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Ladies and gentlemen, good day, and welcome to the Mahindra Holidays & Resorts India Limited, Q2 FY '19 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 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 Mahindra Holidays & Resorts India Limited. Thank you and over to you, Mr. Singh.
Good morning, everyone, and a warm welcome to our earnings conference call for the quarter ended 30 September, 2018. Along with me, I have Ms. Akhila Balachandar, she's our Chief Financial Officer. I'm sure you had an opportunity to look at our quarter 2 numbers and half year results as well as the investor presentations, both of which have been circulated and uploaded on our website and stock exchanges yesterday. As mentioned in the last quarter, Mahindra Holidays has undergone changes in the accounting standards. The accounts up to 31 March, 2018 was prepared according to the Ind AS 18, where the non-refundable admission fee of 60% was accounted for as income in the year of sale; and 40%, which is the entitlement fee was deferred over the entire tenure of the membership. Government of India via notification dated March 28, 2018 has mandated that from April 1, 2018 the accounts have to be prepared in accordance with Ind AS 115. As per this new standard, Ind AS 115, the income from the vacation ownership contracts need to be recognized over the tenure -- full tenure of the membership and not only that, the entire contracts from the inception need to be restated in line with this contract. And only incremental costs incurred for obtaining the membership can be deferred over the tenure of the contract. Other parts have to be charged to profit and loss for the period. For the purpose of comparison of our business performance, we have shared financial stats per Ind AS 18 and you will be able to compare Ind AS 115 only on sequential basis. Let me highlight the change in Ind AS 115 standards, will not change the fundamentals of our business. As mentioned in our investor deck, our unit economics remains the same. Our cash flows remain as robust as ever. And now let me move on to the quarter. It gives me immense pleasure to announce that we have maintained our growth momentum in terms of member additions. We have added 4,145 members for the quarter ended September 2018, which is a 12% growth Y-o-Y, while if you were to look at on an H1 basis, in the last 3 to 4 years these are probably the highest ever member increases, adding up to 8,722, which is up by 13% for the same period in H1 2017. This year we also -- in this quarter, we have also added 3 new resorts, Darjeeling, Kalimpong and Namchi, Sikkim, taking our count of resorts to 58 and our inventory now stands at 3,520 rooms. Not only that, we have also been able to do a tie up in Orlando, Florida in U.S. with 3 resorts, which our members can use. And this is another addition to our international offerings. And we also see the progress on the Assonora and Assonora, Goa and Ashtamudi projects is on track. We have submitted INR 500 crores of investment, and we continue to review those investments. As you know, we have a 240 room resort coming in Goa, we have another 50 room in Ashtamudi and there is a third resort for which permissions are being sought for 140 rooms in Kandaghat, Himachal and that adds up to 500 units and INR 500 crores of capital investment. Our strategy of focusing on higher down payment and lower EMI tenures has helped us to improve our cash position and it is now healthy at around INR 484 crores. If you go back in time, which is there in investor deck, this number used to be -- 3, 4 years ago it used to be just about INR 26 crores. So if I were to look at now the income figure as per Ind AS 18, our total income in quarter 2 moved up by about 6%. This is despite the fact that our resorts in Kerala and Coorg which account for 30% of our total room inventory was hit due to floods and rains -- unseasonal rains, which lowered our income from resort operations by 8.4%. Though if you were to look at from at H1, our resort income grew by 3% and stands at INR 106.5 crores. Our occupancy due to this Kerala and Coorg effect is at 76% versus 81% in the last quarter, previous year -- Q2 previous year. We have made significant improvement in various operational matrices, as we can see that our half yearly growth is at about 7% profit after tax INR 68.7 crores versus INR 64 crores, all figures are Ind AS 18. And the other interesting point that I would like to share with you is that if you were to look at the numbers as per the new accounting standard, our income is at INR 209.4 crores and as I told you earlier that because of the deferral of the income, the income is reduced, however if you look at our profit after tax on a sequential basis, has grown by 5.3%, despite the Kerala and Coorg related impact on our resorts. The profit after tax stands at about INR 14.5 crores. The same number in Q1 of this year was INR 13.7 crores. We have also -- as you are seeing in the investor deck, we have generated a cumulative operating cash over the last 3.5 years at about INR 867 crores. And even in this half year number that we have presented, the figure stands at about INR 150 crores or thereabouts. We will continue to follow the strategy of acquiring quality members so that we can enhance the lifetime value, and we have discontinued as I mentioned earlier, the 10% down payment Blue Studio 48 EMI option. We continue to follow the focused market strategy to increase our customer acquisition activities in Tier 2 and Tier 3 towns. We believe that the customer today is wanting omnichannel support both on phone both, as well as on the various digital channels. So we are digitizing our customer facing processes and we are realizing that our booking penetration through the mobile app which we launched 1.5 years ago, is at a healthy 42%. The overall online penetration -- overall online penetration means the bookings done by members on our online channels whether it is web or app, is at a healthy 88%. This figure used to be, 3 years ago, just at 52%. We continue to adopt newer technologies including chat bots and artificial intelligence and various innovative strategies to provide the best experience to members at various touch points in the Club Mahindra. Our new product, Bliss, has gained momentum and now is being sold in 14 cities. As I mentioned, it is targeted at 50-years plus couples, who are possibly empty nesters and who would like to enjoy the Club Mahindra proposition. This product is for 10 years, and we do not sell this product unless the incoming member pays a minimum of 30% down payment. We continue to drive our building of experience ecosystem, curated experiences and in-city experiences and the brand dreamscapes are available to our members on our website as a part of strategy of bringing the overall experience ecosystem. We have also now under our new member exchange program, have tied up with 25 international hotels, at 15 destinations and 42 domestic hotels at 38 locations, which are the very respectable, very, very well-known international hotel and resort chains. Our members can enjoy and go into these locations by banking their room nights and paying thus a small exchange fee