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Ladies and gentlemen, good day, and welcome to Mahindra Holidays & Resorts India Limited Q4 FY '21 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not 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, MD and CEO. Thank you, and over to you, sir.
Good afternoon, everyone. And a very warm welcome to our quarter 4 earnings call. I hope all of you and your families are safe and healthy during these challenging times. Joining me today are Mrs. Akhila Balachandar, our Chief Financial Officer; Mr. Dhanraj Mulki, our General Counsel and Company Secretary. You may have looked at our quarter 4 results and investor presentation, which have already been uploaded on the stock exchanges as well as on our company website after the conclusion of the Board meeting yesterday. I hope you have had a chance to go through them.Let me begin by saying that for some time now, we have been reiterating to our investors that our business model is unique. And now I can say with confidence, it is resilient also.And I request the investor community to look at us from a different lens compared to the traditional hospitality players. As I have always mentioned that traditional hospitality players have to deal with 2 things all the time. One is occupancy, and other is debt. And you know in our business model, we are a 0-debt company, and occupancy is anyway, I will talk about later.So let me now begin by just giving some highlights. Despite the unprecedented and challenging times, this year, more than ever, if you really look at our performance, I would be able to prove this point that we are not only unique but resilient.Highlights of the year, starting with occupancy. As the lockdowns restrictions eased off in June 2020, we have witnessed a very strong bounce back in occupancy levels across our resorts. In fact, we saw month-on-month improvement.And I have mentioned earlier that from December onwards, we started seeing 85%-plus occupancies, almost on a month-on-month basis. And we closed this quarter with 85% occupancy. We are very encouraged as to how quickly occupancies have recovered.It illustrates 2 things: The desire of our members to visit our resorts and also the fact that we had undertaken focus on 2 areas. As you know, Club Mahindra is a trusted brand over the last 25 years. Yes, on -- in September 2021 onwards, we will begin our celebrations of the 25th year. We will complete 25 years.So we have gained the trust of our members. And more so during the pandemic times. The fact that we have been in touch with our members and also taken initiatives on safe stay at our results, on which I will talk a little later, helped us to get members back at our resorts.If I look at member additions, we added 4,789 members in quarter 4, which is, on a quarter-on-quarter basis, up by about 46% and 32% on a year-on-year basis. The pace of our member additions accelerated every quarter, and we ended up with total member additions of 12,031 during the year.Our total base, cumulative member base, is now at 254,431 at the end of FY '21. We are extremely gratified to see new members continuing to choose us even during these challenging times. Let me move on to our inventory. Our room inventory increased at the fastest rate to cross the 4,000-plus mark in FY '21, with the addition of 465 rooms and stands now at 4,197 room units at the end of March, '21. We have added 9 resorts in various states of India, starting with the fact that we launched Club Mahindra Assonora Resort in Goa with 152 rooms. The resort offers the experience of a mini water theme park with a lazy river, probably the only resort in the country with that kind of a thing.We also launched resorts in Kerala, a very beautiful resort in a place called Arookutty, which is just about 50 minutes drive from Kochi.We launched 3 resorts in Rajasthan, Jaipur, Ranthambore, Mount Abu. We had an old property in Jaipur. We have moved away from that, and we have a brand-new property that we launched in Jaipur.In Gujarat, we have a place, which is where we have this beautiful resort, which is amidst the forest, it's called [Napong]. [Napong] is just, by the way, 60 kilometers away from Statute of Unity. And we are seeing already very, very good momentum in terms of occupancies at [Napong].In Andaman and Nicobar, we have tied up with Symphony Resorts, and we have launched 3 properties there, which is in [ Hub Lock Neel ] Islands as well as Port Blair. And they, again, have got huge response during the time when we opened up, which was some time in January.And we have also added a resort, which is now really going to become even more popular with the RORO facility that we have in Mumbai. This is a resort in Alibarg. It's called Tropicana Resort by Club Mahindra. And this is a resort that we are, again, very proud of that we have launched it in the -- well before the March ending. So on a total basis, our number of resorts have gone up to 79 resorts in India and abroad, which include resorts in Dubai, Singapore, Bhutan, Sri Lanka, et cetera. I must make a slightly forward-looking statement. We have very clear plans over the next 4 years to go up to 5,500-plus rooms from 4,197 today. And we will use multiple routes, whether we will acquire, whether we do our own development. And more on that later because I'm going to tell you which are the projects that are on right now and more that will be starting.And we will also expand our existing resorts, while parallelly taking very high-quality resorts on lease and management control.The Phase 2 of Goa project will complete this year. We'll add another 57 rooms to 152 rooms resort. Our [estimated] project's last phase will end this year. And we expect to add another 33 room units there.We are right now in very advanced stages of getting an approval for 150 rooms project in Ganpatipule, and near Ganpatipule a place called [indiscernible], which overlooks the beautiful Arabian Sea.And we will also start our expansion project at Kandaghat Shimla with additional 160 units. All these activities will go on as planned.Our endeavor, as I have mentioned, always is to curate new and memorable experiences for our members at Club Mahindra Resorts. By adding more rooms as well as resorts at 15 destinations across the country, we remain committed to offering immersive and unique leisure experiences to our members. If I look at revenue, our revenue has -- vacation ownership income has largely remained stable. As you know, it's an annuity income, particularly vacation ownership income as well as the annual fee income.The resort income, by the way, recovered very sharply quarter-on-quarter as resorts open to almost reaching prepandemic levels in this quarter.We have achieved profit before tax growth of 37% year-on-year in FY '21, despite the extremely challenging environment. If I talk about our balance sheet and liquidity position. Despite the crisis that we saw, we have strengthened our balance sheet and liquidity position.Our deferred revenue pool now stands at INR 5,081 crores. I always call this as unbooked income. If I were to take away about INR 550-odd crores, which is a deferred cost, which is sitting, about INR 4,500 crores of profit, as I can say, is sitting in deferred revenue, which will keep accruing over the years. We continue to have 0 debt at a stand alone level. We have also -- as I was about to mention, we have improved our cash position to INR 940 crores from INR 781 crores at the end of March 2020. If you look at it in December, we were at INR 848 