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Edited Transcript of MHRIL.NSE earnings conference call or presentation 3-Feb-20 6:00am GMT

Q3 2020 Mahindra Holidays and Resorts India Ltd Earnings Call

Chennai Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Mahindra Holidays and Resorts India Ltd earnings conference call or presentation Monday, February 3, 2020 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Akhila Balachandar

Mahindra Holidays & Resorts India Limited - CFO

* Kavinder Singh

Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director

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Conference Call Participants

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* Aditya Bagul

Axis Capital Limited, Research Division - Assistant VP of Midcaps

* Ekta Bhalja

Karma Capital Advisors Pvt Ltd - Senior Manager of Research

* Nihal Mahesh Jham

Edelweiss Securities Ltd., Research Division - Research Analyst

* Pankaj Kumar

Kotak Securities (Institutional Equities) - Research Analyst

* Sachin Shah;Emkay Investment;Fund Manager

* Ankit Kanodia;Smart Sync Services;Author

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Presentation

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Operator [1]

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Ladies and gentlemen, good day. And welcome to Mahindra Holidays & Resorts India Limited Q3 FY '20 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 of Mahindra Holidays & Resorts India Limited. Thank you, and over to you, sir.

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [2]

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Good morning, everyone, and a very warm welcome to our quarter 3 FY '20 earnings conference call. Today, I'm joined by Mrs. Akhila Balachandar, Chief Financial Officer; Mr. Dhanraj Mulki, our Company Secretary. We have uploaded our quarter 3 results presentation on the exchanges on 1st February, and I hope you had a chance to go through the same.

Before I begin, I would just spend a few perspectives on the way we look at the budget. As you know, the budget was announced on February 1. We believe because we are a domestic tourism company, primarily, we are quite happy with the way government is looking at tourism now. If you look at the fact that the focus is on creating infrastructure, the connectivity infrastructure, whether it is airports, whether it is (inaudible) express trains, and whether it is the road infrastructure. So this augurs well for the tourism -- domestic tourism in the coming times.

On the income side, the fact that there has been change in the tax rates of the slabs, the consumption boost towards tourism in the domestic side would happen. So on an overall level, the focus on creating iconic destinations, refurbishing the existing museums and new museums, these are the things that will lead to improvement in the tourism flow. And domestic tourism is a big opportunity for India, and we believe over the next 10 years, the maximum amount of job creation in India can happen through the tourism sector. Of course, there are other sectors who would contribute as well. So we believe the budget has set the tone for driving the domestic tourism.

At a very overall macroeconomic environment, we believe the consumption would show some signs of stabilization as we go ahead. We believe that most of the indicators are now going to show an upward trend, whether it is in the passenger vehicle sales, whether it is the consumer durables output and as well as the personal credit from banks. We believe that there is a northward movement that has just about begin, and we are also very optimistic about our quarter 4, in line with these trends.

So let me move on to the operational performance for quarter three. In this quarter, the significant highlight for us has been our resort performance. We have grown our resort revenues by 14% as compared to the Q3 in the last -- same period last year. Our occupancies are at 83.9% versus 81.9% last year. We have engaged with our members on unique F&B offerings through sharp analytics backed by innovative resort engagement activities like hosting theme dinners, theme activities, vacations, et cetera. We believe that our focus on analytics, member engagement and creating unique offerings for our members will ensure that our resort revenues continue to grow at the levels that we have seen in Q3. But having said that, Q3 is a seasonally good quarter, and it turned out to be a great quarter for us.

If I look at the member additions, we have added 3,805 members. In the given macroeconomic scenario, we believe this is a significant number. It is stable. We have stable membership additions. Our cumulative member base has now gone to 255,000 approximately. Our focus on acquiring members with higher down payments, lower EMI continues. We are also seeing a significant momentum in the upgrades amongst existing members.

So let me now move on to the income for the quarter. It has -- now it stands at INR 267.2 crores as compared to INR 246.9 crores in the quarter 3, which is a growth of about 8.2% on Y-o-Y basis. We have seen an uptick in all revenue streams, whether it is the VO income, whether it is the annual fee income as well as the resort income. The only area we have seen the reduction in the income is in the interest area, which we believe is due to the higher down payment and the lower EMI. So this is perfectly fine in the way we are thinking about the business. Our profit-before-tax, therefore, is now at a very healthy INR 38.7 crores as compared to INR 33.2 crores in quarter 3, which is a growth of about 16.6% on Y-o-Y basis.

We have to also remember that in our business, we only account for 4% of the income upfront and 96% of the income is deferred. And therefore, please do remember that the increase in profits is largely then due to the resort incomes as well as, of course, the accrual of incomes that we get from the deferred income pool.

We have been able to improve our PBT margins by 104 basis points in current quarter due to resort operational efficiencies, better cost management and at an overall utilization of resources. Our cash position as of 31st December, '19 is INR 694 crores, which has grown by INR 173 crores, if you were to look at the same time last year. Our continued focus on receivables management, quality member acquisitions has also of course, been controlled and the overall cost has resulted in a very healthy cash position.

I would also like to say that as we recognize only 4% revenue upfront, I would like to this time share that we have added INR 150 crores sales value. However, we have to add this INR 150 crores sales value generated into the deferred revenue pool. And we have taken out INR 85 crores out of the deferred revenue, and hence, the net addition to the deferred revenue is INR 65 crores. So this is something that does not get reflected in our profits. And this is, hence, for your information.