and this program is also ensuring that the members have far more choice than what we are able to offer through the 58 resorts. I think, I would also like to make a statement that after the Kerala and Coorg resorts occupancy issues, we are noticing as you know, we open our booking 4 months in advance, we are seeing the occupancy picking up, and we are already noticing the momentum in the occupancies for the Q3. Q3 is typically a good quarter in terms of the occupancies. And this is something that I wanted to say that our resort team has done an exceptionally good job in getting the resorts back on track and members are once again coming to Kerala and Coorg resorts to ensure that the Club Mahindra proposition is enjoyed by them. And we do not see occupancy issues in Q3 as we look ahead. As I mentioned about the fact that our liquidity position is extremely healthy with INR 484 crores, we continue to look at opportunities to acquire resorts or resort companies in India and South East Asia, that is our current focus area. And we believe that our inventory pipeline is healthy. Also our work on land bank creation is moving at a fairly good pace. And as we end up some of the resorts that we are building right now has become closer to completing them. You will definitely hear from us the new greenfield resorts that we will be starting to build as well as of course, the opportunities are being explored for existing resorts and our leasing and inventory pipeline looks healthy as we look ahead. So with this, I would like to conclude my speech and we will open the floor for questions and answers. Thank you very much.
[Operator Instructions] We have the first question from the line of Ritesh [ Velodia] from [ Keurig ] Capital.
Just first question is what was [indiscernible] decline on the -- in the new accounting standard?
There has been a disturbance in the line. Could you once again repeat your question please?
What extent of sequential decline on your VO under new accounting system?
Akhila, would you like to answer?
So we have now done the new accounting standard for the 2 quarters, and basically there have been some inter-segmental adjustments basically within the same income line. And therefore there are some movements up and down. As you know, we started this accounting standard last quarter which is the fourth time, and it has been a big change as far as we are concerned, because it has called for a complete restatement of member account right from the date of inception. So this is an ongoing process and we have now kind of stabilized our internal recasting. And I would urge you to look at the H1 figures, which are far more indicative in nature.
Okay. So this is more like a system adjustment on a temporary basis?
Within the income lines.
On the income lines. Okay. Then if you can guide us, what was CapEx done to-date? And what will be for the H2?
So in the CapEx, while the absolute numbers Akhila will give. I just wanted to give you an overview that our plan of INR 500 crores, 500 units is on track, 240 rooms in Goa, about 50-odd rooms in Ashtamudi, Kerala and as I mentioned, 140-odd rooms more which would come from the permissions that we are seeking in Kandaghat, in Himachal. So in terms of most of the capitalization happens after the capital work in progress works moves into the capitalization bucket. So as since this is work in progress, a large part of the figure that you will see in CapEx may not be representative, I just thought I will mention that and over to you, Akhila.
Ritesh, you will have the balance sheet available and CapEx would have been close to INR 50 crores, INR 70 crores that we would have spent in the first half year.
Okay. And what will it be in H2?
We are, as we said, completing the balance projects. So maybe another INR 50 crores, INR 70 crores, in the same order, depending on what pending and the requirements to finish. So this is more of an indicative figure and -- we are sharing with you.
The next question is from the line of Nihal Jham from Edelweiss.
Now just taking the first question on the member addition on the VO incomes, even if we compare annually, we see that the VO income has grown 5%, whereas the member addition were in the tune of 12% to 13%. So is that primarily attributable to the new product coming in and having a lower realization?
So Nihal, if you know historically our VO income comprises sales costs, new member additions, mix of products. It also includes realignments that happen, the upgrades that we do. It also includes some amounts of ECL provisioning as mandated by the accounting standard. So it becomes a complex mixture of various factors and cannot be simply attributed to one single fact. So this is where we would be.
Okay. But say generally comparing for this 6 months of growth between the traditional Club Mahindra Holiday product and this -- is it being similar or would you say that starting Bliss has been much better?
So talking about growth in Bliss, Bliss is growing at a much higher rate than the traditional product, part of the reason is of somewhat lower fees and therefore growth figures are not indicative but even today, it remains very, very small portion of the total number. So it is not that it has become a very dominant and as a result of which the AUR has become less, that's not the -- in fact, when we were looking at the AUR, we haven't seen any major movement in AUR as a result of Bliss because we continuously keep improving the mix, also of the CMH 25 product. And so what we do is, if there is a adverse impact of AUR as a result of the Bliss coming in, but there is a positive effect that each coming as a result of the improvement in the mix and therefore we can kind of tend to cancel out and therefore the mix doesn't remain a dominant reason for this kind of a gap that you ask. And as Akhila rightly pointed out, there are upgrade incomes which go up and down and there is an ECL provisioning that needs to be done. So therefore, VO income is not in line with the member additions. But the good news is that when we have these kind of strong member additions, our cash position continues to improve and as I told that Bliss is only sold for 30% down payment, so we like the members who pay upfront because it improves our cash position and therefore makes us stronger in terms of our balance sheet and our ability to source new resorts and therefore create availability. The moment we create supply and availability, we believe it will lead to further additions and members at a brisk pace. So the other good news remains that our ASF income growth remains robust, our interest income, which is the EMI interest income growth remains fairly robust. And the only thing in this quarter is of the resort income, which went down, which was because of Kerala and Coorg, as I mentioned, 30% of our inventory is in Kerala and Coorg. But very smartly, I believe, we have recovered in the late September last few days and early October. And then we believe that the momentum will be back in terms of occupancies and therefore spend in resorts. So you may have also noticed that our PBT margins if you were to look at accounting standards 18 is at 19%, which is fairly robust given the conditions that we were in our resorts during in this quarter.