crores. Jan, Feb, March quarter turned out to be one of the best quarters, both in terms of member additions and occupancies and cash position improving to INR 940 crores.We have delivered industry-leading occupancies in quarter 3, quarter 4. Quarter 3, we were at 75%. We believe that this has happened despite the fact that there was no vaccine in sight during those times, we have been able to attract our members to our resorts, largely due to the cost and the safety factor that we espouse on. Going forward, as the vaccination rollout across the country picks up and travel restrictions ease, we believe we will see a very strong revival in domestic leisure travel, the likes of which we saw in quarter 3 and quarter 4.We believe that our occupancies will improve further and our member additions will actually grow faster. Given that most of our resorts are at drivable distances from cities and we have spacious properties and room units conducive to social distancing, we expect to benefit immensely from this revival. A very quick look at the consumer trends. We believe leisure will lead recovery. Vacations to domestic destinations will become even more popular. I did talk about drivable destinations.People will travel together and they will form their own bubble, extended families. We are seeing that in our resorts. People are also looking for resorts with flexible bookings and rescheduling policies due to COVID-19-related uncertainties, that will become an important factor.Trusted hospitality players like us will be preferred in view of the heightened safety and hygiene expectations.Moving on, let me just share with you some numbers. The total income for quarter 4 is at INR 255 crores, which has increased by 4% from quarter 3. And if I were to compare against quarter 4, we were stable. We were same as last year.Our resort performance, as I mentioned, has recovered sharply and resort income consequently went up by 19% quarter-on-quarter and 8.5% Y-o-Y. This gives us huge satisfaction that people would want to come to our resorts, and they would like to unwind and spend time with their family.The total income for the year is at INR 909 crores, though it has decreased by 13% Y-o-Y, mainly due to closure of resort operations, as I mentioned earlier. Despite that, we ended up delivering 37% growth in profit before tax for the full year.If I were to look at the profit before tax for the quarter 4, even there, we saw an improvement by about 12%. Our margin has improved by 130 basis points to 12.7%. And if you look at profit after tax is at INR 12.6 crores. Please do not compare it with the INR 30.5 crores in Q4 FY '20, largely because they are not comparable.Last time, in the same quarter, we had taken a decision to offer the lower tax rate, and that led to some of the provisions getting reversed. And that is where there was a kicker that we got in the PBT and the PBT moved up to 38 -- INR 30.5 crores, and that was reported as PAT.If you really look at FY '21, the happiness comes from not only the improvement in profit before tax by 37%, but also the margin has improved by 660 basis points to 18.6% compared to 12% in FY '20.Profit after tax is at about INR 125.8 crores as compared to INR 91.5 crores in FY '20. Of course, this is before this onetime impact that happened as a result of the transition into the new tax regime.The movement is up by 37.4%, roughly same as PBT rate of growth. And PAT margin has also improved by 500 basis points to 13.8%. I would say that a lot of our margin improvement has happened as a result of sales and marketing expenses being controlled. Our HFRP, Happy Family Referral Program and Digital, really picked up momentum, 55% of sales in FY '21 compared to 40% in fiscal year 2020, and that has really been a big savior this year.Lease rentals, the total savings that we received during the year amounts to about INR 52 crores. INR 31 crores, you will be able to see in the other income. These are the waivers from the long-term leases, and there were waivers and savings on short-term leases. They have been shown as reduction in rent expenses amounting to INR 21 crores.These are -- this is as per the accounting guidelines, and therefore, you will see some part in the other income and some part in the cost reduction.If I look at other expenses. Here, again, there have been major savings on account of reduction in resort consumption, energy, travel, conveyance and other corporate overheads. I think we have learned 1 thing that we have sufficient headroom for savings on fixed expenses, particularly related to lead generation and resort related costs, including energy, that's been one of the big learnings during this year.As I have always mentioned that our focus is on quality member additions with higher down payments, that trend continues.We did see momentum in our 25-year product in quarter 4, that has been partially or rather majorly responsible for building up the cash that we built up during this year.Our cash flows from EMIs continued tight control on cost. All of that helped us to actually move our cash position to about INR 940 crores. If I may pause here for a minute and then take you through the fact that what are the steps that we took to enhance the demand generation.While we had focused on running multiple demand generation campaigns such as family premier leads, we cover India, you discover India, all of them have also helped us to build the salience of the brand, and that actually led us to this position that we are in. Our Bliss product, which is a 10-year point based product, our GoZest product have also gained momentum during this year.I would like to make 1 information available to you. It is there in our investor deck. We have undertaken, on a prudent basis, a one-off cancellation of 14,782 members who are actually EMI overdue members from the past, from the cumulative base.Just to clarify, we added 12,031 fresh members, but from the past cumulative base of 250,000-plus, we have undertaken a one-off cancellation of 14,782 members. They were overdue, and we had done an assessment, and then we had taken a call that they are not likely to pay up, and that decision has been taken. And by the way, if I were to talk about the impact of that cancellation. Since we are sufficiently provided for, the impact has been minimal, and it is at a total level of INR 20.3 crores at the P&L level.Income -- the impact on the income is to the extent of INR 8.6 crores, and the impact on the cost is at about INR 12 crores since we defer the costs which are there, and that impairment happens when we cancel the contracts.So there is a total impact of INR 20.3 crores on our P&L as a result of cancellation. This is all because of the very, very strong provisioning policies and very strong methods of assessing that who is likely to pay up and who is not likely to pay up.We believe this one-time action is necessary during these times. And I must also mention that our COVID-19-related safety measures, whether it is SafeStay program, whether it is Bureau Veritas, whether it is travel -- Veritas certifying as COVID-safe and our Travel with Confidence program has done extremely well.Let me quickly move to Holiday Club Resorts. Holiday Club Resorts actually in Q2, delivered a positive PBT. But Q3, they saw their second wave. And Q4, there was a third wave.The good news is that the fourth -- the third wave is now, in some manner, coming to an end. They have situation in control. Vaccination is moving at a very brisk pace. 30% of the population has been vaccinated.Infections are now