If I look at the number of resorts that we have added this quarter, it turned out to be another great quarter for us. We have added 2 more resorts internationally, 1 in Phuket, 1 in Pattaya. And then 3 domestic resorts locations, very exotic locations have been added, 1 in Khajuraho, another one in Bandhavgarh, and the third one in Rishikesh. And this takes our total resort count to -- at a domestic level, if I were to -- I'm just taking a cut at the domestic and international level. The domestic resorts are now 57. If I were to take international resorts, and I can count on the Holiday Club Resorts, plus the other resorts that we have in Orlando, Vegas, Sri Lanka, Singapore, Dubai, Bangkok, Phuket, Pattaya, the total number is coming to a very healthy 51. So we have a total of 108 resorts, 57 domestic and 51 international.

We have launched lots of unique resort experiences also like village theme at our Goa resort, ocean theme at Pondicherry resort. And this is something that is helping us to engage with members. It's also helping us drive referrals, which is helping us to grow our member acquisitions as well.

We turned out this quarter a very innovative campaign called MeetTheRealSanta, where we encourage children to write their wish letter, or the wishes that they have to Santa. Also, they had to mention the 3 good things that they did last year. And this is a contest. And we have, in fact, worked with the Ruskin Bond to share a very lovely Christmas message to our children -- members' children as well as prospects' children. Our continuous endeavor to enhance member delight is now playing out through our member privilege program, Club M Select. This year, we have added 2 new offerings. We have golf access and yoga studio, which is wellness programs. Apart from, of course, cruises, gourmet dining, domestic and international excursions and stay options at 4 lakh-plus hotels, et cetera.

We now have our own inventory exchange program. We have 95 destinations and 178 partner hotels, both domestic and international, where members can exchange their room nights on payment of exchange basis, this in addition to the 108 resorts that I talked about. So we are continuing to improve our value proposition, and this augurs well for us.

If I may now shift to Holiday Club Resorts. Our Holiday Club Resorts has earned a revenue of EUR 41 million in quarter 3. The average occupancy in Finland Spa hotels increased by 3 percentage points to 68%. Finnish Spa hotels, RevPAR was 13% higher at EUR 58 over last year. Our rental income has grown by 15%, and our EBITDA at EUR 1.2 million, which is a growth of about 29% over Q3 last year. This is largely due to increase in margins, both in the timeshare business as well as in the spa hotel business.

The only thing in this quarter was our timeshare income and villa income is slightly lower than the last year same period. Because in December, we were expecting a slightly bigger improvement in our timeshares, which did not play out in the month of December in the Holiday Club.

The company at the YTD level has earned a revenue of EUR 118.5 million, which is a growth of 4%. Our turnover, which is -- the Finland turnover has increased by 8% to EUR 100 million, which is backed by high occupancy and growth in Spa hotels, revenue by 9%. Finnish Spa hotels have recorded occupancy of 72%, an increase of 8 percentage points compared to last year. And the villa turnover has also increased by 7% at EUR 18.8 million.

Our EBITDA stands at a very healthy EUR 4.4 million, which is an increase of EUR 3.5 million compared to last year. I wish to highlight at this point of time, we have our new CEO, who joined us on 1st July, Maisa Romanainen. She has been able to get her team together to deliver these results that we are seeing at a YTD level.

Now let me move on to the consolidated numbers. Quarter 3 consolidated profit-before-tax, if I were to exclude the ForEx adjustment impact of Ind AS 116 and un-allocable expenditure, is INR 31.1 crores as compared to a profit of INR 26.7 crores for the same period last year. This signifies a growth of about 16.5%. The ForEx adjustment is INR 10.7 crores, and Ind As 116 adjustment is INR 4.6 crores for quarter 3 FY '20.

At a year-to-date level, consolidated profit-before-tax, excluding ForEx adjustment impact of Ind AS 116 and un-allocable expenditure, is INR 94.5 crores as compared to a profit of INR 38.6 crores for the same period last year. The ForEx adjustment is INR 11.9 crores, and Ind As 116 adjustment is INR 13.8 crores for the year-to-date December '19. Please note that the ForEx adjustment is an accounting entry because our assets are based in Europe and our -- the loans that we have taken for financing these acquisitions are also the overseas loans. So these reflect the accounting movements, and they are not actual losses.

I would like to highlight that we have been consistent in maintaining our robust business model of building a cumulative member base, which now stands at 255,000, approximately. We are building the experience in ecosystem. I did talk about the Club M Select. I did talk about the inventory exchange program and the improved engagement of members at the resorts, and the booking experience, which we have improved significantly. As you know, 80% plus bookings happen on our web and app, is helping us create a hugely valuable enterprise, driving our mission of good living and happy families.

With this, I would like to open the floor for question and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question from the line of Aditya Bagul from Axis Capital.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [2]

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Congratulations on a good set of numbers, given the conditions. So sir, I have 3 sets of questions. Firstly, in terms of our resort income, I mean, really, congratulations in terms of the growth that we've achieved. Just wanted to get your thoughts. I mean we are averaging about INR 66 crores for resort income per quarter. Just wanted to understand, our peer is using a method in which they are doing 50% in terms of FIT and 50% in terms of own members. So just wanted to gather some of your thoughts on it, whether that is something that we will eventually want to follow or we are happy with what we are doing currently?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [3]

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So I think we don't really consider them as our peers. I know who you are talking about. We believe that their business model has pivoted more towards their hotel company. We are primarily a vacation ownership company, and we believe that real value in our business comes from acquiring members who would stay with us and enjoy our offerings at resorts, and who would obviously pay us the annual fee. As you can see, the annual fee has -- also, income has grown by 11%. And just think about it that our deferred revenue pool is now touching almost INR 5,500 crores.