Sure, sure. Absolutely. Just one last question, what is the average pricing of Bliss product right now?
So Bliss product is currently priced at about INR 1.9 lakhs and this is a 10-year product, on a per room night basis this is a more expensive product than the 25-year product. And the reason we are finding good traction is it's a points based product. It's an extremely flexible product, you can add points and you can move up, down the season as well as you can go sideways in terms of going into resorts, which are in demand because they have to spend more points. So it's a new generation product, which is extremely efficient on a per night basis. But of course, if you have to look at AUR, it brings in lesser AUR, but it brings in lot of cash upfront. And in the Ind AS regime, it definitely gives a higher income because it's a nice 4%, in this case you recognize 10% of the income over 10-year period versus the 4% that you recognize over the 25-year period in the case of the CMH 25. Having said that, I want to make it very clear, we are not moving towards short duration product. We still believe that CMS 25 is our core and that is what will bring in the cash for us to continuously build more and more resorts.
Absolutely. So just one last question on this change in accounting. Now ideally, when leisure book is 60% upfront, we had the leverage of getting a strong sales and marketing spend which, say, used to be around INR 1 lakh per member you used to spend. Now with the new accounting coming in does it in anyway first of all impact our cash sales and marketing spend and in case we continue the same, how will it impact going forward?
It's a very good question. It has been occupying our mind space. And I must tell you one thing, we are realizing that this is one trigger which will also make us more efficient in our marketing spends. And we believe that our teams are already tightening their belts, without impacting the growth in member additions that is the challenge, which we have and we have done reasonably well in quarter 2, even in quarter 1, in the Ind AS regime. And I think this will in fact make us more efficient and our spends will be far more smarter in marketing and therefore eventually we believe that this new accounting standard will do 2 things to us. Not only it will make us cost efficient, it will also give us very high predictability of revenues. And as I have -- as we have mentioned in our investor deck, that 95% of the revenues would be predictable. As you can see our deferred income pool has already grown up to -- since we have released the balance sheet to around INR 5000 crores. And this income as you know, has been -- has come in because of restatement of all contracts since inception, and we will definitely get income from the deferred income pool from the balance sheet into the P&L at no additional cost. And this will definitely be a kicker in terms of our profits going forward.
Sure. So this spend in sales and marketing in the first half is like the new base for what you plan to build on spending. Is it the right way to look at it?
Yes. I mean because we believe that our sales and marketing costs can be always improved, I'm a firm believer of that, we have to always find new ways of getting the right lead and getting conversions going at a lower cost and what we have done in the past. We have steadily improved, you can see our PBT margins have gone up over the years from 15%, 16% to about 19%. Of course, it's a combination of various factors, not just cost of acquisition. But having said that, I still believe there is an opportunity to save costs and continue the momentum in member additions and of course, resort additions. We are lucky to have -- not lucky, we have planned well to have actually good cash in hand for us to be able to buy or even lease resorts because our P&L as well as balance sheet has -- in fact balance sheet is even stronger now, much better than -- because of the deferred income and the things that you are able to see in balance sheet. So I feel that we are on a stronger footing than ever before.
[Operator Instructions] The next question is from Aditya Bagul from Axis Capital.
Sir, my first question is on the AUR. I am just taking Nihal's point a little forward. Our AURs have remained broadly stable and I understand this is a combination of our 25-year product and our Bliss. But can you share the AUR separately for both of these products? And if you can share going forward, what is the kind of growth in the AURs that we could see over the next 2, 3, 5 year period?
So while Akhila will answer your question, Aditya, I just thought I just come in. I wanted to share that we believe now that time has come for us to leverage our market position and increase prices. So in October, I think in the third or fourth week, we have taken a decision to increase prices in some of our 25-year old -- actually we have increased prices everywhere, but the prices in the range of about 6% to 7%, will be weighted average, Akhila?
Yes. Yes.
So there is a price increase that we have announced. It's there in the market now about 6% or 7% price increase for the memberships that are being sold from the last week of October. So we believe that our time has come for us to take advantage of our strong brand position that we enjoy. And more importantly, we believe that we should -- our proposition is strong and therefore, it should be priced appropriately. Coming back to your question on the AURs for the Bliss and the 25-year product, Akhila, can give you the exact numbers but I believe, I think or rather say 1.89 or something of that order is there for the Bliss and weighted average of 3.3%. As I mentioned, Bliss does not get dominant in the mix and there are -- I believe it's a nice portfolio strategy that we are now employing where we have a short duration product for the right segment, which will give us, obviously, growth. As well as obviously a kicker in our incomes because this income will get recognized over 10 years. However, we will also generate upfront cash because we are selling less than 30% down payment. And but as you know, that in our business model, it is extremely important to continue to source 25-year members because the cash amount that we will get a result of sourcing 25-year members will actually help us build resorts, which will help us build to get variety. So over to Akhila if you want to add to this -- to answer Aditya's question.