less than 100 a day, and they are confident of getting back into business with full force starting June -- mid-June. That's the time the peak season in Finland happens. Our team in Finland, led by Ms. Maisa Romanainen has done an amazing job of controlling the costs, and that is why we could see that our operational loss in quarter 4, since they have a lot of fixed costs, despite that, they were able to contain their operational losses to EUR 4.12 million in quarter 4 FY '21.If I have -- if I really look ahead, for me -- I mean I'm not intentionally going through every line of the performance. But I believe that I would like you to just make a note that even in these times, at a consolidated level, our EBITDA is INR 349 crores. And by the way, not only that, our margin has improved from the last year by about 130 basis points.Now these are extremely difficult times to deliver a consolidated EBITDA of INR 349 crores with margin improvement, once again, demonstrates the resilience of the vacation ownership model that we have. And to summarize, I would like to reiterate, and I would like to also mention how we look at things ahead.We have made solid progress in mitigating the impact of COVID-19. And we believe with the acceleration of vaccine rollouts, we will see a significant rebound in travel. We also believe that high infection states in India will recover by mid-June at the latest. And the rest of the states, the infection curve will flatten some time by end June, early July.We believe that we will see a very quick rebound in occupancies like we saw last year. We also believe that there will be a growth in member additions, in line with the resort -- number of resorts that we have added and also the fact that we are now 4,197 rooms that we have.We -- our balance sheet is extremely strong, as you can see, and we believe that the need for people to spend time with family, their own immediate family members and friends, will actually help us to emerge stronger after the pandemic.And we believe the leisure will drive the recovery, leisure travel to domestic destinations, and we are on the forefront of that. Even on Holiday Club, I'm very, very confident that situation will normalize by mid-June.And thereafter, we will see a big rebound in terms of the local travel that will happen, leisure travel. And on this note, I would like to mention that we are very, very thankful to our team members the fact that we have a strong balance sheet, the fact that we have a unique and resilient business model, we have an industry-leading brand.Our differentiated model, resilient model actually points us to a brighter future as we look ahead. I hope each of you and your families continue to remain safe and healthy. Our thoughts are with all of those who have been impacted by the pandemic.Thank you for your time and patient listening. We are now open for questions.
[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.
Yes. Sir, the first question was on the cancellation of these members, the 14,000. On the P&L impact of INR [ 21 ] crores that you mentioned, so all of that has purely hit the EBITDA, if I understand the accounting right, just wanted to get clear on that pool?
Akhila, would you like to clarify?
Yes. Yes, Nihal. The entire amount, partially INR 8 crores is the revenue line, and around INR 11 crores, is the expense line. So it's all within the EBITDA line. Your understanding is correct.
And the INR 11 crores is in the other expenses is -- how it has been...
It's in marketing and other expenses. It is split between the 2.
That's helpful. The other thing on this is that, would you say that these 14,000 numbers that you have canceled is more because of the situation that happened after COVID, where these members stopped paying after COVID?Or is it that they were showing up in the system earlier, maybe now you've taken to just a sense on how is it that the choice made?
No. So Nihal, the way we handle this -- Kavinder here. The way we handle this is that we have a very strong program on keeping an eye on our overdue members, and we are provisioning policies. So if you think about it, even after canceling 14,000 members, the impact is only INR 20 crores, which means we are seeing and watching, and every quarter, we are making appropriate provisions. It is just that COVID, in our view -- and by the way, we have engaged Accenture this time around to a very deep assessment because there are times people pay up, and there are times people say, "Hey, let me think and come back."And so while we are constantly at it, we have a very strong retention program. We have very strong bring-back program. Now when the retention program teams and win back programs teams come back and say that, "Listen, COVID has, in some manner, affected the ability to pay." We felt it was prudent to take a decision. Had it not been for COVID, we would not have looked at this kind of a cancellation. That is a straight answer.
That's helpful. I'll just quickly try asking 2 questions, and I'll come back in the queue. One is that what is the AUR for this quarter?
Akhila?
You're asking the AUR for the quarter?
For the quarter.
Yes. So Nihal, good question. So in quarter 2, if you remember, our AUR was around INR 1.6 lakhs. In quarter 3, it moved to around INR 2.6 lakhs. And if you remember, in quarter 2, we sold more of the 3 products. And of course, that we have been focused on moving back to the flagship product, CMH 25.The good news is that in quarter 4, our AUR has come to around INR 2.93 lakh. So I think we are on the right journey there, and that is something I would definitely like to share with you.
That's helpful. Last question from my side. Mr. Kavinder, I think a couple of years back or maybe before that, one of the thoughts was to look at taking up management contracts, not sure when exactly. So 1 question was on the expansion, if that is also an incremental line that we'll explore? And second is, when you look at the 5,500 rooms that you're targeting in the next 4, 5 years, have we become open now to looking at much more leased rooms than what we were earlier?Traditionally, it was a 70-30 split. But I understand that this year, obviously, that split is more in terms of lease rooms. So just your thoughts on that, and I'll be done.
Yes. Okay. So Nihal, just to give an idea, we have always been believers of delivering a very high quality experience. Now the method of delivery of experience could be through building your own resorts, through buying, upgrading them and even when we take a resort lease, the resort has to meet the [Technical Difficulty] process, management process.And on that, what we do is, we have a very strong upgrade program. We, in fact, called it PIP, product improvement program. If you look at a product like that we launched, is an existing resort and if we have the pictures before and the pictures after. We worked with the owner for almost a year to actually bring the resort to a level where it is now a world-class resort. Same thing we did with Arookutty.So our idea is very simple. Even if we take a resort on lease, can we bring it to the standards that the owner would be proud of, Club Mahindra members would be proud of and all of us would be proud of. Now this means investment. But [Technical Difficulty] it pays off on lease rentals. The rentals are fixed and [Technical Difficulty].
Sorry to interrupt. Mr. Kavinder Singh, your audio is breaking. So we couldn't hear very well.
Okay. Sorry. I have been in the same position. I don't know. Anyways, is it better now?
Yes, sir. Yes, sir.
