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Ladies and gentlemen, good day, and welcome to Mahindra Holidays & Resorts India Limited Q4 FY '18 Earnings Conference Call.This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Kavinder Singh, Managing Director and CEO. Thank you, and over to you, sir.
Good morning, everyone, and a warm welcome to our earnings conference call for the quarter 4 ended 31, March, 2018. I'm joined in the call by my colleague, Mrs. Akhila Balachandar, Chief Financial Officer of our company. For the first time, we have the management team of Holiday Club Resorts, CEO, Mr. Iiro Rossi; and CFO, Ms. Nina Norberg, they are also on the call.And I would like to begin by sharing with you the performance of Mahindra Holidays, and I will touch on the performance of Holiday Club Resorts as well. I'm pleased to share that Mahindra Holidays added 6,321 new members this quarter. This was an increase of about 2.3% y-o-y and on Q-over-Q, our sequential growth of about 50.7%. Our resort occupancies were at a healthy 85%. Our resort revenue grew by 9.9%, coupled with improvement in operational metrics and cost management actions, we have seen a growth of 21% in profit after tax to INR 38.5 crores, as compared to INR 31.8 crores last year. We added 3 new resorts this quarter, Dwarka in Gujarat, 1 more resort in Dubai, and Mahabaleshwar.These were the new additions to our [ book year ] resorts and the net addition of 110 rooms this quarter. For the full year 2017, '18, our profit after tax is at INR 134.3 crores, which is up by 2.8% year-on-year. And our cumulative member base stands at 235,792 members. This is up by 8.1% year-on-year. For the year, we also added 320 rooms, this includes the 110 rooms that I mentioned in the quarter 4, taking our total inventory count to 3,472, making us the largest leisure hospitality player in India. I would like to also mention that in this full year we added 6 resorts, 3 I mentioned already, 3 more were added before. [ Now there I came ] -- this is a project that was started 3 years ago. This is our greenfield resort. Now they are near Shimla, that got commissioned this year. Singapore as well as Kochi. Our total resort count now stands at 55. After staying focused on getting quality members with higher down payment and lower 10-year EMIs and a straight focus on getting our receivables back in time has helped increase our cash balance to INR 469 crores. This is up by INR 205 crores for the same -- as on 31 March, 2017. We have also noticed that as a result of our consistent cost management actions that have been going on for years now, we have seen an improvement in the PBT margins from 18.4% to 18.9% this year. Now let me move on to the Holiday Club Resorts. Very happy to share that our consolidated profit after tax, together with the other comprehensive income, is at INR 192.7 crores, which is a big jump from INR 116.8 crores.And these are the consolidated figures I am giving you right now. However, if we were to look at Holiday Club Resorts turnover, this would be right now, what we have declared and -- and we hold 95.16% stake in this company, it's a material subsidiary. The turnover recorded was EUR 165.5 million, INR 249.6 crores, as against EUR 161.5 million, the turnover of INR 1185.7 crores for the same period last year.As you know, this acquisition has given us access to Finland, Sweden, and Spain, we have 33 scenic resorts, which are open to our members. And there are of course, 50,000 members, which are there in the Holiday Club Resorts, they have also got added to our family. This makes Mahindra Holidays the largest vacation ownership company in the world, outside of the United States.On the business expansion front, coming back to Mahindra Holidays, our ongoing investment of INR 500 crores will add further 500 units to our total inventory at the close of FY '19.On Mahindra Holidays, I would like to once again, mention that we have emphasized on providing the best holiday experiences to our members. Our in-resort activities now boast an array of experiential activities, including cultural shows, traditional arts and crafts workshops, coffee, tea plantation tours, beach/pool activities, summer camps for children, local culinary experiences and a lot more. We have also partnered with local experience providers at several destinations to further increase the scope of destination activities for our members. These include, heritage tours, cycle tours, adventure sports, et cetera.At this point of time, we are also focused on providing the best-in-class in-city experiences to the keep members engaged while not on holiday leisure experiences. FY 2017, '18, we expanded our Dreamscapes project to about 30 cities. This is powered by [ zozobay ], the company in which we invested. We took a minority stake in this company, which is a startup based out of Bangalore. We have now 2,000 in-city experiences listed to our members across travel adventure [indiscernible] food, health and wellness and art of learning categories.We have also introduced curated vacations for members looking for unique vacations. These are not run-of-the-mill vacations, exclusively chosen by the holiday experts of Mahindra Holidays. I must also add vacation here, which actually provides our prospects the opportunity to experience our product, actually in [ a day ]. And furthermore, in an attempt to reach out to members in their cities of residence, we have conducted several Heart to Heart events, which received a positive response from members.Our latest product, Bliss, which is a 10-year Club Mahindra membership targeted for people above 50 years or more, has now enrolled in 14 cities across India.Before I progress further on Mahindra Holidays, I would like to also add, in Holiday Club, we have generated EUR 12 million of operating cash this year and the dividend of EUR 1.8 million of a [ ATRO ] has been declared by the Board of Directors. So this is something that I've missed in the earlier one, now I will continue for Mahindra Holidays. I would like to take this opportunity to also highlight that we are spending significant amount of money on digital presence. We have launched our mobile app to enhance our member engagement and provide customized services. In fact, we have crossed 100,000 unique downloads and about 84% of our bookings and transactions come from online platforms, which is our website and our app. Out of which, 35% are through the mobile app. We are adding features related to EMI payment, an annual fee payment. All these features are active and members can make these payments happily through the app, as well as do the bookings and get to know their holiday updates, including their status on the upcoming holiday.Our emphasis on social media engagement during the year has resulted in much better brand recall, much better connect with members and prospects and a much improved digital presence.We are certain that going forward, FY '18 and '19 will be a fruitful year, as we look at positively for the -- looking ahead, we look -- we feel that the rise in domestic tourism that we have seen with all round much better connectivity and the increase in low-cost airlines, we believe that the future -- our outlook on future is positive. We believe that we are positioned to continue to add new unexplored destinations and enhancing them by delighting time to come.With this, I now open the call for questions. I think the process that we follow here is that there are questions that come one after another and we will be answering all of them till about 12 noon. So we have another 45 minutes for the questions that you may have.
