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Good morning, ladies and gentlemen, and welcome to the Q1 FY '20 Earnings Conference Call of Mahindra Holidays & Resorts India Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kavinder Singh, Managing Director and CEO of the Mahindra Holidays & Resorts India Limited. Thank you, and over to you, sir.
Good morning. Good morning, everyone, and a very warm welcome to our Q1 FY '20 Earnings Conference Call. Today I am joined by Mrs. Akhila Balachandar, Chief Financial Officer; Mr. Mulki, who is our company Secretary. We have uploaded our Q1 FY '20 results on the exchanges yesterday, and I hope everybody had an opportunity to go through the same. I would like to start my opening remarks by mentioning that I'm very proud to announce that Club Mahindra is in the top 50 companies to work for, as per the rankings released by Great Place to Work. We were ranked 41st rank as compared to 66th rank in 2018. And prior to that, our rank in 2017 was 98. We have also been awarded India's popular resort chain by the Times Travel Awards. These achievements give me the confidence that we are on the right track, both in terms of the way our customers, our members see us as well as the way our employees are engaged. Let me now come to the financials. And before I do that, let me mention to you that in our press release, we had talked about transition to the new accounting standard. As you know, effective April 1, 2018, we transited to Ind AS 115, wherein the revenue is recognized on a pro rata basis over the tenure of the membership, while a significant part of the income has deferred only a small portion of the cost, such as incentives, commissions and offers directly linked to membership acquisition are deferred. In this context, the deferred revenue balance as on June 30, 2019, stands at INR 5,356 crores, which gives a clear revenue visibility for the forthcoming periods and will significantly improve profitability in the coming years, like we have mentioned earlier, which has now observed even from our Q1 FY '20 results. In this year, April 1 -- effective 2000 -- April 1, 2019, Ministry of Corporate Affairs, by notification dated March 30, 2019, has introduced another accounting standard, Ind AS 116, which is about leases. The company has applied the modified retrospective approach to existing leases as on April 1, 2019, and the changes are of the following guides: changes in the balance sheet under IND AS 116 requires lessees to recognize lease assets right-of-use and lease liabilities. Changes in the P&L account under Ind AS 116 include amortization of the right-of-use assets, and notional finance cost on the lease liability substitutes the actual lease rental costs. Due to this change in accounting standard, we had to create a right-to-use asset up to the value of INR 185 crores and a corresponding liability for lease payments for about INR 201 crores. However, this change in accounting standard does not impact our business or cash flows. Business model and dynamics continues to remain the same. We have given the effects of changes in our P&L account due to this change in accounting standard in our uploaded investor presentation. Let me go on to the operational performance. Member additions, we have added 4,371 members during the quarter. And the cumulative member base as on Q1 FY '20 stands at 247,710. If you go back in time, you will see that a few years ago, we used to add 2,000 members in this quarter. We have moved up in the last year to about 4,500. And if you were to compare Y-o-Y, this is a dip of 4.5%. Our broad strategy of acquiring quality members has worked, with increase in number of upgrades and resort spends. Our cash position as on June 30 is at INR 655 crores, which has increased from INR 572 crores at the end of FY '19. We believe that our focus on collections, quality acquisition, cost reduction and overall improvement in operations has reflected in these numbers on the cash position. I would also like to add, given the economic situation -- given the macroeconomic situation in our country, our member additions have been robust in this quarter. Let me now move into the resort performance. Our resort occupancies have been the highest at 91% for Q1 FY '20 as compared to 89% in Q1 FY '19. And this is on an increased inventory that we have compared to the Q1 FY '19. Higher result occupancies, coupled with launching of innovative initiatives at the resort level, providing unique resort experiences like Goan Theme at Varca, Ocean theme at Pondicherry, curating home shift concept, e-bike tours in our Goa resort has helped us increase our resort income substantially by about 7.5% on a Y-o-Y basis. This gives us the confidence that our member engagement initiatives, our service excellence at our resorts is working, and this is a clear thumbs-up from our members in terms of our occupancies going at the 91% levels. Let me move on to the financial performance. We have operated -- reported our first quarter financials under the new accounting standard Ind AS 115 and Ind AS 116. Now this quarter onwards, you have the comparative financial numbers for Ind AS 115, and we have also reported like-to-like numbers in our Investor Day without the effect of Ind AS 116. This is to help you compare numbers and get a sense of where we are in terms of our operating performance as well as the numbers as per the relevant accounting standards. Total income for the quarter stands at INR 264.8 crores as compared to INR 242.3 crores in Q1 FY '19, which is a growth of 9.3% on a Y-o-Y basis. Our profit before tax for Q1 FY '20 came in at INR 28.5 crores as compared to INR 21.6 crores in Q1 FY '19, which is a growth of 32.1% year-on-year basis. And even if you were to look at a sequential level, this is a growth of 25%. Our cost control measures are higher participation in F&B and holiday activities by -- in our resorts by our members and a good measure of cost controls on sales and marketing expenditures and all-round improvement in operational efficiencies that helped us achieve even higher margins for Q1 FY '20. Our EBITDA without the impact of Ind AS 116 grew by about 18%. Our EBITDA margins are also healthy at 15.5% as against 14.3% on a like-to-like basis without the adoption of Ind AS 116. Of course, under Ind AS 116, it is 21.4% for Q1 FY '20. The key point observed is that our revenues have