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Ladies and gentlemen, good day, and welcome to Mahindra Holidays & Resorts India Ltd Q2 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not 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, MD and CEO, Mahindra Holidays & Resorts India Ltd. Thank you, and over to you, sir.
Good afternoon, everyone, and a very warm welcome to our quarter 2 earnings call. I hope all of you and your families are safe and healthy during these challenging times. On the call with me today, we have Mr. Sujit Vaidya, our CFO; Mr. Dhanraj Mulki, our General Counsel and Company Secretary. I'm sure you have been able to look at our Q2 results as well as the investor presentation, which I will be referring to. Let me begin by reminding you of what we said in the last quarter's earnings call and our expectations for Q2. We had mentioned that the fast-paced vaccination drive is fueling the recovery. And obviously, you will have all heard this term called revenge travel that is definitely playing out. Consumer confidence towards travel would increase, we had stated, and we noticed that. And not only that, we received a lot of inquiries for our membership plans. As you know, we have a diverse portfolio of products now. We have a GoZest membership. We have a Bliss membership and a Club Mahindra 25-year membership, which caters to varied consumer needs, is something that has definitely played out for us in the Q2 member additions. We have begun to see a quick recovery towards the end of Q1 and a substantial uptick in our resort occupancies began in July and as we ramped up our resort operations as lockdown restrictions getting eased off. Emerging consumer trends such as preference for domestic drivable destinations, bleisure, business-cum-leisure, or what we now call as workations. And not only that, we also noticed a trend of daycations where people come for the day, they enjoy the facilities, have good food, enjoy the facilities at the resorts and then go back. That's another area that we have seen, there is some traction that we are observing there. We also noticed that people are looking for experience-led stays, and they are trying to have unique and personalized vacation experiences. And most importantly, I had mentioned about how health and wellness were on top of the mind for people. And this is something that, in some manners, positions us extremely well because trusted brands like us are guaranteeing world-class safety and hygiene protocols and wellness ideas that we have introduced this quarter, which I will talk about. At an overall level, you may have noticed that consumer spending has shown a clear V-shaped recovery, whether it is the RBI's consumer confidence, whether it is the private final consumption expenditure that has shown an upward trend. Overall level, the consumer spending is on the rise. Lead indicators, like air traffic, retail, recreation have also shown a positive momentum. If I were to look at our resort performance, we have achieved industry-leading resort occupancies of 73%. Not only that, Q2, in general, is not a high season for us from an occupancy standpoint, but our occupancies actually climbed back to reach pre-pandemic levels even in terms of the room nights that we sold in the -- that we occupied in the quarter 2 of 2019. Many states, whether it is Maharashtra, Gujarat, Rajasthan, Goa, Uttarakhand, Tamil Nadu, we clocked even higher occupancies of 80%-plus. We saw that people would like to travel with extended family. We have seen multi-generational travel taking place. Larger resorts, well-spread-out resorts, big rooms and apartments have helped us in some manner to drive the occupancies upwards. If I look forward, we are seeing very good booking trends in quarter 3, given the upcoming festival season and also the fact that Q3 is a seasonally good quarter. In terms of member experiences, our entire business depends on how we can enhance member experience at our resorts. We have introduced multiple in-resort initiatives for increasing member spends and improving member engagement. We have introduced various new dining experiences at our branded restaurants like Barbeque Bay, Temptation, Finz, MamaMia and launched a new cafe brand, Unwind. We have also focused on food festivals and new themes to enhance member dining experiences. On the spa and wellness activities, health menu is now a part of the a la carte menu. We have various wellness treatments such as stone therapy, music therapy, mat therapy, et cetera, that we launched during this quarter. Vacation packages, celebration packages are something that are beginning to take off. We have guided tours, which includes the [ The Life ] tours. We have partnered with the company that we had invested in, Rocksport -- a company called Rocksport to develop and manage soft adventure activities and create adventure activity parks in our Puducherry, Assonora, Goa and Netrang resorts. We are planning to launch various themed adventure activities such as jungle theme, Planet of the Apes, pirates theme, et cetera. We believe this will lead to significant improvement in member engagement and also holiday activity revenues. We have -- when I talk about member additions, our member additions have been extremely satisfying. We added 3,943 members. If I go back 2 years in -- on the September 2019 quarter 2 of FY '20, we surpassed that number, of course, marginally. But it gives us clear confidence that the strength of Club Mahindra brand and the initiatives that we have taken, the member additions have now surpassed the pre-pandemic levels. The cumulative member base now stands at 258,815 members. Most satisfying part is that we are driving referrals and digital customer acquisition. And in this quarter, the referral and digital contributed to 56% of our member additions. As you would know, that happy members would refer their friends and family. And this is the lowest cost of acquisition channel for us in terms of acquiring new members. Hence, our focus on this is increasing day by day. We have also done a lot of work on the digital side. Our website, our app has a new look. We have a new user experience, and that is also helping us to drive bookings as well as attract new members. We launched a new marketing campaign called JaanaKahaHai. This is a campaign that actually gave us a big boost in our digital customer acquisition. We have also seen very good movement in upgrades at our resorts. And also, on-site sales has shown an uptick. Members travel with their friends, and it helps us to get them to look at our product at the on-site, at the resort. As you know, the resort experience is world-class and that helps us to get on-site sales and also get very good upgrades. And this quarter 2 turned out to be a good one in this respect as well. We have also seen a greater demand for our core 25-year product. If I look at our value of member additions, it is actually double of quarter 2 FY '21. So we have increased our average unit realization also significantly. If I want to look ahead, the momentum that we have generated in quarter 2, we believe, will continue. We believe as no one covers India like we do, which is in terms of the spread of resorts or the range of experiences we offer for all age groups, referral, digital on-site sales and alliances