IHCL'S FY25 ANNUAL REPORT - MANAGEMENT DISCUSSION AND ANALYSIS!

Disclaimer: This blog is not intended to provide any form of investment advice and is strictly for personal and academic goals of reinforcing learning.

My intention is to summarize my readings for the day, and some of the facts I found most interesting. You can understand more about this concept in this video.

You can find the links to all articles cited hyperlinked within the article!

IHCL'S ANNUAL REPORT FOR FY25 - MDA!

This article intends to answer 3 basic questions:

1) How was 2024 for business, particularly those in hospitality?

2) How does the report assess the outlook for 2025, and how accurate does their prediction stand today?

3) Some fun facts on how hotel operations work!

HOW WAS 2024 FOR BUSINESS, PARTICULARLY HOTELS 

The FY25 Annual Report highlights 2024 as a year of transition, moving away from crisis management and into rebalance and recovery.

Globally, there was a strong impetus in consumer spending, and business investments, which led many countries especially America, Europe and the APAC countries to witness strong GDP growth. Also, inflation gradually began tapering in 2024 against their 2023 levels, and many developing economies, including India, saw more relaxed monetary policy interventions from their central banks.

Tourism was especially higher in countries like Europe, America and the Middle East, with levels restoring to higher than those pre pandemic. The APAC region also witnessed 85% of its own inbound tourism high in 2019, in 2024.

In India, the government began to place due emphasis on the tourism sector by developing at least 50 top tourist spots in India and investing in its infrastructure. The government had initiated 2 greenfield airport projects in Navi Mumbai and Noida, both of which are expected to catapult the inbound tourism in the country. This is particularly valuable for a company like IHCL that tends to place strong emphasis on the airport-based locations.

The government has also invested in several schemes like the Dekho Apna Desh scheme, UDAAN, PRASHAD etc which project India as a spiritual and cultural center for tourists, and encourage domestic travel. Domestic travel is considered to be the hottest market for the industry currently, and this was a key trend in 2024 too.

WHAT WAS THE OUTLOOK FOR 2025 LIKE, AND HOW ACCURATE WAS ITS PREDICTION?

1) A global slowdown will ensue: 8.5/10

The report predicted a global slowdown in 2025, owing to uncertain trade policies and geopolitical tensions. Tourism trends were expected to normalize and settle to a consistent growth rate.

This prediction has proven to be true, as owing to the stringent protectionist policies from the US, and even the unanticipated terrorist attack in Pahalgam, the hotel industry overall has witnessed a visible slowdown in 2025 when compared to its trajectory in 2024.

2) A landmark year for tourism: 5/10

The report suggested that 2025 would be a landmark year for tourism as the year will witness more flight connections, and simplified visa processes to travel to most countries.

Although India continues to remain very easy to travel to, visa processes have currently become more complex especially in countries like the US, which have introduced stringent H1B visa procedures. The current account balances in India have also been hurt due to these regulations, which have directly attacked the export of digital services from here.

SOME FUN FACTS ON HOW HOTEL OPERATIONS WORK

Reading the report offered some valuable insight into how the hotel business works. This helps to understand how different seemingly unrelated sectors can interlink, and areas a company should focus on, to maximize its ability to make profit.

Firstly, operating revenue alone has many dissections in a hotel business like IHCL. There is obviously the room revenue, which is made up of 2 components: the occupancy rates, and the average daily room rates. In the FY25 context, for example, occupancy only increased by 1% and the ADR increased by 10%, and this could be due to a lot of factors (including, perhaps a more favorable mix of corporate customers as opposed to individuals), but here it occurred due to capacity expansion.

Thus, understanding different KPI's can help in a more nuanced financial story telling of what drives growth in the company. Indeed, the initial levels of growth due to capacity expansion might not be a big fact in isolation, as the optimization of the additional capacity is a far more important indicator. However, in a hotel business, where there is extreme scarcity in supply (there are 0.1 rooms for every 1000 people), even growth solely due to capacity expansion can indicate strong business fundamentals, as the company is capturing a greater share of a constrained market.

Similarly, operating revenue branches out to include revenue from management fees, F&B revenues, revenues from other facilities including swimming pools, laundry services, club membership fees etc all of which are equally important to the growth of the company, whilst being dependent on room revenues.

As for costs, in a service-based business-like hospitality, one finds it difficult to imagine many operating costs that doesn't involve employee benefits. However, the report helps to breakdown the seemingly small costs of linen on bedsheets, payment gateway charges, and commissions to travel agencies, all of which are variable costs that will increase with an increase in sales. Zooming closely into these individual costs alone can help to understand the operating leverage of the company, which is very essential to maintain profitability in this business.

CONCLUSION

Overall, 2024 was a year that created a strong impetus for travel and tourism globally, and this increase in demand seems to be the first step towards a strong growth trajectory in travel. India as a country is young and growing. There is a lot of domestic inbound travel occurring from Tier 2 and Tier 3 cities, due to a shift towards the hybrid work culture. Apart from one off issues, it appears 2025 is all set towards the same trajectory, with IHCL all set to capture most of the market.

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