[Operator Instructions] First question is from the line of Aditya Bagul from Axis Capital.
Sir, can you share your thoughts on the growth rate on key revenue line items, VO income, resort and ASF, over the next 2 years, along with probably some idea on what kind of membership growth we would be targeting. And in the same breadth, I'd like to know what is the reason for the decline in the VO income both including the quarter and FY '18. Also, the AFS has not grown meaningfully this year. So if you could just give us some idea there.
So I would request Akhila to handle some of your questions related to the financials. And I will comment too as how we look ahead into the future.
Sure, sir.
Thanks, Aditya. So Aditya, on the 2 questions that you have on the income from sale of VO and income from ASF. Let me take the ASF piece first. So if you remember, we've been saying that over the year, last year, we migrated to Ind AS, May '16, '17. And over the period, we also tightened our provisioning loans as per the ECL methodology. And during the year, we -- in every quarter, we had a fairly flat growth on the ASF, though we were pretty happy internally because we know where the numbers were going. A fair amount of the provisioning last year, because we got the first year under Ind AS happened in the quarter 4. And this year, we have migrated [indiscernible] -- over the period. So to some extent, the quarters are fairly muted, and if you therefore see, the quarter 4 is pretty much looking very good. But on the annual level, we are at a 3.1% growth, which is in line with our member addition and also for the -- factor for the annual [ raises ] increases.[indiscernible] accounting requirement, where the [ loans ] also are getting tightened on provisioning and -- it's not that, there is a provisioning, this is not an actual incurred loss, this is also the expectation of loss, which we have worked based on some models and internal methodology. So if there is a provisioning, it does not necessarily mean that we expect it to be a loss. It is just that accounting guidelines ask us to be more tight. And therefore, we have gone further expected loss methodology. Second, the same holds true for the VO income. There was a transition last year, which over the year people all -- I mean we also finally did a final review during the audit. And if you remember, we had done a onetime provision of INR 21 crores in the expense line. But as in the current year, we have now made it a part of our accounting policy. And it is very must disclosed in our revenue recognition policy. So while the units have grown, our revenue recognition has become far more prudent or tighter, in line with the requirements of the accounting standard. And therefore, on a growth basis we see some mismatches, but otherwise if you factor in, I think it's in line with the unit growth. I hope this answers your question.
Ma'am, if I may just have a follow-up on that.
Sure.
There are INR 21 crores of [ rational ] provisioning sitting on the income from VO. So if we add INR 544 plus INR 21, that still gives us INR 565 for the full year, which is still 5% lower than our previous year's number. Now if you have 8% growth in our membership, last year, we had at least 5% or 6%.
I would request you to look at it at the annual level. So if you add the INR 21 to the annual number...
Which is what I'm doing, ma'am.
There is a growth of 3%.
Okay, maybe ma'am, I'll take this off line.
Sure.
Ma'am, and my second question also relates to a data point. We have about [ INR 14 crores], [ INR 30 ] crores of receivables. If you can just tell -- both long term and in the current asset, if you can just let me know what is the proportion of those receivables which are overdue 6 months?
If you see the disclosure itself, it is fairly clear. What is current is exactly what is something which is collectible immediately and within the next 6 months. And the noncurrent is the portion which is due only after the period of 6 months.
Okay, fair enough. Fair enough. Sir, if you could just help me with understanding what are long-term thought processes?