will continue to be the key channels for growth, including our focus on Tier 2 and Tier 3 towns. If I look at our inventory, we added a new resort in Rameswaram. This has -- this is an associated resort. And this is a beautiful resort, which will open up a new destination for our members. As a result of that, our room inventory count is at 4,233 rooms. I would like to a little look ahead because the inventory additions are not really done at a quarter level, the planning happens much in advance. So we have made a plan, which has the approval of our Board, that over the next 3 to 4 years we are looking to invest close to INR 1,200 crores to add approximately 1,500 room units through multiple channels, through acquisition, through greenfield development utilizing our existing land banks; expansion of our existing resorts, which will give us economies of scale; and of course, leasing of high-quality resort, which will help us to achieve this target of achieving 5,500-plus keys by FY '25. Just to give you some more details, Goa, Kerala resorts are being expanded. Himachal, Kandaghat resort, we have got all the permissions. The expansion work has started. We are awaiting for last approvals for starting a 185-key greenfield resort at Ganpatipule -- not 185, I'm sorry, 166-key greenfield resort at Ganpatipule overlooking the Arabian Sea. And we are also planning to add 59 room units at our Puducherry existing resort. The beauty of expanding existing resorts is it will give us economies of scale. It will create -- it will satiate the demand of our members to these evergreen resorts that we have. We are expanding our Udaipur Resort to also add room units. And also, there is a resort near Ahmedabad, which will be expanded in this quarter that is going to come ahead. We are also looking at acquisitions, though I must say that the leisure resorts are doing well. And there are not many targets that we have been able to identify, but the work is underway. There are some opportunities that we are able to see even in these times. We are also looking to see how we can, using this opportunity that pandemic has presented -- unfortunately, the pandemic has had a lot of bad effects, but one of the opportunity that we have seen is that there may be a possibility to expand our presence in markets like Dubai and Thailand. We have, at this point of time, quite confident of building our inventory, and our capital position allows us to invest through our own internal accruals. Let me move on to the financial performance. Since you have seen this financial performance, I will only go through some few highlights. We are happy to report a 25% income growth Y-o-Y basis. Resort performance was commendable. We delivered INR 50.8 crores versus INR 44.1 crores, which is prepandemic Q2 FY '20. That is why we mentioned that our performance has surpassed the pre-pandemic levels. We have achieved the highest-ever quarter 2 profit before tax since our inception. Our cost-control measures that we have taken, whether it is movement to digital, whether it is optimization of our manpower in our resorts, including rationalizing our employee-to-room ratio, which is now at probably the best ever at 1.1:1. And by the way, since we are growing, we have been able to redeploy all our people into the new resorts. Our savings due to solar implementation in our energy costs are quite obvious. As of now 10 resorts are now using solar power in a big way. We have also done structural changes and tried to convert a lot of fixed costs into variable costs, and that is helping us. And if I were to look at our overall efficiencies, cost -- operational costs and operational efficiencies, they have definitely played a role in driving the profits up, apart from the increase in the resort revenue. If I look at our balance sheet, our deferred revenue pool stands at INR 5,012 crores. We continue to be a 0 debt company at stand-alone level. Our cash position has improved to INR 1,041 crores as against INR 950 crores in June '21. We have also been driving our higher down payment and lower EMI tenure strategy for member additions, and that has definitely helped us in our cash position improvement. I will switch over to our European operations, Holiday Club Resorts. Holiday Club Resorts turned out an extremely good quarter in Q2. As you know, this is a season in Finland, particularly from mid-June to mid-August, the holiday season kicked in. Domestic travel did extremely well. Our resorts were fully operational during the quarter. And as a result of which, Holiday Club Resorts not only improved profitability, but delivered the highest-ever profit before tax of EUR 2.45 million ever this quarter. If I look ahead, the vaccination rollout is definitely improving the sentiment in Finland and in rest of Europe. We believe that if I were to see the next 2 quarters, it will be though there is movement of travel within the -- there is travel opening up within EU, but international tourist arrivals are still subdued due to the border restrictions. Therefore, the performance will be dependent on domestic travel. And domestic leisure travel is something that is doing well there. However, let me also add that there is a bit of an uncertainty around events and inbound travel, which is not a very significant source of income for Holiday Club Resorts. At a consolidated level, the total income grew by 16% Y-o-Y. Our EBITDA margin is at about 34% up -- EBITDA growth at 34.3% Y-o-Y. Margin was also up by 377 basis points. PBT at a consolidated level of INR 78.1 crore is up by 91.2% Y-o-Y. And margin at 13.2% was up by 517 basis points Y-o-Y. I would now conclude to mention that these -- my commentary, hopefully, might have addressed some of the questions on top of your mind, but would look forward to your questions, and we will be shortly opening this session to the questions. The only thing that I want to mention is that our focus on the right membership, portfolio mix of medium and long-tenure products continues, higher down payment, lower EMI and your focus continues. There is a conducive environment for family travel, and there is festive demand. Pace of member additions is expected to accelerate in H2. And we believe a significant portion of the member additions will come through referrals, digital, on-site sales, and thereby, we will be reducing the cost of acquisition. And this will ensure enhancement of resort performance. As you know, that higher-quality member additions will lead to higher member spends on F&B and experiences. We continue to remain focused on expanding our inventory -- just a minute, excuse me, to 5,500-plus by FY '25. We also are focusing to increase inventory in geographies where current member demand is high as well as in locations where membership penetration is low. Holiday Club Resorts is a market leader in European timeshare. And we can see a clear sign of revival and as is evident from the financial results.Our performance, not only in quarter 2, but through the entire pandemic, demonstrates the strength and resilience of our business model, which is so different from the traditional hospitality sector. And at the same time, highlights our ability to move swiftly and quickly and with lots of confidence in tough conditions. With this, I would now open the line for questions. Thank you very much.