grown, our margins have improved, our profit growth has improved on a Y-o-Y basis, which is evident from the numbers that have been approved yesterday. I would like to move on to what we have been doing to create the pull for our brand, Club Mahindra. And I would like to also mention that despite the macroeconomic situation, we believe that we have that very, very unique customer value proposition. Club Mahindra is an aspirational brand. We have now 247,000 members, and we are continuously trying to build the club in the Club Mahindra. We have a product, Club M Select, which is now used by 22,000 members. This is an additional unique benefits and privileges program which we have been test marketing for some time now. And this program allows our members to get access to 400,000 hotels around the world at about 12% to 40% discount on the best available internet rates. We have now added even access to 24 resorts, golf resorts -- golf clubs, which includes marquee clubs in these cities, various cities of India. So golf access, 400,000 hotels at 12% to 40% discount, along with very attractive rates on the cruises around the world, 12,000 cruises around the world, dining options as well as the excursions around the world. This is a very unique benefits and privileges program. This is helping us create the pull for our brand. Moving on to the marketing initiatives that we have done to ensure that our brand remains relevant. As you know, we stand for family vacations. Our motto is Good Living. Happy families, so we have beginning to now, own the World Family Day on May 15, 2019. We introduced ecofriendly ways of making origami products to create a use of fruit, vegetables, towel et cetera. This is a contest that we ran to attract new members as well as within our existing members, so we believe that we are the true owners of the World Family Day, and we will continue building this property as we move ahead. Staying true to our credo of making every moment magical, we associated ourselves with the Walt Disney Spider-Man movie, which came, and we launched various programs which attracted kids on the ground. And we believe that this Spider-Man promotion is also helping us create the right pull amongst our prospective members as well as amongst our -- prospect members as well as our existing members. Let me move on to the inventory addition. I am happy to announce that our expansion of Ashtamudi Kerala is completed, and now our total room count in the Ashtamudi resort moves to 100. This was an addition of about 56 units. By the way, when we were building this resort in an existing resort, we did not have a single unit -- single day of loss by shutting down the resort because we had a terrain advantage. So this now resort is on multiple terrains and multiple types of units, including the floating cottages, as you know. And we are very happy that this project is closed, and I had committed to you that we will deliver this project in Q1, and we have delivered this in Q1 of this year. Our Goa project, Assonora, is on track. We definitely believe that we will be able to launch this project -- complete this project, the first phase of this project of 150 rooms, in the Q4 of this year. And we remain committed to our target of going up to 5,000 rooms in about next 4 to 5 years, which is 1,400 room addition, through a combination of our own greenfield resorts, brownfield expansions, which is expansion on existing resort and through leases. And for that, we have set aside INR 1,000 crores of capital expenditure program, and we are confident that this capital expenditure program will be met from the internal accruals. As you know, we have INR 655 crores cash on hand. And we believe that because we have been able to generate INR 300 crores of operating cash every year, including the year that went by '18, '19, because of our strong operating cash flows, because of the way we have reached our business, which is focused on higher down payment and lower EMI tenure for our membership additions, we believe that we will continue to generate strong cash flows to help us do our organic growth, including our inorganic growth of acquisitions of resorts to achieve this target. And we remain reasonably optimistic of achieving these inventory addition and consequently, the member additions. Let me move on to Holiday Club Resorts. As you know, Q1 and Q3, historically, have been the lean quarters for Finland and Sweden. Having said that, this quarter turned out to be a great quarter for Holiday Club Resorts. The turnover went up from EUR 30.9 million to EUR 37 million, which is a 20% growth. And in the Scandinavian world, this is a growth that is unheard of. And also, we have seen significant improvement in our resort occupancies. They have Spa hotels, and those are the resorts. The occupancy has moved up from 51% to 62%. That's a significant movement, of course, and the average room rate also went up by 5%. Having said that, HCR has reported a loss of EUR 1.66 million in Q1 FY '20, but this is a significant improvement from the EUR 3.47 million loss that was reported in Q1 FY '19. All these numbers are as per the Finnish GAAP accounting standard. And let me now move on to state the consolidated numbers. As you know, from this quarter, we are releasing the consolidated numbers. Our consolidated revenues for Q1 FY '20 stand at INR 626 crores as compared to INR 498 crores in Q1 FY '19. Consolidated profit after tax after NCI for the period ended June 30, 2019, together with the other comprehensive income after tax and NCI, is INR 3.1 crores under IND AS 115 and 116 as compared to the same period last year of minus INR 22.8 crores Ind AS 115. I would like to mention that as far as the impact of Ind AS 116 on our profits is concerned, in the standalone basis, this is negligible, almost negligible. You can see that in our investor deck. And as far as the impact of Ind AS 116 on Holiday Club Resorts is concerned, there is an impact of about INR 4 crores -- INR 4.5 crores. And if there are any questions around that, Akhila Balachandar, our CFO, would answer that. With this, I would like to open the floor for question and answers. And I would like to open the floor for the question and answers. And me and my colleague, Akhila, would be ready to answer any questions that you may have on the numbers for this quarter and how we see the business going forward. Thank you.
