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Ladies and gentlemen, good day, and welcome to the Mahindra Holidays & Resorts India Limited Q1 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on 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. Thank you, and over to you, sir.
Good evening, everyone, and a very warm welcome to our quarter 1 FY '22 earnings call. I hope all of you and your families are safe and healthy during these challenging times. On the call with me today, we have Mr. Sujit Vaidya, our new CFO, who joined us from the first of June. He's a chartered accountant with over 3 decades of varied industry experience and has spent the last 10 years in various CFO roles within Disney and Castrol. We also have on our call Mr. Dhanraj Mulki, our General Counsel and Company Secretary. I'm sure you would have had a chance to look at our Q1 results and investor presentation that we have uploaded on our website as well as on the stock exchanges. Let me begin by mentioning that the second wave of COVID-19, probably the most devastating wave that we have seen of the pandemic, the travel and tourism industry in India was really hit hard. However, as the country emerges out of the second wave, relaxation of lockdown restrictions, of course, vaccination rollout simultaneously is expected to boost the consumer confidence. The progress over the last few months after we began the world's largest vaccination drive has brought about a steady recovery in domestic leisure travel. We have delivered a strong performance this quarter, demonstrating our operational and financial resilience in these difficult times. As the second wave receded from mid-June onwards and local restrictions were eased off, we have witnessed a quick recovery in our occupancies and member additions also. I'm happy to share that the trend continues into July and looks like it will continue into August and September as well. Our quick recovery demonstrates the strength and resilience of our business model and execution excellence compared to the traditional hospitality players. If I were to look at a little broader macro environment, with more than 45 crores vaccinations administered, India has now overtaken U.S. as the country with the most vaccination shots delivered for COVID-19 as on July 29, yesterday. Vaccine availability, hesitancy, which was a concern in quarter 4, has now been gradually overcome. Such a fast-paced vaccination drive is likely to fuel the tourism recovery. We are also witnessing a positive momentum on the ground as the second wave recedes. Leading indicators such as air traffic, mall footfalls, restaurant bookings have seen a substantial uptick as lockdown restrictions have been eased off across most states. You may have heard of this terminology called Revenge Tourism. We are definitely seeing some of that playing out in our country. There is a lot of pent-up domestic leisure travel demand. We have started to witness therefore a rebound in resort occupancy levels, which I mentioned earlier, and we are expecting this trend to continue. I must say that the favorable outcome of this also is that there are a lot of inquiries for our membership plans. And the fact that we have 3 products, GoZest and Bliss and Club Mahindra 25-year product, definitely is helping us as we start looking at future with confidence. Before I get on to the performance, we are noticing a few emerging consumer trends such as following. I will just list about 5 consumer trends that we are noticing. The travel restrictions have actually facilitated the rise of staycations, adventure-led trips and solo traveling. Domestic drivable locations are popular. People do perceive a risk in public transport and, therefore, drivable destinations are becoming popular. If I were to look at the fact that we used to sometime earlier call the leisure -- business cum leisure, now it is called vacation, people are moving away from their home and getting into locations where they are comfortable. And more importantly, if I were to say, in our resorts, we see people coming with their families, working as well as children doing online classes while also enjoying the Club Mahindra traditional hospitality. Experience-led sales, we are noticing people are looking for very, very unique and personalized vacation experiences and, of course, close to local communities in niche locations, which are far and beyond. Focus on health and wellness, in my opinion, though I have brought it as the last point, is actually top of mind in the minds of people. Health, hygiene, safety have become crucial factors in the choices that the consumers make when they think about travel or stay. Happy to announce that our Board of Directors had approved the issue of bonus shares in the ratio of 1:2, 1 bonus share for every 2 fully paid equity share subject to, of course, shareholders' approval. This bonus issue, if approved by the shareholders, will capitalize INR 66.79 crores out of the securities premium of INR 103.62 crores. If I move into the operational side of the performance, we have added 1,062 members in quarter 1. The cumulative member base stands now at 2,55,160. Slowdown in discretionary spends and our inability to carry out on-the-ground market activations, lead generations and your physical meetings to some extent impacted our member additions. Our flagship higher tenure product which is Club Mahindra Holiday's 25-year product did gather momentum in Q1 despite the adverse situation. As I mentioned earlier, we have varied product offerings, which actually provide us a natural hedge in these difficult times. And also most importantly, we are in a position to meet the diverse customer needs and upsell and improve our sales realization. If I look at our value sales in quarter 1 compared to Q1, we were more than the double of the value sales that we did in Q1 of last year even though our units are slightly lower. We enhanced our member engagement through best initiatives that helped us to increase both referral and digital contribution, all-time high of 63% in Q1 FY '22. If I look at occupancy, last year, in the absence of vaccines, we had achieved industry-leading occupancies in Q3 and Q4 of 75% and 85%, respectively. What attracts people to holiday at our resorts, in our opinion, is the trust and the safety that we have been able to -- that's something that we have been able to drive. Mahindra brand stands for timeless trust, and the safety and hygiene practices that we have put up in our resorts are routinely appreciated as people come to our resorts. This led to -- these initiatives of driving on the timeless trust as well as the safety-related measures have helped us to deliver, again, industry-leading occupancy on operational inventory of about 51% this quarter. We were doing extremely well till about mid-April when the second wave struck. Till about early June occupancies dipped to very, very low levels. However, we have also learned to be extremely agile as the local restrictions were eased off. Our resort occupancies also started to improve from mid-June onwards due to increased confidence in travel and, of course, accelerated vaccine rollout. Given the fact that most of our resorts are at drivable distances from cities and we have spacious properties, and the fact that our rooms are not