Mahindra Holidays and Resorts India Ltd
NSE:MHRIL
Earnings Call Analysis
Q2-2024 Analysis
Mahindra Holidays and Resorts India Ltd
The industry trend shows stabilization with occupancy levels normalizing around 61%, slightly lower than the post-pandemic high of 71% witnessed in February '23. Despite weather challenges in major tourist areas, Mahindra Holidays & Resorts maintained a commendable occupancy rate of over 77% and recorded an increase of 4% Y-o-Y in resort income, achieving the highest ever quarter 2 income of INR 70 crores.
Member additions have seen an 11% Y-o-Y increase, marking the highest quarter 2 additions to date. The company's cumulative member base is now at 2,89,688 families, with 85% fully paid. Benefiting from high levels of member satisfaction, the company experienced a 15% Y-o-Y growth in upgrades, pushing the deferred revenue pool up by INR 53 crores to INR 5,445 crores. Moreover, the company's digital bookings now account for 81% of total bookings, underscoring a significant shift in consumer behavior.
Strategically targeting room inventory expansion, the company plans to double its inventory base from 5,000 to 10,000 keys by FY '30. New projects and resort expansions are underway, including greenfield developments and the addition of hundreds of keys across multiple locations. Additionally, public-private partnerships are a key focus, with multiple government collaborations aimed at further inventory expansion, including a significant INR 1,000 crore investment in a partnership with the Uttarakhand government.
Mahindra Holidays reported a total income growth of 10% Y-o-Y, reaching INR 333 crores. The company saw a robust rise in EBITDA by 17% Y-o-Y to INR 99 crores with an improved margin of 29.6%, up by 170 basis points on a Y-o-Y basis. Profit before tax also grew by 15% with a margin increase of 60 basis points. As a result, the company's cash position strengthened to INR 1,176 crores as of September 30.
Despite geopolitical tensions and macroeconomic pressures such as the Russia-Ukraine war and inflationary trends, Mahindra's subsidiary, Holiday Club Resorts (HCR), managed to produce positive results. Increased domestic tourism in Finland and careful cost management led HCR to a positive EBITDA of EUR 1.6 million, despite increased finance costs. These achievements highlight the strength and resilience of the company in facing challenging economic conditions.
There is an overarching optimism within the company regarding India's tourism prospects. The government has ambitious plans to make India a $1 trillion tourism economy by 2047, with the creation of 50 new tourist destinations envisaged. This sets a positive backdrop for companies like Mahindra Holidays & Resorts to capitalize on future growth opportunities, aligning with national tourism objectives.
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Ladies and gentlemen, good day, and welcome to the Mahindra Holidays & Resorts Ltd. Q2 and H1 FY '24 Earnings Conference Call. [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 Ltd. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and a very warm welcome to our quarter 2 earnings call. On the call with me today, we have Mr. Ram Mundra, our interim CFO. You can find our quarterly results and investor presentation referred to in our remarks today on the stock exchanges and our company website. I hope you all have had a chance to go through them.
Let me begin with talking a little bit about the industry. At an industry level, quarter 2, it's a very similar trend from last quarter. Occupancy levels are getting normalized at about 61% after reaching post-pandemic high of 71% in February '23. However, average ADRs of INR 6,500 to INR 6,700 are still trending significantly above pre-pandemic levels of INR 6,100. Domestic air passenger traffic grew by nearly 23% Y-o-Y in August '23. And this is the sixth consecutive month that domestic air traffic in the country has surpassed pre-COVID levels.
Major tourist hotspots in North India suffered mass cancellations as vacationers opted to stay away from areas affected due to unprecedented rainfall, landslide and floods. At our resorts, despite heavy rainfall and landslides and floods in HP, Himachal and Uttarakhand, which affected our resort operations, but with our superior service delivery, new immersive experiences, we have achieved 77%-plus occupancy versus 79% last year. Our resort income of INR 70 crores is up by 4% Y-o-Y. And it is the highest ever in quarter 2.
This quarter, our member additions were robust and have grown by 11% Y-o-Y to 4,881 members. With this, we have been able to achieve highest-ever quarter 2 member additions. Our cumulative member base stands at 2,89,688 families, 85% of whom are fully paid. Membership sales value including upgrades at INR 190 crores is up by 13% year-on-year and continuing the momentum in upgrades, which is basically due to our Happy members. We have achieved the highest-ever Q2 upgrades of INR 47 crores, which is a growth of 15% year-on-year. Membership sales in this quarter have increased the deferred revenue pool by INR 53 crores. And now the pool stands -- deferred revenue number stands at INR 5,445 crores.
Our digital bookings are at about 81%. 81% of our booking happens on our digital channels, including the app. We are undergoing a digital transformation to unlock the power of data through advanced analytics to improve efficiencies and drive growth in member spend, collections, referrals and upgrades.
Let me talk a little bit about room inventory. In line with our strategic objective of rapidly expanding our room inventory, we aim to double our inventory base from 5,000 to 10,000 keys by FY '30. And currently, we have INR 835 crores of CapEx underway for 5 greenfield, brownfield and acquisition projects with about 690 keys. And 2 more expansion of existing resorts will commence by quarter 4 this year.