So the only unfortunate part of this new accounting standard, and since we have adopted it almost now more than a year, is that you really do not get to see that even in this quarter, we moved INR 65 crores net addition to the deferred revenue from the VO income. And just imagine that if we are able to recognize the income upfront because we are in a position to service our members through the annual fee, and we really don't need deferral, but the accounting standard, as you know, expect us to defer.

So the membership business is a very solid business based on the model that both the capital expenditure as well as the operating expenditure is funded by the members themselves. The danger with moving towards very high FIT and very low members is that you will find it very difficult to create new resorts, and therefore, you may have to take recourse to debt. And the moment you take recourse to debt, you are moving into an asset-heavy model, which is very difficult to sustain. As you know that most of the hotel companies around the world have moved towards asset-light models, and therefore, I believe that that's not the right way for our company.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [4]

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Perfect. Sir, we've seen about a 23% growth Y-o-Y in terms of our room revenue. Can you help us understand what was the ARR growth? I couldn't find that in the presentation.

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [5]

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Akhila?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [6]

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Yes. So Aditya, the 22% is also because our rooms also keep on increasing. So it is not necessarily a comparison just available. In terms of ARR, it keeps varying across seasons, across resorts, and that is why we realize that the general number that we used to release was looking fairly unrepresentative because the number of rooms in the market is fairly small. But roughly, our ARR would be in the range of around 3,800 to 4,000. But of course, December season, some things could be higher.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [7]

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Right. So ma'am, just wanted to understand, what would be the average ARR growth that we would have seen? Because some of the hotel companies, I know they are not really comparable, are showing reasonable amount of ARR growth. So is that something that we are seeing as well on our FIT business?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [8]

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As I said, there is a mix of rooms across various properties. And therefore, of course, there is an increase in the ARR, but we don't track it in the sense of how much we want to increase or something.

I would like to share with you one point. What you said was my resort in some INR 66 crore, which is correct, but of which the room revenues is just INR 15 crores, which is around just less than 5%, approximately 5% of the total income. So it is not a big income source as far as we are concerned. The increase generally depends across various resorts and would have been in the range of around 3% to 5%.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [9]

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Okay. Fair enough, ma'am. Ma'am, my second question, if you could answer it, we've seen about a 3,800 member addition this quarter. But when we look at the stock of members and compare it quarter-on-quarter, the addition is about 3,500. I understand that there will be some amount of Bliss members who would have sort of matured during this period. So if you can help us understand. Just mathematically, I'm getting a number of about 240 members. Is that a fair number to sort of extrapolate because FY '19, we had about 1,037 retirees? So is that a fair number to extrapolate?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [10]

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If you are asking me what was our retirers in the quarter? Is that your question?

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [11]

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Yes.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [12]

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So in the quarter, our retirers were around 240-odd contracts. And YTD, my retirers are around 660-odd contracts. We will announce the final audited numbers in Q4. And if you were -- we had in March around 1,039 lifetime members will retire. So this would make it roughly around 1,000, therefore 700-odd members will retire until date, lifetime until date.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [13]

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Perfect. That's very helpful. Just one last data point. I've seen your summarized balance sheet on Slide 50 of your PPT. It talks about the deferred VO income revenue of about -- deferred VO income of INR 5,107 crores. That is after the cancellation of 9,000-odd members isn't it?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [14]

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Can you repeat your question?

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [15]

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On Slide 50, we've talked about deferred revenue in our summarized balance sheet.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [16]

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That's correct.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [17]

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So that number for 31st March was INR 5,100 crores?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [18]

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Correct.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [19]

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Just wanted to clarify, that is after the cancellation of 9,500 members?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [20]

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Absolutely.

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Operator [21]

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Mr. Bagul, you'll have to come back in the queue. We have the next question from the line of Sachin Shah from Emkay Investment.

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Sachin Shah;Emkay Investment;Fund Manager, [22]

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Kavinder and Akhila, so I had one question. If you see the last 4 or 5 years, like FY '17, our net member addition was probably about 18,000-odd. Similar in FY '18. Similar in FY '19. In FY '19 -- and FY '20 also, looking at the first 9-month trends, I think -- I mean, difficult that we'll surpass that number in a significant way. So my point is that around 3 or 4 years back, when we had this net member addition of about 18,000-odd, one of the things that we were very clearly saying that now we are more focused on the quality of members where there will be lower cancellations and those kind of things.

So obviously, in FY '17, FY '18, FY '19, or at least FY '17 and FY '18, our gross member addition would have been larger, and there were some cancellations because of the past challenges or whatever. But in FY '20, I would have assumed that in the last 3 years, since we've added gross member -- we've added a lot of quality members, our cancellation rates should have come down significantly lower as compared to what it was, say, 3, 4, 5 years back. So -- but yet, our net member addition doesn't seem to reflect that. So is it that the gross member addition has come off? Is that the right decipher am I making?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [23]

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So I think the answer is like this; that our focus on quality member additions, which is higher down payment, lower EMI and also targeting segments like 50 plus, where we are focusing on this product called Club Mahindra Bliss, is ensuring that we are getting the members of the right type, which is also reflecting in our resort revenue increases, which is a bit of an indirect thing.

And second thing, which is reflecting in our good quality member additions, is the way our cash has moved over the last 4 years from INR 26 crores to about INR 694 crores while maintaining the CapEx levels roughly at the similar level, and our operating cash generation is now at a healthy level of about INR 300-crore plus.