Are you able to hear me clearly?
Yes.
Okay. So I was saying that we have taken time to build the resorts to our [Technical Difficulty] basically refurbish and upgrade the resorts to our [Technical Difficulty] and [Technical Difficulty] resort inventory pipeline.Coming back to your earlier question of taking resorts on management. By the way, all the resorts that we operate or whether on lease or whether they are on our own, we manage them anyways. But your question is on taking a property on management, which means the risk of occupancy lies with the owner. That model is not being looked at in Club Mahindra. It's a separate vertical that we are looking at, and we have mentioned earlier.The idea of the vertical is to stand alone, stand on their own, create a brand which will, obviously, will have Mahindra's name, but may not be necessary a Club Mahindra.The idea is to create a brand there in the leisure destination, where Club Mahindra will take some inventory. And advantage would be that our hospitality credentials are well established, which will help in that brand. It will be an asset-light model of getting inventory for us. And most importantly, we'll be able to target the customers, who would come into that resort that would be operated by a separate entity.So that business has yet not been flagged off because of the various reasons because of the COVID, et cetera.Right now, we are focused on growing from 4,197 to 5,500-plus in 3-odd years through the methods that we have today, which is build your own, expand existing resorts, acquire, as well as take resorts on lease, but refurbish them, have a product improvement plan and bring them to our standards and manage that.
The next question is from the line of Aditya Bagul from Axis Capital.
Kavinder, sir, I had 2 questions. First, on the cancellations that we've seen. If you can give us some color, I mean, Nihal did ask some questions, but I wanted to get a little more details into this.If we ran back calculate the INR 8.5 crore and try and figure out what is the per member sort of revenue derecognition that we've done, that brings us to a lower number.So is it fair to assess that most of these members have been either Bliss or GoZest members?
Actually, Aditya, that's not true. That's not true, first of all. The reason that you are getting a very low number, and which is what I was trying to hint to Nihal, is that our provisioning policies have been thought through very scientifically.As we see deterioration in our debtors, if at all, we continuously, on a regular basis, keep providing. And if and when we have to take a decision to cancel because we have a retention program, please -- as you know, in our business, these are receivables, but remember, members cannot visit our resorts if they are not up-to-date in their accounts. So for any way, their product is forfeited, the moment they become overdue. Even if they are 1 month overdue. Even in fact, they are 1 day overdue. So we have -- the product, it's not that we have to sort of impair anything or asset or anything like that, that's not an issue in our case.However, since we are recognizing their income -- over 25 years now, we recognize income with the new accounting standard. And the whole idea, therefore, is that how do you win them back?Because the idea of bringing them back is to ensure that their deferred revenue will keep coming to us. And also, they will come and spend at the resorts. And therefore, the lifetime value of the customer will be insured.So our provisioning policies ensure that even if we were to take a decision of a defaulting member, the impact is not going to be significant, which is what, again, a confidence that I want to give to our analysts and our investors, that there is really no surprise. Even in these 14,000 members when we have canceled, the provisioning has been sufficient to lead to only an impact of INR 20 crores, which is miniscule. And that is to say that our provisioning policies are robust and our methods are very, very well-established over the years, by the way.
Understood, sir. That's very elaborated. Sir, my second question is, and I know this could be slightly forward-looking. But you talked about 5,500 rooms, right? So if I just go by our historical trend, does that imply a total membership base of about 3.5 lakh members at 65 members to a room? Is that a fair back-of-the-envelope calculation thing?
Yes. I think it's fair for you to multiply by 60 5,500, and we are definitely aiming to accelerate our member additions. We are aiming to accelerate our inventory because one thing, obviously, we have learned now in the pandemic that at least for the next 3 to 5 years, there's going to be a huge interest in domestic travel.It's not that the pandemic will last so long. But even if pandemic were to go away tomorrow, the fact is that there are a lot of people who have realized they haven't seen their own country. They want to go to drivable destinations. They want to be with family, larger family, which really is not possible in terms of international holidays are largely a nuclear family phenomenon.So extended families larger sort of set of trends and families going on a drivable destination, domestic, that's 1 trend which is going to boom. In fact, all our resorts that we are acquiring, we are keeping in mind acquiring or building that are they 3 or 4 hours away from the city where we will get members from.So to us, we are -- in my view, FY '22 to FY '26, '27, these are the next 4, 5 years, they will be golden years in terms of the domestic travel, if not more. And even Indian government, even Prime Minister has done a record on Dekho Apna Desh. And by the way, just to let you know, all these parties have won the elections in the recent 4 states, the -- each one of them is talking about growing the tourism in their respective states.So this is there in their party manifesto. So tour job -- is a job generator, direct, indirect. It is the fastest way to create jobs, it is the fastest way to boost the micro economies around the places where you create connectivity and create the infrastructure.[Technical Difficulty] heading towards a very, very good times ahead. And that is why I'm confident that we should look at this kind of [reversible]. Actually, if you notice in our Investor deck, we have written 5,500-plus. We are not wanting to stop at 5,500. We want to go even beyond. If we can, why not 6,000 in the same period.
That's very encouraging, sir, and kudos to that. Sir, my last question is more to do with -- we've been ensuring that there are several tops of that is happening in the Mahindra Group. So just wanted to get your sense on whether there is a change in terms of mandate that we've received from our largest shareholder?
So I must say that there is continuity in change. Even in the -- even prior to the change, the belief was to generate value for -- and we are all governed by 1 philosophy, which will -- which is never changing, which is Mahindra RISE philosophy, which is about creating value for all stakeholders in a way and enabling people to rise. And all stakeholders, whether it is our customers, whether it is our vendor ecosystem, whether it is our employees, whether it is on society. And that is why you must have seen in our Investor deck a clear section on ESG.In my opening remarks, I couldn't talk much about it because I wanted more time for questions. But we have this time in our Investor deck have talked about what we are doing in the ESG area.So the philosophy of RISE is unchanged. Yes, there is a focus clearly on the statements that you may have seen on the financial prudence and discipline. And by the way, the good news for you, since you are tracking us, we have anyway been following the path of generating high returns on equity, high returns on capital employed as well as generating -- building our balance sheet position.You know that for the -- in 5 or 6 years, we have moved from INR 26 crores cash on hand to about INR 940 crores of cash, while we moved our room count from 2,400 to 4,197. So we are well on our way to meeting the aspirations of the group, and we are one of the growth gems, by the way, identified by the group. And we believe that we are looking at a great future ahead.
