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Good morning, ladies and gentlemen. Welcome to Mahindra Holidays & Resorts India Limited Q2 FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on 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, sir.
Good morning, everyone, and a very warm welcome to our quarter 2 FY '20 earnings conference call. Today, I am joined by Mrs. Akhila Balachandar, our Chief Financial Officer; Mr. Nirav Momaya, our Deputy Company Secretary.We uploaded our quarter 2 FY '20 results presentation on the exchanges yesterday, and I hope everybody had an opportunity to go through the same.Let me start with a very good news. I'm extremely proud to announce that Mahindra Holidays has crossed the 0.25 million member mark in terms of the total members that we have. And now the members stand at -- member count stands at 251,000 members plus. This is a big achievement considering that we started our journey about 23 years ago. And as you know, typically every Indian family would have 3 to 4 people who would travel for the holidays. So we have now 1 million strong member base in terms of member family base who would travel to our resorts. So this is a big source of achievement and a matter of immense pride.Before I get on to the results, I would like to take you through some of the aspects related to transition to new accounting standard. If you recall that effective 1st April 2018, we transitioned to new accounting standard 115 Ind AS, wherein revenue is recognized over on a pro rata basis through the tenure of the membership. While a significant part of the income is deferred, only a small portion of the costs such as commission, incentives and offers, which are directly linked to membership acquisition are deferred.Further, the deferred revenue balance as a result of transiting into this accounting standard, we have a deferred revenue balance. And that, as on 30th September 2019 stands at INR 5,412 crores, which gives a clear revenue visibility for the forthcoming period. And this is something that I've mentioned earlier also that the deferred revenue balance growing is a good sign. It tells us that what kind of revenues we can expect in the earning quarters.Let me move on to the new accounting standard, which came in effect from 1st April 2019. This is Ind AS 116. Ministry of Corporate Affairs vide notification dated March 30, 2019, has introduced Ind AS 116, which is applicable for the leases. As you know that we have both -- some of our offices are on lease as well as our resorts, the company has applied the modified retrospective approach to existing leases as on April 1, 2019, the changes of which have got affected as a result of them are: number one, changes in the balance sheet under Ind AS 116 requires lessees to recognize lease assets, right of use and lease liabilities. Now earlier, as you know that we used to have lease rentals, which would be applied in our P&L. Now there is lease assets since we have right of use and there will be lease liabilities. Changes in the P&L account under Ind AS 116 amortization of right-of-use asset and a notional finance cost on the lease liability substitutes the actual lease rental costs to which the standard is applicable.Now due to this change in accounting standard, we had to create a right-to-use asset up to the value of INR 185 crores and a corresponding liability for lease payments of about INR 201 crores. However, let me restate, this change in accounting standard does not impact the business or our cash flows at all. Business remains the same. We have given the effects of changes on the P&L account due to this change in accounting standard in our uploaded investor presentation.I would also like to highlight that on 20th September 2019, the Government of India vide the Taxation Laws (Amendment) Ordinance 2019 inserted Section 115 BAA in the Income Tax Act 1961, which provides domestic companies an option to pay corporate tax at reduced rate effective 1st April 2019 subject to certain conditions. The company is in the process of evaluating this option. Currently, the company hasn't considered the reduced rate in computing the tax liability and deferred tax balances. We have kept this discussion internally pending. We believe that we need to evaluate this option later.Now let me move on to the operational performance. As I have always mentioned that our biggest strength is our cumulative member base, 251,000 member base. This time, we crossed the 250,000 member mark by adding 3,905 members during the quarter. Our broad strategy of acquiring quality members with higher down payment and lower EMI tenures has worked, and we are also noticing very, very high level of upgrades in our members who are holidaying at our resorts, who choose to upgrade their season or who choose to upgrade their apartment type.So let me move on to the income. The income for the quarter stands at INR 249.6 crores as compared to INR 222.1 crores in Q2 FY '19. This is a growth of 12.4% on Y-o-Y basis. Profit before tax for Q2 FY '20 is INR 27.7 crores as compared to INR 22.6 crores in Q2 FY '19. This is a growth of 22.6% year-on-year basis. We have been able to improve our profit before tax margins by 90 basis points in current quarter.Our cash position remains comfortable, and as on 30th September 2019, we have a cash of INR 675 crores, which has grown by about INR 192 crores over last year September 2018. Our continued focus on receivables management, quality member acquisition, cost reduction and overall improvement in all areas of operations has resulted in a healthy cash position as I outlined just now.Let me move on to the resort performance. Speaking about our resort performance, our resort occupancies of Q2 FY '20, they were at 74.4%, primarily impacted due to unprecedented rains, floods in Himachal, Uttarakhand, Maharashtra, Kerala and [ Utt ]. We have been taking various sustainability initiatives in our resorts. We have eliminated single-use plastics at our resorts and our offices. I would like to share with you some very interesting developments. We had -- 6 of our resorts are water positive. The 275 million liters of rainwater harvesting has happened across 20 resorts. Our 7 resorts have solar installations and we are using water conservation and water flow restrictors and installation of heat pumps. And these installation of heat pumps have also helped us to reduce