Having said that, coming back to your specific question and directly answering the question, the answer is this: that in the past, you are right, we had to clear up the members, which were -- which had to be sort of cleared up because they were -- they had to be canceled out, and which is what we did. And despite that, we moved the needle from 12,000-odd level to 18,000.

And now because of this extreme focus on doing the right things, getting the right members with the higher down payment, lower EMI, so to get the cash up front, and the thing is that, at this point of time, this particular year, I'm not talking about the last year, this particular year, we have definitely seen that the slowdown in discretionary spend is leading to postponement of decision-making. And I'm speaking specifically about this year. And we believe that it's a period that should come to an end. Why? Because I was mentioning in the beginning of my opening remarks, I believe the indicators, to some extent, are turning positive. And the fact that this -- the income tax-related rejig that has been done, plus the focus on tourism, will make people think of travel even more.

So we believe that we are very correctly positioned, whether the fact that we have added so many destinations, both India and international, plus the fact that we have this Club M Select product, plus the fact that we have this inventory exchange program, because we have been using the last 1 or 2 years to actually improve our value proposition, should help us to grow the member additions into the coming year.

As I speak, we have also made a change in our operating structure. We have hired a new Chief Operating Officer, who comes with a background, early part of his years, he was in Unilever. He was also in Aviva. And this gentleman is now looking after the customer acquisition piece along with the member servicing piece. And we believe that the op structure related changes that we have done, the new alliances that we are striking with multiple brands because today there are brands which are extremely powerful digitally as well as at the consumers' lifestyle brands. So we are doing a lot of focus on alliances, referrals. Of course, digital remains a focus area, and the fact that we have made an op structure change -- because we believe that this one year, where the discretionary spends are low, and it is giving us an opportunity to rejig ourselves. So as I see this year is a year of some level of consolidation without giving up our focus on higher down payment, lower EMI, not increasing discounts in the market, not doing things crazy to get sales somehow, has helped us to create a very, very healthy deferred revenue balance because that's an indicator that we have very healthy cash reserves. And the fact that we are going to spend money on building resorts and acquiring resorts, which will be -- I mean, which could be also stressed somewhere, some stressed assets are also coming our way we believe, that -- so the whole idea therefore would be to accelerate member additions moving forward into the coming year. And this quarter 4 is typically a good quarter for us in member additions, and we see it no different than the last few years.

So that will set the momentum going forward into the future. And I am quite hopeful that the member additions, which we are looking at on a Y-o-Y basis, movement upwards would also begin to look up, as we do some product modifications and introductions also without changing the fundamental that we are into a long-tenured product.

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Sachin Shah;Emkay Investment;Fund Manager, [24]

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Right. This is very, very helpful. So just extending that a little bit more, and I know I'm stretching it, but I would take that chance, so after all of that we've done in the last 3 or 4 years now, as you said that you've taken the base from, whatever, 12,000, 13,000 to now 18,000 for the last 4 years, the next 4 years, do you -- what would you be happy with? What is -- what would -- I'm looking at your economics of business, looking at your fixed overheads, all of that, some broader range, if you can give us some sense?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [25]

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So in our business, the fundamental challenge always is -- there are 2 challenges fundamentally, how do we generate high-quality leads so that our conversion rates improve and so that we are able to add more members. But that's not enough. We need to also provide more and more experiences to the incoming members and existing members because remember one thing that while one side of the organization is focused on getting new members in, at least 70% of the organization is focused on keeping the existing members happy, and making them spend money at the resorts and ensure that our occupancies remain at a very healthy level.

We believe that this happens because we've put in a lot of effort at the resort level. We've put in a lot of effort in our improving the booking experience. And we've put in a lot of effort coming back to the physical infrastructure of adding more resorts. So our focus is only to how do we get good quality leads on the table and improve our conversion at a competitive cost because the costs also cannot run away, that's a fact. And the other part is, how do we keep on creating new resorts, great experiences and, more importantly, communicate that to our prospects as well as to members, so that we are able to not only generate new inquiries, but also improve our referrals. So these 2 elements of our business remain very well balanced as we speak right now.

And as you -- as I had already mentioned to you, even in the last June, when we did the analyst meet, which was in Bombay, I distinctly remember mentioning that our business model now is stabilizing even under 115. We are beginning to realize that even though we can't recognize income, more than 4%, but there are enough levers we can press, both in the area of resorts, and also ensuring that more and more members' holidays, therefore, we collect more and more annual fee and, most importantly, we ensure that we are improving our experience in such a manner that we pull for the brand increases. And once the pull for the brand increases, we believe that our cost of acquisition should also come down. And that is what will lead to the next peaker in the business.

Coming back to your straight question on what would I be happy with. Actually, I personally believe that we have a huge opportunity. Having said that, I also believe that we have to balance the 2 aspects. We can acquire members -- I mean, as you see in the market today, consumer brands go up to 50% off. They do all kinds of things to boost their top line. We have never done that. Even the offers that we give, they are linked to 30% down payment. If I say that you will go on a cruise, please take our membership, I'm saying that you have to put 30% down payment upfront. If you don't pay 30% down payment -- this is in an era where people even sell real estate at 5%. So I'm saying that we don't want to move away from the fundamentals that we have established over the last few years with great difficulty because we believe that leads to long-term value creation.