Yes. So basically, the average AUR for the Bliss is around 1.8, 1.9, like Kavinder said, and for the CMH 25 product is around 3.3, 3.4. I hope that answers your question.
Yes, ma'am. I just wanted the trends going forward, I mean, this number has great value product and has remained more or less stable for quite a bit of time while there has been some amount of mix in fact. Just wanted to know whether our clear strategy now is to take it further in the direction of maybe INR 4 lakhs or INR 4.5 lakhs over a period of [indiscernible]?
It's a very good question, Aditya, and I think you're making us think harder. But I must say the 6% to 7% price increase that we've taken should reflect at least partly in this quarter, Q3. And we normally keep an eye on the rates, the benchmark are again the ARRs. As you know, the hotel industry heading towards -- as you know in the last 3, 4 years the ARRs were pretty static in the hotel industry, so therefore we also remain little conservative on pricing. But as we move forward if the ARRs continue to pick up in the hospitality industry, our membership pricing will get priced suitably and therefore you should and we must increase the AUR's going forward. That would be definitely our stated intention.
Great, sir. That's quite helpful. Sir, just secondly on the deferred tax impact, can you help us understand the deferred tax implications of the new accounting policy, because the revenue which was recognized earlier would have had a tax implication. But that revenue, which has now been reversed, I just wanted to know how would you look at the tax impact of this? Because there is a sense that this could be -- possibly be taxed twice.
Akhila?
Yes. So let me first assure you it will not be taxed twice. So this -- in the earlier accounting we were already accounting 60% upfront, which means that my profit deferred for taxes grows higher, right. And therefore I've already paid the tax on it. The new accounting standards, I am recognizing lower income and thereby having a lower profit. And therefore, there is no way that I can be taxed again. What you're saying would have been correct had it been the reverse case. But in this case, it is absolutely clear that we cannot be taxed once again. Now since I have already payed the tax, I am creating a deferred tax asset in my books because that is something I've already paid up for the past period, and of course to taxation and when it's assessed, so therefore the question of being taxed again does not arise.
Okay. So as I understand the revenue, which were derecognized will be obviously taken over a period of 25 years.
Correct.
But the following tax implication on that revenue would not fall short?
As of now, now okay. Now let me -- I understand the question better, so let me again retake. We have already offered this for taxation and therefore this will not come for taxation again. Now going forward, we will be doing our tax computation under 60/40 and offering this for the taxation purpose. We will not be offering for tax [indiscernible] which is of our new accounting standards. So there are certain options available and we are exploring them with the tax consultant, but this will definitely take time. We will have to make some representations in how we move forward. But all those are next steps and work in progress but as far as these [indiscernible] there is no way that my income or profits will be taxed twice. And as far as the tax position is concerned, till we are able to get far more clarity from the department, we will create another set of books of accounts under 60/40 and continue to offer that for taxation.
Sure, ma'am. That's quite helpful. Any further development if you could just highlight to us it would be...
Sure. As and when something happens, we will definitely keep you posted.
Perfect, ma'am. And just one last bookkeeping question, ma'am. If you could just share the ECL provision sitting on the balance sheet?
So if you see the balance sheet, there was an ECL provision, which we created like from September -- 1st of April, 2016, okay, and this is something we have been doing on a consistent basis on some parameters which is signed up by our audit committee, the tax auditors, the internal auditors and the board. And under 115, large chunk of that provision is no longer required and therefore, if you see the balance sheet, there is a relief of almost INR 280 crores of the provision that we have created in the past.
The next question is from the line of Rahil Jasani from ICICI Securities.
So I just wanted to follow up on the previous question. Based on the deferred tax, you said that going forward, the taxation will be under the 60/40 basis. So in any case, Ind AS 115 reduces our income and it will also lead to higher taxes. So will the profit be much more depressed then?
If you see the concept of deferred taxation, basically we will create deferred tax asset going forward. So this -- from a P&L perspective under the new accounting standards, I will still have an effective tax rate of 34 -- 35.5% against my effective tax rate even under 60/40. So that will remain similar. The difference portion will keep on adding to my deferred tax asset till we have more clarity and some -- move forward with the department. From a [ future trend ] perspective under 115, I will not have any additional impact.
Got it. I understand. Secondly on the balance sheet trend again, there is a new recording of contract costs and assets. So I just wanted to get some clarity on that.
So in the earlier standard, this was called before revenue, but the new concept this is a restatement of the contract. This has now been re-classified or re-nomenclatured as contract liability before this. It is the same thing.
It's the same thing. Okay, okay, got it. And lastly again, I was looking at the presentation and on the last slide, you have mentioned that there is land assets that you already valued and they now stand at INR 1,129 crores. So was this revaluation under Ind AS 115 or was it done earlier itself?
So basically the accounting standards allow us to revalue our land and that is a policy decision of the board and it is applicable not only to us but also to our entire set of companies. And this is a decision we took -- we do it during the year and have implemented with the end of this quarter.
The next question is from the line of Ekta Bhalja from Karma Capital.
So can you share the profit number for the first half of next year?