[Operator Instructions] The first question is from the line of Nagraj Chandrasekar from Laburnum Capital.
Kavinder and team, congrats on a fantastic quarter. Just wanted to ask the high number adds and the high VO revenue booking, is that driven mostly by a much higher ratio of the 25-year product? And if so, what is our AUR now, which is 2x Y-o-Y, what is the exact amount now and what is it compared to pre-COVID sort of numbers? And also, are customers perceiving inflation in hotel rooms over the last 3, 4 months because I certainly am? After perhaps 7, 8 years of [ low cost ] inflation, are the customers now perceiving inflation and, therefore, coming forward for membership adds? Because generally when -- our sort of business model should do very well when customers perceive inflation and, therefore, want to lock in a certain price for 15, 20, 25 years of holiday.
Yes. So first of all, thank you so much for your question. At a broader level, your assessment is right. We are seeing a greater demand for our flagship 25-year product. I think the inflation going up and the consumer behavior changing to lock their prices before the inflation rises further is something that's a phenomena that we will see, I think, in the near future. We haven't seen that in quarter 2, at least that's what I see. However, if you were to look at our AURs, we have moved to about 2.4-odd lakhs in quarter 2, which was 1.65 in quarter 2 FY '21. And that clearly shows that the 25-year product has once again begun to get demand. I also would like to add that while it is every company's desire to sell higher and higher-value products, but I want to make 2 points, that even our GoZest and Bliss, which are 3- and 10-year products, actually on a per room night basis are more value to us compared to a 25-year product. So from a consumer standpoint, the real value is in 25-year product. Of course, the transaction price, as you know this is more like a [ share ] pricing. The [ share ] price looks low, but on a per milliliter basis you're paying much more. So for us, while the AUR may go up and down slightly, it is not an area of concern because the fact that on a per room night basis we are actually driving higher value even if we end up selling a little more of the 3- and 10-year products. Having said that, we do look at portfolio kind of a strategy in terms of what is the portfolio we would like to sell. And the second point that I would like to add is all these shorter-tenure products actually customers are in some manner, particularly the 3-year one, is more like a test drive. And they will get converted, some of them at least, into the higher-tenure products because they will enjoy the experience and they would want to continue. And we will obviously create enticing offers to do that, while keeping our cost of acquisition actually lower than a fresh acquisition of a 25-year product. That's the experiment that is still going on. Because just as we come out of the pandemic, the GoZest members would be holidaying, and we would be looking to convert them into a higher-tenure product, thereby lowering our cost of acquisition even further. So that's the idea. And therefore, I wanted to bring out these 2 points related to AUR. While it is moving up, it's good. And it will continue to move up, I think. And the inflation-related effects, I think, will play out going forward into the future because leisure destinations are definitely now showing very, very high ARRs, particularly post pandemic.
Understood. And just on the cost part, it looks like the digital reference strategy is working. But if I look at the cost of [indiscernible] acquisition of a member, it's obviously lower, but our AUR was also lower. So maybe on a percentage basis or on a like-for-like basis on the 25-year product sales now versus 2 years ago, how much would those have sort of come [ up then ]?