[Operator Instructions] The first question is from the line Archana Gude of from IDBI Capital.
Congrats on good set of numbers. I have 2, 3 questions. If you were to touch upon this microeconomic situation being slightly subdued, so how are we placed? And what are the strategies going forward? Do you see like the [indiscernible], will it be tougher going ahead? And what kind of impact on sales for the member additions we expect for FY 2021? And one more question to Akhila. Again, if you could explain more on Ind AS 116 because we'd like to know more exactly how the -- how things work out in that trend.
Okay. I think as I look ahead, one thing which I am very positive about is the travel and tourism sector. Domestic tourism, in my view, will not go down despite the macroeconomic situation. My belief is that Indians will continue to travel at a broader level, both in India as well as at least in Southeast Asia. The very fact that we have a strong rupee right now, that also ensures that the outbound travel will continue to remain robust. Having said that, the situation in the airline sector, which I was asked many times that will there be an impact in terms of our occupancies? As you noticed, this was the first quarter after the disturbance in the airline sector that happened in April, early April, we have delivered 91% occupancy, which goes to show that our members are traveling to our resorts, and I would like to mention that since we have a club membership model, we do not see the vagaries in occupancies because we have sufficiently designed our product for the off season, mid-season and peak season. Because of the way we sell our memberships, because of the fact that at different points of time, people would like to holiday in off-season and peak season, we do see fairly good occupancies even going ahead in this year. Last year, we closed with 83% occupancies. I am pretty confident of crossing that number despite the increased inventory in the resorts. So the answer is we are concerned since our members are happy to come and engage in the various food and beverage offerings, which we keep reinventing. As you know, food is critical, particularly when people are vacationing with their family. And also, the new and refreshed holiday activities that we keep putting and, in fact, a huge amount of innovation happens to create the holiday activities where members would engage. And we believe that this will remain a significant source of revenue for us going forward. When we have to 247,000 members, there is an advantage that we have, and we must leverage that advantage of maximizing the member lifetime value, whether it is in the form of upgrades, whether it is in the form of food and beverage spends, whether it is in the form of holiday activities. Having said that, it is critical for us to keep adding members at a certain pace of the right quality so that our overall base keeps growing. The way to look at our businesses, because we have 247,000 member base, and that is growing member base, it is important to note that every time we add member, we are not only adding the membership fee that comes to us but also significant amount of revenue streams that kick in. And you can see that even in this quarter, we have an annual fee growth of about 14%. If you see, our vacation ownership income grew by about 9%, and that is definitely helped by strong upgrades. And of course, 4,371 member additions. Because in our case, vacation ownership income is accumulative -- there is a cumulative benefit of that income that comes to us because the income accrues over the membership period from all the members that we have. So there is an addition effect that happens every time we add members. There is a vacation ownership income that grows. There is an increase in annual fee. There is an increase in resort income because we add inventory, more members go on holiday, and if there is an occupancy kickup and if there is a per member improvement in the consumption. So these are the leverage points that we have, and you can see that all of them have played out in Q1. And we believe, going forward, they will continue to play out because as far as our resorts are concerned, the occupancies will remain robust. As far as our member additions are concerned, we remain extremely focused on generating very high-quality leads to the digital and the referral marketing program that we have. In addition, we do alliance marketing. There are brands who have very similar customer segments as ours, and we continue to tap those customer segments through the alliance marketing. So we have very innovative customer acquisition marketing programs, which we believe are not affected by the macroeconomic situation because one of the reasons people would want to become our members is because we provide very unique experiences. I was mentioning about the fact that we have a program called Club M Select, which is enhancing our value proposition. Not only that, in order to enhance our value proposition further, we have a tie-up with about 100-odd partner hotels. Apart from the fact that members can go to the RCI 4,300 resorts around the world, we have a tie-up with about 100-odd partner hotels, as I was mentioning. Out of which, about 55 of them are outside the country, 45 of them are inside the country. In the -- and these are good branded chain resorts, hotels, where our members can go and holiday by banking the room nights that they have with us and paying an exchange fee. And this is another innovation that is playing out. We believe that our customer value proposition remains strong. We will continue to invest in the brand. As I mentioned that we are beginning to own the World Family Days. We are trying to do the Spider-Man promotions. So we will ride the wave of multiple consumer activations that we will do over the year, which will help us to maintain and grow our member additions. And coupled with the fact that our resort occupancies are likely to remain robust, coupled with the fact that we have these annuity streams of income because if members are happy, they will continue to pay their annual fee and they would be continuously wanting to enjoy. So in our business, it's very simple: keep the customer experience at the highest possible level; continuously engage with members, which also feeds into our referral marketing program; and ensure that not only the member additions are the cumulative level growth but also the resort occupancies growth but also, we ensure that our operational efficiencies keep giving us the margin figures. So we are pressing all the right buttons, we believe, which is helping us achieve what we are achieving. And we remain confident of achieving -- remain confident of pressing the same buttons going forward. And we believe that the results would be there for you to see going forward as well. Talking about 116, I would like to hand over that thing to Akhila. Akhila will explain to you how 116 has impacted the numbers, if at all.