traditional hotel rooms, we have studio, 1-bedroom, 2-bedroom apartments, which are, of course, conducive in some manner to some level of distancing, we expect to benefit immensely from this revival and we are confident that our occupancy is building further, if I were to look at our trends even in July. If I were to look at our room inventory, we are at about 4,198 rooms. Over the next 4 years, as we have mentioned earlier, we will take this number to about 5,500-plus. So we will definitely cross 5,500. And I must take a moment to explain that -- what is the status of various projects in terms of creating inventory. This is obviously in addition to the work that we do in creating leased inventory. As I often say that we have an asset-right model. We have 60% of our inventories our own and 40% is leased, and that has served us very well in terms of our capital allocation plans. And we -- if I were to look at it, that in the Phase 2 of Assonora-Goa project, we will be adding another 57 rooms -- room units. Ashtamudi project is also under construction and expected -- both of these projects, Assonora and Ashtamudi, will be completed in this financial year, and that will add up to -- Ashtamudi will add up to another 33 room units. So together about 90 room units. We are in a position post the monsoons, subject to certain approvals, about 150-odd room project at Ganpatipule, which is on the way to Goa from Mumbai and overlooking the beautiful Arabian Sea. We also have -- we are all set to start the expansion project at Shimla with about additional 160 units in our flagship resort called Kandaghat. We are also doing design -- at the design stages we are looking at how we can expand our [indiscernible] resort, beach side resort. Parallelly, we are doing something very interesting. We are creating an adventure activity park with this company where we had invested a small stake in Rocksport. That work is going on very well in resorts like Assonora Goa, Puducherry and Netrang.Our Emerald Palm Resort at Goa now has solar installation in line with our ESG initiatives. We are also working towards adding solar installations at Assonora and Goa Varca Resorts as well. Our endeavor is to create new memorable experiences for our members at Club Mahindra resorts. We have -- even during this period, we have created new experiences for our members. Most of the experiences are outdoor experiences, which is what members want. And we believe that our commitment to offer immersive and unique leisure experiences to our members will actually continue to set us apart from others. In a normal year like FY '20, we had almost more than 1 million check-ins. And now we have a base of 2.55 lakh trusting member base. And we believe that there is a huge demand and we have the capacity to serve almost now 1.5 million room nights, and this is what will help us to serve the needs of the pent-up demand that will come. In terms of COVID-19-related safety measures, you are aware, we were the pioneers in creating our SafeStay program, which actually includes contactless service delivery, whether at check-in, checkout, use of digitized menus, online payments, et cetera at all our resorts. Obviously, we have focused a lot on also getting a very -- the highest level of certification in safety and hygiene standards from Bureau Veritas, which is a global leader in testing and inspection. Travel With Confidence initiative, which was more focused on door to-door hassle-free deserved -- well-deserved holiday to relax and rejuvenate through a range of measures like COVID insurance, travel insurance, COVID testing and car sanitation services. Through all this, we have ensured our signature warmth and service has never been compromised across our resorts in the country and as can be seen from the various testimonials that we get continuously on various social media platforms, which gives us lot of confidence that we are on the right track in terms of creating unique and immersive experiences. And people value us even more than they would probably prior to the pandemic because today people realize the value of open spaces, the kind of service that we provide and the kind of unique proposition that we deliver. Let me move on to numbers now. Our revenue increased by 10%. Since you have seen the numbers, I will not spend much time. Our resort revenues were at about INR 15.1 crores, largely due to the partial resort closures that we had, but we very, very smartly recovered in June. Our profit before tax is up by about 12.7% and stands at INR 40.9 crores. Our margin also improved by 40 basis points to 18.9%. Profit after tax at INR 30.3 crores and it is up by 13.1% Y-o-Y. We are quite happy that even in these difficult circumstances where we were going full-on and from there we went into a complete kind of a shutdown from April 2nd week onwards and then again we started in June, both the bringing down and bringing up the operations has been done in a very, very excellent manner by our team at the resorts and at the sales. So a lot of commendation to them. By the way, at this point, I would like to highlight in this quarter, we were judged as the Best Workplace in Hospitality 2021 from Great Place to Work. And we have also been ranked as 40. We are in top 50, which is rank 40, from Great Place to Work across industries and sectors. So these are some great achievements that we were able to see them playing out, and these results were announced in June, and we are very happy to share that. The fact that we are India's best workplace in hospitality gives us lot of confidence that we are on the right track despite the difficult situation of pandemic that the industry faces. If I were to look at our balance sheet. Our deferred revenue pool stands at INR 5,000-odd crores. As I've always said, this is on-book profit with very little cost, which is also sitting in the deferred cost. We continue to remain 0 debt at a stand-alone level. Our cash position in this quarter has improved from INR 940 crores to INR 950 crores despite the continuing capital expenditure. We have definitely seen momentum in our 25-year product. We have definitely focused on member additions with higher down payments, lower EMI tenures, that strategy continues, and this has helped us to shore up our cash despite this devastating second wave. Let me move on to give you a quick update on Holiday Club Resorts, our European subsidiary. As you know, in Finland, there was a third wave of COVID that was ranging from March onwards. Several of the Holiday Club Resorts Spa Hotels were shut during the month of April and May. And the good news is that the holiday season and Holiday Club Resorts in that part of the world starts from mid-June and we were able to commence our operations of the resorts starting from June, just in time for the summer holiday season. And this is because the government reduced the restrictions as their infection rates came down and vaccination drive over there also picked up full steam. Happy to also share that Holiday Club has launched their eighth spa hotel there, which is in Vierumaki. Vierumaki is just about an hour drive from Helsinki. It's a very active sporting sports holiday destination with golf courses, tennis courts and spa. And this is something that we are very proud of and this opportunity came in as