In the short term, what we really need to do is to create great content on the digital, create -- show people what experiences that we create and that should help us generate pull for our brand. Having said that, I would want, ideally, our member additions to go at a much faster pace. But the thing is that if we are moving member additions at a faster pace without compromising the higher down payment and without compromising any inventory addition because the inventory addition must keep pace with the member addition. That's something that we are committed to. So if I were to balance everything, I would say that, listen, if today we are at 18,000, we should be definitely looking at crossing 20,000 in some time. And why not look at even beyond? And there is -- in my opinion, there is enough propensity for people to travel. It is just that we are hit in the economy by a situation where you know that there are job losses that are happening in various sectors. We see that when we meet prospects. Having said that, with this new budget, renewed optimism and hopefully better momentum in the economy, we believe that we should ride that because the domestic tourism is the play in the next 10 years, I believe. Our product and our proposition is very nicely well-set now. Brand proposition can further be improved through better communication, some level of spending, which we will do. We are undertaking transformation exercises within our sales force. And we are repositioning our sales executives as relationship managers because we believe that our business is about a long-term relationship. This is not just about selling; you need to also service. So we are taking multiple actions inside to take advantage of the upcoming situation, which we believe will improve.

So I would be happy with much more, which I tell my team, but to the external world, my view is that we should remember one thing that we should get the members who will eventually spend money at our resorts, but more importantly, also, we create resorts, which will give them continued happiness. Because the last thing that we want is that we have members, but we do not have enough resorts or we have members who are not spending enough at resorts. So that balance is something that we are trying to achieve. And so far, we have done a very good job, we believe, as evidenced by the numbers.

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Operator [26]

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Sir, you'll have to come back in the queue. We have the next question from the line of Nihal Jham from Edelweiss.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [27]

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Sir, my first question was, if you could just give me the AUR number for this quarter that will be helpful?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [28]

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Akhila?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [29]

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Yes. So the gross AUR, if you were to see the balance sheet and the P&L put together, would come to around 3.93. But our AUR at a sale level would be roughly in the range of 3.5, 3.6.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [30]

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3.5, 3.6. Absolutely. Akhila, if I look at this number over the last 2, 3 years, I think the trend has been similar at, say, around 3.5 lakhs. So this is not reflecting the price increases that we have taken at the start of the financial year?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [31]

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So part of the reason why you don't see an improvement in the AUR is also because we have now a shorter-term product, which we call as Bliss. It's a points-based product. So that's the product which pulls the AUR down because of the mix issues.

So if we were to grow our membership base, as I was answering earlier, and these products grow at their pace at which they are supposed to grow, then you will see an improvement in the AUR. Because what is happening right now is that some of the AUR has got impacted by the product mix where Bliss has come in, but actually, Bliss is great for us for 2 reasons. One, we get lot -- I mean, there is a -- majority of the members pay upfront, full amount, so it helps to boost us our cash. And the second part is that Bliss also -- I mean, that's not something that we desire, but as the accounting standard, the income gets divided over 10 years, but this is not the reason we would want Bliss to be because Bliss is a customer need.

So Bliss is a great product, but what it does is a shorter-term level, it tends to create a distortion in the AUR because we are selling Bliss at obviously it's a 10-year product at a lower price. But on a room night basis, Bliss is an expensive product compared to the 25-year product.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [32]

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My apologies. I thought that the AUR was only for the core Club Mahindra product?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [33]

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It is for the mix of the products.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [34]

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Absolutely. Sir, the second question was that we are seeing some retirement, as you mentioned, over the last 18 months at around 1,000 for last year and around 600. I just wanted to understand, how has the trend been with the retirees? Is it that you're seeing that the closer to the members that is converting to Bliss? Or is it that someone from the family is taking out the core Club Mahindra products again? How is it progressing on the initial people who are retiring?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [35]

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So people retiring because we sold about 10 years ago this product called ZEST. It was a completely different product than what we have right now as Bliss. ZEST was targeted at younger people. Bliss is targeted at people above 50. Both are 10-year products. ZEST was, at that point of time, growing very fast. We acquired few members and they were promised a set of resorts, which will be low-cost, closer to the city. At some point of time, the company took the decision to withdraw the ZEST product. And as a result of that, the 10-year tenure of some of these members is expiring.

We do reach out to them to move to 25-year product. Some of them do take up and they get -- because they've become a part of the member additions at the net level. But what we have found, since the member profile was primarily based on a low transaction price, and the price at that time for the ZEST was, if I'm not wrong, about INR 1 lakh or slightly less than INR 1 lakh, so that is not the profile which would primarily be comfortable with the Club Mahindra proposition of today, which is for the 25-year product, which also includes, obviously, spending money on F&B at our resorts. So not much of success from the people who are retiring of that kind of profile. However, some of them have obviously looked at joining Club Mahindra at the 25 years. So we do some upgrades from ZEST to Club Mahindra at 25 as well.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [36]

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That's very helpful. Just 1 last question from my side. You didn't mention about product modification. Now we have the core Club Mahindra product, which is 25 year, and you did introduce Bliss recently in the last 1, 2 years, which is targeted above the age group of 50. Other than that, is there any product in between, which you feel there is still a gap in our portfolio that you could just help us understand better?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [37]

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So we are looking at it. It's just that we are not in a position to speak about it because the work is still in progress. And we would -- we believe that there may be an opportunity there. Having said that, we need to carefully weigh the OpEx and the CapEx model that we have, where the CapEx is funded by the member and also the value proposition from a customer's standpoint. The customers have to feel that this is a value proposition worth looking at.