So Ekta, we have not yet released the consolidated number. We should be releasing it sometime next week and maybe then that will be clearer.
Okay. And just one clarification. Deferred revenue, that was about more than INR 5,000 crores. Now going forward, does your income for the full-year, has this been more or less 4% of [indiscernible]?
Okay, so let me explain it to you. If you go through the investor presentation, we tried to explain somewhat in granularity. So INR 5,000 crores is basically a kind of WDV, so it is not correct to apply 4% on it directly, right. Once -- all of contract value of 100, year 1, I will recognize 4%, year 2, 4%, so what comes remains in the balance sheet will only be a kind of a WDV, that is far more explanatory. So INR 5,000 crores is the deferred pool remaining in the balance sheet. To apply 4% on it would not be correct.
The next question is from the line of Sarthak Mukherjee from Stewart & Mackertich. There seems to be no response from the line of Mr. Sarthak Mukherjee. We move to the next question. The next question is from the line of Dipan Mehta from Elixir Capital.
Yes, so sir, this is a long time for a lot of your companies. And I just want to understand that when I was looking at the 10-year compound annual growth rate of the company, it is disappointing at just 5%. 5-year compound annual growth of profit also is around 5% or so. Sir, could we be assuming that 5% of our bottom line growth is basically the sustainable intrinsic growth that a consumption-oriented franchise or a business like you should generate?
It's an important question and I think in our investor deck, we have given slightly more recent trends. And those trends are obviously showing our income growth at about 11%. And if you look at our margins moving up and we have also shared our new income, resort income, ASF income related trends including the EBITDA margins. The idea of giving that investor deck this kind of information was to let you know that there are strategies in place to grow the business at, obviously, a much faster rate. And you probably may have also noticed that in the last 3.5 years, INR 867 crores of cumulative operating cash. And even now, we are at about INR 484 crores of cash net of our capital expenditures that are going on. So the point here is like that, yes, in our business, we need to generate capacity. And to some extent, the capacity -- generate capacity means resorts earning. So you need to generate capacity in terms of focusing on new resorts additions. And ensuring that members get the experience and therefore, there is enough pool in the brand, therefore you can manage your cost of acquisitions. So as you know, our costs are cost of acquisition, cost of resort operations, but the business model is predicated on the fact that we do not borrow to build resorts, number one. Therefore, those costs -- or those kind of overhangs do not exist on our balance sheet or in P&L. And more importantly, you should also look at our -- and I'm sure these figures are available with you on our return on capital employed and return on equity. And those returns have been in high second digits, 2 digits, upwards of 20% if I remember correctly. So we believe that we are, in some manner, a cash-generating business. We definitely have a strong brand franchise. And we definitely are experimenting with products like Bliss to build even more momentum. And more importantly, resort diversity, which I talked about whether it is new resorts in India or abroad. So broadly speaking, the -- and what has happened as a result of this new accounting standard, even more you may see the profit after tax number lower, but you should also look at the tax that we are generating. So I think the metrics that should be more relevant for our business would be that whenever we take in a new member, we start multiple CDs of annuity income streams. And those are fairly predictable. And in fact now in the new accounting standard, 95% of our revenues are going to be predictable. So as I see it, we have been in the last 3 to 4 years able to generate both momentum in member additions as well as resort additions. And with this new accounting standard, it is even more clearer that our -- the revenue visibility will be significantly higher. And most importantly, even through the bad or good times, the vacation ownership businesses worldwide tend to be extremely resilient. Yes, they don't grow at 30%, 40%, 50% like some other businesses. But definitely, the fact that there is a clarity on annuity income, that there is clarity on the resort additions, and as you know that our CapEx plans are robust and even announced more capital expenditure because we believe that resort diversity and resort additions is a clear way for us to improve our planned brand proposition. And newer products like Bliss and maybe some more innovation that we will do going forward should help us to one, grow member additions, add resorts and therefore, flow more and more profits to the bottom line. And I just want to add 1 more point here, which may answer part of your question if not fully, the deferred income pool that we have of INR 5,000 crores, which will come in every year, the best part of this accounting standard that we believe is since we recognize only 4% and put 96% in the deferred income pool and the balance sheet, you know that we have been adding higher member additions than what we did in the past. So since the entire deferred income that you see there of INR 5,000 crores is of the past period including the current period. So in the past, obviously, our member additions were lower and therefore, the deferred income is what it is. Our member additions are now higher. So therefore, what I am pulling out of the deferred income pool in the balance sheet is much lesser than what I am pulling in. So therefore as we move forward, you will see higher and higher income, deferred income coming into the top line. And that will definitely improve profitability going into the future because our income will come without any additional cost. Obviously, the key thing is to maintain execution excellence, both in favor marketing expense and resort additions and member additions. So this is a very broad answer to your very specific question. And I would definitely request you to look at the investor deck that we have uploaded on our website, which gives little more recent trends than the trends that you mentioned.
The next question is from the line of Sarthak Mukherjee from Stewart & Mackertich.
So as you have mentioned, around 16% of your [indiscernible] and 30% of the [indiscernible] Kerala and Coorg was impacted due to the Kerala flood. So I would like to know the exact occupancy there at both regions.
So the occupancy of the entire company fell from 81 to 76. Specific to the resorts, we don't release occupancy figures for competition reasons. But suffice it is to say that for almost 25, 30 days, the entire resorts in Kerala and Coorg was shut. And that is how the occupancy drop at the moment, the level goes down to 5%. And the fact that 30% of our occupancy of the resorts room night are present in these regions created this kind of a big effect of 5% drop in the overall occupancy at the all India level.