Sure. Thanks, Kavinder. So Archana, basically, the new accounting standard has been implemented starting this year. This is one of the reasons. What needs to be done under this accounting standard is, a lease life, we need to recognize the lease assets which is the right to use as per the contractual terms that they have. And on the other hand, also recognize the liability investment commitment towards the lease payments. So basically, we are creating 2 sets of assets and liabilities. And asset is only one [ price ], which is the right-to-use asset and the liability, which is my commitment to the lease liabilities. Additional information is used earlier in the annual report. These numbers used to get published, but these were published as a lease commitment details, commitments within 1-year commitment, within 1 to 5 year and commitments beyond that. But these are the simple numbers without any -- but now under this accounting standard, we need to discount the liability using the borrowing rate and come to a present value and capture. This different way of accounting. But basically, what we used to show in the annual report earlier now comes and is part of the balance sheet effect, both as a right-to-use asset and a lease payment liability. In the P&L, what is done is, we used to have something called lease rent earlier, which is what I'm actually paying out for the lease rent in the quarter. What this does is instead of the lease rent, it gets replaced by 2 components. The right-to-use asset gets depreciated over the life of the asset. And the interest component, the notional interest on the lease liability, also gets charged out into the P&L. So this kind of compensates, to some extent, the lease rentals. There will be minor impact of variations regarding the lease rental for a simple reason: it is a timing issue. This will depend on the tenure of my lease. This will depend on whether I'm in the early part of the lease or the later part of the lease. This will depend on what is the discounting rates I have used regarding some of the terms. But if you really see, if I were to take a simple lease and work out the cash flow and the lease charge I got for the full term of the lease, it will be a 0 sum gain. So to that extent, it only times -- it's a timing matter as far as the lease accounting books. Now coming to the specifics for us in this quarter, the impact for us in this quarter has been something to the tune of INR 17 lakhs in the quarter 1. And net consolidate, we've also added INR 185 crores as a right-to-use asset and INR 200 crores as a lease liability. The charge in the period is INR 17 crores before taxes. At the consolidated level, which includes our assets based on Finland, we do have some lease assets there. So we have a INR 4.5 crores impact at the consolidated level for the quarter 1. So it's not a very large impact. And I think this accounting is kind of neutral as far as we are concerned. We may see minor variations over a period of next quarters or over a period. This year, I think it will even out. The impacts will even out. I hope that answers your question.
Okay. Akhila, just to take it a bit -- correct me if I'm wrong. If you're paying the charge and the lease, so the possibility of amortization and the notional interest, would that be the same for all the properties? Or that may vary depending upon where the property is located?
I'm sorry. I didn't get your question.
My question was making up, now, these opportunities, you have 10 resorts under lease?
Okay.
Okay. So the amortization on that resorts and the notional interest part, will it be the same across all the resorts same? Or will it vary upon where the resort is located?
So it will be the same. It will not vary depending on the location of the resorts. There may be changes depending on, say, the tenure and maybe when we started the lease. But those would be minor because even interest rates today are fairly stable. But there's nothing to do with the location of the resorts at all.
The next question is from the line of Nihal Jham from Edelweiss.
My first question was on the member addition growth. So I just want to check that the number that -- for the growth we saw this quarter, was that as per expectations we believe? Or is it that there is some impact of the slowdown that you mentioned at the start of the commentary? And overall for the full year, how do you see this going forward?