So both sides, work is going on, both on the financial modeling side as well as on the -- having said that, I want to confirm one thing to you. Even if we were to do this product innovation, this will be a part of our portfolio strategy. In the sense, we have multiple products, but we are not moving away from 25-year product, because we believe that that product and that business model is here to stay. And there is enough demand for 25-year product, because the real value demonstration also happens in a 25-year product.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [38]

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Absolutely. Kavinder, sir, any time line that you would want to get this product out by?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [39]

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So we would not be driven by any emergency of any kind because we believe that the product proposition needs to be tested with the consumers through various pilots, which we do. And second, we should ensure that we should set the rules of the portfolio allocation, because we do not want one product to run away and the other product to not go up along with the current levels of saliency. Saliency means contribution.

So I believe that this kind of piloting should start in this quarter, as I speak, Q4, but you won't see much of that. There won't be any impact in the numbers in quarter 4, but we believe quarter 4 anyway is going to be a good quarter, and it always is, and we are seeing similar levels of momentum. So we believe that this is a great time to do piloting and then look at in Q1 or Q2, going forward, if the pilot succeeds, to introduce this innovation.

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Operator [40]

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(Operator Instructions) We have the next question from the line of Ekta Bhalja from Karma Capital.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [41]

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Sir, you have added 5 resorts during the quarter but the member -- the room addition is just 43. So what would explain that?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [42]

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So we have -- this is the net room addition that happens. Because what happens is that we have moved out of a resort in Kerala Kumarakom. That has affected us the number of additions there. Whatever you see is a net addition. And sometimes, with some of these resorts, we have taken an inventory to test the destination. For example, and if I were to take an example of Khajuraho. As you know, the connectivity to Khajuraho is still not very good. So what we do is we take a small inventory in an existing resort. So that is why, even if you see the resort count going up by 5 but you may not see too much of room additions, because we do not want to upfront in destinations which are not yet proven with very large number of room inventory. So these are the 2 reasons why you don't see a very big number in the room. But the good news is, the moment we see member traffic increasing, we are able to increase very, very quickly, the inventory.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [43]

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Sure. So out of the 57 gross room addition that we might have done in the 9 months, what would be the -- what would be on these spaces? And what would be (inaudible)?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [44]

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So if you recall, in the first quarter, we have a resort of our own where we added about 54 units, which is our own addition into an existing resort. And further to that, these are the 5 resorts that we have added.

And since these are destinations which have yet to be proven, so we have taken smaller inventory. And net of the resort that I was talking about, Kumarakom, which is in -- specifically in Kerala where we exited, it was a small inventory, though. So when you do this plus-minus, this is the net addition which turns out to be, along with the fact that now we are present in -- I mentioned, I think, earlier that we have now 57 domestic resorts and 51...

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [45]

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Yes. Yes. No. I get that. What I'm trying to understand is the owned room addition that we have done.

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [46]

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The own room addition, specifically, if you are asking in the last 9 months is 54.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [47]

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54. And on lease basis?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [48]

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So that's exactly what I'm saying that I'm not right now because this is not in public domain. We are not declaring what is owned, what is leased. But at an overall level, you should be comfortable that our own-to-lease ratio is maintained at 60-40.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [49]

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Okay. I was just asking on the addition. Anyways, what would be the CapEx that you would have done in the 9 months for the 54 rooms?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [50]

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So 9 months CapEx, it's not only for the 54 rooms; 9-month CapEx also includes the CapEx that's for the ongoing projects. The 9-month CapEx, as we speak, is approximately INR 100 crores.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [51]

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INR 100 crores?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [52]

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Yes.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [53]

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Okay. Because I don't see that number in your balance sheet.

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [54]

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So this balance sheet that we are releasing is something which is more an abridged version of the balance sheet. And typically, we are required to give a full balance sheet in the half yearly and full year accounts.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [55]

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Sure, sir. So if I take INR 100 crores and the cash addition that you have done, so that would be INR 220 crores of cash flow from operations. So could you share the 9-month cash flow from operations of last year?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [56]

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Similar levels. Typically, again, this is the number that we do not put it out in public domain every quarter. But just to give you the comfort that, as you can see, our total cash balance is made up of INR 694 crores. Our capital expenditure is very much in line with what we have done last year. Last year, we spent about INR 150 crores CapEx. We are slated to do very similar levels of capital expenditure this year. You know that we generate above INR 300 crores of cash. So free cash flow of INR 150 crores, INR 170 crores happens on a year-on-year basis.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [57]

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Fourth quarter would be the highest quarter in terms of cash flow generation, so that should not be a worry is what I'm trying to ask?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [58]

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No. That's fine. I think you have a point there. But at the overall level, I don't think cash is an area of concern for us because of the fact that we are already sitting on INR 700 crores of cash.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [59]

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And what would be the leasing for the 7% Q-on-Q increase in lease rentals?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [60]

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7% increase on the lease rentals. Akhila, you may want to answer this? I am requesting our CFO, Ms. Akhila Balachandar, to answer.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [61]

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Yes. So Ekta, where exactly are you picking this up? Because if you see, we have shared both the…

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Pankaj Kumar, Kotak Securities (Institutional Equities) - Research Analyst [62]

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Yes. So the lease rental cost, excluding the Ind AS impact that we have was about INR 35 crores in this quarter versus INR 33 crores -- INR 32 crores in the second quarter. So if you have not done any lease additions in terms of rooms, so what is leading to the 7%?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [63]

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We have added leased rooms even in the -- so this was the lease of last year Q3. We have added rooms. So therefore, you should not just look at the room addition in current year.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [64]

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So I'm looking at Q-o-Q.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [65]

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For the addition of Q4 last year and compared to that, this is for the leases that we have taken over the year, I would say. So the INR 2 crore -- INR 1.5 crore increase in lease is primarily on accounts of rooms that came over the last 1 year.

