very, very short time span to be able to kind of migrate from the earlier system to the current system. The taxation aspect is something, which we are currently studying, and we will definitely do whatever is required to ensure that we can optimize on our tax expense.
Fine. I mean, when you have it later, it would be useful if you can share that with others as well, maybe in the next call or so.
Absolutely. Sure. Sure.
Next question is from the line of Rahil Jasani from ICICI Securities.
Sir, actually, in the presentation, you have mentioned income from VO, ASF and other as a single-line item. Can you give me a sense of the growth even like on a comparable basis as per Ind AS 18 for -- separately for VO or any assets?
So the investor deck, we -- maybe we've not put it in the format that you're requesting. And we'll definitely do that. We have put up income from VO resort interest and ASF on Page #17. What we will do is, we will definitely add one more chart and upload in the next couple of days, so that you get a comparative.
Okay. Yes, yes. Sure. Okay. And secondly, just to confirm, there was no inventory addition in this quarter, right?
Yes. As you know, inventory additions are lumpy. We either acquire or lease, or as you know, we build. And therefore, we had a very healthy inventory addition in the last year at 320 units. And as I mentioned, in my speech, that our projects at Goa and Kerala are going on schedule. And obviously, we continue to look at opportunities for acquisition as well as leasing, which you'll see as we move forward. But in this quarter, yes, there has not been any inventory addition.
Right. So Goa and Kerala, you're saying will be added in FY '19?
So our construction plans are going as per schedule. We have a internal schedule, by which we are monitoring. Goa has about 150-odd units, which are getting constructed and physical construction is on in Ashtamudi, which is our existing resort to increase the inventory there by another 56 units.
And you expect this by around what time?
So we haven't yet got this target date out in the public domain. But as we see, the project progress is quite satisfactory.
Next question is from the line [ Nitin Gandhi ] from [ The Street Capital ].
Just continuing the previous question, can you share what's the amount spent and yet to be spent? And if this will be possible over different financial years? If not...
I'm sorry, can you repeat the question?
Can you repeat the question, please?
I'm just continuing that inventory addition question. 200 units to be added Ashtamudi [indiscernible]. Can you share how much of amount is already spent? How much was spent in this quarter? How much is targeted to be spent in this year? And how much is spilled over to next year?
We will get back to you on this information. At this point of time, immediately, we do not have it. But definitely, at this point -- information can be shared later.
Fine. Coming to [indiscernible] like, are we little lacking behind, say, like, my general thumb rule is that 5,000 addition. So you need 100 rooms. And you have planned for 200 already, you're operating at 89%. So maybe if this needs to push sales to at least 6,000, 6,200.
All right. Let me answer this question. Okay. This is a good question. See, at 89%, we're not worried. Why? Because every first quarter, every year, we hit 89%. In fact, in July over September, our occupancy is on an average, hover around 80%, 81%, okay? Number one. Number two, it is extremely important for us to look at properties, which will build on the experience that Club Mahindra is known for. So there are, obviously, work going on as we speak on sourcing newer resorts, which are already available, either on -- for acquisition or for leasing basis. As we speak, we are comfortable, and definitely, you will see additions this quarter and beyond in terms of specifically be lease properties, as far as I was only giving you the feedback on our own properties. We have multiple ways to increase inventory as you know. And that progress is on, and you will see movement in this quarter as well. So we are very comfortable as far as overall member satisfaction is concerned in terms of occupancies that we have as well as the room units that we have.
And just a suggestion, nothing to [indiscernible]. I have traveled majority of the properties, but recent upcoming destinations that's Ladakh, [indiscernible and so many other of Northeast needs to be taken care. That's where the -- is a...
So let me mention to you, Northeast is on our radar, and you will see some movement there very soon. And we are definitely looking at the locations you mentioned, but Northeast is definitely in our radar and if there will be some movement there.
[Operator Instructions] Next question is from the line of [ Pratik Poddar ] from [ Natolia Financial Advisors ].
I would just like to ask about the HCR numbers, if you will provide?
So what we'll do is maybe, since couple of you have asked this questions, we will put up the consolidate numbers in the next couple of days. What we will do is, since there are a lot of questions in this quarter with the accounting change. We will consolidate all these questions and put it up together as an additional information in the website. Give us a couple of days, we will do that.
[indiscernible]
Mr. Singh, I had couple of questions. One of the question was what is the current cash on the balance sheet as of 30th June, 2018?
So as on 30th June, the cash on the balance sheet is around INR 530 crores.