our costs. Solar also helped us to reduce our costs.So as we can see that we are living with our mission of "Good Living, Happy Families." As you know, Mahindra Group follows the philosophy of Mahindra RISE, we are committed to the RISE philosophy. We believe that these sustainability initiatives are do-good initiatives and these will help the entire communities around us as well as our business to rise on a sustained basis.We have launched unique resort experiences like village team at Varca, ocean team at Pondicherry. We have also seen a resort income grew by about 4%. And by the way, this is despite the fact that we had the rains and floods, which impacted our operations and occupancies considering that this performance is commendable.Let me spend a few minutes on our member engagement. As I mentioned earlier that we have 251,000 members, it's extremely important for us to engage with our members and our constant endeavor to enhance member delight is now playing out through our member privilege program called Club M Select. This is a unique program, as you know, which is available only to members. And we have added 2 new offerings. There is access to the golf courses as well as to yoga studios. Apart from the fact that this program allows 12,000 plus cruising options, gourmet dining and domestic and international excursions, about 70,000 of them in India and worldwide, and stay options at 4-lakh-plus hotels worldwide at discounts, which are discounts to the best available Internet rates.And on top of that, as we are a club, we have been now driving this inventory exchange program. As you know that our members have a week of holidays every year for 25 years for the 25-year members, what we have done is we have been able to tie up with 144 partner hotels in 80 destinations, both domestic and international, where members can exchange their room nights on payment of exchange fee and actually enjoy holidays in cities like London, Paris, Vienna and you name it we have the location, including Orlando and Las Vegas.We have also introduced 3 new features in our mobile app, which is prepurchase, digital payments as well as online upgrades, enhancing the transparency and ease of booking. Today, our digital booking penetration is at 83% of which the mobile app contributes to 54%.Let me spend a few seconds or few minutes on the member acquisition. We have started investing behind our brand, and we have launched a program of World Family Day, which we celebrate every year on 15th May. As you know, we are about family vacations, so we are the rightful owners of World Family Day. We ran a very big origami contest India-wide, which received huge response. We did tie up with the Spider-Man movie to ensure that our members are able to get the experience as well as most important help for us to generate good quality leads. Our communication is moving towards showing our destinations. As you know, our Naldehra resort is an extremely picturesque 50th resort that came in our bouquet of resorts was Naldehra. And this resort in Himachal Pradesh is now gaining huge amount of attention from media because we have been constantly communicating to our members as well as all the people within the outflow of prospects as to visit this resort and we are finding that this communication about new experiences, new resorts is working well for us.I must also hasten to add our strategy of acquiring members through digital, referral alliances and Bliss is working. And this is continuing to help us grow members despite the tough economic conditions that we see all around, specifically in the consumer discretionary space.We believe that we are investing behind better lead management systems. There is a lot of analytics work that we are doing. There is a resort recommendation engine and we are also using analytics for upgrades. And we have also seen growth in the on-site sales.Let me move on to another good news. Holiday Club Resorts has now begun to turn around. As I mentioned earlier that we have now a new CEO, Ms. Maisa Romanainen. She has joined on 1st July and you can see that we are beginning to see improvements in performance.Let me start with the numbers. Quarter 2 HCR, which includes the Finland as well as the Sweden and the Grand Canaries operations, has earned a revenue of EUR 40.4 million. Average occupancy in Finland spa hotels was at 82%. This is some improvement. They had this last year same time in the same quarter, their occupancy was of the order of 71%. This is a movement from 71% to 82%. This is a sterling performance. This has helped us in a big way. And if you see the revenue per available room was also 10% higher at EUR 65 over the last year.EBITDA performance at EUR 3.8 million. This is a growth of 32% over the quarter 2 last year. As you know, quarter 2 is a seasonally good quarter in Finland, but even by the good quarter standards, this is a great performance.If we were to look at the H1 results, the company has earned a revenue of EUR 77.4 million. This is a growth of 10% for H1 FY '20. The Finland business turnover increased by 16% to EUR 64.2 million, backed by very high occupancy and growth in spa hotels. The Finland spa hotel recorded the occupancy of 74% for H1. This is again 11 percentage point increase compared to last year. Last year, the same occupancy number was 63%.We are also happy to report that the EBITDA stands for -- at the H1 level for HCR at EUR 3.2 million compared to a loss of EUR 0.2 million last year same time.Consolidated numbers are also out now. Our consolidated revenue for quarter 2 FY '20 stands at INR 574 crores as compared to INR 533 crores in Q2 FY '19. Consolidated profit after tax for the quarter ending on 30th September is INR 24.4 crores as compared to a loss of INR 3.3 crores for the same period last year. H1 FY '20, our consolidated revenues for H1 FY '20 stands at INR 1,200 crores as compared to INR 1,031 crores in H1 FY '19, which is a growth of 16% Y-o-Y.Consolidated profit after tax for the half year ended 30th September 2019 is at INR 25.2 crores as compared to a loss of INR 21.6 crores. So this is a movement of about INR 47 crores from minus INR 21.6 crores to plus INR 25.2 crores.I would also request you to have a look at the segment results consolidated, which are there on the investor deck. You will see a movement in the Q2 as the segment results level from INR 8.33 crores to INR 36.32 