So as far as our member additions go, we are quite clear that 4,371 is turned out to be a good number, given the situation that we see around. We have not seen the effect of the slowdown in our member additions and as evident from the number. And if you go back 3, 4 years, we used to do 2,000, then we moved to 3,000, then we moved to 4,000, 4,500 and now we are at 4,300. It's a very steady addition to our member additions, which has happened over in this quarter. We are also quite careful in choosing the members that we want as to become a member of our club. We are using innovative marketing to find out what would be the member lifetime value if you were to get a member. There is a lot of analytics that is being used. We are trying to get members who are paying higher DP and also lower EMI tenures. We are driving digital marketing. We are doing referral marketing. We believe we are getting the members who will eventually pay ASF regularly, who will holiday and who will generate returns in our resorts. As you can see over the last 4 to 5 years, our resort revenues -- and if you can go through the investor deck, you can see that, that we have more than doubled our resort revenues. And this is not only due to resort additions, it's also due to the per member spend, which we track. And so it is important for us to get members who would go to our resorts, appreciate our customer value proposition, spend money on the food and beverage and holiday activity offerings. Of course, we need to remain very, very innovative, and we need to keep refreshing, which we are doing in our experiences. So it's a business in which we will have to remain extremely member-focused, drive the levels of service excellence, ensure that the member additions continue to remain robust at a cumulative level, and more importantly, see whether our all income lines can grow. As you know, our business today is far more intricately linked to the existing members' incomes as well because we accrue only 4% of the income for all the members that we acquired this quarter. Of course, there is a benefit of the 18,377 members which we acquired last year, which is also accruing into this. And all we are interested in ensuring that the addition keeps on happening at a reasonable rate, which is ensuring that we are able to give great experience to our members, which will in turn lead to a very low-cost referral acquisition, which will lead to improvements in the margins as we move forward and higher lifetime value means that members would spend money on the food and beverage and holiday activities, and some of them are high-margin businesses or rather the high-margin segments. So our aim would be to not only improve margins but grow the cumulative base and ensure that whatever we have been saying consistently, that our business model is built with multiple streams of revenue. And therefore, our improvements in occupancies or improvements in consumption per member, improvements in the type of members that we acquire, quality of members, all these cumulative effects are playing out, as you can see, in the growth, both in income as well as in margins as well as in the profit after tax numbers. So we believe that this is the first time we have today 115 numbers to compare our performance against the same numbers that we had delivered last year. Coming back to your question on how confident are we in terms of our member additions going forward given the current economic situation, we believe that we, as I mentioned earlier, also, we believe that, in our business, it is extremely important to attract new members, serve existing members extremely well through a very high degree of service excellence and ensure that all our revenue streams are kicking in every year, every day, every month. So as we speak, a very high occupancy, a very high spend per member and a continuous addition to our total base, which is now at 247,000 members, is sufficient for us, of course, huge amount of customer centricity, to keep on adding members, which will lead to the cumulative growth that you have seen in the past and maybe more. But the -- our confidence is also reflected in the fact that we are investing INR 1,000 crores capital expenditure, which we presented on 11 June when we did an investor conference, and we continue to remain committed to building more resorts. We have sufficient land bank. We will continue to take the leases. We will continue to acquire resorts. And we believe that the Indian domestic tourism and coupled with Indians' desire to go to Southeast Asian countries, and of course, some of them do go to European holidays as well, we are extremely well-positioned to get our members to sign up for us. We would like to ensure that our inventory additions remain in line with our member additions. So in some manner, our confidence in member additions is reflected to our inventory addition program. And happy to share with you that we now have a 100-unit resort at Ashtamudi. We completed that brownfield expansion. We have opportunities in our existing resorts to expand. We have land banks. By the way, the Goa project is also on track, and we should have the Goa project coming up in quarter 4, with about 150 rooms. So I believe that, like I mentioned earlier, that we are pressing the right buttons for both inventory expansion, member expansion and creating a great experience for our members so that we get huge amount of our sales through referrals as well as the digital marketing, which we do on a regular basis.
Absolutely. That answers my question. Just moving to HCR, it's obviously been a great performance, the turnaround as seen in Q1. But just reading reports of the weather in Europe, it seems similar like last year, where there were heat waves happening. And obviously, the only reason [ that's keeping up ] right now is last year, we did see an impact on our performance because, as you know, the weather being on the -- warmer than normal. So just wanted to check that, is that a risk that can play out again in this year or not something you're worried about at this point in time?
Yes. I mean this is something, very good question. I would appreciate that you understand that, fortunately, for us, in April, May, June, there was no warm weather like we saw last year. And therefore, the Q1 performance was depressed and you would appreciate that the numbers are telling a story that April, May, June, we are staying true. My information from the -- my team in Holiday Club -- by the way, I wanted to give you also a good news that on 3 July, Ms. Maisa Romanainen, she is a very respected corporate woman leader in Helsinki. She has joined as the Managing Director -- or I mean, we call the Managing Director, CEO, both the designations are used interchangeably. She has also joined in the Holiday Club Resorts Board, and she has already got going. And my conversations with her tell me that the, so far, the heatwave impact that you're seeing in the Mediterranean Europe hasn't affected the Scandinavian Europe. And to that extent, we will know in the coming weeks whether there is any extended summer that -- because the holiday season in Finland is in July and August. My information is that, as of now, it hasn't affected. But we will know as we move into August because August is also their holiday season. And really, this is one thing, but what we are doing -- this is one thing which is difficult to predict. But one thing which we are doing is ensuring that there is huge amount of cost focus in such a manner that the fixed costs are controlled, particularly in an eventuality where your revenues take a beating, if any, caused by these weather changes. And if that would were to happen, I think this year, we are far more prepared than what we were last year because that was one of the first that we saw. And my view -- personal view is that we should not see the situation till now, since it doesn't happen. I think the worst might be over already in terms of the weather, the extended summer, but we'll have to keep our fingers crossed for the month of August. We will see that. But July, it hasn't affected our Scandinavian operating side yet. And we would keep a close watch on it. And as I mentioned, keeping a good control on cost is one way to mitigate this and also creating activities which will get people back into the resorts. So there's a lot of work happening in that also, how to get people back in the resorts, and that is where the incomes increase. And with the new CEO in place, I'm very, very confident that we will have sufficient measures taken to ensure that even if the situation came to what you said, we do not have any surprises. And I think I'm very confident with the new CEO in Holiday Club Resorts and the enhanced focus that we have on Holiday Club Resorts, even from Mahindra Holidays, we'll ensure that we will have continuous improving performance in Holiday Club Resorts, but do know Q1 and Q3 are generally the weak quarters for HCR, given that the Q1 turnaround in performance is very, very heartwarming for all of us here.