The next question is from the line of Deepak Lalwani from Unifi Capital.
I had a couple of questions. So my first question was on cancellation. As 45,000 members are still on EMI plans, just wanted your understanding if these are standard customers who have paid ASF and overdues in the last 6 to 9 months? Or could we see more cancellations coming forward?
Okay. Just to confirm to you that these are not ASF customers. These are people who have to pay their EMI towards the membership. So what you have seen in the Investor deck, which you're referring to 45,000 EMI-paying customers, yes, they are EMI-paying customers with respect to their membership fee. This is a data for membership fee.
Okay. So do we see any stress in these members who might over -- who might keep their overdue coming forward?
As far as our understanding is concerned, as I mentioned earlier, we don't see. That's why they are there, number one, we don't see any stress. Definitely, as time moves on, this assessment happens on a continuous basis, and we have very strong provisioning policies under this estimated credit loss methodology. That is why when we cancel 14,000-odd members, the net impact, net of the estimated credit loss was only INR 20 crores. So what we do is and whatever you go through our journey over the last 5, 6, 7 years, whatever data we are putting out, you will see that we have been following consistent policy on provisioning, and as a result of which we have been able to deliver a consistent growth in our cumulative numbers as well as our resort incomes as well as the fact that we have been growing profits year-on-year.Now this business, fundamentally, since we are generating a significant interest income. We do finance ourselves the membership fee, but our focus is to get higher down payment paying customers, which ensures a very strong, let's say, commitment to the product. So we are making that shift over the year and that is why you see our cash position growing.
Second question is on rentals. We had savings of about INR 52 crores in this financial year. I wanted to get a sense of these levers in FY '22, how much of these savings will continue in the next year?
So it is very simple. Actually, I use this word called natural hedge. A lot of times, when we used to think about it in days when there was no pandemic, and we used to think, hey, we have so much of rentals that we pay to the various rented properties that we have, whether it is our sales offices, and whether it is our resorts that we have taken on lease, is there a risk of these fixed costs?Now if you think about it in a pandemic kind of a situation, while we lost resort income, okay, and the consequent earnings, we actually made it up by saving on the rental costs. Now it's an absolute natural hedge that we have seen. So at this point of time, if I go forward into the future. As our resorts run at high occupancies, there is no rental savings, and there will not be any rental savings because the rental savings, if at all, will come through better negotiations with the properties that we are taking in and even with the older properties, sometimes we reset, so those things will keep on happening, and that's a part of normal operating process. There's nothing new that I'm telling you.But the moment our resort occupancies go up, we get higher income, and we make very good money in the food and beverage margins. And therefore, we do not need those rental savings. So this is how you need to think about it and compare us with the FY '20 numbers compare FY '21, and if you just them into FY '22, you may not see much of rental savings, but you will see higher resort income, you will see higher gross margins coming out of the resorts, which will actually help us in our profitability going forward.
Got it, sir. My last question is on HCRO. Given the current situation did we receive any incentive from the government there?
Yes. Akhila, would you share the exact amount of the incentives received?
Yes. Just in a minute.
Akhila, it is EUR 1.59 million, but just give the breakup if you wanted.
Yes. That's the amount that we've received already, EUR 1.5 million. And we're also seeing that maybe some more could come over the next couple of months, but that's still work in progress. Yes.
Okay, ma'am. So what is the debt position there currently?
So currently, they have a debt position of EUR 26 million. But they are also very well capitalized. They have a liquidity position of EUR 12 million. So since we had the pandemic right upfront, we decided to recapitalize and take some debt on the books to ensure we did not have a liquidity crunch.So we took sufficient borrowings in HCRO in the local books. And at the end of the year, we are at around EUR 26 million. But the liquidity position, which is the cash available, would be around EUR 12 million.
The next question is from the line of Pavan Ahluwalia from Laburnum Capital.
Like everybody else, I'll start off with the cancellation. So if I look at the EMI sort of memberships over time, right, they've rose to about 72,000 in FY '17. When they were there in FY '18, and since then, they've sort of come down. We had 1 cancellation, about 10,000 members in FY '19, and now we've had a 14,000 cancellation now. And between the 2 of those, they've taken the EMI members from 73,000 in FY '18 to 45,000 now.So basically, what's been happening, it looks to me like you've not really been adding a lot of EMI members in the last 2 or 3 years, which is probably a good thing.Could you give us a little bit of color? I know you've said that these guys were not necessarily Zest or -- could you give us some color on the vintage of these members? Over what period were these memberships mostly sold? At what point did they stop paying?And what -- how long after they stop paying that we decide to cancel? And is this a FY '14 to '17 vintage sales? Was it later? That would be very helpful to know.And secondly, any other color on them? Are these mostly self-employed people, small business people who may have had greater [leverage ] pandemic, metros versus Tier 2? Any more further analytics you can drill down on in terms of who the ones are returned bad? And how does that actually impact our sales targeting going forward? I mean that would be the first question. Second question is in terms of, obviously, the cash generation continues to be very strong, which is great. Any visibility towards our interaction with the government on the ability to pay out dividends? Because it would be very nice to actually be able to reflect the true capital-light nature of our business and pay out dividends the way FMCG companies do. And finally, in terms of just resort operations, I was glad to see the rebound in resort income, 2 sort of specific questions around that. One, do you -- are you seeing a strong demand because of the kind of work from home syndrome, where people are saying, look, I'm hold up in my apartment and working from my apartment, I may as well take the family to Mahindra a resort and work from there?And secondly, as you did say, there'll probably be a fair bit of revenge tourism and particularly domestic socially business tourism, which we are well positioned to capture. There's also a lot of savings that people have because they can't spend on regular activity during a pandemic. Are we introducing higher-margin activities at the resorts so that we can capture some of the spend because people have saved tens of thousands or several lakhs over a 3- to 6-month period when nobody is eating out, going to movies or anything? It would be nice to be able to capture that in terms of extra spends as the resorts.I would just be curious to see if there's been any thinking or action around that in terms of positioning ourselves to rebound?