crores. If you were to exclude the ForEx even then, the movement is from INR 28.07 crores to INR 35.69 crores.If you were to look at H1, the movement is minus INR 10.14 crores to INR 46 crores. If you were to exclude the ForEx effect, the movement is from INR 11.90 crores to INR 54.29 crores.I would like to highlight towards the end that we have been consistent in maintaining that our robust business model of building a cumulative member base, which is now standing at 251,000 member base, building an experiences ecosystem, which I talked about whether it is partner hotels, whether it is Club M Select, whether it is the 61 resorts that we have along with the Finland, Sweden and Spain and other 33 resorts, improved resort and booking experience through the app, through the digitization route, is helping us create a hugely valuable enterprise in the time to come, driving our mission of Good Living and Happy Families.With this, I would like to open the floor for question-and-answers. Thank you for the patient listening.
[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss Broking Limited.
Congratulations on the good set of numbers. So I've 3 questions. The first question was, as you mentioned about another discretionary spending has been muted in the recent quarter over the last 6 months, so I just wanted to understand what incremental efforts have we been taking to keep the traction in member addition going? Because you've always benchmarked ourselves to the auto growth, if I compare to that, our performance is pretty commendable considering that we've managed to keep up our member addition flat despite auto volumes going down more than 20% over the last 1 year.
Okay. Nihal, I would say that there are only 2 or 3 things that we try to focus on irrespective of the macro environment because we believe that our proposition is very, very unique and the appetite for travel is significant in our emerging middle class. My estimate is that there are at least 10 million to 12 million households who are our potential customers. We are only 250,000. So there is a huge opportunity, so we never let our sights away from that opportunity. Having said that, it's easier said than done. We need to constantly focus on ensuring that we drive our referral program. We believe today that a happy member is the best source for business. It is also a very cost-effective source of business. So we believe that even in the going forward, the network effect of our business, when you have happy members traveling to our resorts, going through the booking experience, the web, the app, which has been continuously getting improved. We have put in huge amount of investments in technology to analyze the behavior of members, their spending behaviors because we have that information and being able to at the right time in the consumer journey, as we call it, prop up the opportunity to either upgrade or pre-book or also take up the all-inclusive packages that we have, which is there at the resort where a member can choose to dine and have breakfast, breakfast-lunch-dinner or breakfast-dinner. So we have created a lot of innovation over the last 6, 7 quarters. We have been doing this while we were going through this transition of 115. We knew that these times will return where we will be able to leverage the effects of the technology, the analytics practice that we have set up, which is very, very smart. We are in a position to predict the possible needs of the members and, therefore, target them. And same way, if we were to look at the prospects, we have a huge lead management system database. We have to ensure that we target them at the right time in a contextual manner. And in that context, so referral would remain very, very powerful. Technology analytics, we will continue to drive. Coming back to the other sources of lead generation, digital remains still a very huge focus area for us. We spend significant amount of money doing digital marketing as well as acquiring leads, which we believe will remain inexhaustible source of leads for us and conversions are also superior in that data. And we also believe that there is an opportunity, which is emerging now in a big way, which is getting into multiple alliances with brands, which are very similar -- which have a very similar target group like us. So I don't want to name the brands, but if you think of any brand which is a lifestyle brand, we would have been tied up with them in doing some kind of a promotion, which will help their customers to get experience of Club Mahindra. And the nature of our promotions is also changing dramatically. Even our offers are now more experiential, whether it is a cruise-driven offer or whether it is a holiday fully paid by Club Mahindra as a startup offer. So there are many changes that we are bringing in, which will help us to continue maintain this momentum. Having said that, the above-the-line marketing initiatives like what we did with the Spider-Man promotion that we did, we were also very visible in the Times of India when we actually, on the front mast, said The Family Times of India on the World Family Day, which is on 15th May, we ran a large origami contest. I think engaging with the prospects and creating the charm and the romance for a product like us where you have a lifestyle, where you'll be able to enjoy quality time with the family will remain our core focus. Having said that, the customer acquisition acquires -- continues to remain on top of our mind, and we would like to get the right customers who will generate huge amount of lifetime value for us, who will eventually upgrade, who will spend money on the F&B, who will spend money in the holiday experiences and who would also want to enjoy our partner hotels and the Club M Select offering. And I must mention that at this point in time, our Bliss is also showing some level of momentum. Bliss is a product for greater than 50 years of age for couples who would want to enjoy their holidays, the next 10 years of their holidays flexibly by actually buying points and going on a weekend or going on a particular season. So we are trying to experiment multiple things, which will engage the customer because we have a fundamental belief that the leisure part of the business -- leisure part of the hospitality business is continuing -- will continue to grow given the appetite for the holidaying that India is experiencing now.