This quarter, we have commenced a new greenfield resort project of 152 keys at Theog. In quarter 1 FY '24, we had commenced 1 greenfield project of 236 keys at Ganpatipule and completed the acquisition of a 72-key resort in Jaipur. We have ongoing expansion projects at 2 resorts, which will add 230 keys. Kandaghat, a 72-key resort, is being expanded by 185 keys to make it a 257-key flagship resort. Assonora Goa third phase of construction, we will add about 44 keys to make this a 244-key resort.
In addition to this, 2 more expansion projects are expected to commence in Q4. And that will be the existing resort in Puducherry by 62 keys to make it a 187-key resort and recently acquired Tree House Jaipur Resort will be expanded by 54 keys to create a 126-key resort.
Public-private participation as a route to expand inventory is a very big focus area for us. And we will continue to work with various state governments to identify opportunities in this regard. Last year, as you know, we launched Janjehli Resort in collaboration with Himachal government. We are currently in discussions with Maharashtra government for a resort in Harihareshwar, MTDC Resort. We have an in-principle approval for the land parcel at Chilika Lake, Odisha. We have signed a memorandum of understanding with Uttarakhand government to develop 4 to 5 resorts with an investment of INR 1,000 crores. And various other discussions are in pipeline.
Our sustainability targets are they include carbon neutrality by 2040 through EP100, RE100 and Science-Based Targets. Our Madikeri Resort is India's first resort which is net-zero certified in net-zero waste, energy and water. 15 of our resorts are now net-zero waste to landfill. This quarter, we added 5 resorts in this category, 12 of our resorts are Green Resorts Platinum-certified by IGBC.
As far as solar power is concerned, 500 kilowatts at Madikeri got installed. Our cumulative capacity went up to 6.2 megawatts across 25 resorts. And this is equivalent to 20% of our total energy demand. In FY '24, we will take this to 11.7 megawatts and 40% of our total energy will be served by solar. We recycled 360 million liters of water in H1, which is 62% of the total water consumption by our resorts.
I'm sure you have had looked at the financial highlights, but I'll just run through very quickly. Total income grew by 10% Y-o-Y and ended up at INR 333 crores. Please note that these numbers are excluding one-offs. And we will talk about one-offs later. Resort one-offs are related to ForEx movements. And they are not related to any operational one-offs. That's another clarification.
Resort income at INR 70 crores, up by 4% Y-o-Y. EBITDA at INR 99 crores, 17% Y-o-Y. EBITDA margin at 29.6%, up by 170 basis points on Y-o-Y basis. Profit before tax at INR 49 crores, 15% up. And PBT margin at 14.8%, up by 60 basis points on a Y-o-Y basis. Cash position has moved up to INR 1,176 crores as on 30 September.
The H1 numbers are all there with you, so I will not read out the H1 numbers. Holiday Club Resorts, market challenges continued with the war in Ukraine, Russia-Ukraine war. Euribor 12 is trending high at 4.14%. Inflation is now at 4.3%, predicted to go down to 3% level in 2024. The Finnish tourism has changed with COVID-19 and the Russia-Ukraine war. International segment is down, but domestic tourism is up by 10% compared to pre-COVID levels.
If I were to look at HCR performance, timeshare sales has grown despite the situation that I mentioned over there. It's because Finnish owners tend to buy second homes. People love to buy second homes. But they're not able to afford second homes because of the high mortgage rates. So the timeshare sales are up, which is a good sign for us.
This quarter, Sweden -- we have a presence in Sweden. The spa hotel performance has been impacted due to low occupancy and lower conferencing business in Sweden. Swedish economy is in recession. And that can be seen through the effects that we have seen in our results. Despite the current geopolitical situation and tough economic environment, Finnish spa hotels delivered occupancy much higher than the local hotel industry. Of course, the finance costs increased due to rising Euribor rates.
The input costs are being well managed by HCR very well. And HCR delivered a positive EBITDA of EUR 1.6 million, which is a significant achievement given the situation on the ground. Travel sentiment has been buoyant for domestic Finnish travelers during summer season. And we are monitoring the geopolitical situation closely. And we will continue to implement cost efficiency measures throughout the year.
If I were to look at the consolidated financial highlights, excluding one-offs in quarter 2, our income is up by 10%, INR 675.8 crores; EBITDA at INR 149.7 crores, 10% up; EBITDA margin at 22.1%; PBT at about INR 32.2 crores. Again, I will not read the H1 numbers.
To conclude, we see a big opportunity. As you know, Government of India has a vision to make India a $1 trillion tourism economy by 2047. Tourism promotion is taken up on mission mode. 50 new tourist destinations are being planned. The rising high-income households, which are the target audience for us, greater than INR 27.5 lakhs, are expected to be greater than 3 crores, the households, by 2030. And we believe that's a huge potential market for us in India.
From supply side, also, India is highly underpenetrated. Number of leisure-branded rooms in India is nearly 28,000 and the overall branded room count is 1.6 lakhs versus a city like Dubai, which has 1.765 lakhs branded rooms and growing.