Thank you. Let me start answering all your captions -- all your questions, I notice, have a common thread. It's about around value creation and value distribution. So let me start with the cancellation of the members and what is their vintage, how -- and how -- and most important question was towards the end, how do we think of targeting members?And so the answer is like this, that most of these people are businessmen, small businessmen. And to be honest, I don't have Tier 1, Tier 2, Tier 3 data, but largely in -- our membership base is from Tier 1 and Tier 2. So they have to be between these tiers largely.Our Tier 3 [ off let ] is growing. That's something that we are noticing. But coming back, these -- in terms of vintage, we have a policy, which is obviously internal to us as to aging of the people who are overdue. Please remember, our product is such that we are not a highly frequent usage product. And therefore, if someone is not paying up often we get this answer saying that, "Hey, when I'm coming to resorts, I will pay."And then we say, "You're supposed to pay in time." And the guy says, "Okay, I will." And then again, we need to follow-up because while there are, in some cases, the electronic mandates there, sometimes the mandates are not there. And people are saying, whenever I want to go, I can always pay up and go.Of course, there is a bit of a finality, but people are seeing fine. Now what we noticed was that people who have -- who are running their own businesses and sometimes, liquidity position is tight, they're saying, "Hey, we don't know when are we going to go to Holiday's next."I mean there are people who may say that, "Hey, this shouldn't lead to revenge tourism." And a set of people are saying, "I don't know where I will feel comfortable to venture out of my home, it could be a year, it could be 2 years, it could be 3 years." And people start thinking like that. And they say, "Hey, is this Club Mahindra membership really worth continuing because I'm paying an EMI, which has a burden of interest. And then, of course, why should I sort of pay?"And then that is where we see and that is where we did a one-off exercise of, 1, assessing and talking, and obviously, we are a hospitality company, we cannot sort of do anything to hurt our relationship with the member. Once we realize that the members are not going to pay, we are constantly providing.But after a point in time, we take a decision and we say, "Hey, this is not going to come back, let's take a decision because, in any case, no point in keeping on our books, a set of members." And the good news, which we already shared with you is that we anyway built estimated credit loss, which is built into our financials in the past.And therefore, the net differential from the estimated credit loss was of the order of INR 20 crores, which is what you saw.So I would say this is all I will be able to say at this point of time about these members because there's a lot of analytics that we do internally, and that gives us pointers towards -- so by the way, we have already started increasing our focus on people who have little stabler revenue streams of income, which is corporates as well as salary class.And we are seeing that shift happening already. But you know what, a small businessman wants to become a member, we are not going to say no. That's very clear to us. So that's something in terms of targeting, that's one action we taken.Second question related to going and asking for...
Sorry, sorry, sorry, Kavinder, just 1 -- just 1 thing here. What I'm trying to get at is a clean rate of member addition, right? So that's why I'm trying to understand the vintage during which these memberships were sold. Were these mostly memberships sold in the last 2 years, in the last 3 to 5 years, more than 5 years ago? Any kind of rough indication you could give us on that?
Yes. Typically, our EMI plans are for 4 years. Most of the people would pay their EMIs in 4 years' time. And you could -- after you have paid your EMI, obviously, you cannot be EMI overdue. So if that is an answer in your -- in my way of giving an answer.If I were to move on to the dividend side of the point, which is the Ministry of Corporate Affairs. So I must say that a lot of work has been done with the Institute and with the Ministry of Corporate Affairs, the work is still ongoing.There is no update, unfortunately because of COVID because there is some level of [noise] in these matters. And so therefore, that remains an area which is still under follow-up. I'm afraid there is no update.And your third point was related to now that people are wanting to stay at the resort instead of their homes and say, I can work from the resort. And therefore, are we creating experiences where we can capture more of their wallet spend on -- at the resorts because there is that money available? The answer is yes.And the answer is a big yes. We have plans, programs, initiatives where we are able to predict who is likely to spend how much in their holiday. And we obviously run targeted campaigns.We offer them unique bundled offers from food, beverage, activities. We are also doing a lot of outdoor activities, which are also [ 1 for welding. ] And second, over a period of time, people find them useful, and they are -- so we have paid outdoor activities.We have unpaid outdoor activities, and that's how we do it. Everything is not charged. But the idea is to just get them out of their rooms and do something which will get them to sort of spend time amidst nature, while also engaging in something which they would sort of relish when they are back and also, in some manner, giving us some kind of revenue.So yes, those kind of activities are going on, whether it is walking trails, whether it is electric bicycle tools, which are mature friendly way of going around and seeing the resort and beyond.So there are a lot of activities, which are -- as you know, that we have taken a stake in this company called Great Rocksport, which is actually -- as we speak, is installing a lot of their soft adventure. I'm very careful because all the activities that they do are in the nature of soft adventure.And their activities are also being sort of installed in our resorts because they are now in some manner our adventure partner. And that is the action that is being taken to keep people at the resort. In any case, it is not yet to go outside the resort and eat out.And that will also hopefully help us to improve our food and beverage-related revenues because our kitchens are ISO 22000 certified, and that's something that we do communicate. So a lot of communication, a lot of actions, initiatives on to capture the lifetime value of the customer when they are at our resorts.
Okay. Glad to see us fully paid member CAGRs pretty robust 8% and would love to see a more rapid sort of CAGR there and just a greater focus on that rather than getting into EMI, which is fundamentally like credit risk.