Okay. INR 530 crores?
Yes.
And there's no debt, right?
There's no debt in the stand-alone books.
Okay. And what would be the approximate debt in the consolidated entity?
So this will be roughly in the range of around INR 750 crores.
Okay, right. Okay. Another thing was that about this resort, one of the locations which has not come up actually is [ MA Khira ] Near Bombay. So any plans, are you looking for something like [ MA Khira ] which is as popular as Lonavla?
So as you know that there are restrictions in some of these locations to build resorts. So definitely, we can't buy and build. But if there is a good opportunity that we get of acquisition or a lease property, good property, we would definitely look at places like MA Khira. But I just wanted to mention to you that we added 1 more resort in Mahabaleshwar last year in the last quarter. So in Mahabaleshwar, now we have 2 resorts. So just for the Mumbai members, we have now options. And we have, of course, resort in [ Hatkar ], as you know. So we have [ Hatkar ] and Mahabaleshwar, those were added, and people who travel to Gujarat, then we have a new resort in [ Wagha ] as well. But definitely, [ MA Khira ] is on our radar. If we get an opportunity, we would like to take property there.
Maybe something -- now I have couple of questions actually, since I got the opportunity, which I didn't get last time. Is that out of the total members, 4,577, which we acquired in the first quarter, most of this would be 25-year membership, right?
Yes.
Okay. And the other thing is that -- okay, I'll get back again, in the queue actually. I forgot the question.
We take the next question from the line of Bhaveshkumar Jain from Envision Capital.
Sir, is this possible to share sales mix by source of [ lane ], which you were sharing earlier quarter-on-quarter?
So on the digital and referral, which we were sharing, we are hovering at the same level, 48% to 50%. Therefore we stopped sharing because that number is more or less there. I mean, if there is a significant moment, we will differently share, but you can take it that we're hovering in the same level, 48% to 50%, including digital and referral put together.
Okay. And sir last 2 quarters, there's rent, run rate was around INR 28 crores. This quarter, it is INR 31, INR 32 crores. So going forward, it will be in the same run rate?
So lease rentals, as you know, are largely the new resorts that we may have acquired in the previous quarter, the effect of which you probably see, because you're seeing it compared to the same quarter last year. So during the year, when we have been acquiring properties, those lease rentals will obviously, suddenly appear to you larger when you compare it with the quarters, same period last year. So one side, we have to build resorts, which we keep doing, one side we have to take resorts on lease. And as you know, that our value proposition continues to improve, so member additions are brisk. So we will have to see the mix of lease rentals and the depreciation that will happen as a result of building new resorts.
Okay. And sir, this -- whether we have taken any price hike in ASF, because the year-on-year growth seems to be more than 9%?
So price hike in ASF is a function of the indices that we have, which are the WPI and CPI, there's a formula, it is well-known to our members. And I think for the year, which started this year, the price hike was about 4%. 3%, 3.5%? Give me the exact number.
4%.
4%. So 4% price hike was taken in ASF. But you must also realize that in the ASF income, there is a cumulation of both the member additions and the price hike, which is what gives you higher level of ASF growth than simply the price hike, because constantly we're adding members as well. And members are -- they have to then pay their ASF once they're due to take their holiday. So this is a constant ticker that we get in terms of member additions and a cumulative effect of the price hike. That's why you see higher growth in ASF than typically the inflation rate -- inflation that we booked.
Okay. And the CapEx guidance for this year?
So typically, we are running, right now, as we speak, we have gone on public record of saying that we are running a program of about 500 crores of CapEx, which includes 3 properties, Goa, as I mentioned earlier to you, in 2 phases, which is about 140 rooms, in Ashtamudi, in 2 phases, about 100 rooms, so that takes it to 340. We have a plan to increase Kandaghat by another 140 rooms, which is waiting for some approvals. So that 480 rooms is a plan that we have gone on record, and we're looking at a plan of approximately INR 480 crore to INR 500 crores CapEx, which is currently underway. Of course, that 140 is subject to approvals.
We take the next question from the line of [ Sandeep Hindraj ] from PCA Securities.
With respect to the balance sheet you mentioned that you have about INR 530 crores in cash. So the unbilled amount that is the membership fee, which is deferred, how would that change post the new accounting norms?
So if you are aware, as per our March 18 published account, we had something to the tune of, say INR 2,000 crores on the deferred revenue side, which would now increase by approximately another INR 2,000 crores. I hope that answers your question.