We at Mahindra Holidays are well poised to take advantage of the leisure travel boom through these strategies, which are mentioned below, which I will talk about. This will allow us to take advantage of the growing discretionary income amongst affluent homes and thereby realizing the huge potential of our target market in India.
We will expand aggressively and move from 5,000 to 10,000 rooms, as we have mentioned earlier. You can see that it is evident from the number of projects which are underway. As we speak, INR 835 crores of CapEx has been deployed for 690 rooms. As we expand the inventory rapidly, resort network will allow us -- the expanded resort network allow us to add new members, which would lead to further cash generation. And this cash will be again used for resort development. This is a virtuous cycle of the network that we have created.
Going forward, as the network expands, it is very challenging to replicate the same by anyone: accelerating member additions in line with rapidly growing inventory through expanding geographical reach, channel sales, on-site refer, digital, including remote sales channels. We will follow the product portfolio approach to take it to different segments of customers.
You know that we launched a new product, CMH 15, last year. And last quarter, 4-year product was also launched. We will continue to monetize the full potential of our 2.9 lakh member families and leverage our brand through an increase in referrals and upgrades and the improvement in the spend of the members when they are holidaying at our resorts.
The brand pool that is being created by the new immersive experiences at resorts and the diverse holidaying options that are there, which will be further made more richer through an expanded inventory network, will actually help us acquire members at a faster rate. Our focus on accelerated room inventory addition, growing member additions will help us generate, as I mentioned, sufficient cash, create multiple annuity revenue streams, which will help us to grow our profits and fund our expansion plans. And as I mentioned earlier, we are already on the right track. We have accelerated our CapEx, INR 835 crores of CapEx, 5 projects, 690 keys.
Thank you for your time this evening. I now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of Ankit Kanodia from Smart Sync Services.
Congratulations on a good set of numbers. Sir, my first question is related to the PPP projects, which we are entering into and discussing with several governments. If you can give some more color as to -- if you can explain, on an average way, if the cost of the project is INR 100, how much is invested by government, how much you are investing and how -- on what things government invest and how do we -- if you can give more color into that, that will be very helpful, sir.
So PPP projects, thank you so much for this very, very insightful question. PPP projects are a very good way of entering into the right location. Because most of the government tourism properties are in great locations. For example, if you look at the Janjehli Resort, that is by the side of a very beautiful river. And for us on our own to be able to source land, get approvals and build, it could have taken us much more time.
But today, this beautiful resort actually came to us. Himachal government asked us to bid for it. We bid and we won. And we have this resort operational in 9 months precisely. So great location, time to market. And this is on a long-term lease. So the beauty of some of these models is these are long-term lease models. Typically, these rental kind of models, so you have to obviously outbid your opponents. And the most important thing is that we have an advantage of being able to fill up the -- even back or beyond tourist destinations. So that gives us the strength to be able to go and bid for these properties.
The other model on PPP is to take land on long-term lease, say, 90-year lease, and build a very large resort. This is what we are trying to do in Chilika in Odisha. And that is what will give us the entry in Odisha. So our aim is to pick up land parcels through the PPP route, where we can build -- and these are -- since they are lands given by government to us, our ability to get approvals is faster and we can get going. The government also provides the necessary support.
As I mentioned, the government has declared tourism in mission mode. State governments also feel that this is a great way to get a certain amount of tourist inflow into their destinations, which they would like to promote, which helps the local economy. So there are -- and by the way, I mentioned Uttarakhand is very, very keen to drive tourism further. And we signed an MOU. We have identified the 5 locations where we want to build resorts, and we have committed to invest INR 1,000 crores at the very minimum, the moment those sites are identified and handed over to us.
And obviously, we are looking for single-window approvals, et cetera. So it actually is quite a win-win for the government as well as for any player who wants to enter into this area. The only thing is that other -- I do not know about other players. But for us, the big advantage is that we are able to fill these resorts wherever they may be located.
That was very helpful. One follow-up question related to that. One thing is, is this only on this model or in some other projects, we also work where government owns everything and we just have to do the part and get...
Yes. As I said, the Janjehli project was half-done. So we did a small amount of refurb, brought it to our standards. And we have a long-term lease with the government. So there are times when government wants us to take over properties, which may not be in good shape because they may not have been able to run it. They may not have got the occupancies, tourism development properties. So if we are able to identify such properties, see a business case, where we put in money to bring it to our standards and then run it for the specified number of years.
Excellent. Sir, any color on the competition on these kind of projects? How do you see the competition in these projects?
See, in this kind of projects, I would say that the organized sector is not very, very, let's say, prevalent to the best of my knowledge that I have seen. But yes, there are unorganized players who would like to enter in this field. It could be first-time hospitality players as well. Because all you have to do is to be able to demonstrate that you will be bringing in sufficient capital and delivering on the promise. Most of them come with a certain timeline in which you have to get the project going.
So if you are a company, which has the reasonable credentials and you can convince that you will have the capability to complete the project, those people would be eligible. But then again, it depends on you could be eligible to bid, but then would you be able to start in the next 2 or whatever number of years that they want the project to be started? So I'm assuming that government is keeping an eye on all these things. And of course, it's a transparent bidding process. So technically, anyone with some level of credentials can bid. But as I said, I see more unorganized players in some of the bids than organized players.