Yes. Yes.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
And a good set of -- congratulations for a decent set of numbers, given the pandemic. First of all, I would like to thank you for this better disclosures in the presentation, especially I like the 37 number slide. And I hope you continue to giving this breakup in future as well in regards to our fully paid members versus the EMI members.So I just had 1 question. The question is, we are now more than 25 years old. So some of our early members may retire or may not renew their membership. And we are into some sort of increasing our room count and resort count.So if we can -- and since most of our -- many things or many data points we can actually -- we have a very good data bank with us and we can project a lot of things. Can we give some more clarity maybe from next quarter or so, wherein how do we see our membership going forward assuming some sort of members maybe who will be renewing or may not be renewing some sort of a working there? And how we plan to raise our inventory? And how do we see our inventory? Really, that metric of inventory per -- the room per member ratio, how do we see that going over the next 3, 4 years when we plan to aggressively expand our inventory? And how do we see our cash moving?Because right now, we are sitting on INR 900 crores. And even if we plan to say, as we have announced at around INR 1,200 crores to INR 1,500 crores over the next 3, 4 years, but still after even investing that, the kind of business model we have, we would be still left with a lot of cash, maybe around INR 400 crores, INR 500 crores after 4, 5 years. So how do we intend to use that cash? If you can give some clarity on these 2 points, that would be great.
Okay. So if you really -- first of all, thank you for -- we intend giving disclosures on a regular basis what we have given already in this Investor deck. As you know -- as you may have noticed, it's a recast investor deck because we believe this COVID is a 1 in 100 year event, which has actually shown the uniqueness and the resilience of our business model, and that is why we felt it is worth demonstrating to our investors.If you -- to your core question, which is really one, in my understanding, and if I miss then you can ask me again, is that -- how do we think about growing member additions? How do we think about growing inventory additions? And how do we think about dealing with the cash that we are generating?So if I think from a cash standpoint, the cash movement, positive movement is largely a function of 2 things: One, the way we are running the business in terms of the kind of numbers that we are getting with higher down payment, plus the fact that our collection efforts are also done in a very, very meaningful manner.And third, we are also making our proposition very, very robust that people would like to enter our resorts and enjoy. And therefore, they will pay up the annual fee. So the renewal part is not much of a let's say, concern because the annual fee, yes, there are times when people don't pay, but when they want to holiday, they have to pay because they cannot use the club facilities if you don't pay your annual fees.So the good part in our business model, which is inherent is that our asset is lying with us, unlike in lending, where your asset is with the person whom you have given the debt. So asset is with us. And you cannot use the asset without paying. So eventually, people pay. And if they don't pay, yes, we have strong provisioning policies. So that should give comfort to investors that our provisioning policies are strong.By actually doing this onetime cancellation, we have -- and also sharing with you the amount -- to the extent of impact, we have also demonstrated to the investors that we are very, very prudent in our provisioning policies under the estimated credit loss methodology, very proven methodology, which has stood the test of time now over the years.Yes, as time goes buy, we acquire members who come with higher down payments, you may see a reduction in interest income, which is fine with us, but they would spend money at the resorts. They will travel more they will stay more, and we will be able to get a much better lifetime value. They will also engage in the activities.And the best part, which I have not revealed to you, which I'm going to reveal now, is that happier members lead to higher reflows. I have not emphasized enough that this quarter and this year, we delivered 55% of the sales to the referral and digital route, which shows the growing brand pull that we have created. Through the unique experiences through the service culture that we have created, and the way we implemented our safety and hygiene measures at our resorts.This, to my mind, shows the true strength of the company. And of course, the fact that our people during these difficult times, have been able to give amazing experiences to our members and their families. To us, that is the #1 asset. Then comes cash, which is an outcome. And cash deployment is very simple, you're right. We will deploy cash in our new resorts.And you're right, we might still be left with cash, but I'm very confident that we will find a solution to this dividend payout problem, or we will think of any other solution of rewarding our shareholders. Since, you are right, the business model, the way we are running now, the way we are managing the business, we are in a position to return some of the cash, which is definitely due to the shareholders. And that, to us, would be our objective, too.So that objective, we are aligned. Growth objective, we are aligned with our investors' objective, with our group's objectives. And we are also aligned with 1 biggest objective, which is actually our mission, Good Living and Happy Families. More so important in pandemic times, all of us would want good living from pandemic ideally and happy families.So we are very, very clearly aligned to creating our -- growing our member base, growing our resorts and experiences and thereby creating a very big flywheel effect in terms of capturing the lifetime value of our members.Specifically, you have seen our aspiration, crossing 5,500 rooms in 3-odd years. And whether through our own greenfield, whether through brownfield, which is expansions or weather through our leasing route, where again, we ensure that investment, either by the owner or by us in some manner, is done to bring those out up our standard.So this is how we are going to play out in the future. Hope I have been able to, some extent, answer your question.
Yes. Just 1 follow-up on that in terms of returning the cash...
Sorry to interrupt, Ankit, we would request to please come back in the queue...
Just 1 follow-up regarding that. So regarding the cash which you are talking about returning, since we have around 67% holding, can we also expect a buyback because the valuation of our stock is anyways very attractive for many years now? And whenever the issue with the company law is -- the ROC is being sorted and whenever we are eligible, can we expect a buyback also, or only we are looking for dividends?
So to be honest, we have not given thought in this area. We are focused on getting an approval from MCA to give us an exemption under that specific section. I would say once we achieve that, then we will discuss, obviously, whatever options are there on the table to make up our mind on that. To be honest, we have not applied our mind there. Our focus is to get the exemption right now.
The next question is from the line of Sachin Shah from Emkay Investment Management.
First of all, congratulations, you've really worked hard during this very, very difficult period, and we can all see that in the numbers. And Kavinder, I completely agree with you with the presentation, you've really done a great job in terms of giving excellent disclosures, and particularly slide number 37, as some of the earlier speakers have also mentioned.I just had 1 question in relation to that. We can see -- I hope I'm audible?
Yes, you are audible.
Okay. Yes. So we can see that 45,000 members have -- are still under EMI. I just wanted to understand 1 basic thing that will it be fair to assume that a large part of this 45,000 members, say, about, say, 85%, 90%-plus of them would have purchased this membership or would have subscribed to the membership in the last 4 years?Because generally, our EMIs are 4 years or lesser than that. So large part of this 45,000 members would be -- would have come into our family within the last 4 years, would that be a fair assumption?