Absolutely. Sir, just on -- in the sales and marketing spend, we see that there has been significant increase in traction if I compare to the last year or how you're spending before. So is this related just to the current period we've seen a step up? Or is this an increase that will continue? And related to that is, any change in our marketing strategy also or it continues to remain the same?
Okay. So I think very important question, and I'm happy because I needed to explain to people why our marketing expenses have gone up. There are 2, 3 things we are doing. We believe that the brand is very, very powerful more than what we have probably leveraged. So we believe investing behind the brand is critical while we are continuously growing our business. And for me, the good news is that despite spending money on the brand, despite going all out on acquisition, despite having a slightly muted performance in terms of occupancies in resorts because of the rains and floods, we were able to deliver not only an improvement in margin, PBT margin has moved up by 90 basis points and we were able to deliver a profit growth -- profit after tax growth on a standalone basis at 24%. So for me, the good part is that the brand definitely needs investment. Having said that, this is not a change in the course of our investments in brand. These are tactical at a certain time. You invest the money in the brand and then you reap the benefits through the year. This is not a change in strategy at all. Our continued focus on digital remains, our continuous focus on brand building remains. But yes, there are quarters where we would probably see that we are doing well in terms of, let us say, the resort performance or, let us say, in our cost control measures or, let us say, we are having great operational efficiency. That is the time to invest a little bit of money behind the brand because we believe that when we invest money behind the brand, there will be momentum that we will begin to see in terms of higher member acquisitions or higher quality member acquisitions or lower cost of acquisition going forward. Some of these metrics internally we keep track and we believe sometimes you will need to invest money behind the brand. And this is one of those things, which is not a change in the direction. In fact, it is very much consistent with what we have been doing.
Fair enough. So in the coming quarters, there could be a possibility that we may just bring down our marketing spend a little. As you said that maybe this quarter was just an additional push?
Yes, indeed.
Sir, the second question was just on the numbers part. I wanted to understand if I look at member addition has fallen 6% Y-o-Y, but there has been a sharp increase in VO income by 12%. It's moved from INR 76 crores to INR 88 crores. So you mentioned in your opening remarks about upgrades. So does that totally explain this?
Okay. Well, what happens, as you know, as a result of this accounting standard is that whatever performance we deliver in the quarter is reflected in 2 areas. One, of course, in the VO income, which is very minor. But the big part of the performance is reflected in the deferred revenue. As you see, our deferred revenue has gone up to INR 5,400 crores. In this quarter, whatever be the movement in the member addition, you will not see a major effect of that in this quarter. Of course, the upgrade income helps because the upgrade income also gets pro rata over the lifetime value, the left lifetime value of the member. Having said that, this is a combination of upgrades. This is a combination of accrual of the income that happens from the deferred revenue. And we believe that the upgrades are definitely contributing. But even if there were to be not enough upgrades, as an example if I were to say, you would still see an increase in the VO deferred -- VO income because of the deferred revenue coming into the VO income.
Absolutely. But even if I look at the base of deferred income, which you mentioned is INR 5,400 crores, on a Y-o-Y basis, it still increased by 5%, 6%. So when I compare that and the member addition, which make up, say, major parts of the real income, I was still trying to understand how this 12% growth coming that was the only doubt I was having.