Sir, what could be the reason for less organized players, if you have any reason in your understanding?
Sometimes even amongst the organized players, you would know that their focus is on the city-side hotels and our focus is on the leisure. So the only reason I'm able to figure out is that the focus largely for most of the players, probably organized players, is city versus leisure. And the other could be that if it's a very offbeat destination, how do you ensure that you will be able to deliver the occupancies and then deliver the lease rentals that you are promising to the government?
Got it. Sir, one last question, if I may. This last question is related to [ IP ]. You have been with the company for over a decade now, I guess, if I'm not wrong, somewhere around 2013 or '15. And the product which you are selling is basically a product where, in general, we understand that consumers in India is more of a compulsive traveler. And the product which you sell is where you have to plan in advance.
So do you see any shift where more and more people are willing to plan in advance? Are you seeing that shift over the last years. You have now 10 years of data with you. Is that change happening? Or are we still some decades way to reach that stage where people are okay to book in advance? I hope you understood my question.
Yes. Just give me an idea, why did you talk about 10 years? What did you take 10 year as a reference?
Because I believe 10 years that there would be more people who would be having grievances of not getting a room rather than today of that grievances of not getting a room because I am assuming that more and more people member of Club Mahindra would be booking in advance for any destination they would be wanting to go.
Okay. So one thing is for sure that the culture of planning is definitely increasing. That I can confirm to you. I have seen that. And it is largely because you have to make other arrangements. If you are planning to travel by air, you do definitely get advantage if you plan early. However, if you are planning to travel by road, you could be impulsive. You may not want to plan so much.
So there are two kinds of travelers, one who take long-distance journeys, they definitely plan. And that is definitely in line with our business model as well. But however, there are equally -- there are a set of people who are impulsive and who will wake up the last minute and they will try to see whether they can get a booking. We do see such kind of people because they want to drive.
So I would say that the only thing which is certain now is that people are taking more frequent vacations than what they did earlier. I mean, if people took once a year vacation, today, people are talking at least three to four vacations but shorter ideally if they can drive away.
But this is the trend that we see in the city kind of catchment areas. But there is a lot of India which is actually not in metros. And their travel patterns could be slightly different. They may take longer holidays and they may be quite open to even flying. And so we see a mix here, if I may say.
[Operator Instructions] The next question is from the line of Himanshu Shah from Dolat Capital.
Sir, first, if you can just highlight the reason for drop in occupancy because this year, computing on operational inventories, so I believe they shouldn't have the impact of Himachal and Uttarakhand. Or the occupancy levels are including the rooms of Himachal and Uttarakhand?
Yes. I think, Himanshu, when we talk operational inventory, we do not exclude the resorts which are operational otherwise but had to be facing the brunt of low occupancy due to last-minute cancellations. We cannot remove from the denominator the room nights that were available to be used but could not be used because of the rains and landslides.
Then when we talk of operational, we mean if a resort has been taken for shutdown for a renovation for, let's say, 2 months, then that is not operational. That's by design. But if your resort is ready, you have people and you have bookings and if people don't come, then it's very clear that, that resort was operational. And therefore, occupancy is on operational room nights.
This is fairly clear. Sir, second thing, member retirals has been significantly higher this quarter, almost 1,200-plus members. Any specific reason for this or if you can just provide some color on member retirals expected in H2 and in FY '25? Because we should be having a fair color on that particular part.
Yes. I mean, retirals happen when products finish their life. There could be a 10-year product, there could be a GoZest product. So there will be some retirals. But one of the reasons we don't give any forward-looking projections is because we are constantly trying to get people to buy another membership. So one of the initiatives that we have started is to get people to buy a second membership as their first membership expires or even extend the membership.
So there is a constant effort to see if you can hold on to the people who have enjoyed your promise. So that is why -- and this will -- this number -- in a base of 289,000, it's a very small, let's say, number, which is, you may say, has retired. Because I would not consider it significant on a total base of 290,000-odd now that we have. And it is insignificant, I can confirm that much.
Okay. But sir, just the net number addition and trend continues to hover around 15,000, 17,000 run rate only. And that's the only reason from where I was coming from.
So I think you have to keep one thing in mind, that we always release the net number, 4,800, whatever that number, 4,881, we have released. That is truly the net number. The cumulative number will have some retirals in the business, which will -- which is it's a tenure product. When people retire out of the tenure, I would not like to call this as gross/net the way telecom does. This is not churn. This is someone has delivered you the membership fee, finished his tenure, paid you your annual fee, enjoyed your resorts and retiring. So to my mind, I would not call this as a churn-churn.
Whatever little churn we have is already factored in when we release the number of 488 -- whatever the number was, 4,881. So my request to you, Himanshu, would be please look at the additions, which are net additions, which we release every quarter. And they are on identical basis. Yes, cumulative number will have few retirals, which is the nature of the product. We will try to obviously get more and more of them to stay. But this is what I would sort of look at in terms of understanding the business.
