The hospitality sector has been among the worst affected by the Covid-19 lockdowns, with revenues nearly drying up and most fixed costs continuing. Kavinder Singh, Managing Director & CEO, of Mahindra Holidays and Resorts India, the largest vacation ownership company in the country, tells us about the impact on the company and how it is navigating the challenges. Edited excerpts.
Can you elaborate on the impact of Covid-19 on the company’s operations during March 2020 and thereafter in Q1FY2021? What has been the effect on member additions, occupancyand financials?
The Covid-19 pandemic presents an unprecedented challenge to the hospitality industry, with sharply declining occupancy rates, as India went into lockdown from late March. In fact, during March itself, the occupancy rate in hotels across the top 13 markets dropped by 53 per cent compared with the same month last year.
Mahindra Holidays, too, temporarily, suspended its operations in compliance with the advisories and directives issued by the government. Q4 has historically been the company’s best-performing quarter; however, this time we saw our member additions and occupancy rates being adversely affected. In Q4FY20, we added 3,616 members, with resort occupancy at 72.2 per cent. In terms of our financial performance, we not only improved our PBT (profit before tax) margins by 232 bps, but also grew our PBT by 27.3 per cent.
Despite this adverse impact, we recorded a 23.7 per cent growth in profit before tax for FY20, over the previous year. The last year also saw us adding 15,697 members, taking our total member base to 2,58,336. This represents a compounded annual growth rate (CAGR) of 7.1 per cent in membership over the past five years. In addition, our resort occupancy for FY20 was healthy at 80.3 per cent.
Our focus on execution excellence has enabled an all-round improvement in our financial performance, and our cash reserves were at ₹781 crore, an increase of ₹209 crore over the previous year.
We have adjusted to this new normal by going digital for our membership sales, and our member base is being served well by our member experience management team through our mobile app/website and contact centres. Given our business model with recurring income streams, we are uniquely positioned to deal with this situation in Q1FY21.
What has been the impact on the company’s Finland-based subsidiary Holiday Club Resorts?
March is the peak holiday season in Finland. This time, however, the operations of HCR (Holiday Club Resorts) were adversely affected due to Covid 19, in terms of reduced occupancy rates and lower timeshare sales. In spite of this unprecedented situation, we have delivered an EBITDA of €6.7 million, and consolidated profit (before INDAS 116 and consolidation adjustments) grew by 48 per cent in FY20.
HCR resumed its operations from early June 2020 and the majority of its resorts are already operational. We are seeing very good occupancies as the summer holiday season begins in Finland from mid-June and we expect this demand to continue, driven by domestic travel.
HCR is a material subsidiary of Mahindra Holidays. With the acquisition of the balance 3.53 per cent shares in HCR through Mahindra Holiday’s step-down subsidiary Covington Sàrl, Luxembourg, during the previous year, the company now holds a 100 per cent stake in HCR.
What cost-control measures has the company taken to ease the financial pressure? Does the company’s financial position give it the muscle to weather the storm?
Mahindra Holidays has an extremely resilient business model and this is evident from the fact that we are a zero-debt company and have a healthy cash position at ₹781 crore. We also have a deferred revenue of over ₹5,500 crore on our books as on March 31, 2020.
Our business model ensures the predictability of various annuity income streams. We have a strong balance sheet with the resources at our disposal to tide over this crisis and take advantage of strategic opportunities, in line with our long-term business objectives.
Our member base of 2,58,000-plus members is a source of big strength, and we are confident of our resort occupancies returning to normal, once the travel restrictions are eased.
With the lockdown being gradually lifted, has the company begun operations now or is this still some time away?
At Club Mahindra, our members remain our first priority. Our key resort staff (we call them Champs) stayed back in the resorts away from their families to ensure that the resorts are maintained in pristine condition and are ready to welcome our members as soon as travel resumes.
As our country emerges steadily from the lockdown, we are evolving our resort experience to prioritise the safety and well-being of our members, while ensuring that we exude the same warmth and deliver our signature ‘Club Mahindra’ experiences.
The entire guest experience, right from check-in to in-resort experiences, including F&B, will be contact-less. The company’s staff have undergone extensive training to ensure physical distancing, sanitation frequency and safe service interactions. We are also working with Bureau Veritas (BV), the global leader in testing and inspection, to certify our hygiene and sanitation protocols, regularly and frequently.
Club Mahindra is all set to welcome members back to its resorts as lockdown restrictions begin to ease across the country. We will re-open our Madikeri resort in Coorg on June 15 and other resorts in line with State government advisories.
But given the continuing health scare, wouldn’t existing members be reluctant to opt for their vacation weeks?
The growth outlook for 2020-21 remains uncertain due to the Covid-19 challenge. Safety and hygiene will be key concerns for travellers and we have taken sufficient steps in our resorts to address these concerns as mentioned earlier. We are optimistic that members would start travelling to our resorts at driveable distances, once the lockdown restrictions are eased.
We believe that prospective members would look for a trusted brand to deliver memorable experiences for them and their families while meeting their expectations on safety and hygiene. At Club Mahindra, we enjoy the trust and confidence of our members and their families and are confident of not only meeting, but exceeding their expectations through our ‘Safe Stay’ programme.
What changes are you making in the business model of Mahindra Holidays, given the new normal?
We have a uniquely resilient business model. We believe that domestic travel will grow in the near future, and with our 60 picturesque resorts in India, we are well-positioned to serve the needs of families. More so, when they are looking for memorable experiences with a trusted nationwide resort chain, that offers best-in-class safety and hygiene protocols, under its ‘Safe Stay’ programme.
Do you foresee closures and consolidation ahead within the sector? Will the sector have to transition to new offerings?
The Indian hospitality industry is facing an unprecedented challenge due to the Covid-19 pandemic. The industry will have to adapt by training employees to cope with this ‘new normal’, which would help it regain the trust of its customers, by implementing all the measures related to hygiene, sanitisation and social distancing.
I am very confident that the hospitality sector will adapt very quickly to the changing circumstances and expectations of customers. However, the business models will undergo a change with reference to asset ownership, financing and debt. The fixed costs will also be looked at carefully along with the change in service-level norms, sustainable practices and solutions around alternative sources of energy in hotel operations. The era of responsible travel will begin.
In the short term, new offerings will have to be curated which not only assure the safety of travellers, but also deliver on seamless and contact-less experiences. The power of technology as an enabler will have to be harnessed.
Many in the hospitality sector seem disappointed with the lack of specific relief measures in the economic package recently announced by the Centre. What would you like the Centre and various State governments to do to help the hospitality sector?
In the short term, for the survival of the industry, we are expecting support from the government. Most of the hospitality players have debt on their books and the industry is hoping for a debt recast and for the moratorium period to be extended. This would certainly provide much-needed relief to the industry.
We would also hope for waivers or the deferment of statutory payments and minimum electricity demand charges as these will help with the industry’s working capital situation.
The industry contributes 9.2 per cent to the GDP and employs millions of people, so it would definitely help if there is support provided for them in the form of a direct benefit package for the staff in the industry.