Okay. Sir, my second question is, what is the percentage of the membership retention after the study of existing membership?
Okay. First of all, the existing memberships haven't expired because we started our company 22 years ago. So the expiry hasn't happened. Early on, we sold 33-year memberships. Now we are selling 25-year memberships. So definitely, there is no expiry but the good news is that in about 7 years' time from now, there will be expiry happening. And that point of time, we will have a lot of inventory getting freed up for our member additions where we can do member additions without necessarily building inventory for them because we do have members coming off every year from this side. Coming back to renewals, we definitely would encourage our members to renew. But that situation hasn't arisen as yet.
The next question is from the line of Chockalingam Narayanan from BNPP Mutual Fund.
With the restatement of the -- as per new accounting standard, what's the retained earnings?
Akhila? Akhila will answer this question.
Our entire equity is now at INR 254 crores, of which INR 142 crores is the -- including share capital of equity is INR 121 crores. This also includes the impact of the land revaluation that we did in this quarter.
So the reason I'm asking this question is with regard to your dividend. When can you start paying dividends given that retail earning I'm assuming because the revaluation will be negative?
This is something we have not yet got into and we are exploring certain options, and we have a dividend declaration policy, which is already put up in our midpoint. And our rules for dividend declaration, obviously, under the company at another statute. So we will need to examine this in far more detail when we come back to you.
Okay. But what is the figure as far as retail and earnings is concerned?
Let me get back to you. I do not have it offhand.
Okay. And two, on a cash flow basis on tax, if I look at all the deferred tax liability and deferred tax offer, there seems to be a provision to the extent of almost INR 440 crores. How should we understand this?
I'm not getting the question. Can you repeat?
There are obviously deferred tax liabilities and deferred tax assets. The movement versus the year end and now, the increase on deferred tax assets is almost about -- just one second -- about INR 650-odd crores. And on the other side, deferred tax liability you have about INR 230-odd crores. So there is -- basically, because of restatement, there seems to be a INR 440 crores -- yes. So this is the tax that you've already prepaid in advance, is that the way to understand it, on the account of the -- all these accounting changes?
Sure. Thanks for raising this question. In fact, let me clarify. So there are 2 components to the deferred tax asset. On the deferred revenue that we have restated, since we have already paid tax on it, we have created a deferred tax effect which we will be able to utilize over the period of time. Now on the land revaluation, this is basically a separate class of effects. And not similar to the deferred revenue. And in future, if we are, say for example, selling assets like land, that will be treated as a capital gain. So from a tax perspective, these are different classes of effects. And therefore, we have to create a separate deferred tax liability for the land revaluation that we have done. And therefore, you see 2 different line items in the balance sheet rather than one single net figure.
Okay. Understood. And the other question was with the [indiscernible] deferred revenue other noncurrent -- other [indiscernible] on noncurrent and current. The number seems to be 1/10 of the noncurrent number.
Yes.
How should we understand this aspect?
So basically, it should be looked at in totality. And in totality, we have a contract liability deferred revenue of INR 5,259 crores. And based on the next current and noncurrent classification, this will keep moving at various points in time which is half year and full year. But the way to look at it and the way we also look at it from a non-accounting perspective but from a business perspective would be to look at INR 5,259 crores of deferred revenue sitting on the books.
Okay. And what is the contra entry on the asset side, which is the contract cost today?
That's right. So if you -- what we also said is there are some direct cost, which are directly linked to the contracts, which can get deferred. For example, the incentives that we pay to our salespeople, there are some offers that get made to the members, something which is directly attributable to the acquisition of the contract that can be deferred, that has been classified as contract cost on the asset side.
We take the last question from the line of Ayaz Motiwala from Nivalis Partners.
This is Ayaz. I have a few quick questions and one sort of growth related question. There's a term in your presentation, which says entitlement fee in resorts. I haven't seen this term all year. Can you please explain what is the entitlement fee?
Okay. So if you -- I mean this is not particularly accounting. Now if you see our membership, our membership fees are pressed into 2 parts, admission fee and entitlement fee. Admission fee is 60% of the membership fee and 40% is the entitlement -- entitlement fee is 40% of the membership fee. Basically, we offer a membership to a person for him to enjoy holidays with us for 25 years. 60% of the fee we treat as upfront, nonrefundable. So even after a few years or at some point in his membership life cycle, he decides that he does not want to continue with us, this is something -- the admission fee is something, which will not be refundable. And these are all part of our membership contract. 40% is what? Is an entitlement fee and allows him to enjoy with us over the period of 25 years. So in the earlier accounting standards, it permitted us since this is a nonrefundable admission fee to recognize the 60% upfront at the time of joining, whereas the 40% was spread over the period of 25 years.
So it's in the new...
Do you have another question? Or do you want more time?
Yes. No, I think -- so in the new accounting standard with -- it'll be 100 by 4 or for 25-year membership for [indiscernible] accounting. These 2 would be together...
So what happens is the new accounting ...
That is from a technical consumer point of view or consumer buying a 3.5 year membership today will still be treated by Club Mahindra in the same way, which is that if the person were to withdraw from the club in a 3-year perspective, that 60% will not be refunded. Is there a change in the terms or no?