Sure, sir. Very helpful. And sir, last thing, if you can just help in terms of NPV per member or profitability-wise, is the shorter tenure more beneficial or ROI-wise? Or is it the medium tenure, which is like 10- and 15-year product? Or is it 25 years which is more profitable if you can?
Because what we are seeing when excluding upgrades, it looks like that our value per new member is trending on the lower side that is the mix is -- earlier, we were having only 25-year product. Now we are having multiple lifecycle product. So in that backdrop, if you can just provide some color on ROI or profitability per member on the various products.
Okay. I think in a business like this, it's very, very difficult to do profitability per member. The reason is very, very simple. Because the member not only pays membership fee, pays us the annual fee, comes to the resorts and provides us the food and spa margins. So it will be a very, very complex exercise if we were to do it. And it will be for the entire lifetime value of the member that we will have to take it. And then probably do discounting on the cash flows, projected cash flows.
And of course, those things can change depending on the price increases that we will undertake on F&B, et cetera, et cetera, et cetera. So there are a multitude of factors to take as the value per member. But at a very simple level, I can confirm to you that the smaller tenure products on a per room night basis are more profitable for us. And for a customer, it still makes sense to take a longer tenure product because it is per night -- room night basis, it is cheaper.
Having said that, it is a good idea to do portfolio strategy. Because if you have -- in a way, think about it, even if you are shorter tenure member, it is a prepaid sale. It's a guaranteed sale. The member has paid the money. Member will come to holiday. You will get your F&B revenue. And we have seen that smaller tenure products people also spend a little more in the resort because they tend to be younger and they tend to sort of spend and, let's say, splurge a little more.
So imagine if you have sold a 4-year product or a 3-year product, you are, in a way, getting not only your rooms pre-blocked, meaning people will come, and they will come and spend money at the resorts and holiday activities, younger lot, they are more -- they are a little heavier consumers than the middle or a little older customer cohort.
So I see it as, in a way, prepaid sales of the room inventory in the form of a membership, which is shorter tenure. But it also creates a funnel for upgrades. Some of them are upgrading into higher tenure and some of them are buying another shorter tenure membership at 0 cost. We have seen people, they finish a 3-year and they want to buy another 3-year because they feel that they may not be in the country, they may go out somewhere, whatever. They may be having whatever considerations.
So for us, being able to reduce our cost of acquisition -- and you may have noticed that we have reduced our cost of acquisition significantly over the last few years. And a lot of this has come through because we are trying to create a frictionless journey for our customer to stay with us and keep enjoying, keep upgrading.
Now upgrades, you know, are at an all-time high. And by the way, upgrades are an add-on to the membership revenue. That is why we treat them as a part of average unit realization because the upgrades come at a lower cost, and they are actually membership sales, just that it is a delayed sales of a higher order product.
Very, very helpful for the detailed explanation. So just one last question, if I can.
Please go ahead.
If you can provide some color on how many rooms will get added. You have given the CapEx pipeline and the projects, which are there in the pipeline. But in terms of maybe there could be some delay here and there because of approvals or some other on-ground issues. But if you can provide some color, like out of the 690 rooms which are in the pipeline and other stuff which we would be having, what kind of room additions we can expect maybe in H2 FY '24 which will get operationalized and in FY '25.
Yes. So typically, you have seen our run rate of rooms in the last year. Yes, our aim would be to beat that run rate. And we are well on our way. See, the reason I started giving now CapEx and the greenfield or the expansion so that you know how many projects are underway. So some will come this year, some will come next year, obviously. And whatever will come, will come in a lumpy fashion. Suddenly, you will find 100 rooms added because the project got completed. Of course, we have a rough estimate in our mind when they will come. So that's why I'm very confident that we will be delivering at a run rate higher than what we have delivered in the last year.
So on room additions, Himanshu, the good news is because we are looking at 5,000 to 10,000, that should now not be the worry of investors because we have a very aggressive plan of adding inventory much more than ever before. And as we speak, a lot of conversations are going on for even acquisition or buying lands or breaking ground soon. So there is going to be a constant activity here. And we are not going to be -- forget falling behind, we are going to be running ahead in terms of the room inventory that we are very confident now.
That's very, very helpful. And finally, I appreciate the increased disclosures over the last couple of quarters and last 2, 3 years.
Himanshu, did you notice the deferred revenue growth that we have highlighted in our investor deck?
Yes. So INR 53 crores of deferred revenue growth.
Yes. That is in the quarter but also see the trend. We have put that in the investor deck issued out a trend on the deferred revenue, how it is moving up.
Yes, sir, I have seen it. Congratulations for the same.
[Operator Instructions] The next question is from the line of Nemish Shah from Emkay Investment Managers.
Congratulations on the good numbers. So I had a question on HCR. I was just going through the cash flow statement, and I could see we've done some CapEx of about INR 115 crores in HCR. So if you could just highlight, are we expanding or adding on these parts, sir?
CapEx investment of INR 150 crores in HCR? To the best of our knowledge, this number is not available in the cash flow. Could you tell us where did you pick up?