Okay, I just wanted to bring one more perspective that while these issues of Ind AS, which Akhila was talking about, these are now already built in into our -- this year's performance. So you can obviously understand when I'm trying to say that this transition impact is only limited to '17, '18. So the impact whether on VO income or ASF income, ASF loss, because it [indiscernible] to do a tighter provisioning than what we have been doing. And VO is a function of the Ind AS as she explained clearly. Now as far as the business growth, you've already seen that we are in terms of member additions, the Jan, Feb, March quarter is typically a good quarter, and we have been able to sustain the momentum that we had last year. And sequentially, if you look at it, we are 50% up. Now looking ahead, what we are doing is to strengthen our proposition even more than what we have already. We are in our resorts as you notice, we have created a lot of activities, which I talked about. And we are using on the sales pitch this kind of -- the fact that the families have a good time, the families will be able to bond, the whole pitch is being further strengthen. As far as the digital and referral way of picking up leads is concerned, the referral program is also being accelerated. And our digital presence as I was mentioning, and one of the reasons why we are present in a big way digitally is that we get significant percentage of our leads through the digital route. So our focus on digital reference and alliances with the brands, which give us high quality data points for us to reach out to our targets prospects, along with the fact that we have now, even the ability to reach out to people through an extremely targeted way, including the various channels that are available through the digital route, which I mentioned to the referrals. And because we are using analytics, which I had mentioned last time around. So analytics coupled with the fact that we are using digitals, referrals and alliances are giving us reasonably high quality data in being able to reach out to the prospects in a meaningful way. We are finding our overall conversions are improving. Our cost of acquisitions are in control. And one thing that we are trying to do, which has not probably allowed us to increase our member additions this year, is our focus on higher down payment and lower 10-year EMIs. Because we are going after higher-quality members. Therefore, the higher down payment and lower 10-year EMI is something that is now becoming basic for us when we reach out to a prospect, which we believe is one of the biggest reasons for our cash balance to move up from INR 264 crores to INR 469 crores, an increase of about INR 205 crores in just 1 year. If you go back 1 more year, it was INR 84 crores, it moved to INR 264 crores. So what we are doing is, we are trying to reach out to members. Where they have the capacity to pay, they pay higher down payment. They immediately start enjoying the holiday. They have a much better experience. Therefore, their payments on both EMI and ASF will be regular, which we believe will lead us to lower provisioning in time to come. And these are the measures that we are taking and therefore, we transition from a stage where we would be happy to sell at a down payment of 10% or 15%, but that is something that we are significantly reducing. And we are encouraging people to go to 30% down payment, 50% down payment, full year payments. And this is what is helping them to experience the product early. And therefore, stay with the product, which will help us to get much better collections, which will help us to continue our journey on the building the cash balance that we have built up. So this is the strategy that we will follow to tackle this whole issue of growth but higher quality members growth, finally improving our cash balance, this is what in a nutshell is our strategy that we played out in '17, '18, and we continue to do that. Of course, we will become much sharper in getting much higher quality data as we move ahead.
Sure. So would this take away the [indiscernible] that [ post ] all these provisioning and [ in days impact ], going forward, our revenue growth would be ahead of our membership additions, would that be a fair statement?
So normally, I have made this point earlier with you that I think at a thumb-rule level, if we are growing in member additions at a single-digit level our -- definitely our PBT would grow in the early double-digit levels, partly because of the annuity incomes. And that is how it should play out because as you know this, in this year, ASF income got impacted. Even though, in quarter 4, we have seen signs of recovery but definitely, for the full year, the ASF income got impacted because of the type of provisioning loans. Now that they're built into the base, we believe that the annuity income growth, the resort income growth and the interest income growth -- interest is of course, the EMI related things, they are obviously, moving in line with their past patterns, but the fact that the member addition growth gives a kicker to it because there is a cumulation effect that happens. And that is what will lead into the journey forward. And I want to also give you one good news. If you really look at it, our resort additions earlier were lagging behind. If you notice that despite our lease income, these rentals growing dramatically much, much higher than what they were last year, we have been able to maintain our profits for the full year. And the lease rentals are something that -- they are as a result of the fact that we added 5 new resorts. And what it does to us is that we create the inventory for people to enjoy holidays, which means better stickiness with us, which means lower provisioning going forward, which means better resort revenues. So it is a virtual cycle, what we have to do is to do the right things. The right things to do in our business are to continuously add experiences and resorts, continuously target higher quality members who have the capacity to spend and ensure that we are moving all metrics simultaneously, not just the P&L. But the P&L, the balance sheet, as well as the cash position needs to be moving together, which is what this business is all about.
[Operator Instructions] The next question is from the line of Nihal Jham from Edelweiss.
So just confirming the point that Akhila made, was the INR 21 crore number that was mentioned [indiscernible] [ VO ] income was all in this Q4 quarter?
In last year, yes, we had done a onetime provision, in last year, which was taken in the Q4 of last year.
And what is the number in Q4 FY '18?
So [indiscernible], basically, now we have made it part of the revenue recognition policy, and therefore, it is adjusted in the revenue itself.
So that would explain the divergence basically for Q4 where our member growth has been flat and the VO income has fallen by 11%?
That's correct. That's correct.
Okay, sure, ma'am. Just second point on some data point, what was the sales and marketing spend for this quarter on a comparative figure last quarter?