a result of the pandemic. And -- if you were to look at revenue, Holiday Club Resorts has earned a revenue of about EUR 21 million. If I were to compare it with the Q1 of last year, this is up by 65% year-on-year. Our revenues in timeshare and spa hotels both increased -- in timeshare sales and spa hotels both increased in Q1 FY '22 versus Q1 FY '21. Largely, of course, due to a higher level of operations that were there in Q1 FY '22 versus Q1 FY '21. Holiday Club Resorts has received government subsidy of EUR 2.58 million as a part of COVID-19 relief, which is included in other income. Despite the COVID-19-related restrictions, Holiday Club Resorts, through very strong cost containment measures, has been able to keep the operational losses at EUR 3.46 million. If I look at the outlook, vaccination rollout is improving the sentiment for tourism in Europe. Domestic leisure travel is very strong in both Finland and Sweden where we have operations and is expected to remain so throughout the year. Summer holiday season in Finland is at its peak with high occupancies in spa hotels and rentals. Holiday season, as you know, continues till mid-August, and we are very confident that the domestic tourism will continue to grow in Finland. Focus on implementing cost efficiency measures will continue throughout the year. Let me come to my conclusion. And to summarize, although uncertainty around the pandemic continues, the risks seem to have receded globally with the world adapting to the pandemic way of life. And of course, there is a recourse to multiple vaccines and better medical therapies than what -- than it was when the pandemic struck. Domestic tourist trips in India, which actually saw a growth of 13.5% between 2010 to 2019, has actually seen a strong bounce-back on the back of Revenge Tourism and strong pent-up demand for travel. We did see that in quarter 3, quarter 4 of last year, and now we are beginning to see that again in quarter 2 and some part of June that went by. More so, people are noticing the fact that international holidays is something that is out of their radar. Therefore, there is a change in the holiday preferences. People are wanting to go domestic. They are looking for destinations which are drivable and looking for resorts which are spacious so that they can catch a breath of fresh air, ideally without the mask. But the fact remains that even in our resorts, we expect our members to wear the masks even outdoors. But then there are a lot of activities that are done in such a manner that while they are physically distant but they can remain socially connected. Of course, we can also come to a conclusion here that the long-term fundamentals of the leisure travel industry in India remain very, very strong. The vacation ownership industry with its loyal membership base is even stronger and resilient compared to traditional hospitality players. I am confident that the future holds significant opportunities for companies like us that can innovate and adapt to the environment and provide holiday experiences that are safe, in line with the emerging trends and expectations of the consumers. Our performance through the entire pandemic brings out the resilience of our business model and at the same time highlights our ability to move swiftly and with confidence in tough conditions. I would like to just make last few points and then I close. I would like to mention that we are optimistic about a quicker recovery this time around compared to last year, both for our India business and Holiday Club Resorts. Traveling preferences have changed due to COVID-19 towards vacations, driving destinations -- drivable destinations, preferences towards resorts rather than hotels with options to keep children engaged through activities. And most importantly, the focus is on family leisure vacations. With the trusted brand position and our resort infrastructure, we are well poised to serve this newly emerging leisure vacation phenomenon, both in India and in Holiday Club resorts. I'm confident that more such happy families and members will bring in more referrals, which will lead to a virtuous cycle of growing our profits and, of course, cash. As I mentioned, the biggest source of happiness comes that while we are dealing with this pandemic and bringing in the performance that we have brought, the recognition of getting the India's Best Workplace in Hospitality and being ranked amongst the top 50 best companies to work for, and ranked 40 across all sectors and industries in India for 2021 gives us immense satisfaction. I hope each of you and your families continue to remain safe and healthy. And our thoughts are with all those who have been impacted by the pandemic. Thank you for your time this evening. We are now opening the line for questions. Thank you so much for patiently listening.
[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.
So 2 questions from my side. Again, I look at the [indiscernible], see that our margins are obviously continuing higher despite the impact of the second wave, and it's much better than what we were doing even pre-COVID, adjusted for all the accounting. So I just wanted to get a sense from you that as things normalize, have you structurally identified aspects which can see these margins continue in the future out?
Yes. So on margins, it's actually -- the way to think about margins is that we are constantly looking at opportunities to reduce our costs, which are whether it is in the area of lead generation, whether it is in the area of our resort operations and whether it is in the area of marketing. While I must say that there are tactically times when we will spend money on marketing because we are also watching the external situation, but there are enough structural levers that we have, which we have pressed last year, and we are even doing better than that in this quarter. So that gives us a lot of satisfaction. But I must say that as we move towards steady state -- when I say steady state it means from pre-pandemic levels and beyond, we would have definitely identified even more opportunities for cost reduction. But for us, one thing is very, very clear that we will judiciously put our decision-making capability to invest money into building the brand, into focusing on right revenue of member additions. And in such a manner that while we keep improving our -- the income as well as the profits but as well as to see how we can keep sort of growing our margins. You must probably have noticed that even prior to the pandemic, we were improving our margin by about 100 basis points every year. I'm not saying that such a track record will continue. I'm not giving that hint, but I'm clearly seeing that there are always opportunities to keep improving through productivity and efficiency metrics, while parallelly focusing on the growth.
That's helpful, sir. Sir, the second question was more on the accounting side. And when I was going through the presentation -- I also appreciate the granularity that you're putting up in the new presentation and would want that this continues in the future also, that I see that our lease liabilities have increased compared to March whereas we've not added any resorts. So is it that any resort has been turned into a lease, which has led to that? Just for clarification purposes.