So on the cost of acquisition, what has happened is that over a period of time, what we have done is we have been able to reduce our fixed cost of acquisition. Variable costs may have climbed up a little bit more during the pandemic. We have given a little extra discounts to entice customers to look at us, which we are already correcting as we move into this quarter. Having said that, this is also a time to build the demand through spend on sales and marketing, which we have not done for last few quarters. And the idea is to generate the demand -- and in our business, as you know, the revenue is deferred. The costs are upfront. We follow the most conservative accounting as per the accounting standard. So therefore, when we actually go for very high member additions, you may notice that our sales and marketing expenses shoot up, which is quite natural. And then the profitability comes under pressure particularly in a quarter where we have gone for higher member additions. But the good news is that, if you look at our cost of acquisition, it has to be, in some manner, seen that we generate a significant lifetime value, which includes the annual fee and as well as resort income over the entire tenure of the membership. So if you were to look at that at a total level, our cost of acquisition are actually considering it's a long-tenured product, even though they are quite low. It is just that they are not visible because we don't get to enjoy the income in the same quarter, but costs are treated upfront. So over a period of time, if you were to do the cost of acquisition analysis, quite happy to take you through separately so we can make you understand that. Our cost of acquisition even today are extremely competitive even by the benchmark timeshare acquisition costs around the world.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
My first question is related to some numbers in terms of both our member addition and also in terms of the receivables which we have. Can we give some granularity as to -- maybe not the exact number, but in terms of percentage. So for example, in case of member addition, how much is our flagship, how much is for Bliss and how much is for GoZest? And in case of receivables, how much is for vacation ownership and how much is for ASF?
Sujit, would you like to go?
Actually, we don't give out the information about the receivables by our product. In fact, that's not the way we track it because the -- remember, which is -- which have taken the EMI is all the same for us, and there is no qualitative difference between GoZest member versus a 25-year-old membership kind of person. Coming back to, however, that the ASF versus timeshare, obviously, that information is published on an annual basis, not a quarterly basis. We do have the ASF collections which were a bit softer when the pandemic was happening and people could not do the vacation. But with the opening up of the -- travel restrictions gone, we are seeing the increased trend of holiday and so is the payment and receivables of ASF have started coming down.
And sir, in terms of the new membership, the breakup of 25, 10-year and 3-year?
Okay. On the membership breakup, the way we look at it is, as I mentioned, the AUR is moving up and CMH 25 has now grown, the AUR is a significant lead indicator in terms of the portfolio that we have. We have a portfolio approach. As I mentioned, that every membership that we sell, actually, even at the lower tenure, is a very high value, because the lower the tenure the higher the price per room. So we do not track it this way, and we do not sort of share this data of which product where. But I can confirm this to you the dominant and significant majority is of the higher-tenure memberships in our membership base. That's something that we are very happy to share.
Okay. And second question is, in one of the previous con calls, we had a discussion about the activities which we may pursue in terms of incentivizing our members for the early booking or booking in advance. So have we made any progress on that? Or any plans in the future?
So as you know that we have -- we are a club. We have a membership, different types of memberships people have, whether it is blue, white, red, purple. We have always believed that people who would be able to understand the fact that there are choices that are available to them -- as you know, we have more than 70 resorts, so therefore the combinations are many. And if people come in advance and book, they are in a position to get the first choice that they would want. And therefore, at this point of time, the only incentive, if any, is for a member to come early and book is that he or she will get the booking because the bookings are transparent. 85% of our bookings happen online. There is no -- we do not run call centers to do the booking. We do it in case someone needs help, but generally, people do booking online. It's transparent. And that is what we are aiming towards that people who plan early, they would get the booking. And obviously, there are cancellations that happen. And when cancellations happen, the members have an opportunity. In fact, we call out members in case members have been very, very particular to look for a particular location. They are called out to see whether they can probably make up their mind now that the booking has become available. We do not believe that incentivizing is a way. I think the best thing is to keep things transparent for members to plan their holidays. And the good part of our club is that we have wide choice and wide options available across the country and abroad, which helps actually member explore new destinations and, obviously, get new experiences.
Sir, just a follow-up on that. I mean when we have spoken to some 15, 20 members, there are a few members who are actually really smart enough to take this advantage of booking in advance. And then there are some members who are actually -- they have this problem of the habit of booking just at the last minute. So how do we make sure that, that habit changes? Maybe incentivizing is not the right way, as per your understanding, but are we thinking anything for those kind of members who actually end up booking always in time and then they don't get the room of their choice for resort of their choice?
So first of all, just to understand one thing, that the whole premise of the business model and our club is that every member who is holding his season would definitely have a good chance of getting -- and when I say good chance, it's a very, very high chance of getting booking if he or she comes in time and looks for holiday in his or her season. What we have seen is that there are times when people would want to come and look for bookings much late and not in the season that they are entitled to. Now we do say that if there is vacancy available, you can go one up on the season. But there is no promise. The real promise is that if you are holding a particular season membership, you can definitely find 1 or 2 or 3 or 4 or 5 or 10 resorts where you will get a booking in the dates that you're looking for. Because as you know, we still have only 80% occupancy. Even this quarter, we had only 73% occupancy. So this behavior of members where they may do booking in advance and nearer the time they may cancel is actually allowed by the rules of the booking. And the good part is, as they cancel, the bookings become available again. And so there are people who come in late, they get the advantage of these cancellations. And therefore, if somebody cancels within 15 days, then there are penalties in terms of room nights being debited. That's a very well-laid-out rule. And we would like to play by the rules that have been laid out, that have been sort of agreed with the members. And I feel, at this point of time, yes, there may be some members who may be taking advantage of booking and canceling nearer the time. But if they are well within the rules, that is fine, and that inventory anyway becomes available to the other members to look at it when they are at that time looking at it. So I think in any large club where there are members, there will be a few who will be able to find some loophole in some rule. And we obviously keep improving our -- in terms of explaining, communicating to members that if you are blocking and canceling, we do educate often. If you're doing cancellation often, that it is actually reducing the chances for the other members to get the booking. And since it's a club, we have to sort of -- and we are a hospitality company in a way because our final experience is a hospitality experience. So therefore, we constantly nudge request and communicate with our members when we find such behavior. But I can confirm to you that this is not a very prevalent behavior. That I can confirm.