So how would we be effective, this is P&L?
Okay. So again, let me re-explain what I had said earlier. Given the change in the accounting standard, we would now be recognizing for all the members irrespective of whichever year they belong to and all the past members. The membership fee spread over the life of the membership. So the deferred revenue, what is now sitting in the deferred revenue would come back and be recognized quarter-on-quarter as the income for those members. So...
The old members?
This 40% used to be getting deferred over 25 years. Now the entire 100% will get proportionally spread over, say, the 25 years.
That is for the new members. Would you be doing this retrospective?
Yes. So that is what I explained earlier also. What the standard mandate is that for all live contracts as on 1st of April 2018, which is when the standard has become effective, we need to recompute the way we have been booking the revenue. And now instead -- and therefore, the difference would get billed into the deferred revenue. And going forward, even for those past members, I will be recognizing higher income over the balance tenure of their membership contract.
Fair enough. That answers my question.
So let me, again, maybe give you an example. Suppose someone joined us in, say, 2000, okay, and in the year 2000, we would have booked 60% in our income, and the balance 40% would have been taken to revenue and then got deferred over the 25 years, which mean in the current quarter, I would have got, say, 1.6 percentage of the revenue of that particular member, who joined us in the year 2000, right? Now -- and the remaining would be carried in the deferred revenue in the balance sheet. Now what I am being mandated by the standard to do is recognize, say, 4% over the 25 year since 2010, and therefore, in this quarter, I will be recognizing the proportionate income. The balance, which would be carried in my balance sheet as a deferred revenue.
Yet I'm not able to sum up the numbers why will your deferred revenues develop because of this? Because a large portion of the members could have built quite a bit, get reversed a little bit, there should be a negating effect, right?
I'm sorry. Can you come -- the negative effect would come on account of what?
No, no. Negating effect, I meant, basically, say, like you explained, in 2000 -- member have joined in 2000, and now -- right now, on the balance 40% you would be charging, account will be doing 4%, right? So this money moves out of your balance sheet into the P&L. But for new members, you'll be billing less than 4%?
Correct.
Correct. So the -- for new members, I agree, would go and add up to your deferred revenues but for the older members, it would reduce. It might be the case...
So -- in the older -- like the case I example, I talked of a member in 2010, we had already recognized 60%. The 40% is what was sitting in my balance sheet as a deferred revenue. Now when I recompute, what will -- what I will end up doing is, I will reinstate only for 8 years, the -- so I will be carrying in my books as deferred revenue, 25 minus 8. 17 years, okay, of the INR 100. I'll be carrying forward deferred revenue for 17 years.
We take the next question from the line of Arjun Khanna from Kotak Mutual Fund.
Ma'am, just to carry forward the earlier question. So the setting of transaction would be, you'd be reducing your retained earnings?
That is correct.
Right. So our book value should ideally come down, so what was the book value at the end of the FY '18?
What do you mean by book value?
Or the net worth of the company because that would be reversed, right? If you are increasing receivables.
So we are not increasing the receivables. We will be increasing the deferred revenue.
Fine. Fair. So my...
The net worth would be coming down. This would be coming down by roughly INR 1,200 crores.
INR 1,200 crores?
That's right.
Sure. That helps. Ma'am, since you already have an annual report out and that's as per the old accounting standards. Is it possible to give the balance sheet as of FY '18 March 31, as for the new accounting standards just so that we know the final starting point with which we'll be going forward with?
So Arjun, as per the regulations, in September, we will be definitely publishing the balance sheet.
Sure. Would we have a like-to-like of previous years also as for accounting standard 115?
We will not be giving a like-to-like for the 115. What we will do, and what is mandated also by the standard is to give a comparison with the accounting standard 18.
Okay. Sure. Sure. Fair enough.
This will definitely help serve your purpose and ensure comparability.
So it's just that projecting forward with incomplete information is extremely difficult. But I understand where you're coming from, it's a change in accounting standard. Fair enough. It would be helpful for our end if it's possible, but as you may in that sense. The second question, ma'am, is in terms of its quarter, what was the exact VO and ASF while you have given the comparison on a year-on-year level? What are the absolute amount for this quarter?
Slide 17?
Yes.
Read out from slide.
So the VO for the quarter on a comparable basis...
No. I'm not asking for a comparable, ma'am. I'm asking for an absolute for this quarter as per the latest accounting standard 115.
So that is a split. We have currently not put. We -- and it will take some time in doing that split.