Current quarter, we have spent INR 74 crores, vis-Ã -vis INR 63 crores last year for the same quarter.
Sure. So if I had to look at our other expense, where has most of the saving happened, which has led to this margin expansion for us, if -- because I see that the sales and marketing expense has obviously seen a good growth on a y-o-y basis.
So Nihal, basically, the margin improvement has happened in the YTD figures also. In terms of sales and marketing spend, traditionally, also, we do -- our best quarter is always Q4. And we ramp up all our sales marketing spend in order to gear up for that. To some extent, it's also about timing of our expenses, when we do our brand promo, when we do our marketing spend, how we want to time out our initiatives and also take advantage of the same in the April, May of the next year. So this is an ongoing activity and initiative. But obviously, Q4 is our best quarter, and we keep -- but on an overall level, if you see for the year, our sales and marketing spends have been very well controlled. And we have actually reduced the cost of acquisitions in this year compared to last year, which is what we've been sharing over the quarters.So now coming to your second point on how have we managed to improve the operating margins. This is not just related to sales and marketing, this is a complete drive on cost optimization, across resorts, across overall spends, our IT spends, optimizing the breadth and scale of the group's initiatives sometimes, and this really has been something that now has been going for this year but over the last 7, 8 quarters, which is yielding results to us. And that is where, I think, we really got some [indiscernible].
Okay. Fair enough. Just the fact that we have the HCR management also. And we have seen that there has been a sharp improvement in profitability in HCR for this year. So I just wanted your comments on what has led to that? And in the past, what is the kind of peak profitability that this business has seen? And how do you plan to take it ahead?
So Nihal, you may want to break your questions into, one, two, three because our Finnish friends may not be able to answer three questions loaded in one. So my suggestion is just break the question one and question two and question three. Definitely, Iiro and Nina are here to answer your questions.
Absolutely, so my first question on HCR is what has led to the improvement in profitability for this year, where we have seen more than a 2x jump in profitability?
I would request Mr. Iiro Rossi or Nina to take this question.
Thank you, Kavinder. It was a very nice improvement altogether -- I'm glad to say that it came from several -- I would say from all the fronts, we did some cost optimizing where we had renegotiated all the contracts, rental contracts with a couple of hotel unit headquarters, rental agreements of all the service contracts. So it was partly cost-based, but from the business units point of view, I think it's spread over -- we are looking at the hotel business differently and it's a reflection of business [ differently ] and then from our point of view, the international business means [indiscernible] and the improvement was, I'm glad to say spread all over those 3 or 4 units. So it was both cost-based and in business units. There are efficiencies in all the businesses.
Nihal, you have any other question other than this one?
Yes, just 2 more on HCR. Secondly, in the past, what is the kind of peak profitability that the business has seen because I understand over the last 3, 4 years, the performance has taken a downturn.
So Iiro, you may want to go back a little bit in the past to share with them what was the peak profitability or the profitability that was probably the best profitability that you've seen in the past 3 years.
I think when we go back a few years, we took over the hotel business, bought the hotel units back in 2011. And after that acquisition, it has been constantly improving. And in that regard, I think the hotel business is -- it has been better every year. So it's more [indiscernible]
So this is the peak. And part of the reason might be that Iiro, you also acquired the Spanish assets as well as the Sweden assets over a period of time. So you may not get a like-to-like comparison.
Exactly, you're right, Kavin.
Yes.
Next question is from the line of Chirag Setalvad from HDFC Mutual Fund.
Can you give us the profitability, the revenue, the EBITDA and [indiscernible] please?
Sorry, Chirag, can you repeat the question?
If you could provide us with the revenue, EBITDA and profits for [ APS ] [indiscernible] of our results?
Sure. what we will do is, I think -- once the final audit has closed these -- but it will be the [ audited ] accounts will be ours. But it'll take some time to release those because we have not currently put it in the public domain.
So [indiscernible] the profit?
If you see, this time we have published the segment results. And they have done a profit of INR 67 crores as a group vis-Ã -vis INR 23 crores last year.
And are there any concerns about this exchange difference? If you can explain that to us because when we looked at the results one was on a consolidated basis, you have INR 133 crores of profit after tax. And then after that, you have a foreign exchange item of [ INR 60 crores ]. So I'm really confused what's the foreign exchange rate [indiscernible], can you explain the nature of that?
Sure. Sure. So let me just run through the segment results that will help me clarify them. So we have separately shared the MHRIL results and the HCRO results. And post that, what we do have, the borrowings that we have taken for the acquisition of the Finnish entity lies in one of our operating companies abroad. These borrowings are in euro and assets, if you understand are also in euro, which is the Finnish entity itself. But when we do a translation, because euro has appreciated, one leg of my translation goes into the P&L. And the other leg, these are the accounting guidelines and norms under IFRS, which we are now following, goes into the -- the leg of the translation on investment goes into the results directly. So I have 2 legs of the translation, which really do not knock up against each other in the P&L or in the results but in different parts of my overall annual financial statement.This last portion is currently sitting at INR 41.40 crore is what we have incurred in the translation difference, which comes into my P&L. And then the INR 61.94 crores appreciation, which we see on the underlying asset, which gets directly transferred to the results. That is why we have tried to give a little elaborate explanation to even in the regulations that we have filed. The way I would look at it as the management, therefore, is a segment results before translation difference, which was INR 212 crores last year vis-Ã -vis INR 258 crores this year, which is a 21% jump.