And in terms of the ASF...
Sir, sorry to interrupt you. May we request that you return to the question queue for follow-up questions as there are other participants waiting for their turn. The next question is from the line of Nihal Jham from Edelweiss.
Congratulations on [ your ] quarter 2 performance. Sir, a couple of questions from my side. First is on the cost again. Now specifically, as I see that on the employee side, despite us seeing a significant improvement, specifically on the resort side, where we end up having a majority of [indiscernible], we still managed to obviously not see an increase on the cost base. And you alluded to, obviously, the employee-to-room ratio also being at its best ever.I just wanted to understand, first of all, specifically, how is it that we managed this quarter? And over the longer term, given that we are a leisure-based business, where, obviously, the requirement of manpower and experience, as you say, makes maybe the employee-to-room ratio at best only approach a certain extent we can get it down. So just your thoughts around the things that -- how are we managing to do this? And what are the steps, if you can highlight any, that we've taken to get this ratio to a better level?
Yes. So Nihal, what happens is that you would probably know better than us that, in any business, we press multiple levers at various points of time. If you feel there's an opportunity -- rather, if we feel there is an opportunity to reduce the employee-to-room ratio, then you work on that, then you pause for a while. Because please remember that technology is also playing a role. It is not about compromising the experience. On the other hand, we are enhancing the experience in terms of our host initiative that is there, our [ CAMS ] program. So people who have visited our resorts understand that we have not actually anywhere looked at compromising the experience. On the other hand, enhancing the experiences is our core reason to exist, number one. Number two, staff-to-room ratio is just 1 metric. And it is also driven by the technology that you can bring in, whether it is a contactless check-in, whether it is a pre-check-in, whether it is a few other areas that we are working on, which includes the back-end processes. So that is what leads to this kind of an improvement. But I can tell you that in resorts one of the biggest costs is the energy costs. The fact that we are committed to the energy productivity enhancement by 100%, it's a part of our sustainability goal, we are constantly driving the solarization. Because we are also committed to RE100. We want 100% of our energy requirements to come through renewable resources by 2040. So we are constantly driving initiatives in this area to bring down the resort cost without compromising on experience. Having said that, there is another way to think about it, and it's not always about cost. It is also about spend. Can members spend on a per room night basis more than what they are spending? And that requires a lot of work in terms of the kind of F&B offerings that we create, the holiday activities that we create. So there is a work going on all around to see whether the overall resort margins improve, without at all compromising the experience. Because once the experience gets compromised, I don't think we'll have any business left. So we are very focused on that, and we will keep driving various levers to drive down the cost, but parallelly enhance the revenue and driving the gross margins up. That is the objective with which we work in resorts. And if I were to look at the other elements of cost, whether it is the sales and marketing, whether it be overall manpower cost, these are costs which are constantly looked at, in a way, reorganization happens. So it's a constant process to keep an eye on these things. I don't think we have reached any of our limits here. There are opportunities that we are able to see while we work inside the business. And we remain fairly optimistic to keep on at it and improve our margins going further. Overall business margins, I meant, yes.
Sure. That's helpful. The second question I had was -- even in the last quarter, you alluded to the aspect that there have been, obviously, a lot of inquiries given the perspective of how leisure as a segment has taken up. I just wanted to understand that generally in terms of inquiries, how is the trend? And ideally, how is the conversion happening? Is it that when the inquiry happens initially the thought process from the company or from the sales staff is to probably try engaging with the customer via one of the shorter-tenure products? Is that where majority of the incremental demand is coming? I know this quarter there has been a mix change. But just given the increase in inquiries that have happened because of how things have panned out post-COVID, what is the kind of a normal conversion process that's happening at least over the last 3 to 6 months?