Sure. No -- so we have this INR 170 crores, right, coming from both these line items as we have given in the presentation. So you mentioned that you don't have the split ready. Just curious, is it that ASF has come down considerably? Or what is the change in accounting standard for ASF now under 115?
So ASF does not change for the simple reason that ASF is anyway accrued on an annual basis. There will not be any significant change in the ASF income.
So if we understand -- if I understand correctly, then sir, if you just minus this number from INR 170 crores or we come to around INR 130 crores, is that the fair reading of VO income for this quarter?
There is a reduction of INR 53 crores.
I'm sorry, INR 120 crores. Right.
Yes, there is a -- if you see the disclosure, there's a INR 53 crore reduction in my income as compared to what it would have been in the earlier standard. A majority of this would pertain to the VO income.
So INR 170.5 crores minus, say, INR 55 crores, we come to INR 115 crores. So that would be where our VO income stands for this quarter roughly?
I'm sorry. Can you repeat?
So our ASF income if we assume it is at INR 55 crores, what we have given in Slide #17, and our VO and ASF income, as given in this slide, just INR 170.5 crores. So if we minus INR 55 crores from INR 170 crores, we come to roughly INR 115 crores. Is that the VO income for this quarter?
That will be the VO and the interest installment... and the [indiscernible] we recognized.
Okay. Sure, sure. And in the slides, you've also mentioned that it has an impact on costs. If you could just spend a minute explaining that to us again? I'm sorry, you had mentioned it, but I just didn't quite understand that.
Sure. So what the standard says is that the cost, which are -- only the cost, which are directly attributable to incremental sales can be deferred. The rest of the cost of acquisition that we incur would need to be charged off in the year in which it is incurred.
So an upgrade. How would an upgrade be treated?
One minute, if you don't mind, let me finish. So items like, say, like commission, incentives, which are directly linked to the acquisition would be deferred. Similarly, the offers that I gave -- any schemes that are given to the members would be deferred. Other costs, which we incur on the customer acquisition would be charged off to the P&L.
So what would these other costs be apart from these, ma'am? Could you give us some examples?
Yes. So if you realize, we do have -- I mean, the earlier question asked on my sales mix between digital, referral and routine lead generation. So there's a fair amount of spend that we do on these cost, on the -- through digital media, through the PRO acquisition, the salaries of -- the general infrastructure spend, the advertising cost, the marketing cost. These would get charged into my P&L.
Sure. So you would have employees, say, at these resorts who, like, sir mentioned earlier, work on selling upgrades to our current customer base. So that explains. How would you apportion it between writing off current, because I assume employee cost would largely be written off as current versus apportioning over the life cyle?
Sure, sure. So as far as the resort employees who upsell -- do upgrade, we do not treat them as resort employees in the first place. What they are part of my sales mechanism. And therefore, they -- I mean, though they're placed out of my resorts, they come under the sales organization. And therefore, their spend will be treated appropriately.
Which would be the deferred?
So the fixed component of their salaries would be charged off. Things like incentive, commission or anything variable would be deferred over the life of the membership.
Well, ladies and gentlemen, due to time constraint, we'll take that as a last question. I would now like to hand the conference over to Mr. Kavinder Singh for his closing comments.
Okay. I think what we have heard from everybody is that there is questions around the new accounting standards. I would just like to make 1 or 2 concluding remarks, which are around the fact that the fundamentals of the business remain the same. We continue to drive member engagement, and more importantly, our profitability will remain the same over the tenure of membership. Unit economics does not change. Operating cash flow remains the same and some of you have talked about that figure to be shared and we will come back. And there was a question around deferred revenue. Yes, there will be a significant increase in deferred revenue in the balance sheet, but in my opinion, this will mean that we will have far more visibility of the revenue over a period of time, because this is definitely confirmed revenue. Balance sheet remains strong in terms of asset base. We remain 0 debt company. And we are extremely clear that this accounting standard, while it definitely gives you a picture that the profit and the income have gone lower, but from an operating performance point of view, that is why we have shared with you the AS 18 numbers for you to get a sense on -- as to how we are doing at an operating level. So as I see it at an operating level, nothing changes. And our balance sheet and our ability to generate surplus remains intact. And more importantly, the overall profitability over the tenure of memberships remains intact.So with these comments, I would like to thank all of you for joining us, and asking the relevant questions. And we will remain connected with you as and when required on this issue or any other issue that you may have related to the quarterly earnings. Thank you very much for coming for the call.
Thank you very much.[Audio Gap]