So just so that I understand there is a INR 41 crore loss with the P&L and [ INR 60 odd crore ] gains [indiscernible]
That's correct.
And this profit of HCR was INR 67 crores this year, which was INR 23 crores last year?
That's correct.
And in the opinion of management, is the INR 67 crores number broadly sustainable?
Iiro, the question to you is that the profits of INR 67 crores that we have declared in our segment results, are they sustainable? How do you see them ahead? Normally, we do not give guidance, but I think the question is more a directional question, that how do you see the operations. And therefore, do you see that this is like a one-off or this is likely to sort of continue depending on the situation that you see over there in the overall macroeconomic factors that you see in the business environment there. Over to you, Iiro.
Thank you, sustainable definitely, the economy is looking good where -- the growth is not the same as in India, but the consumer confidence is high all over Europe. The people in Finland [indiscernible] economy Finland, Sweden and Spain. And we will continue to [ grow ] the outlook, if it's very positive and of course, we are constantly looking at acquisition opportunities particularly in Spain and with the construction opportunities in Sweden. In Finland, we have plenty of land to develop around our existing resorts. So I'm very positive.
And the last question, if you give us breakout of HCR revenues between their revenues and timeshare?
Akhila, do we have these figures of hotel and timeshare revenues? Are they...
I can roughly say, that they're related...
I think, Iiro, we need to just check because if they're not yet out in the public domain, then I think Akhila will have to answer this.
Okay.
Iiro, what we can do is, maybe, in a couple of days, we can share this because then we would like to share it with all the investors jointly. We currently would not like to make it a part-by-part disclosure.
What would be helpful, ma'am, if you could give us a break up between hotel and non-hotel in terms of revenues and hotel and non-hotel in terms of profitability.
Sure. We'll do that.
The next question is from the line of Arjun Khanna from Kotak Asset Management.
My actually questions are in the same direction. So just trying to understand the numbers year-on-year for HCR. In FY '17, we had a segment EBIT of INR 23.07 crores. And assuming all debt was only for HCR since you had next cash on the standalone business, we had an interest of roughly 19.71. So our net PBT assuming for that business unit comes to INR 3.36 crores. And for FY '18, we have -- assuming all debts for HCR, the interest and readjustment comes to 63.7 and the EBIT is 67.09 as you had mentioned. So that comes to 3.39. So is that a fair understanding of reading the numbers?
Akhila, please answer.
Arjun, can you repeat your question?
So our EBIT, as you have said in the segmental numbers, for FY '18, for HCR is INR 67.09 crore and FY '17 was INR 23.07 crore.
Correct.
Our finance cost for FY '17 was INR 19.71 crore and for FY '18 was INR 63.7 crore, including the readjustment of our ForEx?
That's correct.
So the net impact is that on a PBT level, assuming, if you collapse this structure, the PBT is flat year-on-year, that's a fair understanding, right? Because all the debt would be only for HCR?
That's correct.
Okay, my second question is given that the euro or the rupee has depreciated further against the euro, we are close to 18 now. And last year would have ended at on an average, roughly [ 77.5 ]. So we're looking at this year also a potential ForEx charge. Assuming our debt level similar at INR 713-odd crores. So next year, also, it's not likely, we would see any substantial impact, is that a fair reading?
So Arjun, what I would like to reiterate and explain again is this, Mahindra Holidays as a group has taken borrowings in euro for investment in the Finnish entity, right. So I have got loans, which are denominated in euro. And I've got an investment denominated in euro, which as you rightly -- as you've seen, has been performing fairly well this year. The euro, obviously, has appreciated, giving rise to translation difference. Now the translation has to work both on the liability and the asset. So the way the accounting guidelines are structured, one leg goes into the P&L and the other leg moves into the results. Now if, for example, the euro changes trend, right, I could have a gain next year [indiscernible] in the P&L and an adjustment in the results next year. So from an entity perspective, at the consolidated level, I really do not have a real ForEx loss happening because my underlying asset and underlying borrowings are both in euro. So [indiscernible] translation, I will keep having these adjustments in my consolidated financial statements.
I just wanted to understand on the asset side. Now on the asset side, have our inventories moved up because we have created more hotel units or fractional ownership or have they moved up because of the translation impact?
It's a mixture of both, as we said.
Is it possible to break it up?