Fairly correct. Largely correct.
Okay. That's good enough. That's one. A related question to that is that we are showing you have debtors of almost INR 1,200 crores and so will it also be fair to assume that a large part of this INR 1,200 crores, I understand there might be some ASF and all of that. But still, I mean, I'm saying 80%-plus, even if not 90%-plus. 80%-plus would be from this 45,000 membership fees?
Sorry. In the last, what did you say, I couldn't catch?
I'm saying that INR 1,200 crores of debtors that we have that we have to collect from our members over a period of next few years, would it be fair to assume that 80% of that INR 1,200 crores, 80% or higher would be from this 45,000 members towards the membership fees? Would that be a fair assumption?
I think, Akhila, why don't you answer? I think, to my mind, this is EMI and annual fee. Correct, Akhila?
That is correct.
Yes. And large part of that would be EMI. Correct, Akhila?
That is correct. That is correct.
Yes. That's correct. That's correct.
Okay. Okay. Fantastic. That's very helpful. The other 1 point was that if you can give me some sense that generally we have been maintaining [ 65% ] of our resource our own resorts and about 1/3 was our leased property of the total inventory. Has the ratio remained in that range? Or has that now got skewed more towards the lease property? If you can give some sense on that?
Yes. I think now we are more closer to 60-40. And only 1 thing, Sachin bhai, I just want to make a point is that in good old days, there was this feeling that when you have a resort on lease, then it's not as good as the resort that you have built yourself.I must share this in all honesty that even our lease resorts because they are managed by us and because we have done significant improvement, our Chief Resort Officer, Miguel, has been driving this excellence journey, and we have done investments in these lease resorts, as I was mentioning earlier, our holiday feedback scores, which we track internally, are at par between lease and owned resorts. So that's 1 good news that I can share with you.And therefore, we believe that if we choose the right resort, do a proper product improvement plan, bring it up to the standards that we would like it to be, including the HAPPY Hub, the classic activities that we do in Club Mahindra.And we are very, very comfortable because we believe there is a huge opportunity in the leisure hospitality space, and there are times, as they say, time to market, without compromising on the experience, forget about compromising. In fact, some of our resorts, which we have opened very recently, if you look at the Arookutty resort in Kerala, I mean it is such a beautiful resort on the backwaters of -- just 45 minutes away from Kochi.It is a lease resort, but it has taken them 1.5 years to bring it to our standards. And we are not saying that, "Oh, whatever condition the resort is, let's take it in." Because that would hurt the brand. And that -- then we can't grow. Then we really won't be able to grow. That we are very, very clear. So yes, the answer is 60-40, slightly long answer.
The next question is from the line of from Equirus Securities.
Sir, congrats [indiscernible] and I must appreciate, it's a very detailed, well laid out presentation. I had a question on growth initiatives for the business. Given that you have large cash reserves, are you evaluating any inorganic acquisition opportunities over the near-to-medium term? And if yes, is the focus expected to be domestic or global?
Okay. So first of all, we are very clear, the opportunity in India is huge, right? So we believe that for us, it doesn't make sense to buy any time share company. Because there is no time share company, which will probably meet our exacting standards. So we believe that what we really need is good quality properties, which are unique, which need a bit of, let's say, if necessary -- upgrade, if necessary, and are strategically located where our member bases are or we can grow our member bases in.For example, if you look at if I get a good property in Odisha as a state, I would love it because our position over there is weak because we do not have a good property. We don't have a property there.And I cannot, therefore, attract members in that area, okay? Anywhere in Northeast, we are open to looking at properties, which are good quality, which will help us to grow our member base there, okay? South always remains an attractive destination. We are very well represented in Kerala.But in Karnataka, we still have opportunities, right? And same way in Tamil Nadu and same way in Andhra and to some extent, very little extent, I would say, in Telangana.If I were to look at Maharashtra, we are always open to see a property because we have a very significant base in Maharashtra, right?Gujarat, even now, we believe, is an area of opportunity, very good growth in member additions we see in Gujarat month-on-month. It's a very, very important state for us. Same is the case with Rajasthan, okay?When I go up north, we are well represented in Himachal, I think, even though we are still looking at more opportunities in Himachal. Uttarakhand remains still an area of further opportunity for us. So if I look around, there are -- and Madhya Pradesh is something that we should not forget, okay?So we are looking at -- constantly at properties, which are either in various stages of construction, meaning not fully completed. And that's the time sometimes owners come to us and they say, why don't you guys tell us how, we'll bring it to your standards and then you take it over. So that's something that we like, and we love that idea because then we can shape it the way we want it, right?And similarly, if there is a ready running good quality property coming at the right price for us, again, we are open, okay? That's the second thing that we think about.And therefore, our -- when we talk of acquisition, we only mean resort property acquisitions, we do not mean acquiring any timeshare company. And largely, our focus is India. Let me be honest enough to also tell you that we have some properties outside India.In Southeast Asia. We do keep looking at opportunities in Southeast Asia because the fact is the moment the Asia and India comes into control in terms of pandemic, the short-haul destinations will be, again, very much in demand, okay, whether it is Phuket, whether it is Dubai, whether it is Singapore, Kuala Lumpur, all these places are going to remain in good demand because of the proximity to the country.So we do see this as, in some manner, an extended India region for our purposes. And we keep looking at opportunities there also at this moment of time.
That was the last question. I would now like to hand the conference over to Mr. Kavinder Singh for closing comments.
Okay. Thank you very much for taking time and listening to us as a team, and more importantly, showing interest in our company. We remain grateful. We learn from your questions. We keep improving based on your questions. As you can see, we have improved our investor deck. It has all happened because you ask us questions, you make us think. And we believe that this is the journey that we are on of continuous improvement.And on this note, once again, wishing you safety, good health. And we believe that this pandemic second wave, at some point of time, will also come down at the same rate at which it went up. This is how the second waves are around the world.And the good time shall come. Recovery will happen, and we are very, very confident that things will begin to look up again for leisure travel, and thank you for taking interest in our company.
Thank you. On behalf of Mahindra Holidays & Resorts India Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.