The simpler answer here is that we have long-term leases, which some of the long-term leases came to an end and they were renewed. So as you know, in the right-to-use model of accounting Ind AS 116, the whole idea of leasing is that you define something as a right-to-use asset and then there is a corresponding liability in the balance sheet. When you see such a big movement, it is because that some of the resorts the leases ended, fresh leases were signed, basically renewed. And since the beginning of the period has started, you have seen this. And as it moves towards the end of the period, the unwinding begins to happen. So this is a very pure accounting thing. And it is caused by renewing the long-term leases that we have done in this quarter. I would also like, Sujit, to come in, our CFO, to give further color to this, Nihal.
Nihal, this is Sujit here. I would like to add to what Mr. Singh said that there are 2 big resorts which were on a pay-per-use basis, which has now become our long-term leases as we were very happy with those 2 resorts, namely the Arookutty and Netrang. And also one of them, which was coming to a completion of the lease, which we renewed again, which was Avalon in Mussoorie. So because of that, you would see the increase in the right-of-use asset line, but also compared to that in the liability line as well, on the lease liability, you will see the increase. Of course, there is a small difference because of the interest cost, which is shown separately, are not accounted under 116. So that's really the reason for the movement on both these lines, which you need to look at it simultaneously.
The next question is from the line of Nagraj Chandrasekar from Laburnum Capital.
Congrats on good results. I just want to ask, post reopening we've seen room rates go up sharply late June and July and obviously lots of chances of Revenge Tourism, especially in the hills and outside the metros. And high inflation typically convinces people to go for holiday memberships, and on top of that you can't travel abroad because of restrictive quarantine needs. So are you seeing this leading to a spike in the pipeline for inquiries at all versus late last year or even in March at all? Are you seeing a larger than usual inquiry pipeline for your memberships?
I think I mentioned that there is definitely renewed interest in looking at having a solution where you are in some manner derisked from the future increases of price because, as you rightly said, the leisure destinations are now very pricey. And in our case, since our rooms are larger, families can stay together. In a typical hotel, a family of 4 will end up taking 2 rooms. But in our resorts because of the fact that our rooms are larger, people would end up staying in studio apartments. So we have a natural edge here and the fact that we have built the reputation during the pandemic of creating a very, very strong and successful safety -- SafeStay program that we created which led to a lot of awareness around the people who have been to Club Mahindra. They have talked to their friends and families. The best part is the feedback that we get is that we don't understand what safety protocols you use, but we feel safe in your resorts. Now that is something that is fueling, again, the referrals are increasing, as I mentioned, referrals and digital route. There is definitely more interest, more inquiries. But I must hasten to add that generally speaking, over the last, whatever, 14, 15 months as a result of this pandemic, there is obviously caution when it comes to big-ticket purchases like ours. So that is why I mentioned that even there, we are now beginning to do well. We are noticing that our higher tenure products are moving much better than what they moved in the last -- the first quarter of last year. So broadly speaking, answer is yes, and it gives us renewed confidence and optimism looking into the future.
Got it. And when you have this sort of 65% digital referral methods for adding subs, does the variable cost of vacation come down a lot compared to the roughly sort of 1 lakh membership we had pre-COVID. How much has it come down by? And is this the main -- one of the main reasons for the higher margin we see this quarter?
Not exactly. Some part yes, some part no. Let me be very, very frank and transparent with you. Digital, when you try to acquire leads digitally, you know the companies which are in this business from where you -- whether you do SEO, SEM or whatever, the digital costs are constantly rising, particularly in terms of lead generation. But on the other hand, referrals definitely help us in reducing our cost of acquisition. So it's a very complex mix when you see the cost of acquisition. And there are times when you need to entice people with slightly higher discounts when people are not wanting to spend, particularly in the doom and gloom that was there in May, and we continued selling even in May. In May there were so many people who were affected by COVID, friends, family, and yet we were able to make people think of holiday because one day this too shall pass and we will want to holiday, and therefore please look at this product. So for us, if I say that referrals helps us in bringing down the cost of acquisition, the answer is yes, but digital definitely takes a top couple of notches because digital lead generation is expensive in the -- focused lead generation is expensive. But again, there are good conversions, so there is a good reason why we continue to invest in building capability for digital. And having said that, I think there are times when you don't spend enough on the brand because you know it's not going to work. So therefore, again, there is a margin kicker comes from lower marketing costs. And there are many other things that you do in terms of energy savings in the resorts. Again, margin kicker comes from there. So it's an interplay of factors. Some costs go up, some costs go down. But yes, at the end of the day, as I answered a little earlier, it's -- this is the skill that the management has to have that when things are not going so good, how do you really manage costs. When things are going good, even then you have to continue to manage costs because you can't outspend yourself. But you need to spend money to build the business to the next level in terms of thinking about building the brand, creating the brand pull, which eventually, again, will lead to reduction of cost. So it's a kind of a cycle -- a bit of a cycle going up and down. But again, towards -- with a clear objective and direction that we want to improve margins on a continuous basis.
And just some numbers...
Sorry to interrupt you, Mr. Nagraj. May I request you to please rejoin the queue. We have participants waiting for their turn, sir. The next question is from the line of Ankit Kanodia from Smart Sync Services.