Yes. But the 12% growth has various other components like annual fee income. Because what you're talking is the total 12% income, there is a 16% growth impact in VO income in this quarter and the total is 12% because there's an annual fee income of 11% growth. There's an interest income of about 13%, EMI interest, if I were to say. And there's, of course, the resort fees, which is contributing and the F&B income has grown by about 8%. So there are multiple income streams and that's the beauty of our business model that we have multiple streams of revenue which come. And VO income is largely the accrual income and, of course, the upgrades. Again, upgrades will have only a very -- the pro rata basis only the revenue gets recognized and balance gets put into the deferred revenue. But your specific question of the deferred revenue growing by x percentage, I think that we can probably take offline with our CFO.
[Operator Instructions] The next question is from the line of Sanjeev Patkar from SBI Fund Management.
My question has 2 parts. And the first part has to do with what you mentioned as the concept of happy member. So value of business is how the consumer perceives it. Very clearly, over the years, I'm sure many of your members must be witnessing the lapse of number of days. So what do you do to see to it that they remain happily engaged, number one. And number two, can I -- can we have some idea about the regional spread of consumer vis-Ã -vis resorts? Because I'm sure, say, people from Mumbai, Gujarat area have only 1 or 2 options of Lonavala or Nashik. What are we doing to see to it that the percentage of consumer spread remains happy and -- because referral is a very vital cog in your membership addition.
So I think your questions are more in the area of what a member sees us. Let me give you some perspective at a higher order level. The very fact that we have a very high percentage of our sales coming from the referral shows that there is a significant amount of satisfaction. If I were to share with you our net promoter scores and our post holiday feedback scores, which we put up in our annual reports, which we normally do not share in the quarterly numbers, we have seen a significant improvement in the satisfaction rates both in the holiday feedback as well as in the net promoter scores. And that is the way to manage, understand the customer satisfaction. Because you would always have, in any large customer base, one odd member not getting a resort of their own choice. And if you are talking about lapsing, as far as we are concerned, we have -- there is a possibility to carry over 3 years of your membership entitlement, which is 21 days. You would understand that it is important to have rules like this because if people do not regularly holiday, they can accumulate a very large number of holidays and they may all want it at once. So it is not possible to design supply to manage an uneven demand. So this is the logic. And we do not see many members lapsing. In fact, the whole idea of our membership is that regular holidaying is something that we encourage. Indians keep postponing holidays. We are a vacation-deprived country. And one of the things that we have been able to do with our members is to make them think of regular holidaying. And therefore, to my mind, lapsation is more an individual issue, and it's not an issue at a company level and it is not an issue that really worries me. But when the holidays are lapsing, we do send reminders. We would ideally like people to use all their entitlements. Coming back to your question on the regional dispersion, what is very critical is not whether we have resorts in Maharashtra or Gujarat. What is very critical is to create resorts which create great experience. And if you see in a place like Rajasthan, where our member base is much, much smaller, but we have many resorts. Same is the case in Kerala and same is the case in Goa. So I think what is important is to have resorts where people would want to go, where people would want to get experiences. And therefore, we are not designed to think in terms of only regional members and regional holidaying. In fact, we encourage people to go beyond their own state. For example, we have a very beautiful resort in Kanha. And even if you are not a wildlife enthusiast, people have gone to Kanha and they have loved it. And it is a resort where I would recommend people to go because this is something that -- we need to get out of Goa, Kerala and Rajasthan sometimes and go to places like Kumbhalgarh, go to places like Binsar or go to places like Baiguney and in Gangtok. So our idea is to create a lifelong journey of members exploring our country and beyond. And hence, to my mind, I am not looking at the regional dispersion of members versus the resorts.
Okay. Just one last question. Are we looking at any options of either a product or maybe an acquisition which can service the requirement for short stays from some of these visit cities?
I guess it's a very strategic question whether we should have a separate product for short stays. It's a...
Or even within the current realm of things, would we be open to -- or are we looking at anything on that side?
It's a business model question. I think what is very, very important is that as I mentioned again, we are obsessed about creating great and magical experiences for our members. It is sometimes not possible to go 3 hours from a city and get a destination which is -- which will create -- which will have a natural beauty or which will have the environment where we will be able to create a great experience. So I guess, for us, nothing is out of bounds. We continuously look at traveling convenience. We continuously look at airport connectivity, road connectivity. That certainly we do look at. But for us, what is very important is when you arrive at the resort, what is your experience and would you want to come again and again. And to my mind, that is the driver for us, which drives us, which is critical for us to survive and thrive, in other words.