Okay. Thank you for a very deep question. What's happening is that, again, in member acquisition, various levers are playing out. Number one, while there is a demand, while there are inquiries, while there is a brand pull because of the good work that we have been doing at our resorts, because of the safety and hygiene and also the word of mouth that we are seeing on social media regarding our brand, positive word of mouth. So here is the thing that we are seeing demand coming from small towns as well. That's one initiative that we had started just about prior to pandemic. And we are, again, in some manner sort of restarting that. So we are noticing that there is a bit of a demand that is coming from these smaller towns because they are also -- there is a lot of aspiration there to sort of get this lifestyle, which our resorts offer. So that's one lever that is playing out. When it comes to sales conversations, I think there are 2, 3 kinds of conversations that happen. One, if the member has been referred by another member -- I mean, the prospect has been referred by another member, the conversation is around 25-year product. Because, as you know, the dominant majority of our members are 25-year product. So the conversations happen around the 25-year product. Definitely, if someone has an interest towards -- if someone is above 55, has an interest towards a Bliss product, it is fine. This is a product that we sell. We are quite happy to sell Bliss to someone who feels that the 10-year product is what they need. The other part is we created the 3-year product primarily keeping in mind that the youngsters, just about married, probably would not want to commit for a 25-year or -- kind of a product, 25-, 10-year product. So therefore, it's more like a starter product, as I mentioned earlier. It is more like a test drive. You come, you enjoy, and then you would upgrade, and that is what our focus will be. Some of them would, all of them may not, which is fine with us. Even within 25-year product, we see a lot of momentum, as I mentioned in my opening remarks, of upgrades for the season. The blue member trying to go to white, white going to red, red going to purple. This is something that happens all the time, which is a great business for us. Low cost of acquisition during the lifetime of the member. Of course, at the on-site, a lot of conversations are about upgrades. And also, if there are new membership being bought, that's for a 25-year product. Even in the smaller towns, which are managed through our DSA partners, which are largely through the referral business, there, again, the 25-year product does extremely well. Yes, there is sometimes -- and I will be honest enough to admit -- that when a person feels that the price is too high for a 25-year product and the person is following the criteria of being a millennial, that's the time the conversations do open up for the GoZest. But we are very careful in terms of the down payments, in terms of the EMI tenure that we are setting up so that we get the right quality, which helps in ensuring that the receivable quality is very good. And also, it helps in our future conversions and upgrades. So that is how this whole business mix is playing out at this moment of time for us.
I had one more question, if I may, or I'll come back. So I'll just go ahead. On the margin side, what we've seen significantly that, traditionally, your business was, say, between 18%, 20% before COVID happened. And there have been obviously a lot of initiatives that have taken us to a sustained run rate of 25% kind of a number over the last few quarters. Now you alluded to obviously picking up on the sales and marketing, and obviously, employee's part of it being structural and the power. Overall, as you try looking ahead, what is the kind of margins at least on the India business they are working with that you could give clarity on that? And I will be done.
All right. So as I say, that I'm not giving any forward guidance on margins, but I can tell you one thing for sure that there are 3 levers that we are going to press, which is very, very clear for us. One is the manpower productivity, particularly on the sales side. Of course, on the resort side, we have done a bit. We could continue to do a bit more. But on the sales side, we will be working on the productivity, and that will also lead to an improvement as we move forward in terms of conversions and margins. So that's one thing. The second is on the cost of acquisition. We are trying to become far more effective in digital to see how we can drop our overall cost of acquisition down, and that's something that will again play out through various initiatives that are on hand. The third one is our continued focus on solarization, as I call it, basically getting energy sources, primarily solar, which will help us to reduce our energy costs, which are significant costs in resort operations. So -- and when I say cost of acquisition, there are 2 elements in cost of acquisition. One is through the manpower productivity route, another is through the sales and marketing expenses. We are constantly going to remain alert on what monies we are spending to acquire the customers. Since we are now aiming and all, we have been aiming for the last 4, 5 years on the higher down payment and lower EMI tenure customers, it will, of course, help us and already started to help us in our resort revenues. But that is also, in some manner, going to help us to reduce the cost of acquisition because we are going to be far more targeted than what we were ever before. So broadly, these are the levers that we are going to press. I mean if you look at our history, every year, we have moved our margins by at least 100 basis points upwards. I mean we would at least aim to repeat the history. Without saying much, we still believe there are opportunities. Having said that, sometimes, you will notice that, in some quarters, we will do investment behind the brand, which is definitely due because over the last 6 quarters, because of the pandemic, not much investment in the brand has been sort of done. And therefore, some investments would happen, some level of member acceleration will happen. And as you know, because of the accounting standards, it may appear that the margins are going down, but that's towards building the capability to deliver margins into the future at a level that we would like it to be.
The next question is from the line of Swechha Jain from ANS Wealth.
Sir, I have 2 questions, one is a follow-up and one is the question that I wanted to ask. My question was, out of the overall customer or members that we have 2 lakh 54,000-odd some number, just wanted to understand how many members out of these would be the initial lot whose membership would be expiring in the next 4 or 5 years? And how much value of deferred revenue would be there in our books pertaining to these customers whose membership will be expiring in next 3 to 4 years?
All right. These numbers are -- so first of all, I can give you a very broad answer that, in the early stage, we had sold 33-year memberships, so that would expire. Obviously, there is still time. We are a 25-year-old company as of now. So around, I think, in the year 2000, we moved to 25-year product. So therefore, there will be some members that will begin to come off from FY '25 onwards. But remember one thing that, in the early days, we used to sell much lesser memberships. So the retirals are not going to be very significant at least for some time. So that's probably to give you a -- so without giving the exact numbers, this is how it's going to play out in terms of -- now coming back to the deferred revenue question. You would understand that as the members reach the end of their tenure, the deferred revenue obviously keeps coming down for them because it gets accrued. And since the numbers are going to be lesser, I don't see our deferred revenue getting significantly impacted as a result of this deferral. In any case, their income is getting accrued on a quarter basis to us, on a yearly basis to us. And they are a part of the total mix of members which came in later in the year and who have significant tenure left with us.