So I just subtracted the consolidated and the stand-alone numbers.
Is it possible to do that, correct?
No. So Nemish, so CapEx number is largely in stand-alone MHRIL. And so we're on a different model over there. And all our construction is trade-in inventory and not the CapEx one. So maybe we can take offline in which number you are referring to and we can explain you that.
Okay. So basically, there's no CapEx that we're doing in HCR?
So just to confirm, the business model of Holiday Club is to create inventory, which is sitting in current assets and then they keep selling. They make the product and they park it -- it will get parked as inventory. And they keep selling the weeks. In our case, whatever we build is a capital expenditure and sits on our books as an asset. For them, it's not a fixed asset, it's a current asset.
Got it. Okay, I'll take this offline.
The next question is from the line of Hrishikesh from Kotak.
Just taking the earlier question forward, if I look at the cash flow on the standalone, there's a fair bit of investment in subsidiaries. So just want -- I think it's INR 44 crore, if I understand, if I looked at it in the investment. Is it largely investment in HCRO?
Okay. Yes, so Ram Mundra here again. This is -- we explained that the 72-room resort, which we acquired in quarter 1 of this year, that was in one of the subsidiary companies. And that acquisition has been done by infusion of equity from parent company, which is MHRIL.
Okay. This has nothing to do with HCRO?
Nothing to do with HCRO.
Okay. And secondly, this whole room expansion plan that we have, what is the kind of CapEx do we envisage here for FY '24 as well as over the next 2, 3 years?
So again, we do not put out these numbers in terms of -- obviously, if we have to build 5,000 rooms or create 5,000 rooms over the next 7 years, it will entail significant capital investment. Because our strategy is to build greenfield resorts, expand existing resorts and take resorts on lease and even do acquisitions. And if there is someone who is willing to build resorts for us, build the resorts to suit our requirements. So it's a mix.
So depending on how the mix will play out, the CapEx will evolve. But sufficient it is to say that you can see already we have about INR 835 crores of CapEx at play. Of course, it will get not finished in this year. Some part will flow over to the next year. And we will be again breaking new ground. And therefore, more CapEx will get deployed.
So CapEx will be suited to the needs of the business rather than making a broader statement that this is the CapEx that we want to do. But you can make a rough assumption that if we are putting 5,000 keys and, let's say, we want to do a large part of that through the greenfield or expansion route, you can make an assumption that INR 1.1 crore per key would be the kind of a CapEx outlay if you want to build it in your modeling.
Okay. The last question from my end, now it has been a fair bit of time that we have launched shorter tenure products in terms of -- for member addition. How should we look in sense that whatever the member addition we have seen over the last 6 months or 1 year, what proportion of that member addition will be on the shorter tenure? If you can provide some color on that, that will be great.
On the previous question, I wanted to answer you that the -- when you are doing this calculation of 5,000 keys, please do not multiply 5,000 by 1.1 because all the keys will not be of our own. There will be a mix of lease. That's the only point I wanted to say, yes.
Now coming back to the shorter tenure question. You know what, it is a very simple product portfolio strategy. Shorter product helps us to get more people to sample our offering and then decide whether they want to convert that into a longer tenure product, which is what we aim. As I mentioned, on a per room night basis, the shorter product is more expensive from a consumer standpoint. And therefore, our aim would be to get more and more people to move into the longer tenure product.
So we do not release the information of how many shorter tenure products we sold. It's like a product-wide sales data is not available in public domain. But I can confirm to you that majority of our base -- member base today still is a long tenure product, okay?
On an incremental basis?
On an incremental basis if you take long tenure products starting from 10 years, because I would consider 10 years as a long tenure product. It is not short tenure, so 10-year, 15-year, 10-year is Bliss, 15-year is 15 years, 25 is 25, even today, the longer tenure product is in majority compared to the shorter tenure product.
Ram here. Just to answer your previous question on cash flow, consol cash flow. This INR 200 crores, this INR 199 crore, is the breakup of INR 200 crores is like this, INR 85 crores, we invested out of stand-alone this thing, you can see that INR 85 crores in our stand-alone cash flow. The balance, INR 110-odd crores, is the acquisition, which we've done in one of our subsidiary companies with Jaipur Resort. So this amounts to INR 200 crores, there is no CapEx in HCRO.
The next question is from the line of Senthil Manikandan from ithoughtpms.
Just a couple of questions. Firstly, with respect to a news article which came a couple of weeks back with the plans in Andhra Pradesh, so if you can just provide some view on that.
Could you explain your question again because we couldn't hear you properly?
Sir, the first question is in respect to your plans in constructing three 5- to 7-star hotels in Visakhapatnam with a CapEx of close to around INR 750-odd crores in Andhra Pradesh, so what's the plan over there if you can just explain?
So as we have mentioned, this happened in October. And we have approached the Andhra government to be able to invest in 3 resorts, outlining a capital investment of about INR 750 crores. And again, the land is being identified to see how we can build a presence in Andhra. And that is what is in the -- whatever you picked up in the news article, that is what it was all about. It is again a PPP model that I've talked earlier.