Just last question on Ind AS 116, for Akhila. So looking at the breakout that you mentioned, obviously, INR 17 crores of expenses still reported as rent, whereas the other INR 15 crores -- INR 16 crores has been declassified. So I just wanted to understand that what is the existing INR 17 crores which is still classified as rent? Are these shorter-term contracts that is going to come under the ambit of Ind AS 116?
That is correct. So under 116, there is a lot of evaluation that needs to be done for the contracts, what can be classified as leases under 116 and what need not be or cannot be classified as contracts. For example, there are a lot of short-term contracts that one enters into, right? We have, for example, take our case. We have got leases of resorts. We've got leases of with the office premises. We may take some short-term lease of holiday [ world ] in some places for some time because we need some locations for running some events, some mobile holiday versions, so on and so forth. Not everything necessarily will come under the ambit of leases. It depends on the multiple evaluation factors and tools that one really comes to conclusion whether this is a lease under 116 and therefore, needs to be accordingly treated. What is not, continues to be treated as lease rent as earlier. So to that extent, there will always be 2 components. One is which is lease rent and one which has got classified as depreciation and interest -- notional interest under the 116.
The next question is from the line of Ekta Bhalja from Karma Capital.
Firstly, have you taken any hike in the annual [ subscription fee ] for members?
So we have taken annual hikes in the fourth quarter last year. And I think that explains out for us completely in this quarter. But in this quarter, we have not taken any price hike. But if you know, as far as the ASF goes, there is an annual price hike which kicks in from April annually. And this year, we have increased the ASF by 2.6%, which is a combination of the CPI and WPI model that we've been using consistently.
Sure. So has -- have you seen a large amount of upgrades in the quarter then?
A large amount of...?
Upgrades by members?
Yes. We have -- we, as Kavinder mentioned, over the last few quarters, we've been focusing on quality member acquisitions. We've been focusing on good resort experiences. The best time people do upgrade is when they are in the resorts and they see that what is the value proposition that we are giving to them. So this has definitely been ticking up over the past year. And this quarter, we have had a good increase in our upgrade numbers.
I would like to also add that we are quite happy with the fact that our members are choosing to upgrade because it shows 2 things. One, the ability to pay and second, value the experience that they are getting. And most importantly, this is what we mean by member lifetime value. Our customer proposition, if we keep improving, and hence, upgrades is a great signal to us that we are on the right track.
Can you share the increased and new member AUR that you charge -- that you record in your books?
So the new member is around 3.5%, 3.6% this quarter.
Okay. Because if I take the differential of the deferred revenue versus what you recognized this quarter and the member addition during the quarter, it comes to more than INR 4 lakhs. So just wanted to check that...
So that's the gross AUR after factoring in the upgrades also, you're right.
Correct. So -- okay, so the variance is largely on account of upgrades.
That's it. So they are in the range of 3.5%, 3.6%. And we have seen a good improvement in the AUR. There has been a good improvement in the upgrades. And the weighted average that you see coming to around 4.1 roughly, if I'm not wrong.
Right, right. Okay. And are we sharing the cash flow from operations for the quarter?
So what we will do, Ekta, is we will share it in the quarter 2 because that is when we will also be publishing the balance sheet and cash flow.
Okay. Any CapEx that you have done during the quarter?
So as Kavinder mentioned, our Ashtamudi project has been commissioned -- it's definitely online. So that has definitely come on board.
What is the amount that you spent during the quarter, total?
So to put that kind of a number -- so basically, it's a work in progress, which has been going on for some time. The last quarter may not be an indicative number because it's not that you spend the money on the last day of doing CapEx. So it has been a project that has been, we have spent the money. So I wouldn't like be, say what we spent during the quarter.
Sure. And the CapEx for FY '20?
Full year?
Yes. You are planning.
Well, we mentioned that we had finished Ashtamudi. Assonora is very much in the pipeline. We have Kandaghat which has some approvals are pending and depends when we kick-start. So depending on all these, we will be able to see what the CapEx number turns out. We're also actively looking out for a couple of acquisitions. Anything which comes our way, definitely we'll add to the CapEx. And it will be in line with what we've committed of 5,000 rooms in the next 4 to 5 years.
One more thing I would like to add here is that since we have sufficient land banks, we continuously are evaluating which places we need to break the ground and start more resorts. So the good news for us is because of our strong cash position, there is really no constraint on our capital expenditure. We remain very frugal on spending money on for rent; that we will remain frugal. But when it comes to opportunities, we are not going to constrain the CapEx for building resorts. So for us, right now, the only constraint, if at all, is the planning, regulatory approvals and on-the-ground execution. So at this point of time, we have INR 200 crores project of Goa going on, which will get completed in Phase 1, will get completed in the quarter 1 -- sorry, quarter 4 of this year. And Ashtamudi got completed. So these 2 projects which were running for some time, they are closing. More new projects, we will be announcing. And Kandaghat, we have already got everything ready. We are waiting for some minor approvals. Once they come, then we'll break the ground in Kandaghat for the expansion by 140. Likewise, we have many resorts where expansion opportunities exist and which will, of course, help us in improving the economies of scale when we increase the units in a particular resort. And then we will be also breaking ground on some greenfield projects. So we will keep sharing with you as things move.