My first question is related to the culture and the behavioral aspect of Indian customers, in our members. So we are generally impulsive travelers, right? And we basically take this travel between -- right in the moment. And that's why even when I spoke to about half a dozen customers, maybe it's a very small sample, but I got a divided answer. I mean half of them were saying that they are happy with the system because they book in advance and half of them say that they never get the resorts of their choice. So I think this is one aspect where we have to work on wherein even if we build on our inventory, which we have already guided for, in the next few years, we might -- we will always face the situation of in the peak demand time, there will be many customers booking for the same property, right? So are we putting any sort of training or an educational thing so that this culture or this habit or this behavioral thing slowly changes over time because this is something which will always be a problem and it leads to some sort of a customer dissatisfaction, right?
Okay. I noticed that you are giving me a problem and also you gave me the solution. So I hear that. And I have to be honest, I can only add to what you are saying. Please remember that there are seasons under which memberships are sold. So there is a blue, white, red and purple. Because we have resorts all over the country, by design, the product is designed that if you are a white member or a red member and you choose to holiday, you will get a holiday not necessarily in Goa in November or December because the fact is that that's not the season for which you bought the membership. So you are right, there is -- and that is where you gave me the solution, which is what I appreciate. We have to constantly educate our members that you have bought a season and you have also taken a decision that I will be flexible to go to different destinations because you're not buying a particular week or a particular property. So therefore, if you choose to every time go between 24 to 30 December in Goa Varca, while you are not even a red or a purple member, then you are bound to get an answer no. Equally, if you're a purple member and if you plan well, you can definitely go to Goa but probably not every year because there are others too. And more importantly, we are not selling the memberships for Goa or only for Lonavla or for that matter any other resort that may be very popular. So by design, it is expected that people would probably explore. It is meant for people who love travel, who want to go to different destinations. And if they really feel that their needs have changed and they want to upgrade, then we have an option to upgrade you to the next season. So you're right, while we'll keep adding inventory, we must keep educating as well as to how and why this membership could work for you. And you're right, there are lots of people who are super happy with the planning and the membership as is. And there are some people who are saying, hey, I'm not getting the booking that I want. But they would not tell you probably at that time that were they trying to book higher or were they very inflexible that they wanted to only go to a particular location and they were not flexible about the location as well. So yes, as I told you that you gave this question and you gave the answer. And I'm in agreement with your answer as well. So education is definitely training and constantly explaining and communicating actually is the right way to go about it, while also, of course, using this as an opportunity to upgrade because, just for you to know, we don't share the upgrades data in public but it's a part of VO income. There are lots of people who are continuously upgrading from their base membership to the next and to the next and to the next because they know that if they go up on the membership tier, their ability to holiday in peak season obviously improves.
And just to add to that, maybe, sir, if you can incentivize our customers, like if you're booking 4 months in advance or maybe 3 months in advance, you get some benefits. That benefit could be anything. That can lead to some sort of a behavioral change.
Yes. So again, as I say, that you are giving us lots of ideas. And the good part is that we keep playing with these ideas and some of them we implement, some of them we don't. We do keep doing beta. There are lots of experiments that are going on all the time and including the kind of experiment that you just now mentioned.
So my second question is related to HCRO. We invested about INR 400 crores some years back in HCRO. And if I look at the depreciation and finance costs of this quarter only it comes out to about INR 65 crores. And just hypothetically speaking, if an investor comes and offers us INR 400 crores, should we not sell the HCRO and focus on our domestic business?
I think the answer is not as simple here. Again, you have given an answer, but I must say it's not as simple an answer as you have proposed because please remember that there was a time, about 2 years ago, when HCRO delivered EUR 12 million EBITDA. And we always thought that we would go from here strength to strength. Unfortunately, the pandemic struck. And of course, parallelly we were lucky to hire a very respected CEO, Ms. Maisa Romanainen, who is an extremely smart leader, and she has been able to reduce the costs during this pandemic significantly, and you will see the effects of that in the coming quarters. My suggestion to you is that as far as Holiday Club is concerned, it's a company which has phenomenal strength. And it has been mired because of these very crazy situations that have turned out to be during the pandemic because their business model is slightly different from ours. They sell fixed week, fixed location timeshare weeks. And also -- so because of that reason, their model is very, very different. And -- but they are a very strong holiday nation. You'll be amazed that in our resorts the occupancies are upwards of 95%. I mean people in Finland are holidaying much more than people in India. It's not to say that Indians don't know how to holiday. In fact, Indians are holidaying. You've seen the news clips where Shimla and Mussoorie and all, there are road jams. So I think the need to holiday has been very, very strong in Finland as a culture. In India, we are now slowly moving towards that culture. At least post pandemic, there is a big need for holidaying getting established. So the good part is that it's a very, very well-established company. It has strong strength, and we believe that it can generate a significant amount of profits as we move forward. And whether we divest or whether we keep Holiday Club with us is a very, very big strategic decision. Our objective of getting Holiday Club into our fold was to see how we can create, one, choices for our Indian members beyond India and parallelly use Holiday Club as a springboard for expansion in the rest of Europe. The situation has obviously from then been quite volatile because of the pandemic, and even earlier there were -- as you know, there was a bit of a recession going on there. But I think as we come out of pandemic, Holiday Club Resorts is something that is going to surprise us positively in terms of the way we are thinking about and making plans for Holiday Club.
My last question was related to the dividend issue. We still have -- as per the accounting rules, we still have negative results. So have we got our things sorted with MCA, which we discussed in the last year's con call regarding can we declare dividend and go for buyback if required?