The Finnish entity has generated 12 million of cash on their own, like we have generated cash in the Indian operations. These have been used previously for their own business purposes as well as payout of dividend. Now as far as HCR goes, the business model is such that they will keep on investing, building new resorts. And therefore, inventory will keep moving up and down. That's the kind of raw material for their business. Inventory going up is not necessarily a concern because without inventory, there will not be any sale. So this growth in the inventory that you're seeing is a mixture of both the translation, as well as increase in the overall inventory position.
Ma'am, because we don't have much clarity on HCR, would it be possible to publish their numbers in terms of the format which we have for Mahindra Holidays, having for distribution to the wider public as and when possible, including the inventory numbers? In addition to those details asked earlier of hotel and timeshare?
Sure. We can do that.
Sure. Just on the domestic piece, in terms of the number of keys addition. Mr. Kavinder indicated you're looking at 500 keys in FY '19, did I hear that correctly?
That's right. By FY '19.
So in that...
Let me explain, so that you'll be -- probably the question will get answered. So what we're saying is that we have ongoing projects in 3 locations. And they will add up to about 500 units. That's defined as growth CapEx now because [indiscernible] came through, which is about INR 100 crores odd came through of the INR 600 crores that we have announced. As we speak in this financial year, we are definitely expecting 2 of the products to finish their Phase I, which will add the certain number of units. And the balance will come in '18 -- sorry, '19, '20. That's why I said, FY '19 close, we should see this 500 units coming in and the capital expenditure program completing of the INR 500 crores. That's what I meant.
The next question is from the line of [indiscernible] from Sundaram Mutual Fund.
Just wanted to check in terms of the domestic piece, we've added a number of additions close to 6,000 plus. So could you break it between how many would have come in through the new product that we had launched for the senior citizens, if you can?
So we haven't done that because as far as we are concerned it is the same vacation ownership product, it's just got a different tenure. So this is really something that we haven't yet put it out in the public domain. But I can only tell you that it's gaining momentum. And that is why we are going ahead and launching it in the other cities. It is to [ have ] an adjacent segment, it's a lower tenure point based flexible product. And we believe that -- that's another product that we are banking on to grow. And maybe at some point of time, once we have gained sufficient scale, we may start disclosing the numbers. But really speaking, this is like product wise breakup. It's probably -- may not even be required because at the end of the day, it is same construct of a vacation ownership product.
Put it the other way, in terms of incremental member addition, do we see a skew toward this particular product while the tenure is lower?
No. I don't think that people would en masse move to this product because the key thing really here is -- the key thing really is that -- this is the -- mistaken notion that people want lower tenure products because the real value of our proposition is long-term ability to holiday long term, which means over 25 years. And that's where the benefits accrue to the members as well as to the organization because there is a lifetime value that we are internally calculating, and we actually keep an eye on what is the member's lifetime value. And couple it with the acquisition cost that we incur upfront, it make sense for members to stay longer with us to enjoy their family vacations over a longer period of time because the families undergo -- I mean from a pure marketing point of view, if I were to say that people go through their different life stages, their holidays change, they upgrade and we also make upgrade revenues, the F&B revenues change, when they travel with friends and relatives. So there is this whole concept of member life cycle value, which gets enhanced over a longer period of time. The idea of this 10-year product was to actually tap the adjacent segment that seniors are now beginning to travel alone. And if they have not been with us, and if they have not taken a 25-year membership. And if they are at 50, 55 years of age, our selling proposition was becoming weaker to them. Because at 55 someone is probably not thinking of 25-year product. Though life expectancies are rising, but we still believe that, that actually fills a gap. So we don't believe that becoming [ this queue ] of member additions moving towards that product. Because our core target audience still remains 35-plus family. And this will be an adjacent product, it is just that we're filling a gap, which we should fill because as the #1 player in this category, we should look at all segments, holistically. So that's the objective of this product.
Sure. And my other question is in terms of the member [ to ] room inventory metrics that we typically address. So despite the [indiscernible] key addition, would you think the metric would still remain a bit tight given the last 2 year trends of member additions we've seen adding [indiscernible] keys will just meet whatever you will be adding in terms of member contracts for FY '19. So looking into a year down the line, beyond FY '19, how are we planning our room inventory?
So I think the way we handle our room inventory, if you notice, even in this year, only 1/3 of our room inventory came through our own project, which is [indiscernible]. And the 2/3 came through the leasing route. But if you look at it at an overall level, we have about 65% owned inventory and about 35% is leased or -- so the idea here is that, we use this mix strategy to accelerate our resort additions, while, obviously, accelerating member additions. And obviously, in some of the areas, you don't get permission to actually create a new resort because of the environmental constraints. So we do sometimes -- for example, the property that we took in Mahabaleshwar is our second property, it's on lease. The idea here is that, you really can't easily construct something in Mahabaleshwar. So there is a demand, so you actually go out and lease. So we have this asset-light strategy bundled into our overall model. And when I say 500 units, it does not mean that we will add only 500. As you can see, this year itself, we added 320. And if I split 500 over 2 years, it would mean only 250 units. So we definitely will need to lease over and above the average rate of 250 units that could come potentially through our owned projects. And as we go ahead, we will keep announcing the newer projects because the land acquisition process is constantly on, we have land banks, so our rate of inventory addition has to be in line or ahead of member additions. That is the strategy that we are pursuing. So 500 does not mean that we will add only 500. We will definitely add more than 500 units because the leasing route is always open to us. And that we have pursued in the past as you've seen.