Okay. So as I've said, that is not something -- it's part of our contract with the membership member and part of the membership document and therefore, that does not change. What the new accounting standard prescribes is that though it is a nonrefundable admission fee, that also needs to be deferred over the lifetime of the membership. And therefore, there is an accounting change. But from the business model, the membership contract, nothing changes.
Okay. So yes, that's helpful then. So that's again back to accounting standards and presentation of the P&L from accounting point of view versus cash flow in the business model.
Absolutely.
Right. Second quick question is, how is the ARR computed? You have these numbers 3,800, 4,100, et cetera. What's the basis of this number? How should we understand these numbers? Especially in the context of how you mention in relation to the hotel business. If you could link it to that and the point you made in passing about the Bliss effective rate is actually higher than the 25-year Club Mahindra membership. If you could put these 3 points together, that would be very helpful to understand ARR.
Okay. So let me first tell you that these 3 points are not together. Okay. So when we say ARR, it's an indicative figure that we share. Let me explain to you. Basically in our resorts, we also do a small portion of nonmember room nights. This we do for various reasons. One, we give it to prospects to help them to evaluate the product and can work with the resort. We also get last minute, sometimes the rooms are unoccupied, we offer them only to nonmembers so that our occupancy remains steady. So this is a mixture of things. And when we are present and the resorts, this is a mixture of the average ARR that we are able to command for limited inventory, which is very small and that we release into the market for nonmembers. And therefore, measurement isn't really comparable with the hotel industry. For example, if you want to compare this with the ARR of a [indiscernible] I think that might not be the correct thing to do. It is just an indicative figure that -- or informative figure that we are sharing about our own financial. Comparing it with the industry, with the competition will not be perfectly ideally. Two...
Well, my confusion there was that...
It is linked to our internal rooms that we are giving to nonmember and therefore it is not really linked the Bliss product. And therefore, I would not connect all the 3 questions.
No, I think where it was mentioned that Bliss on a room rate effective was higher because while the duration is shorter, the absolute prices also lower, the effective rate is higher. I started getting into a thought on the value of a membership, and the ASF that you pay and you blend some number and give us this ARR. So it is obviously more of a reference.
Yes. I think she explained, but I would once again like to clarify so that there is no confusion. The ARR, as you mentioned, is for the average room rate for the room nights that were offered to nonmembers, which is 5%, 6% of our inventory bed space. We need to make them experience Club Mahindra proposition and eventually buy Club Mahindra. The Bliss was a very different context. Bliss is a 10-year product, bundled product. You can't buy it in room nights. You have to buy it as a package. And when you buy the Bliss membership on a per room night basis when I said -- I just said that typically, if it's a 10-year product versus a 25-year product, it should cost you 40%. Interest then on 25 is 40% so it's not 40%. It's higher than 40%. That's what I meant when I said that the Bliss is not proportionately of the same pricing. So that was one point that I was making. And so the Bliss members also enjoy benefits like 25% discount in our food and beverage and holiday activity offerings when they come to our resorts, while a typical nonmember will not enjoy any of those benefits. And by the way, as you rightly mentioned this ARR is not to be seen as -- so we are not a pure play hospitality company. We are more a membership -- vacation membership company. And therefore to us, the key thing is the membership fee, [indiscernible] that we spend at the resort on F&B and the holiday activities and the spa, et cetera. These are our typical sources of revenue apart from the fact that we also have an annual fee. And the fact that we have some interesting company because people do buy [indiscernible] and there is an interest complement there.
Sure. In the context of the time, very quickly on one accounting question again. There's a question that we had asked earlier on the -- sort of the deferred pool of INR 5,000 crores. There must be a blended number of the revenue already recognized. If you could give some sort of seasoning or some number to give a sense of this [indiscernible] profitability that you talked about.
Can you repeat the question?
The -- you have this big [indiscernible] of revenues which are -- which have been restated and [ for '19 ] 4% accounting, right?
Right.
So is there -- because historical sort of membership accretion and at what price these were done, what is the blended recognized number of this market, if you could give some sense on that? Meaning a question was asked where, should we pay 4% of INR 5,000 crores as a sense of [indiscernible] that is not the right way to understand?
Just explain that part once.
The blended AUR, again, would not be a right reference. We have gone through some of them internally. Because a membership is over a period of time, and again what happens is suppose a member has joined us 10 years back. Over a period of time, there are people who have upgraded seasons, they have upgraded their type of unit, for example, moving from studio to 1B up. It is a very -- it's a mixture. And a blended AUR really does not make sense because some of the earlier memberships were sold at far different price points.
Sure. Okay. I mean I understand the difficulty, that's why I was trying to get a number to understand it. One question to the management then maybe to both of you all, the growth aspect from the business and just looking ahead. So you talk about digital and the positive effects of that. There obviously were challenges where one of them is that people think they have inventory all over the place with [indiscernible], et cetera. And so there's a shorter planning cycle versus perception that in vacation clubs such as yours, we need to do a little bit of planning. So there's a challenge in that on the kind of customers who are looking at that apart from supply in the form of home stays. And all of that need tech support to come up online across various sort of platforms. How are you encountering this challenge and finding people or getting people to do more shorter vacations and creating that sort of listing? Because the resort utilization on the other side is very high. So if you could talk about the growth prospects on a medium-term basis, with the challenges of prospective customers. And if I could sneak in one final point on how would you link that to your desire to improve -- maximize lifetime value of customer and customers who are coming in 25- or 30-year-old guys who are now in the 40s, the mid-40s, their needs have changed. So if you could blend tech and needs changing and trying to improve lifetime value, we could get some more idea on your business, please.