Actually you have touched 3 issues, dividend, bonus and buyback. So first of all, just to confirm to you, dividend and buyback is not possible because of the negative net worth situation caused by the hit that we got during the transition into this IndAS 115. So that part is a settled position. We are continuing to work with Ministry of Corporate Affairs. Obviously, because of pandemic, we have not been able to get any decision out of the MCA. As far as bonus is concerned, we are not restricted to give bonus because we have a securities premium account, which can be used by our company, and that is what directors confirmed the decision. And therefore, that decision will be put up to shareholders for approval in the AGM, and post that, the bonus issue would get materialized. So that's the answer for the bonus. But buyback as well as the dividends currently are not allowed until MCA gives us an exemption.
And one last question. Given the fairly...
Mr. Kanodia, request you to please join the queue back. We have participants waiting for their turn.
Sure.
[Operator Instructions] The next question is from the line of Aditya Bagul from Axis.
Congratulations on a very good set of numbers. Kavinder sir and Sujit sir, I just had 2 questions from my end. First is I wanted to correlate the cash balances that we have and our room inventory additions that we're looking to sort of add over a period of the next 2 years. If I understand correctly, we have about 2,500 owned rooms. Just wanted to know what will be our own room addition over a period of the next 2, 3 years? And what is the CapEx in terms of the rupees crores that will go into that?
Okay. So Aditya, as I have mentioned that we have a plan to go ahead and add about 1,500-odd rooms over 3 to 4 years. Of course, the mix will evolve based on the opportunities that come. We are looking at acquisitions, we are looking at greenfield. Currently, as far as the greenfield projects are concerned, we have land banks, and we are evaluating various opportunities. But in this year, we are going to break ground in Shimla, Kandaghat, which is another 150-, 160-room addition to our existing resort. And we will be breaking the ground for a greenfield resort in Ganpatipule. So this year itself, we will have a commitment of at least INR 300 crores of CapEx that we will -- that will play out over 2 to 3 years because it will take 2, 2.5 years to get these resorts going. Of course, there is INR 100 crore CapEx plan already going on in the Assonora, which is a Goa resort, as well as Ashtamudi resort. So all in all, there is about at least a INR 400 crore CapEx very, very clearly visible. We are also looking at a 60-room expansion in Puducherry, and that might just happen towards the end of this year till we might be able to begin it. So that makes it roughly INR 460 crores. So say in simple words about INR 500 crores CapEx kind of a plan, at least is being initiated or in progress. Some part of that is in progress in this year. Of course, it will play out over 2, 3 years. Obviously, I'll not be in a position to say what will happen next year and beyond. But going by our plans, 2 things can happen. There could be acquisitions because we are evaluating acquisitions, so there could be acquisition-related outlay that may happen. And of course, parallelly, we will keep looking at leasing opportunities and -- so that's how it is going to play out. So therefore I don't see any change in our position of having at least INR 1,000 crores kind of a CapEx over 4 years, while we will deliver at least 1,500 to maybe 1,800 over the next 4-odd years in terms of the total inventory additions to what we have today at about 4,200.
Understood, sir. Sir, and in terms of acquisitions, we mean individual property acquisition, right? We don't aim to add vacation ownership companies per se?
I think there are no vacation ownership companies that we are currently engaged with or we believe are our targets for acquisition. So we are quite happy to look at resorts because that is what serves the purpose of our members well, and that's what we are focused on.
So sir, my second question was essentially to understand our member additions. I understand this quarter was slightly lower at 1,052. But if you can help us understand what has been the texture of this member addition? What proportion -- not necessarily in this quarter but over the last, let's say, 5 or 6 quarters, what proportion of our members are coming from a shorter duration product? And if the shorter duration product is of a higher proportion, are we going to switch our sales team and our customer mindset to move towards a 25-year product going forward?
Okay. So just to give you a sensing, from the time the pandemic was setting sometime in March mid onwards, we definitely have noticed that people would like to do the transaction at a lower transaction value. And therefore, GoZest, Bliss obviously became more popular than our core 25-year product. But every quarter last year we were able to increase our 25-year-old product's contribution. And then came again wave 2 and again the same trend happened. And -- but this time, when we went into quarter 1 of this year, we did not go down to the levels of last year even though we have sold 1,000 whatever odd units, 1,062-odd units, the value of that units is more than double of what we sold, which was about 1,270 units, in quarter 1 of last year. So the value focus is intact. Now looking at the customer behavior, we have a belief that if you are able to -- and this is by the way [ confirmed ] by international timeshare companies as well, if you are able to get a foot in the door of the customer -- and just think about GoZest as more like a test drive, and the customer is even paying for the test drive, right, we are selling GoZest as a product. It's a test drive. It's a big test drive. And then when the customer comes to our resorts, we will upgrade from GoZest too. Obviously, because of the pandemic, all of this has to still play out. But I can confirm to you that our conversions from GoZest to CMH 25 have already started. The good news is that people are upgrading from GoZest to CMH 25. Of course, very small number to begin with, but it has started. And the reason people would look at buying from GoZest to CMH 25 is while the transaction value of GoZest is lower than CMH 25 but from a customer standpoint, there is huge value in CMH 25 compared to GoZest. Because on a per room night basis, benefits basis, CMH 25 is a far, far more value-oriented product from a consumer standpoint. And the reason we would like to upgrade is because we would like to have a longer-term relationship with the customer and get a lifetime value. So it's a win-win. If I were to offer you a higher value proposition, if you have coming through the GoZest versus to go to 25 years, you would look at it. And in any case, it makes sense for us to upgrade. So for us, it could be -- I'm going to use a word, let's hope that it turns out to be true. It could be a situation where this idea of GoZest, which was born out of pandemic, can become a very, very big idea going forward into the future, where this is a continuous funnel of customers that you make them happy and you convert. And obviously, your cost of acquisition goes down because when you brought a customer for a small -- a lower tenure product, the cost of acquisition is low. And all you do is just give them great experience and then upgrade. So to me, it's a very interesting situation that we are in. And more importantly, with the renewed interest in holidaying, domestic holidays, even people who used to regularly go on international holidays are now wanting to travel in India. And that's another segment that's going to be of huge attraction for us. And by the way, because of our focus on trust and safety, we are anyway seen as now a premium destination. We were always premium, but we are now -- with the added focus on safety and hygiene we are right up there. So I see all of these confluence of factors actually playing out well for us into the future.