Okay. Sir, my next question is with respect to the new membership that we have added in H1. So what I understand is you answered to one of the participants' questions that majority of the members that have been added is for the 25-year kind of a membership. So just wanted a clarification. Do you see that trend happening just specifically in Q2? Or that trend is there -- was there in Q1 also? And when you say dominantly 25 years, can we assume that 70% or more than 70% of new members that are added are towards 25 years of membership? Or that number would be less?
Yes. So as I mentioned that there are 2, 3 questions, I think, rolled into your thing. When I said dominant, I meant the member base. I did not mean quarter 2. The total member base has dominantly 25-year memberships because that's what we have been selling. The idea of having the portfolio strategy, as I mentioned, is at least twofold. One, create opportunities for people to come at various transaction prices. And depending on their needs, sample the product and accordingly upgrade, which is what happens significantly in our business, even within 25-year product. Because within 25-year product, also, if you see, our base-level product to the highest-level product, the price differential is at least 3x. And so there is a huge opportunity to continuously upgrade people from the lower season to higher season, and lower apartment size to the higher apartment size. Now that benefit of that is not evident today because it gets added to the deferred revenue pool, because most of the income that happens as a result of which gets pushed into the deferred revenue pool. Of course, it has then a cumulative effect of bringing in the VO revenue increasing on a quarter-on-quarter basis, which is what leads to sustained improvement in productivity, which is what we see now over the years. So it's a bit of a situation that happens to us when we are looking to upgrade. So for us, portfolio is important, upgrades are important and getting the right quality of members is important. Really speaking, the fact that we have today -- dominant number of members are 25 years, definitely gives us a very large deferred revenue pool. When you have a 3-year and a 10-year membership, then obviously, that tenure will determine the deferred revenue availability there. But the good news is that we are driving upgrades from GoZest to 25-year product, and that is something -- and even goes to Bliss if it is possible, this is going to keep on adding to our deferred revenue pool. And more importantly, our F&B revenues and the resort revenues will keep on increasing, and higher gross margin should lead to higher productive profitability going forward. So these are interconnected pieces. And it's quite an interesting way to look at that one side we are trying to meet the customer needs who may want to come in at different price points and different life stages. Another side, their consumption behavior will play out in the resort revenues. And the third is that the upgrades will ensure that our deferred revenues and the balance sheet will remain robust as it is already.
Okay. So sir, can you specifically...
Sorry to interrupt you, Ms. Jain. May we request that you return to the question queue? [Operator Instructions] The next question is from the line of [ Dani Sala ], individual investor.
First of all, congratulations on a good quarter. My first question is with regards to the traveling [indiscernible]. Like currently, there are a lot of international travel options that are still closed or have -- under quarantine, though I know it's still opening up. Do you expect any change in the demand with respect to the travel changing or at least with -- for our holiday plans when international travel open up? And my second question is with regards to the Holiday Club, whether you think that -- what is the plan going forward for Holiday Club? And since I can see the financials, it is a quite significant chunk of revenue for this quarter I think. So I believe that it can actually be a very good growth driver for us in the future.
All right. On the first question, the international travel leading to reduction in travel within India and, therefore, impact on our business is the question I understood. I'm very clear that international travel increasing will have no effect on our business because -- please remember that we also have access to international. Our members have access to international destinations like Dubai, Singapore, Kuala Lumpur, Bangkok and various other places like Bhutan, Colombo, et cetera. If things normalize which they were prior to the pandemic, there would be travel to our resorts which are in the Southeast Asia. Of course, the -- we have -- our members would also go to our European resorts as well as to go to the tie-ups that we have in U.S. So I don't see that impacting our occupancies. In fact, our resort occupancies internationally would improve compared to today. As far as the India travel is concerned, our members, primarily when they signed us up for, they continue to travel in India. That is why in Indian resorts, we have occupancies upwards of [indiscernible]. So I don't see any impact whatsoever if the international travel would resume. In fact, it might be a positive for us. One, as I said, our resorts internationally will get full. Number two, it will also help us to showcase our international destinations to our members, new members who may want to sign us up for that reason because a lot of people would prefer to travel internationally. So that's as far as the first question is concerned. I don't see international travel being a dampener to us. Could you repeat the second question because I couldn't hear it correctly?
My second question was with regards to the Holiday Club. I can see there's been a significant chunk of revenue for this quarter for us. I wanted to know what are our plans going forward? And how do -- what is the outlook on the Holiday Club?
