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DUMMY PROFITABILITY ANALYSIS October 2018. OVERVIEW OF INCOME STATEMENTS. OVERVIEW OF INCOME STATEMENTS. We were not provided financial statements for FY18 and FY17. We have attempted to work out the financials as above based on Tally data.
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DUMMY PROFITABILITY ANALYSIS October 2018
OVERVIEW OF INCOME STATEMENTS • We were not provided financial statements for FY18 and FY17. We have attempted to work out the financials as above based on Tally data. • EBITDA from operations has declined by 4.3% in FY18 over FY17 while it had decreased by 27% in FY17 over FY16 and increased by 69% in FY16 over FY15. • The main reason for the decline in EBITDA has been the rise in expenses by 22.6% in FY18. This has lead to decrease in EBITDA. • Purchases/Consumption should ideally move in relation to the movement in sales, as this being a direct cost. However, in FY18 it has increased more than the increase in sales. • Employee Benefit expenses were not verified by the management. The employee cost for FY17 has been estimated based on the previous years numbers. It is assumed to have increased by 10% in comparison to FY16. • Other Expenses have increased by 4.9% in FY18 over FY17 but the percentage to revenue of other expenses has declined in FY18. • Operational EBITDA has declined by 4.3% in FY18 over FY17, comprising 20.7% of the Total Revenue in FY18 as compared to 25% in FY17, 32.9% in FY16 and 29.2% in FY15. • It is also pertinent to note that the industry standard for EBITDA is 35% for four star hotel in Goa. In our case its working out to 20.7% which is quite low. • We need to mention that the preparedness of the accounts team was found lacking. Ideally the financials of FY18 and FY17 together with all the supporting should have been easily available.
INCOME • Room revenue comprised of major portion of total revenue at 74% in FY18. Revenue from rooms have increased by 7% in FY18 inline with 10% increase in the room nights sold in FY18. Comparatively, room sales reduced by 2% in. • The F&B revenue has increased by 57% in FY18 as compared to a decrease of 6% in FY17 comprising of 18% to the total revenue in FY17 as compared to 24% in FY18. This is due to the new restaurant which has been introduced in the recent FY. However, ideally F&B revenue to total sales should be a minimum of 30%. • Laundry income has decreased by 11% in FY18 as compared to 24% increase in FY17 over FY16 and 45% increase in FY 16 over FY15. As per the management the laundry service is outsourced and commission is charged for the services provided. • Other Operating Income includes any extra charges paid by the customers, car hire charges and other operating miscellaneous income. It has increased by 23% in FY 18 comprising of 1% of total revenue.
EXPENSES -1/6 • Purchases have increased by 42% in FY18, but the increase is not in alignment with the increase in revenue (16% overall increase in Revenue). • Purchases for Restaurant has increased by 48% the reason could be introduction of new restaurant in FY18. However, as a percentage to sales of Restaurant this is very high. Ideally this ratio is expected to be approx. 40%. However, we found this to be 75% and needs to be looked at. • Purchases for Housekeeping has gone up by 92% in the FY18, as per management remarks linen, bedsheets, pillow covers were purchased in FY18 and no such purchases were made in FY17.
EXPENSES – 2/6 • The other expenses broadly comprise of housekeeping expenses, marketing expenses and administrative & other expenses. • Laundry Expense comprise of hotel laundry and the guest laundry expenses. Laundry expenses have decreased by 21% in FY18 as compared to increase by 69% in FY17. It is noted that the laundry service provider is changed frequently due to service issues faced by the management. Although, the same is not inline with growth in room sales. Accordingly, it is advisable to review the terms of laundry service provider. • Overall the housekeeping expenses have decreased by 16% in FY18 mainly on account of laundry expenses in FY18 comprising major portion of Housekeeping expenses. • On comparison with industry norms, Housekeeping expense is generally 3%-4% of Total Revenue.
EXPENSES – 4/6 • Per the management remarks, entertainment & sight seeing expenses includes cable charges and the amount paid to the live artist performing in the restaurants. It has increased substantially in FY18 as compared to an increase of 69% in FY17 over FY16 comprising 2% of the total revenue in FY18 as compared to .4% in FY17 and .2% in FY16. The reason for increase in FY18 is that the artist are paid for performing in Moets restaurant in FY18, earlier there was no such events organized by the hotel. • Conveyance expenses have drastically decreased by 44% in FY18. • Advertisement & Publicity- Marketing expenses include the expenses paid by the hotel for participating in various events organized by the hospitality industry in different cities, to which the General Manager attends in order to advertise its hotel. The expense has gone down by 43% in the FY18. • Advertisement & Publicity- Other includes the amount paid to Mr. Mohit for running the restaurant Moets. The Moets restaurant was operational only in FY18 and prior to which no amount was paid to Mr. Mohit, hence the expense has increased in FY18 compared to FY17. • Commission expense includes the amount paid to travel agents for booking the rooms and is directly linked to revenue but in FY18 revenue has increased by 15.9% on the contrary Commission is increased by 89% in FY18 over FY17. Management should control this cost as it is 2.7% of the total revenue. • Overall the marketing expenses have been increased by 18.4% in FY18 as compared to 19.8% increase in FY17 over FY16 comprising 6.5% of the total revenue in FY18 as compared to 6.4% in FY17, 5.1% in FY16 and 2.7% in FY15. • As per the normal industry standards four and three star hotel, marketing expense comprise of 3% of the Total Revenue. Currently, Hotel is incurring 6.5% of Total Revenue which is almost double the standard rate.