The next question is from the line of [ Rajesh Varma from Chorus Call ].
And I was glad to see a very informative and a well stacked investor presentation. So a great job done there. My question is that in the challenging pandemic period, your occupancies have repeatedly been higher than the other listed hotel chains in India. Could you throw some light on what are the key differentiating factors that helped you realize a higher occupancy? And do you expect this trend to continue?
Let me answer the question from the end. I do expect the trend to continue, and I'm extremely confident about that. The reason I'm saying so is that quarter 3 and quarter 4 last year, we hit 75% and 85% occupancies, when even vaccine wasn't there. And now with vaccine rollouts, I don't see any reason why we should not be climbing well beyond 70% even in this quarter that we are currently running. So the good news for us is 2. First is that we have obviously been in the business for almost now 25 years. We have built in a huge amount of trust and of course, with the focus on safety. People definitely can look forward to holidaying in a very safe environment at Club Mahindra, and that too in open and spacious resorts with larger apartments and very unique outdoor experiences. This is something that has become a very smart positioning for us, particularly post pandemic. So I think people are beginning to realize that. So that is what is helping us in some manner to get the higher occupancies that you alluded to. The second thing is that our members, they are valuing their membership even more and which is why we are even getting higher referrals from our members for their friends and families to join. I can go ahead and enumerate multiple reasons. But I think at a very broad level, the fact that we started with the SafeStay program much earlier than the other hotel chains and when we focused on getting Bureau Veritas certification on COVID-safe protocols as well as the fact that we've moved into completely contactless service transactions like from check-in checkout, billing, et cetera, all transactions moved to contactless. And the fact that we trained our people not to compromise on the service and warmth. We have this terminology called Seva. Seva means service in Hindi, but we have something which is very, very unique for us. We call it a service with empathy, warmth and attentiveness. So empathy, warmth and attentiveness were never compromised during this period as well. So we remain extremely focused on service. We have this unique differentiator of large spacious properties away from the cities where people can definitely catch a breath of fresh air, which is what I mentioned. And more importantly, larger rooms and also doing activities where you are physically distant but socially connected. And of course, lots of work done on food and beverage area as well. Because we noticed one thing that post-pandemic dining out is, again, really on top of people's minds. When they travel, they're actually not traveling only, they're actually looking for a lot of opportunities to sample different kinds of food. So again, that's another area where we have reengineered our menus and tried to up the game there as well. So at an overall level, I think all of this is playing out to get the occupancy higher than -- I don't want to compare with anyone, but I think in the leisure play that we are and since we are not focused on weddings, [indiscernible], our focus is very clearly family vacations. I think that focus also helps.
The next question is from the line of Nemish Shah from Emkay Investment Manager.
Congratulations on a steady quarter in these challenging times. So I just had a question on our cost of acquisition. So like you mentioned that already we are starting to see some of the GoZest members converting to CMH 25. So I'm assuming the cost of acquisition for them may be very marginal. So are we seeing that the cost of acquisition, which is around 25% for us, is currently trending downwards or we expect that to stay at these levels and we expect to reinvest these incremental savings from cost of acquisition back into the business? So just some color on that?
So at a very operational level, answer is yes, that cost of acquisition when you convert a GoZest to a CMH 25 is lower. But from an accounting perspective, it will not be very easily evident to you because a GoZest to a CMH 25 will be an upgrade. So it will not be a new member addition. So when we upgrade, what you will see is just -- obviously, what it does is it will reduce the future exits, because GoZest is a 3-year product. Our aim to upgrade also is to ensure that the future exits come down. And on a lifetime basis, the deferred cost that is sitting of GoZest, which is over 3 years, and with a small increase in the acquisition cost, it will sit over the balance 22, 23 years, if it's upgraded to 25 years. So it is -- the real benefit will come in terms of the accrual of VO income, less the deferred cost. So while VO income will keep coming in, the deferred cost will obviously come but it will be much lesser. So therefore, there will be a net positive impact. But on a pure play cost of acquisition for the new member additions that we do, that is not sort of going to get sort of impacted by this kind of an upgrade. So I gave you a very technical answer. But your understanding that on a longer-term period, what you're doing is by doing GoZest to higher conversion, CMH 25 conversion, you are in some manner reducing your lifetime cost of customer acquisition over the lifetime of this product, no doubt.
The next question is from the line of Jaiveer Shekhawat from Ambit Capital.
Yes. Now you've already provided the operational occupancy for the quarter. Could you please highlight what it was for the month of June? And also a sense of occupancies in the regions of, say, Maharashtra, Uttarakhand, Himachal? And also which have been your best locations for this quarter? That will be all.