The next question is from the line of Sachin Shah from Emkay Investments.
First of all, wishing both of you a very happy and prosperous New Year. And also congratulations on a decent set of numbers in a tough environment, of course. Kavinder, I had 2 questions. Hello?
Yes, listening. Go ahead.
So first is on -- in terms of our new member addition, we've had about, ballpark, about 8,000-odd members in the first half, right? And what I wanted to get a sense is that as compared to last year, it's almost flat, marginally down. But in terms of the breakup between the 25-year membership versus the smaller tenure memberships like Bliss or GoZest, has there been a significant change? I mean, has the smaller tenure percentage been higher as compared to the last year?
No. There is no significant change.
Right. And will it be right to assume that even today, our 25-year membership forms a large portion of this new member addition?
Exactly. It forms a very large portion of our membership.
Okay. Fair. Second point was on the cash flows. From what I could see is that our cash flow from operations was INR 150 crores in stand-alone, INR 225 crores on the consol side and if I see, the CapEx is about INR 45 crores on the stand-alone and about INR 70 crores on the consol side. So effectively, we have had INR 105 crores of free cash flow kind of thing from the stand-alone side and INR 50 crores ballpark from Holiday Club. Now this Holiday Club INR 50 crores in the first half cash flow -- the free cash flow that we generated, INR 75 crores of operating and maybe INR 25 crores of CapEx ballpark, how sustainable this INR 50 crores is? And how do we look at it as an analyst? Or how do we assume these numbers on a sustainable or a full year basis?
Okay. I will ask Akhila to answer, but let me give you an overview of how I look at things. The good news for us is that our operating cash, as you rightly pointed out, as a stand-alone level has gone up by INR 150 crores. And this is very much in line with our annual number of about INR 300 crores that we have been delivering over the last 3 years. So it is generally in line. And we believe that these trends are sustainable as we go ahead as far as we are concerned at Mahindra Holidays on a stand-alone basis. Our capital expenditure program is well coordinated and spread out. So this -- and you also talked about the free cash flow. So that also I don't see as an issue. Coming back to the Holiday Club Resorts, let me also highlight to you that is a very different business model. And we may want to sit with you off-line to explain it in detail because what happens in Holiday Club Resorts is that the construction of the villas or the timeshare units, it happens on a continuous basis. And also, the moment a sale happens, the -- obviously the asset -- it's an asset sale. So there is a continuous need for capital injection in that business to keep on creating newer and newer properties, as they say. So that model is a very different model, and we are doing modeling on the cash flows over there also, which we will explain you a little better. But as far as the larger part of the cash flow is concerned, which is coming from Mahindra Holidays, I think you're absolutely right in your assessment that is this sustainable? Answer is yes. Coming back to the Holiday Club, since it's a different business model, we would like to take you through as to how -- what are the levers of that business and how you should look at the cash flows. It may not be possible to explain in detail on this call, but Akhila, if you want to add, you are most welcome.
Yes. So Sachin, I would link the cash flows back to the performance of the Holiday Club business in this half-year, which has been extremely good. If you see at an EBITDA level, we have done almost EUR 3.13 million and which is positive from the flat -- which was neutral last year. So this has flown back into the cash flows and therefore whatever CapEx we do was, like Kavinder explained, a part of it is also part of the business model that we need to keep on constructing new properties to be able to sell them. So that is a separate -- that is an investment for the future which will definitely yield us results going forward. But the core point which is reflected in the cash flows is the good performance coming from HCR.
Okay. Understood. And just if I can sneak in just one last one. We've had a reported profit of close to about say INR 35 crores, INR 37 crores -- INR 36-odd crores, I believe, in the first half and since our reported numbers are now going to be fairly predictable, as you had explained in the analysis meet, I believe you will do anywhere in the range of INR 70 crores to INR 80-odd crores of reported profit. Maybe we, as per the current taxation -- sorry, as per the current company law, will we be in a position to declare at least that much amount of dividend if we would like to, at least the profit that we report in this year? So suppose INR 70 crores, can you declare at least a dividend of INR 70-odd crores? Or there will be some restrictions for us to even do that?
So what the Companies Act lays is that even if I have a profit in the current year, and you will appreciate that we did have a profit before tax of INR 100 crores even last year and a profit after tax of INR 65 crores even last year, okay, under the 115 set up. And we had PBT of INR 240 crores in the 60/40 set up. So even in our last financial year, we did have profits, whatever be the accounting standards. Now what the Companies Act specifically says is that even the carryforward losses need to be set up before we can declare the dividends. And this is the point of representation that we have made and hopefully we get answers before the next year results.