Out of this INR 200 crores for the Goa project, how much have you already spent?
So again, these are details that are available in our [ CBIT ] as well as, I think, when the final numbers are declared in the H1, you will be giving the more details?
Yes.
I think in the H1, you should see more details.
Sure, sure. And Kavinder, despite 91% occupancy, the member spend had a little, resort income growth was 7.5%. So are we happy with the growth? Or we would be targeting a better number?
We are very, very happy with the growth. The reason, 2 reasons. One, please note that the [ 91% ] occupancy is on higher inventory because they are not comparable. And when we do Q1-to-Q1 comparison, we have more room nights available. The number two is that an 8% income growth on our existing base, which is reasonably high, comes only through 2 things. One, the extra room nights that we have. And therefore, we have brought more members in, and therefore, we get more income. And second is, what is the per member spend. We are seeing improvement in both. Having said that, your question is valid. Could we have done better, why not? And why should we not do better? So we will keep striving. But the good news is that there is a significant improvement in margins coming in through the resort operations. And a lot of the margin improvement that we are seeing is coming in through resort operations. So we are obviously able to sell the higher-margin offerings to our members, both in the areas of holiday activities as well as with F&B. And for us, everything we are not counting in terms of numbers, we are seeing the member satisfaction, our Net Promoter Scores are going up. Our referrals was going up. So for us, there are a lot of intangible benefits that come through, which will get reflected in the coming quarters. But yes, 8% is a very, very healthy growth in the income at the resort level.
Sure. Any update on the dividend front?
As we have mentioned in the last call and even later, we have, after clarification from Ministry of Corporate Affairs, and we don't have any update yet. As you know, the new government took over in this quarter that went by. The ministries and everybody else has settled in, and now we will be taking it up further once again with Ministry of Corporate Affairs, but we have definitely asked for clarifications by sending a letter to them, and we are making representations in this regard.
The next question is from the line of Nemish Shah from Emkay Investments.
Congratulations on a great set of numbers. Just one clarification. So our cash position has increased by around INR 84 crores, right? And if we do not have any major CapEx, so I believe that should be our cash flow from operations in this quarter? Is that understanding correct?
So what happens is we are also spending on the existing projects. So it will not be a direct correlation, but yes, of course, majority of the cash flow is from cash from operations only.
Right. So any ballpark amount on how much did you spend this quarter on the existing projects?
I will prefer to give it in H1 when the numbers on balance sheet and the cash flows will anyway be declared.
The next question is from the line of Kunal Shah from Carnelian Capital.
This is Manoj here. Sir, my first question is like one thing which you mentioned, that you are targeting to bring down cost of acquisition of new members. If you can give some update on that as well as if you can give us some ballpark numbers that out of INR 350,000, which we collect from the members, what is our acquisition cost per member after [ loading ] like some proposed net cost of your in-house service fee?
So as far as cost of acquisition is concerned, as far as numbers are concerned, I would request Akhila to give, but let me tell you the strategy that we are employing. The way we are thinking about customer acquisition is that with the penetration of the Internet in various people's hands and you know the numbers, the rate at which the Internet penetration is going. So we believe there's a huge opportunity to create very engaging content leading to lead generation. And if we get that right in certain campaigns, we can certainly reduce our cost of acquisition. That's one on the digital side. The second one is that we can do alliance sales with like -- with brands which have similar customer segments. If we are able to get those alliances going all right, then that can also reduce our cost of acquisition. There are opportunities for us using the power of analytics in choosing customers who are likely to convert over customers who are not likely to convert. So there is analytics, there is sharper targeting, there is a better -- more innovation in generating the right quality of deals, who will generate significant member lifetime value. See, in our business, it's not so important to save every penny that we are spending in acquiring the customer. If we want to spend even slightly more, but get the right kind of customer in, the customer lifetime value is huge. Now I agree, it won't reflect in quarter-on-quarter, but I just want you to see our performance over the last 5 years. If you were to look at our PBT margins from 16%, we moved up to 21%. Of course, as a result of Ind AS, the margins went back down because of the revenue recognition and cost, capital is not in line with revenue recognition. But again, if you see, in this quarter, we have moved up our PBT margin by 190 bps. Now there are significant actions being taken to reduce the cost of acquisition. Of course, over the years, if you were to see, we used to be operating at 25%, 26%. We came down last year to 23%. It's doing quite well. Already, we have made a significant dent. We believe that it's an area of continuous improvement because while you will focus on cost of acquisition, you need to bump up the spend sometimes in the digital marketing because you want more and more people to see your brand so that they would like to come. So constantly, we are dropping spends in one area and pumping in money to get new innovative campaigns working, so that our member acquisition momentum does not slow down. So one thing that we are not going to do is to save cost but not generate value. My personal belief is that the cost, whatever spends that we do, must generate value. If we generate disproportionate value, any cost will appear to be relatively lower. So it's a constant balancing act, which we will continue to do. Parallelly, there will be opportunity that we have been looking at in the resorts operations, and we saw opportunities in energy costs particularly, and we have been able to save significant amount of energy through investment in solar. And in these cases, you have these agreements with the third-party operators where they invest everything and you share the benefits on the recurring costs. We are now looking at solar investments with our own plants. By the way, I wanted to share with you our Kanha plant is on 100% solar. Now there are these kickers also which are coming in our margins which we don't talk about much. So we do a lot of work on sustainability, which is good business because we are trying to save energy, we are trying to save any waste that gets generated. By the way, our Virajpet resort is now certified as the first resort with zero waste to landfill. We don't send any waste for the landfill. Now this also leads to a culture of avoiding waste and this waste-saving culture goes into energy savings also, because people then don't waste energy. We request our members also to turn off air conditioning when not required. So there is a constant focus on base reduction. These -- and this base reduction thinking goes even in our cost of acquisition. So we are running a very lean thinking kind of a model where we generate disproportionate value, rather than just saving a couple of pennies. So we do definitely save pennies, but we definitely want to generate more value. And my confidence and my belief is that if we are able to sustainably grow margins at the business level without impacting our growth, then we are on the right track. I know it's a slightly long question -- a long answer to a very short question. And I don't know whether I answered your question properly, but...