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Ekta Bhalja, Karma Capital Advisors Pvt Ltd - Senior Manager of Research [66]

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And the reason for overall sales and marketing spend, sir, so is that sustainable? Have you done any cost-optimization measures, which is leading to it or it's just on overall advertisement and publicity costs?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [67]

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So if you remember, in Q2, we did increase our sales and marketing expense. And the idea was to launch few initiatives. And one of the key initiatives that we took was on this Santa campaign, which was spread across multiple channels, including digital, print, I mean, a number of others. Like, for example, even in lot of events, it was not there on air, but they had promoted it through events, for example, initiatives in malls, initiatives in schools and a number of things.

So it was something, which we had started and that was spread over the 2 quarters. So sales and marketing, if you see YTD, we are fairly much in control and as per what we would like to spend. Quarter-on-quarter, yes, it depends on when we want to put the sales and how we want to drive, what are the initiatives, and like Santa, you cannot do in Q4, right? It tends to do it right from September, October, and that's the right time to start pushing. So these are all more tactical. But overall, I think YTD, we are fairly on the track.

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Operator [68]

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Ms. Bhalja, you'll have to come back in the queue. We have the next question from the line of [Taran Agarwal] from [Whole Bush Capital].

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Unidentified Analyst, [69]

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Sir, I have 2 questions. The first is when I look at your balance sheet, you have around INR 1,700 crores of trade receivables. Would it be possible for you to give us a split between how much of those are ASF trade receivables? How much are VO? And how much are others?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [70]

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So we do give these in the annual report to the extent that these are required as per the regulatory requirements both on the deferred revenue side and the receivables side. But otherwise, on a quarterly basis -- see, this is an ongoing business. On a quarterly basis, to be releasing some of these becomes difficult because people do pay up more towards the time they end up holidaying, and we see a number of initiatives that are spread over a period of time. We do not release these numbers quarterly or half yearly. We're just sticking to the quarterly numbers as receivables, which is fairly indicative, of the -- directionally, it is indicative of the way it is [heading].

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Unidentified Analyst, [71]

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Broadly, what is the ratio, madam?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [72]

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For the ASF receivables, it's far lower. The primary component is the VO for the simple reason that in VO, we allow members to pay over a 36-month plan or a 48-month plan, which means they select the membership fees over a 4-year period or a 3-year period from here.

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Unidentified Analyst, [73]

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Okay. So these numbers are generally published in the annual report, right?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [74]

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As I said, to the extent required that we -- all the relevant requirements are given.

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Unidentified Analyst, [75]

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Okay. The second question is, the interest income is only on VO receivables, right? There is no interest that we charge on our ASF receivables.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [76]

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So we don't charge interest on the ASF receivable. What we do in AFS is, unless and until a member pays the ASF, he cannot holiday in our resorts. That is the key difference. There are terms and conditions in our contracts whereby we can levy interest, but until date, we have not done that.

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Operator [77]

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We have the next question from the line of Ankit Kanodia from Smart Sync Services.

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Ankit Kanodia;Smart Sync Services;Author, [78]

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Can I have a little clarity on 2 components in our annual -- at least in our accounts with one is the interest component, the other is ForEx gain -- ForEx adjustment -- ForEx gain and loss. Because the -- I think because of the AS 116 impact, there's a huge difference between what you -- what you ideally show and how you report it right now.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [79]

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Sure. Can I have your question, please? Sorry, what's your question? I didn't understand.

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Ankit Kanodia;Smart Sync Services;Author, [80]

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Can you split the interest component and clarify with what does it includes after this AS 116 impact?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [81]

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If you go to the investor deck, and we have given our P&L for the quarter and YTD, which is without the impact of Ind As 116. Now as far the company goes, we are debt free. In fact, we are having -- sitting on cash of INR 694 crores. The entire interest, practically speaking, is on account of the 116 requirement only. There is a small minor thing. For example, sometimes account would be overdrawn, and we have the overdrawn facility and therefore there could be a very small interest. But predominantly, the interest is on account of the changes of 116 -- as mandated by 116.

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Ankit Kanodia;Smart Sync Services;Author, [82]

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Exactly that is what I want to know. What does AS 116 mandates you to put? I mean, talking about (inaudible)

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [83]

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You are asking me to explain you the requirements of 116?

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Ankit Kanodia;Smart Sync Services;Author, [84]

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No. I wanted to know the items, which are there in that interest component.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [85]

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So the way -- let me explain -- just let me explain just for a minute the 116. Basically, lease rent that the company pays, what 116 says is that the lease contract, which you have over a period of 5 years, 10 years, you need to capitalize it in your books, and therefore, if you see our balance sheet, we have created 2 line items. One, on the asset side called right of use asset; and on the liability side, something called lease-rent liability. So this basically indicates the liability towards lease rent over the tenure of the lease contract, right? And therefore, and right of use asset.

Now how this gets charged off in the P&L is a particular component is charged off as depreciation on the right of use asset. There is a component of interest, which will be on the lease-rent liability. It is like following the -- it is for the EMI model of loans. And of course, in the lease liability, which gets squared off from the balance sheet itself. So this component of depreciation, a portion of lease rent and interest is charged through the P&L.

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Ankit Kanodia;Smart Sync Services;Author, [86]

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Okay. So when you see this wherein your interest component shown over here, profit prior to -- I'm talking about 69, Slide #69.