But I would hasten to add that, as you know, that this problem is created by the accounting standard where there is a transition reserve which is there the balance sheet. And while we are a dividend-paying company, we have strong cash flows. But because of the literal interpretation of the accounting standard, our net worth, despite revaluation of our land, remains negative. And as a result of which, when you have that situation, even from the current year profits, you are not allowed to pay dividend. And that is why we have gone to Ministry of Corporate Affairs, we have made a presentation, we've explained them that ours is a unique case and everything is as a matter of accounting standard, the business model is same, nothing has changed. And we are following up. As of now, the status is that it's an application pending for decision.
Fair enough. So dividend is one thing, but even if we get an approval dividend, we will maybe given INR 80 crores, INR 100 crores, whatever, in that range, I don't know, but ballpark, I'm just saying. But today we have nearly INR 700 crores of cash, we have INR 1,700 crores of debt that we expect to collect in the next 2, 3 years. Your CapEx plan is not more than INR 500 crores, INR 600 crores for the next 3 years, it doesn't look like at this point in time. What is the thought process on this accumulation of cash?
To be honest, our objective would be to grow our core business which is the vacation ownership business, and we believe that in our business, there's huge potential, huge opportunity. We are looking at various ideas, whether new products, whether new ways of looking at the business. And I think this situation is a good situation to be in, that we have more than we can probably at this point of time handle, which means we have to come with a new strategy and a new way forward as to how we will deploy this cash to generate even higher returns.
[Operator Instructions] The next question is from the line of Ayaz Motiwala from Nivalis Partners Limited.
I have 2 quick questions. One, you mentioned about end of March '19, you had eliminated 9,556 members which has been done. Can you sort of explain the accounting of it in the sense some of these members would have paid money, et cetera? So do you refund money? And this is more from a prospective point of view that at any point in time, there would be some members who are not paying fees now as well beyond this 9,556, which would help us understand in the future if there is a step taken by the company of this nature. And linked to that is, the company, as you said, has been in business for 23 years. And we are reaching possibly the early stages of the expiry of the first few members, a group of members who would have come in. Could you give us a sense over the next 3, 4 years, the number of memberships which are expiring?
On the 9,500-odd members, I would like to just correct you, we did not eliminate them. We have canceled their memberships because these memberships were overdue beyond a significant period. We have a certain policy of provisioning. So these members were fully provided for. And therefore there was not a single rupee impact on our P&L. And therefore, the correct position is that if there is an overdue beyond a certain period, we are well within our rights to cancel the membership. And as far as your question on refund is there, as per the specific contract that we have with the member, the rules of refund are very, very clear. And whatever refund is due to the member is given or otherwise. So in my mind, that answers your first question. Your second question, if you may repeat because I was just thinking about the question, I had 2, 3 thoughts, but I would rather understand much more clearly the second question before I answer.
Yes. The second question is about the 251,000 non -- current members. Of this membership base, over the next, I think, for 5 years, how many memberships will expire?
So I think there was a break in your voice which I am again seeing. But anyway, I think I've got the question. You are saying that we started 23 years ago, a couple of members should be retiring. Every -- I would say that early memberships that were sold was 33 years. So really we began to sell 25-year memberships after year 2000. So we still have 5-odd years for the 25-year members -- the early 25 members -- the early 25-year members who would retire. And for us you really think about it, it's also an opportunity for them to buy their second membership or look -- and since they have been members with us, we obviously offer attractive discounts for them to, once again, become members. So it might become a zero cost of acquisition for us if we are able to acquire them again. The numbers in the early stages when we acquired members are less. I mean, I would say very small. So some level of membership retires would happen. And I think in the last year also about 1,000 members retired. These were 10-year ZEST memberships, some of them retired. So I would say that the really big numbers of retirement, big means relatively big, because we never acquired in the early years very large number of members. We had very lesser number of members compared to the current member acquisitions that we do. So it will not be significant at least for many years.
We move on to the next question. That is from the line of Abhishek -- I'm sorry, the next question is from the line of Manish Poddar from Nippon India AIF.
Can you probably talk about, let's say, the pattern which you have in new inventory addition which can happen? And do you intend to, let's say, base this up during this downturn? Probably you'll get some -- not building of properties but, let's say, acquisition of land for certain leases?
So as far as the inventory growth strategy is concerned, we have gone on record that we would add 1,400-odd rooms with investment of about INR 1,000-odd crores, maybe INR 1,200 crores over the next 4 to 5 years. So that is the greenfield strategy. We are continuously looking at acquisitions of resorts. We are continuously also signing leases. So our strategy is build or buy or lease. And that will continue to happen to grow the base of inventory that we would like to have in line with the growing member base that we would have. This, I think, answers one part of your question. Would you want to repeat? Because again, I missed the second part because there was a problem with the audio.