The next question is from the line of Chirag Setalvad from HDFC Mutual Fund.
My questions have been answered.
The next question is from the line of [ Monish Boda ] from [indiscernible] Investments.
I just wanted to get a sense that I think you have launched another type of membership, which is for a 3-year tenure. Is that right? And but you're offering the same benefits let's say of a 25-year tenure, just the payments and the terms are a little different? Plus what is the rationale -- do we intend to scale it up or what is the rationale for [indiscernible]
So again, from a consumer standpoint, as we speak, we are test marketing this product, called [ voldex ]. This is product for millennials. You know that we tapped members in the age bracket of 35-plus who have family with children. We believe that this segment of 25 to 32 because when we generate leads particularly, through the digital route, we do get leads, which are in this age bracket. So we have thought of creating a starter product. It's a truly a starter product, it is not the main course, if I were to use the food terminology, so the idea here is that you sample what we have to offer, it is a 3-year product, it is still being test marketed. Therefore, we have not gone on record, but since you asked me, I had to sort of tell you that, this is more an experiment going on to see, can we create a funnel. See the idea is that when you like the first 3 years of experience, you may want to join the 25-year because your life stage will move, if you join this at around 28, 29, young, newly married or even are single, over 2, 3 years, you may have experienced this product. And as you reach the particular age and you have children or even otherwise, you may want to sign up for 25. It is a very standard practice worldwide to look at startup products. We never had a startup product. So we believe that this could tomorrow funnel growth for our full-member additions, therefore this experiment is going on. This is not really even test launched yet, there is some minor text marketing happening. And -- so it's not that we have sold any units and they are not accounted, definitely, in the financial year '17, '18. As we speak the test marketing is going on, internally. So we are wanting to test the proposition and see whether it works or not.
I was just confused -- let's say the salesperson from your end has to sell 1 of the 2 products, he would let's say because of incentives, or some other structure fee, starts selling the 3-year product and not making results with the 25-year [indiscernible]
We are very, very careful. We are very careful. We definitely ensure that the incentive structures are aligned. And second thing is, the core club member product, people who are selling, they will never sell this product. We have a separate sales force, which sells Bliss, which is the 10-year product. And if we [ keep ] this product takes off, we will think about how do we want to create the sales for delineation because we're really do not want any cannibalization happening from our core product. So we're very mindful of that, really appreciate your question.
And just 2 more follow-ons, if I can. Has there been any like to like increase in the membership cost, let's say, this year? Or are we building any momentum for this year?
[indiscernible] in the quarter 4, Akhila, you might want to talk about it.
So [ Monish ], like I explained earlier. If you see on an annual basis, our marketing -- or sales cost of acquisition and sales and marketing expenses have been under control and we have in fact, reduced our overall cost of acquisition. In the quarter 4, we have done a lot more branding and digital acquisition initiatives and to some extent, there has been an increase in the sales and marketing expense.
And just one small thing if I heard it right, you have not given any room additions, let's say, for FY '20? We are just in the planning stages now?
See, we normally do not talk of room addition plans but we have obviously, greenfield additions that we're doing, that 500 units, which I've talked about, which will come in '18, '19 and '19, '20. That is because these are the projects which are going on. So therefore, it's our normal business to create results, and we do share what's happening, so that you have an idea of the capital expenditure, the number of units that would come. But we -- how much units we would lease, how much units more we will add. We constantly calculate because you would understand that we don't want to run too much ahead and we don't want to be lagging behind. And therefore, we don't give out in the public domain as to what is our total room addition plan for this year or the next year. That is where -- you're seeing our pattern, I mean, you're seeing how much we have been adding. If you go back 3 years, we were at about 2,400-odd units, and now we're at about 3,472. So on an average, if you were to look at, in the last 3 years, we added about 1,000 odd units. But capital expenditure of this kind wasn't there. So there is some acceleration that we've definitely been looking at.
So if I tell you that 9%-odd, [indiscernible]
No, we don't want to say this. Because we don't want to commit to just 9%. Because we are seeing opportunities beyond 9% definitely. That's why we're investing for [indiscernible]. And as we speak, we have land banks. And we are planning newer projects, which we are obviously not -- right now putting it out because there is some work happening over there. So we are definitely not wedded to this 9% number, we could definitely -- we would definitely like to accelerate our inventory additions.
The next question is from the line of [ Narvish Shin ] from [ Envision ] Capital.
Sir, if I see, you said that cost of customer acquisition have come down, but I see last 3 years, our sales [ made by source ] [indiscernible] from digital and referral sales have come down by 5 percentage points. So that is conscious strategy or what is it?