Yes. I think Holiday Club is poised for a significant rebound post pandemic. You can see that in the quarter 2 performance. I must also hasten to add that Holiday Club is a seasonal business. Quarter 3, the occupancies tend to be low because it's not a holidaying season. It starts from 15, 20 of December onwards. And the December to Feb is a very big season for them because winter holidays set in. And therefore, you will see quarter 3 and quarter 4, particularly looking ahead, quarter 3 will be the way it is in terms of low season. But quarter 4 is a very, very good quarter because of the seasonal nature of the business. But if I were to leave the seasons out, if I were to focus on the operational efficiencies, the way the business is poised to grow, I think the management team at Holiday Club Resorts, led by Maisa Romanainen, Ms. Maisa Romanainen is doing a fantastic job in terms of, one, restructuring their cost base as a result of the pandemic. They were able to do it. Second, there is a lot of new team members who have come in who are specialists in their area. And we have a new leader in Sweden also. And as a result of which, all the 3 geographies, whether it is Finland, whether it is Sweden, whether it's Grand Canaries, we are looking to see the next 6 months very, very positively. Plus, the strategy that they have outlined, which is what we are working with them, shows that your assumption that Holiday Club Resorts can be a great growth driver for the overall Mahindra Holidays business is true. We also share similar confidence because of the way the business has pivoted itself in terms of cost structure, in terms of the way they are now doing their timeshare sales. They have changed their product mix. They have moved their product mix towards higher margins. They used to have 2 products, one is a timeshare product, one is a villa. So they are deemphasizing the low-margin product. They are moving towards the higher-margin product. And also the way they finance their business, they have made some fundamental structural changes. So when all the things will begin to play out, you will be able to see that in their margins as well as turnovers. As they look forward, they have very exciting opportunities ahead for them in terms of growth, including the new resort at Vierumäki, which is near Helsinki, which is also beginning to show good sort of momentum as we sort of see it in the next few quarters ahead.
We'll take the next question from the line of Bharat Sheth from Quest Investment.
Congratulations, Kavinder Singh. Hello?
Thank you, Bharat Sheth. Thank you for dialing in.
Sir, I had just one question. See, half question has been about this European -- so what exactly we -- you have briefly. So when do we really expect that to turn it around on an annualized basis because there are also a lot of several seasonal things play out? And second thing, we were also once upon time evaluating bringing a partner and raising money out of -- so what is the status of that?
So at this point of time, the way our Holiday Club Resorts is pivoting, it is turning out that they are seeing significant opportunities post pandemic in the timeshare area, because what people realized during the pandemic is that, if you own a timeshare apartment, you could still be away from people in dense cities, even though they don't have many densities, but Helsinki is still quite dense. So they love to go to the timeshare apartments and spend time with their family. While, of course, connectivity is good, so you could technically work from anywhere. And that's a pattern that we saw in Finland as well, as well as in Sweden. So what is happening is now the demand for timeshare sales is likely to grow. As I said, they have 2 products. One is a timeshare product. One is the villa product. Villa product is the high -- a higher number of weeks product, you can buy 6 weeks at a time, that's called Villa. And timeshare is typically a 1-week product. So the 1-week product is seeing momentum, rightfully so, and that's where our margins are also very good. So that's one thing. Third, these spa hotels, which are -- basically, when they say spa hotels, it's basically a lot of water activities. And of course, there are spa treatments. Now these hotels are about 8 in number. There is a lot of improvement that has happened in terms of their driving the efficiencies. And if I were to look at their total efficiencies, costs and also their ability to drive revenue, they have done a fantastic job in delivering not only this quarter's number. But as we look ahead with them, barring the fact that quarter 3 is not a great season, but at a year level, we will end up with fairly respectable numbers in terms of profitability. And that will be an add-on to Mahindra Holidays. Looking forward, we feel that even better times are coming for Finland, Sweden and Gran Canaries because of the cost structuring that we did and the go-to-market strategies that they are employing in terms of the product mix that they are doing. So at a very, very broad level, Holiday Club is looking into the future, if I were to look at, at least 18 months ahead, 6 months in this year and 1 year ahead, we should see profitability coming back, we should see the effect of all the decisions that are being taken should improve both the margins as well as the profits.
Okay. And we recently bought out a JV partner, correct?
There was a JV partner in Sweden that was bought out in the last year in the quarter 2. But let's see what happens is that they have a lot of small, small companies, which actually are, in some manner, subsidiaries. So we are just simplifying, and that is why those -- and those have no material impact whatsoever in the overall business of the Holiday Club.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Kavinder Singh for closing comments. Thank you, and over to you, sir.
All right. First of all, I would like to once again say thanks for you to come during the market hours and listen to what we had to say. And most importantly, as I always mentioned, we learn from your questions, we learn from your questions, the expectations that you have. And we always get insights and we discuss it internally how to meet the needs of investors in terms of growth as well as sustainability of our business. I can assure you that we remain committed to continuously pivoting and growing our business to the new level, given the fact that pandemic has taught us all lots of lessons. But one thing that I want to say towards the end, which is never going to change as far as our business is concerned, from the consumer standpoint, is that people would always want to travel. They would want to travel with their family, extended family. They would want to see outdoors. They will want to engage in outdoor activities. And they would like to stay together, which is where our larger apartments come in. And drivable holidays are not going to go away. So if you were to look at it -- and 80% of our resorts are in the drivable destinations. So if you look at it -- and our business is not dependent on events or weddings. So if you look at it from any which way, we are enjoying the sweet, sweet spot, the hard work that we have put in over the years, the brand Club Mahindra that we have created. So we remain extremely, extremely confident about our future and in building great experiences, new resorts and adding members in the near foreseeable future at a brisk pace. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Mahindra Holidays & Resorts India Ltd, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.