Okay. Second question is with respect to the Holiday Club Resorts, so I think you've been taking a lot of initiatives on the cost side. So do you have any key metrics for the Holiday Club Resorts over the next 2 years that you arriving at on the operating front?
We heard cost part, I understood. But the last part of the question, I could not hear you.
So in terms of operating metrics for next 2 years, so if you can share some targets that you have for Holiday Club Resorts.
So operating metrics are for the internal consumption. What we release in the public domain is the financial metrics as far as HCR is concerned. Part of the reason is it's a very unique and a very different business model compared to ours. So there, the focus is on value, what is the value sales, which is the turnover of timeshare, et cetera, turnover of spa, et cetera, hotels. These are the metrics that we use and, of course, how they manage their costs and how do they deliver us the EBITDA, which is all there in the public domain.
And generally, that is what we track internally. Because there, it is very important to see everything in value terms. Because the currency, underlying currency is euro, and we need to understand at least at the value level what's happening there. And that is what we are focused on. If you ask me what I am focused on, I am focused on growing the turnover of timeshare and spa hotel. I am focused on cost efficiencies. I am focused on EBITDA and EBIT.
That is the focus with which we work with them. In that process, will they open up new timeshare destinations? Yes, that's the core business for them. And how many weeks they will sell? Yes, but I'm not interested in how many weeks they sell. I'm interested in how much value of the timeshares they sell because that's important for them. They also do upgrades. Again, I am focused on what is the value of the timeshare, including upgrades. So that is the way we look at the business.
Okay. Just a last question with respect to the employee cost, so on a half yearly basis, we have seen like around 17%, 18% increase in employee costs. So on a normalized basis, what could be the growth that we can factor in for this?
You are referring to the Reg 33 employee cost growth you're talking about quarter-to-quarter?
Yes. On a quarterly basis but also on half yearly basis also.
So you're talking about standalone or consolidated?
Consolidated.
So in consolidated, very, very clearly, please remember that since the underlying currency is euro, the cost will appear to you slightly higher because around 2.5% kind of increase happened in Finland for the salaries, which is unheard of because they never have much of an inflation, but now the inflation is there. And more importantly, the rupee-euro depreciation is of the order of 9.5%.
So you will clearly see in HCRO an increase of about 12%. But the underlying increase is only 1%, 2.5% because the fact is that in terms of the euro-rupee, last year, the euro was at about EUR 79, right now at about EUR 91. So clearly, there is a very significant movement in the euro. So therefore, you will see that cost on a higher side. It's not that the salaries have gone up so much.
If you were to look at Mahindra Holidays, the annual increments, which are very, very conservative, but there is a growth happening in terms of number of rooms that we added. So therefore, the resort staff gets added despite improving on the productivity.
And also, as you are seeing that on the sales numbers, also we are tracking higher. So despite improving productivity, we need to do some hiring in the case of. So it's a combination of headcount, the increments in Mahindra Holidays, the currency effect in Holiday Club and a very minor increase in the increments at the Holiday Club. That is what has led to this kind of a number.
The next question is from Pankaj Kumar from Kotak Securities.
In this quarter, we have seen the margins have been on the high side. So is this sustainable or some one-off element is also in that? Because if I see, they have been lower on a Y-o-Y basis...
Could you repeat your question? There's a bit of an echo here, sorry for this, but could not understand.
Yes. Of course, my question is on the EBITDA margin side. So that we have seen is on the high side for the quarter vis-a-vis last 2, 3 quarters if we look at. So is there any one-off element in that or this is sustainable?
So if you exclude the one-offs, which is related to the ForEx movement, which we have very clearly explained in the investor deck as well as in press release, there is no one-off in the EBITDA margin improvement that you are seeing. It is an underlying improvement in the operations.
And sir, just referring to your long-term room addition plan, you are looking at 5,000 room addition. So if you can help us in terms of the locations or some -- which are the areas that we will be looking at while adding -- achieving this target, including your international expansion and all?
Yes. Primarily India because we see a very big consuming class in India. We are not looking to buy companies internationally. We are not talking about investments in -- out of India. We are very focused on doing investments in India to grow our room additions. The locations obviously cannot be made public. But you can probably sense which are the states we are going to for PPP.
Obviously, our focus is on those states. But our focus is to ensure that we have sufficient land parcel, we have sufficient construction going on, including CapEx outlay. And our focus dominantly will remain in India over the period that we have highlighted, where we are going to move from 5,000 to 10,000 rooms.
Just last question, if I can. Sir, on this new member additions, earlier you indicated that you would also be looking at Tier 2 and Tier 3 markets. So going forward, how do you see that contributing to your member additions there?
So new member additions, there are multiple levers we are pressing. First lever is referrals, how aggressive we can be in generating referrals. Because that's a very, very good form of customer acquisition and reduces the cost of acquisition. The second lever we press is digital. Referral plus digital is at about 55% of our member additions. The third lever we press is what you talked about, going to Tier 2, Tier 3 towns. We have a very specific target, how many towns we want to be present and how do we want to grow the business.