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [87]

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Okay. Just give me a minute. Yes, got it.

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Ankit Kanodia;Smart Sync Services;Author, [88]

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So in this #4 item, which is less finance cost, as reported, I think it's INR 65 crores, around INR 64 crores, right?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [89]

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Okay.

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Ankit Kanodia;Smart Sync Services;Author, [90]

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And impact of Ind AS is INR 47 crores? So do you mean to say that this INR 47 crores is completely leased rentals?

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Akhila Balachandar, Mahindra Holidays & Resorts India Limited - CFO [91]

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Okay. The way you should read it is this INR 47 crores is fully leased rentals. That's correct.

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Operator [92]

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Sir, you'll have to come back in the queue. We have the next question from the line of [Shiarn Shane] from Renaissance Investments.

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Unidentified Analyst, [93]

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Just had a few questions. Now if I look at your member addition, while I understand we are focusing on the quality of the members, but last 5 quarters, we've seen the number come off. So just wanted your thoughts, because these numbers also include Bliss members. So what I'm trying to understand is, is the (inaudible) 25-year product coming off significantly? And what are the thoughts on this, the medium- to long-term mix? How are we looking to scale this up to 20,000? Because going at a run rate for 18,000, Q4 is a huge task, given the environment that we are in right now? So just wanted your thoughts on this.

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [94]

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So on the member additions, I mentioned earlier that the economy -- the slowdown in discretionary consumption has definitely taken off at least 4%, 5% until YTD level if you were to see compared to last year our member additions. The Bliss is a very insignificant portion of our total portfolio. So there is no loss that we can say that we have got compared to the last Y-o-Y basis on the 25-year product.

So I don't -- I am not alarmed. I am aware of the fact that there is a sentiment issue. Having said that, quarter 4, the momentum we have seen, despite these conditions that may be persevering, we have always seen the momentum, and we are confident of delivering the numbers to very similar levels and maybe more in the coming quarter.

So the point that I want to mention to you is that the last 4, 5 quarters is not indicative of our potential. And we do not see that 20,000 is a very big number, and it cannot be achieved. It is something that we are gunning for as we move forward. And we believe that the actions that we have taken this year, and the capability that we are building internally will help us to get there while the momentum on addition of resorts will continue as well to welcome the new members as well as the existing numbers to newer and newer destinations and experiences.

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Unidentified Analyst, [95]

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Got it. And the second question was where are we on the things that we were supposed to tighten, inventory in some already existing hotels? So where are we on that?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [96]

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So as I mentioned that we have 3 sources of inventory acquisition, we have our own greenfield, which we are building, for example, in Goa. We have our greenfield resort that is right now coming up and should be up and operational in the year 2020. That will add another 150 rooms. We have another greenfield project that we are going to kick start, which is in Ganpatipule, which will add another 120 to 130 rooms. We have a brownfield expansion planned in Kandaghat, which is a resort up near Shimla. That's another 140 rooms that will get added.

So we are on track to accelerate our capital expenditure to build our own resorts, greenfield and brownfield. We, of course, take long-term leases, which we call as a dry lease, which is where we operate the resorts and manage the experience completely, including the refurb of the resort.

The third one, which you were talking about, that if we can take leases in existing hotels. So there are times when the destination is extremely relevant for our members, and we are not present, and we do not believe that the destination will have the capacity to hold 100 or 150 rooms. That is where we take small inventory in a very existing, very good hotel, in an existing hotel. For example, if you take the Mount Lavinia resort in Colombo. It's an amazing resort. We have taken a small inventory, and we are seeing good traction there, but we do not believe that Colombo is a destination, which will be able to fill a 100-room resort. So because we have to see the resort economics, and therefore we do like to have our resorts upwards of 80 to 100 rooms. And therefore, in the period, we see the destination will take time to pick up, we do take inventory in good resort properties in the leisure destinations and then we consistently monitor the member experience because we have -- that's one thing that we are very good at, how fast we track member experience.

And if we believe that the member experience, if at all, which has not happened until now, but if at all, we believe the member experience is not going to be good, we will pull out the plug from the inventory.

So these are short-term leases, we call them, and these are to test the destinations. And for example, we took a lease property in Ganpatipule, and we saw the response. And now we are building our own resort in Ganpatipule, as I was mentioning to you earlier.

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Unidentified Analyst, [97]

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So do you think this will become 5% to 10% of our room inventory in the medium to longer term?

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [98]

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As far as I'm concerned, whether it is inventory taken in a hotel or which is a short-term lease, and the inventory that we take on a long-term lease, they all come out of the leased category, and that is today standing at 4%.

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Operator [99]

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Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference back to Mr. Kavinder Singh for closing comments. Please go ahead, sir.

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Kavinder Singh, Mahindra Holidays & Resorts India Limited - CEO, MD & Executive Director [100]

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I would like to thank for the huge interest in our company, in our strategies, and I'm really appreciative of the questions that have been asked as I've always mentioned that we learn a lot from these questions. We rethink about our strategies from these questions, and I continue to give you the assurance that we will take your questions and think about them and how we can improve our strategies. But we believe that we are on the right track, and we believe that these interactions are very helpful. And the fact that we were able to put up the investor deck on Saturday, and we had this interaction today on Monday, slightly later in the day, should have helped you to go through the numbers and engage, which is what we noticed, and we are very appreciative and very thankful for this interaction. On behalf of my colleagues, I would like to now declare the end of this conference call.

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Operator [101]

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Thank you, Mr. Singh. 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.