No, it's certainly helpful, Kavinder, certainly helpful.
Akhila, would you like to give any numbers, just to state what I -- of course, I gave some numbers, but is there any additional numbers?
Numbers, to be very specific, as Kavinder rightly mentioned, we used to be at around 25%, 26% on the cost of acquisition. And over the period of time, and it's not just about 1 quarter or some quarters, we are currently trending in the region of around 23%, 24%. It could go up and down in a quarter. But on an average, we are in that range. And that is what we've been working. And again, as you rightly said, the improvement -- the endeavor is to keep on improving it, not just as a reduction
And my second question is, and in fact I did ask this question earlier also, like this quarter, despite not having room addition, occupancy rate is almost 91%. And if I look at like your next 5 years kind of target, which is 5,000 rooms from 3,600 rooms for [ '18 ]. So it means around 230 rooms per annum. It seems are we targeting only a 17,000 kind of member addition every year, because this kind of room addition [indiscernible] which are around 16. So just wanted to check whether we are not diluting any growth in our membership addition, if you are having this kind of conservative target of room addition and given the fact we have got cash on the balance sheet, we have got opportunities included, we have got surplus land bank. So I don't understand the reason for going that conservative while doing the room addition?
No, I think there is a misunderstanding that I would like to clarify. When I say 1,400 rooms in 3 to 4 years, if you do simple math, yes, it appears that it is conservative. But I just wanted to mention to you that, for us, the opportunities are even beyond 1,400 rooms, particularly if you were to take the opportunities around leasing and acquisitions. And the good news for us is that we don't have shortage of cash, but equally, we would like to -- and you have probably seen us, we are quite prudent in the way we spend cash. Because we believe that one bad decision can take us back, particularly in the area of resort acquisition. It is very critical that we do the right resort acquisition. So I have not added here what will come through the acquisition or even leasing. 1,400 rooms, we are trying to add to our own needs. Of course, within that, 200, 300 may come through lease, but this is a very, very ballpark number. We would like to do more than that, but we would like to do more in line with the way we see things happening around us. We could look at resort acquisition internationally. As we speak, we are scouting resorts internationally, particularly in Southeast Asia. With the improved connectivity that we are seeing in the Southeast Asian destinations, which you are familiar, we are looking at resort acquisition, and I am not going to add those numbers to this 1,400. So this 1,400 is focused on doing greenfield and brownfield expansion. A little bit of leasing may come through because the, in the lease resorts also, please note that we invest. So from an investment point of view, we have talked about INR 1,000 crores. It could very well be INR 1,200 crores. It could be even more. But having said that, this is not the limit to which we will go. So when we say 3,600 to 5,000, we mean through our own greenfield resorts and brownfield, very little quantity of lease. But leasing on top, acquisition on top of that, we remain committed to doing that. And we are not setting up quite at 17,000 member additions, I can confirm you.
Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
I would like to say that from the bottom of my heart, thanks to all of you who are patiently listening. Some of you, obviously, did not ask questions, and some of you are patiently making the notes. We are very happy, one, with the quarter performance, we are very happy with the fact that the questions that were asked will make us think even harder on how do we take the business to the next level, and we value these investor calls because it makes us think as to what we could do more. And I want to assure you from the management of -- on behalf of management of Mahindra Holidays, that we remain committed to making this company as a world-class company. As you know, that we are already the #1 vacation ownership company in the world outside of North America. My belief is with the opportunities that we see in the next few years, why should we not aim to be in the top 3 vacation ownership companies in the world, which will really make us proud, which will make our investors proud. And with that confidence, we would like to march into this year and beyond. Thank you very much for patient listening.
Thank you very much. On behalf of Mahindra Holidays & Resorts India Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.