So if I answer this question in big detail, then probably you'll have missed your lunch. But I will try to be very brief. So therefore if you feel that the question has not been answered completely then it's only because of possibility of time not because like I didn't want to. So I thought I'd make that clear. You asked a very, very fundamental strategic question and therefore, let me give a very high level strategic response to this which is like this. So we have been observing these changes. It's our job to keep an eye on what's happening and what is the share of the wallet that the consumer is willing to pay for these kind of products like ours because they are -- as you mentioned, they are club. There is a commitment, et cetera. Now one thing we have realized, we have been constantly seeing that people who go on various online travel aggregators or who want to go suddenly on a holiday and they don't plan, invariably there is a cost that they incur where -- and the value that they get is not matching. So they end up paying very high rates because they are trying to go a weekend, but they haven't planned so they pay much higher rates for very, very average accommodation and more importantly, a mild experience. We believe that our brand is exact opposite of that. If you plan, you go to our resorts, the experience that you are guaranteed is something that you will cherish as a part of your building your family memories as well as the time that you are having together. So our entire proposition is -- we like it also that it's about good living and happy family and good living is all about having great experiences. So we are building an experience info system, which is not about just experiences in the resorts but around the resorts and also in the cities. And we are also offering members opportunities to tap into various lifestyle actions like, as I said, that there are superior resorts of ours. But we also have a very unique model where we have a member exchange program. We have [ 70 available ] destinations where we are tied up with these hotel chains where they can bank their room nights with us and in a small exchange, people can go to these places. And more importantly, our resorts, we have still 1-bedroom, 2-bedroom apartments. When you go on a typical booking site, you do not get apartments. You get only hotel rooms and the family cannot stay together. And the experience is little unknown because you only see pictures. When you land, you find that you have not been given the room that you thought you saw in the pictures. In our case, what you see is what you get. And therefore the branded experience of Mahindra Group, it's in the form of Club Mahindra and the food and the beverage offerings, and the HAPPY Hub -- we have this fun zone or HAPPY Hub which is a kids zone where kids can have a whale of a time, where it's safe, secure as well as lots of activity that happen in our resorts where our resort members in the daytime, they could be [indiscernible] in the evening. They could be walking on the ramp or playing a guitar or entertaining you in the evening. So there is a lot of that which is bundled in which is never known to the people who are not members of Club Mahindra. So the proposition is to build a memorable experience. And that is something neither home stay gives you, neither these online travel educators give you. They only solve your problem of stay. And therefore if you not plan, the rates are extremely high and you end up paying much higher rate. So in our case, there is of course the advantage of once you have paid your membership fee, you have to pay only 1 year annual fee. With that, you are getting more and more choice and as the choice increases, you are not paying anything extra for it. So the proposition is different and therefore, we need to amplify the proposition by building on this experience ecosystem, which is about unique experiences and bonding with your family. And more importantly, a branded, consistent experience. And that is how we tend to differentiate ourselves. I just want to share with you that [indiscernible] who, as you know, is an authority on competitive strategies. For the last few years, we have been winning total price for following a very uniquely distinctive strategy in our business. And as you know in our business, very rare to find a hospitality hotel business where you have bed and occupancy problems that is all simultaneously. In our business, both the occupancy and bed problems are being resolved, which is reflected in our balance sheet in terms of the cash on hand. So the whole idea here is that build on this platform that we have created by creating more experiences, by ensuring that the Indian family would like those experience, would want those experiences and yearn for those experiences and they want to go again and again. And this is something -- it comes of course, at a slight cost obviously in the beginning membership fee. There is an annual fee and more importantly, some amount of planning because some of our resorts obviously are in great demand in certain peak seasons. But if you have a peak season membership, even then you need to plan effectively. The whole idea here is that you have a choice. If you don't go to one, you could go to the other one. And you could actually switch the locations to enjoy the same experience which you are -- which you become used to as you start holidaying with Club Mahindra. We have found that members enjoy spending anniversaries and birthdays together because of the simple reason that they can opt for multiple apartments. They bring their extended family and therefore, it helps them to spend the time with the extended family together and that's something that we find as a very unique feature. We are also working on a community, a kind of a portal, virtual community where people can connect with each other on lifestyle, travel and food and photography, et cetera. These are things that we are building as we move forward. So we believe that our proposition in this matter is extremely unique and it is something unique that is not found elsewhere. And therefore, we believe there will be enough demand for this kind of a proposition. We'll of course add products like Bliss, which will give an opportunity for even slightly older people to look at the 10-year product. And that's the whole idea, that's the whole premise -- and because we are going to be cash surplus because of the way the business model is constructed. We will be able to keep our resorts spick and span and also continuously build on experiences and also add more diversity to the resorts. This is as short an answer that it gets in the time that is available.
We take that as the last question. I would now like to hand the conference back to the management team for closing comments.
I, along with Akhila, would like to thank all of you for coming for this conference call. We value your suggestions, we value your questions. And this helps us to think even harder and take our company to even greater heights. I would like to wish festive greetings on the occasion of Diwali, which is coming and wishing you great and good business and happy living ahead. Thank you very much.
Thank you.
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.