Okay. See, I would say that we ended the quarter with about 51%. So June was at least 10%, 12% higher than that average roughly. As far as resorts are concerned, obviously Maharashtra resorts are absolutely right at the top when it comes to occupancies, whether it is Alibaug, whether it's Lonavla, whether it is even Hatgad and Mahabaleshwar as well. Himachal obviously is leading the pack because the restrictions for travel to Himachal are almost nil. Rajasthan is doing extremely well. Gujarat did extremely well for a long time. Continues to do well. And if I look -- the only resorts which have not done well actually, the other way to look at the answer is that South the restrictions were significant even in June in terms of opening the resorts. So pretty much most of the June we could not open the resorts in South. And as you know, right now, Kerala is affected. And that's where the occupancies are low. And Goa did extremely well. Goa has also bounced back. So if I look at broad terms, everywhere there is movement upwards, very, very strong movement upwards. Right now, the only place where the movement will sort of happen after some time is once Kerala situation comes under control.
One more question to top on that. Given that we have already opened up in Finland, and this is going to be a holiday season, so can we expect occupancies in excess of 90 percentage going forward?
In fact, I saw the resorts there are 100%. So the Finnish take their holiday very seriously, and particularly the summer holidays. As you know, the sun comes only in this period. So from mid-June to about mid-August, it's a solid time for them to holiday, and we are seeing all-time high occupancies in Finland right now.
[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.
I have 2 related questions. The first is if you can share the data. So last year, we -- the member addition was 12,000. And in current quarter, it was around INR 1,000. So let's say of this 13,000, how much is a 3-year, 10-year and 25-year if you can give the breakup?
So I think generally we do not give the breakup of the product mix at this point of time. But generally speaking, I would have mentioned and I continue to mention that the 25-year product is the dominant product. Of course, because of the pandemic, it's not routine times. There are times when 25-year does not remain a dominant product. But then there are GoZest and Bliss, which are products which are -- but in my opinion, what is really important to really think about our business is that how much is the sales value that we are generating out of our products? Are we continuously growing the sales value? Because for us, each product is an opportunity for us to upgrade it to the 25-year product. So for us, we don't worry too much about the product mix per se. For us, what is very important is to have the customer with us over a longer period of time. That is how the value gets realized in our business.
Okay. So the reason why I was asking, so let's say, earlier in the history we used to build 1 room for, let's say, 60 members. And if I take around INR 3 lakh membership average, then it is around INR 1.8 crores to INR 2 crores we used to get for 1 room. In that case, we used to spend INR 1 crore for inventory and the remaining remains with us as an investment. Now in this case, when you more -- we will be adding more of our members where it is having a lower value. Obviously, 3-year and 10-year program will have a lower value. Then in that case, our cash inflow at the initial stage will be lower. Then how we will fund the CapEx?
All right. Okay. So you really think about it as a portfolio kind of a strategy. We know exactly what is the mix that we should have keeping in mind what you just said. But remember one thing, we also on the supply side have not been bringing in CapEx for every unit that we sell. We also are bringing in long-term lease as a route. And I did mention that we have an asset-right strategy, neither asset-light or not asset-heavy. We believe in a mix where we are able to create inventory, even despite whatever you said, if you really look at it how our cash is growing. And the reason our cash is growing is because we are also focusing on higher down payment or EMI tenures kind of customers. And you are right that if our mix tilts towards the shorter tenure products, then how do we manage this mismatch. And we obviously have done internal calculations, portfolio mix. And we understand that there is a certain mix that we need to achieve and we are constantly mindful of that, and we are aware that -- also we are aware that on the supply side there are opportunities not to just build every time a customer comes in a room for the person but also lease. So if you look at the combinations on the supply side and key portfolio strategy on the demand side, it is possible to arrive at a mix where you do not have this asset-liability mismatch.
The next question is from the line of Umang Parekh from JHP Securities.
I just wanted to understand the rationale behind this bonus issue, what is the management's thought process.
The bonus issue is not -- as you know, is not decided by the management. It's a Board prerogative. And as far as my understanding is concerned, since I, of course, am in the Board, is that we believe that we have not been able to give the dividends as a result of this MCA. We also believe that a bonus is one way of increasing the liquidity in the market. And over a period of time, when the liquidity increases, could it be in some manner -- and I'm just making a hypothesis, it's a question, could it be rewarding to the existing shareholders. I'm not sure whether the answer is yes or no. But as you know, companies keep -- over a period of time keep giving bonuses. So the jury is still out whether bonuses lead to eventually -- for sure, it leads to higher liquidity. Whether it leads to rewards to the existing shareholders or not is a question that we can keep discussing. In some cases we have seen it does. In some cases it does not. But one more thing which I can confirm from management side is that the fact that we have increased our authorized capital, the fact that we are increase -- will increase the equity capital, subject to, of course, shareholders' approval, in some manner, is also signaling management's confidence that we are in a position to service that equity -- expanded equity base.
And also may I know the breakup of other income if possible?
Other income...
Sujit is answering this question. Our CFO.
Yes. yes.
The other income largely has 2 components to it. One is the treasury income which comes in based on our cash surplus, which gets invested into liquid investments. And the second one is, according to the accounting standards, the rent waivers which we got because of the partial shutdown of our resorts, which we've negotiated. So that -- those rent waivers are also shown as other income.
Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Mr. Kavinder Singh for closing comments.
First of all, thank you very much for being with us for this conference call. As I have always mentioned that we are quite humbled by the fact that there is lot of attention on us, on our performance. And most importantly, the questions that get asked make us think harder. We always learn from these interactions. We look forward to these interactions and each of your questions is noted down by our team, and we keep discussing, thinking through as to how we can give more disclosures, how we can continue to come up to your expectations. On this note, I would like to close the call from my side and wish you safety, good health today and all the time. Thank you so much. for being with us.
Thank you. On behalf of Mahindra Holidays and Resorts India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.