No, this is fine. And the split would largely be 2/3 owned and 1/3 leased? That is the split you still want to maintain?
It's not 2/3, 1/3. It's currently 60/40, 60% is owned and 40% is managed. To be honest, for us, even if there is a great quality resorts which is on lease, we manage it. I don't see any difference between owned versus leased in terms of giving the experience. Having said that, when we create our resorts, we definitely design it for the evolving needs of our members. So therefore, we will continue to design and build. We will continue to lease because we would -- our growth aspirations are high than probably our ability to build. We will also acquire both in India and outside, but right now the focus is in India to acquire resorts. And outside India, we do inventory arrangements where our members can go and enjoy the facilities over there without actually having to buy a resort there or run a resort there.
And just one more question, if I may. What would now, let's say, be the cost of acquisition compared to, let's say, the earlier, somewhere in that 23% to 25% ballpark? Has that increased now, let's say, given that -- the state of the economy and economics?
No, to be honest, the cost of acquisition, the only area in cost of acquisition where we see sometimes an increase is in the digital side because the digital is fast evolving. But when it comes to our traditional methods of cost of acquisition, as I always mention, that the member referral is the lowest cost of acquisition and this is something that we are driving. So what we do is sometimes we go for high-cost acquisition strategies like digital. And we mix it up with the low-cost acquisition strategy like referrals. So on an average, I think that we have achieved numbers as low as 23%. Couple of months, we go to 22%. But I would say 23% to 25% is a fairly ballpark number that you suggested or rather you mentioned, which is where we are hovering at this time. I would ideally like it to go much lower, but having said that, we are not -- we would not like to compromise on our brand-building initiatives. Because in this cost of acquisition, there's a lot of brand building happening as well. We would not like to compromise on the brand-building initiatives, and we would also not like to compromise our aspirations of adding to our member base.
Ladies and gentlemen, due to time constraints, we will be taking the last question, that is from the line of Mr. Bharat Sheth from Quest Investments.
Just 2 questions. One is, can you give some granularity on these new member acquire -- trajectory between -- I mean among the purple, blue and red and white? How that is moving? I mean...
Okay, as far as the member addition trajectory is concerned, we do not put up this figure in the public domain. But let me tell you why also. We believe that constantly our member base is changing because of upgrades. A person may join as a blue, you may say that oh, the -- they have acquired a low season member. And the truth is that blue is tomorrow's red. For me, even if you are a blue member, you have access to all the resorts. Technically speaking, it is just the season which differentiates and that's the uniqueness of the business model which keeps us year-round occupancies at the rate of about 80%, 85%. And to us, that's why it is not such a critical measure. What is very critical for us is are people upgrading. Are they moving and enjoying the facilities in the peak season? Because that is where when we do an upgrade, we obviously get income. And more importantly, when they are moving into the red and purple seasons, they obviously tend to spend more because they have the propensity to spend. So for us, propensity is more important than the mix of the members that we get. Therefore, we don't put out this number.
Okay. And last question on this new income tax 115 BAA, we understand -- we have around INR 900-plus crores kind of deferred tax assets sitting on the INR 5,400 crores deferred revenue. So what could be the impact on that? Or will there be a cash flow impact? Or it will only book entry if we move to this new income tax regime?
So at this point of time, we have not taken a call that whether we should continue with the current tax regime or we move into a new tax regime. As you yourself pointed out, it has multiple implications. We need to study that with the various experts within the group, Mahindra Group, as well as the consultants. So we are looking at this and seeing it what is good for the company. And obviously, fortunately, we have time to take a decision on it. So at this point of time, we would not like to comment what would be the course of action if we were to go and follow. I mean, that is -- those are the scenarios which are being today worked out, as we speak.
Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
Okay. I would like to thank all the listeners who patiently listened to a slightly long opening that I had, which may have affected the opportunity for people to question. So I would request that if there are questions, please setup appointments with us. We would be more than happy to answer any question that you may have with respect to our business model, with respect to our strategy, with respect to our numbers, with respect to the Holiday Club performance. So we would encourage and we would welcome if there was an opportunity to learn from your questions and insights. We use this as a great learning opportunity as to how you are looking at us, and we would continue to strive for even better performance. With this, thank you very much for the patient listening and some very insightful questions.
Thank you. Ladies and gentlemen, on behalf of Mahindra Holidays & Resorts India Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.