To really speaking, we obviously, go all out in the market to drive digital and referral sales but I must tell you, at this point of time, the digital sales are not cheap, they're expensive because as you know, that digital targeting happens on Facebook, Google, and Yahoo, et cetera and these people continuously raise the rates for advertising on their websites. It is not something that the digital brings down the cost. Digital hasn't yet brought down our cost, on the other hand, referral does bring down our cost. So our aim is to drive these, but we cannot be off digital because there are a lot of people today who search and find out about products on digital, therefore, digital presence is a must. So as far as our drive is concerned, we continue to drive digital reference, but [ we are also ] sales are now we are getting into alliances and I was telling you about various brands and the whole idea is that you are able [ to pass ] and the people who are likely to buy, therefore, into hopefully your conversions and bring down your cost of acquisition. So it's a constant mix, which keeps changing, but we have been fairly good in maintaining our cost of acquisition, if you were to take a slightly longer-term trend, in fact, this year we are lower than the last year.So the movement which you talked about specifically, about digital referrals going down by 5 percentage points. If you asked me, directionally, that is not a very big change, we are in the order of about 50%. Sometimes, we do 53%, and some months we do 48%. But we are holding at around 50%, which is a good mix as of now. We definitely would like to scale up this. But this requires obvious, more investments in digital because referrals, we are anyway going all out. And we're being a little bit careful in putting money in digital because as I mentioned to you, that while we generate leads digitally, but conversion happens off-line, therefore, the cost tends to be slightly higher. But upward the conversions are [indiscernible] digital so it's a kind of fine balance that we are trying to arrive at. So therefore, you'll see this number for some time I think at about 48%, 50%.
[Operator Instructions] And the next question from the line of [indiscernible] from [indiscernible]
My question regarding the [indiscernible] has been already answered. My second question is more into the [indiscernible]. So the [ system ] [indiscernible] in the sector. Now also, our model is more focused on the membership, mainly on the [indiscernible], so I wanted to know what is the [indiscernible] and is there any planning to exploit revenues through corporate membership?
Very good question. Our business is retail, as you rightly put it. And we believe that we are truly B2C business and actually, if you were to look at it, we are B2C2B, that the business approach the customer and when the customer joins us then the customer is dealing with the business for a lifetime of 25 years or a longer period of 25 years. So [ ask ] is a very unique B2C2B model and when you look at the corporate product, B2B, we do have corporate clients [ of the past ]. This year, we haven't got much success in the corporate business. And that is because of the organization restructuring that we have done. Definitely, we would like to expand the business. And part of the reasons that this business is not expanded as I mentioned because of some organizational restructuring that we did inside. But I fully agree with you that the corporate business is a business that we should go after. However, I must say that, our business will fundamentally remain retail, corporate business will certainly be a small portion of our business. We do not see corporate business becoming dominant in the years to come.
Ladies and gentlemen, due to time constraints, we'll take our last 2 questions, that is from the line of Rohit Seksaria from Sundaram Mutual Fund.
One question on this provisioning for this year in vacation ownership income. Last year, our provisioning was around INR 21 crores, this year, apparently, the number seems to be higher. So do we expect similar kind of numbers going ahead, every year?
Rohit, let me reexplain the whole concept. [ On there ] we might -- last year, that was a financial year of '16, '17, we migrated to Ind AS. And over the year, there was a different policy basically, incurred loss, as and when, we believe that a member is not good, we used to do the provisioning and activation of those things. What Ind AS requires us to do basically is to estimate an expectation of loss and build it into the provisioning requirement. We did this assessment last year in the Q4, and we did a onetime provisioning of INR 21 crores. This year, if you see my revenue recognition policy, even last year, we stated that we would move to a revenue recognition, which is net of expectation of any losses. This year, we've already provided as per the norms agreed with the auditors. And there is no additional provisioning requirement that has come up.So I hope that answered your questions.
The next question is from the line of [ Manish Shah from MK Investment Managers ].
I just have one question. So in the last quarters, you added around 1,000 units. So can you tell me how much are the owned -- from that 1,000?
So I think off hand, we do not have this figure. Definitely, I remember [indiscernible] coming in as a part of this 1,000. I definitely remember [indiscernible] we added some units, we have added some units in [indiscernible]. We can definitely get you this figure from our internal archives, off hand, we will not be able to answer this question. But our overall ratio, as I mentioned, remains at about 65% owned and 35% leased.
Ladies and gentlemen, that was our last question. I now hand the conference over to Mr. Kavinder Singh for closing comments. Thank you. And over to you, sir.
I would like to thank my colleagues, Iiro Rossi, Nina as well as Akhila for being with us during this quarter 4 earnings call. And I would like to thank all the analysts, investors, who were there on this call. And we are very happy to take questions off-line as we normally do. And we hope that we were able to answer the questions to the best of our ability.
Thank you very much. Ladies and gentlemen, on behalf of Mahindra Holidays & Resorts India Limited that concludes this conference. Thank you for joining us. And you may now disconnect your lines.