Number four lever, which I think I mentioned in my opening remarks, is can we do remote sales instead of doing a face-to-face selling. That's a big area of focus for us now. And there are other focus areas in terms of tapping the corporate channel because there is a big opportunity to be able to sell to corporate employees memberships, which we have done in the past, but we want to go a little more aggressive there.
So there are multiple levers that we will press to grow the member acquisition, grow the member base for us because that's a very key strategic priority for us. Considering the fact that we are moving from 5,000 to 10,000 rooms, it's important for us to accelerate in member additions as well.
The next question is from the line of Nirav Savai from Abakkus Asset Management.
Sir, my question is the CapEx per room, which is about INR 1.1 crores. Now if we go to a PPP model, is there a difference in that? Or would it be similar?
See, if you take a greenfield project, even in a PPP model, the cost per key would come very similar. It could be INR 1 crore, INR 1.05 crore, INR 1.1 crore. As it is in our business, land cost is not a very key component because we pick up land which is away from the cities. So that's not a big thing. However, if you want to get a resort, which is existing and we need to do a bit of refurb, then the cost is dramatically lower per key.
And for example, Janjehli Resort, the cost is not INR 1 crore per room, it is much, much lower than that. So if we get a resort, which we need to refurb and bring it, the cost comes on much lower. If we get a resort where if we get land, of course, at a very reasonable price, which we should get, then again the cost per key does not change. It will remain in the same zone, which I said earlier.
So it depends on -- and of course, if you end up getting a resort which requires huge refurbishment and a long-term lease, again the cost still might be -- not might, will definitely be lower than the greenfield kind of an investment. So it really depends on what we get. But yes, broadly, other than the land where we have to develop greenfield resorts, the cost on a PPP model will be lower.
Right. So when we are saying we are doubling our room count from 5,000 to 10,000, what exactly the CapEx which we are internally targeting over the next 7 years?
I think I have answered that question already that it will depend on the mix of PPP. It will depend on the mix of acquisition that we may end up doing. It will depend on how much we do on leasing. And it will depend on how much we end up building. So that is why I said that you have seen that we have chosen to have a reasonable and healthy mix of own and lease. And now even PPP, you should treat it as almost own because with some refurb, if you have a long-term lease, it is as good as your own property.
So it truly depends on the mix that will evolve. But the good news for us is that since we have set the target and we are determined to achieve it, and we will achieve it, the cash that we generate in our business, we do not -- as of now, we do not foresee the need to borrow money to build the growth that we have planned. So for us, that's good enough because we don't worry so much about CapEx because we know that we are not going to be looking for funding.
So from that standpoint, we are going to optimize the mix and ensure that we have sufficient greenfield and then, of course, expand our existing resorts. That becomes very economical. Third, do a lot of PPP. And fourth, if people have lands and they want to build resort, we want to help them build resorts and take them on long-term lease. So these are the ideas that we have, which will help us to optimize the pricing per key of the resort.
Right. So largely, it's going to be our own resorts when we say about doubling to 10,000.
Yes. Own will include PPP also because long-term leases have to be taken as own nowadays. You can't treat them as -- even the Ind AS 116 literally treat you as an asset, right-of-use asset. So whether it is a long-term lease, whether it is own, at least the accounting treatment is going to be similar. Yes, cost per key may be lower capital, particularly when you're looking at a long-term lease resort.
We'll be able to take one last question. We take the last question from the line of [ CA Vikas ] from [ Akon Tree ].
One thing I want to understand, sir, whether we have participation in the PRASHAD scheme of the government?
You are saying that do we have a participation in the PRASHAD scheme of the government? No, not yet.
Okay. Any specific reasons? Because last time I discussed with [ Mr. Kumar ], who is the Collector of [indiscernible] and who is also a Trustee of [indiscernible], he said to me regarding whatever the visitors is there, it's a previous to the October '22, it's a 25,000 visitors there per day. Now let's say, across [indiscernible] 1.5 lakh to 2 lakhs is there. Whatever their temple revenue is, INR 3 crores per month, which is a reach to the INR 15 crores. And even in [indiscernible], how many rooms available in the weekends and even if you're putting all demands in the adjoining cities also. And a similar situation in the number of places in Andhra also. So do we have any kind of a plan like that?
As of now, no, but we are very open to looking at all ideas whether in the PRASHAD scheme or anything else, which allows us access to good quality resort or land, which we can find strategically useful for our business model. And we are completely having an open mind on that.
I would now like to hand the conference back to Mr. Kavinder Singh for closing comments.
Right. Thank you very much for coming on the call. I have always mentioned that all your questions keep us alert and sharp. We learn a lot from how you think about the business. And this has helped us to shape the business to the solid footing that it is in today.
I'm very confident that our operational effectiveness, our customer experience and our focus on digital in terms of enhancing the spend of our members at our resorts and our sharp acquisition marketing strategies, along with our aggression in inventory addition, should lead us to a very, very good position in the golden period for leisure travel, which has started already now. And we see this cycle at least for 7 to 10 years, if not more. It could be even more, given the demographics we have. And we remain excited as ever to grow the company to the next heights. Thank you so much for your patient listening.
Thank you very much. On behalf of Mahindra Holidays & Resorts Ltd., that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.