EXPENSES – 6/6 • Other Administrative cost have overall increased by 2.8% in FY18 over FY17. • Increase in following important cost is observed in FY18: • Power and Fuel Expense 9.1%, Printing and Stationery 8.9% Security Charges 71.4% Professional and Consultancy Fees 59.3% and Repairs & Maintenance 58.5%. • The following points should be considered: • Power and fuel cost has increased due to increase in occupancy rate by 10% in FY18. Also, as per industry norms the power and fuel cost should be in range of 4%-5% of Total Revenue which is currently 9%. Management is suggested to connect the room air conditioner to room key so that is saves the power cost. Also controls should be laid down to ensure switching off electricity wherein its not utilized. Power meters can be installed at different places to track excess consumption. • Professional and Consultancy Fees has been increased in FY18 in comparison to FY17, to which the management explained that they hired the service of a bar consultant in FY 18 for the first time. • Repairs and Maintenance have significantly increased primarily due to- • Increase in repairs to plant & machinery expense by 55% in FY18 over FY17. • Repairs on Furniture has been made in the FY18, earlier no amount has been spend on furniture thereby increasing it 100% in FY18. • As per the normal industry standards of four star hotel, administrative expense comprise of 10.3% of the Total Revenue. Currently, Hotel is incurring 19.5% of Total Revenue. Management should take steps to curtail the expenses.
ANALYSIS SNAPSHOT • Revenue from operations is showing a positive trend over the period covered from FY15 to FY18, except for FY 17. The reason for increase in revenue is increase in number of room nights over period. • Although, the revenue is showing the increasing trend but the EBITDA is not moving in the same direction. EBITDA is decreasing which shows that the occupied nights is increasing but the ARR being charged by the hotel is not high. The Revenue Per available room night (RevPAR) i.e. the total number of room nights available in a year has increased over period covered except for FY 17.
OCCUPANCY • Hotel is currently operating at an occupancy of 83% as compared to 76%, 84% and 46% in FY17, FY16 and FY15 respectively. • Occupied Room Nights has increased by 10% in FY18 which has correspondingly lead to an increase in Room Revenue by 7% in FY18. • Occupancy for Deluxe and Sea View rooms in Q1 of FY18 has been reduced by 4% and 11.35% respectively in comparison to FY17. • It has been noted that, occupancy in FY17 for both Deluxe and Sea View has been reduced substantially in all the quarters except for Q1.
ROOM REVENUE • Room Revenue has increased by 7% in FY18 due to increase in occupied room nights by 10%, but the Average Room Rent(ARR) has been decreased by 3%. • Ideally the ARR in Q3 in comparable hotels of Goa is approx. 30% higher as compared to the average of Q1 and Q2. In this case it was a mere 19%. • Similarly Q4 is generally 20% higher, however in our case there was no difference. Hence, it can be concluded that we are not taking any advantage of the season period.
ROOM TYPE REVENUE • The ratio of deluxe to sea view Room is 71% and 29% respectively. • Revenue generated by deluxe room has increased by 17% in FY18 as compared to 0% and 76% in FY17 and FY16 respectively. ARR for deluxe room has increased by 7% in FY18. • Revenue from sea view room has decreased by 20% in FY18 due to decrease in ARR by 29% in FY18. Although the room night sold has been increased by 13% in FY18. • It is surprising to note that the ARR for sea view rooms is lower then deluxe rooms. Ideally the sea view rooms should have been positioned to be sold at a premium. However, it was noticed that the sea view rooms are being sold at a discount.
ROOM REVENUE ANALYSIS • The annual occupancy of the hotel stood at 83% in FY18 compared to 76%, 84% and 46% in FY17,FY16 and FY15 respectively. • The occupancy has increased by 10% in FY18 as compared FY17, but the ARR has been reduced by 3% correspondingly which is not in favour of the hotel. In FY17 the occupancy was reduced by 10% but then the ARR was increased by 8%. According to the Industry standards hotels in Goa, the average occupancy should be 72%.
ROOM REVENUE ANALYSIS Off Season Season The ARR of the hotel during season FY18 has been reduced by 9% over FY17 from INR 3,744 in FY17 to INR 3,416 in FY18. The hotel occupancy is 89% during season of FY18 over 77%,91% and 68% in FY17,FY16 and FY15 respectively. Revenue in FY18 increased due to number of rooms occupied during season FY18 increased by 16% compared to decrease by 15% in FY17. • The hotel has achieved 77% occupancy in FY18 during off season compared to 75% in FY17, 77% in FY16 and 24% in FY15. On account of increase in number of room nights occupied during off season by 4% in FY18. • In terms of Average Room Rent(ARR), there is 4% increase in FY18. The ARR has increased by 12% during off season in FY17. • The ARR of the hotel during off season FY18 stood at INR 3,150.
RATIOS Note:- The Hotel Market rate and amount has been obtained from the market research conducted by MARC. We compared the occupancy, ARR and RevPar of Hotel with the other competitive hotels. * RevPar or Revenue per available room night, is a performance metric in the hotel industry which is calculated by dividing a hotel’s total guest room revenue by the room count and the number of days in the period being measured. • Hotel has an occupancy of 83.15% (FY 18) which is higher than the average market occupancy of 77.50%. This can be due to the hotel selling rooms at lower average room rent than those quoted. • The ARR of Hotel is INR 3,293 (FY 18) which is way lower than the average market ARR of INR 5,041. This is because the management prefers to keep the rooms occupied in times of lower demand by selling the rooms at a lower price. • The Revenue Generation Index of Hotel is INR 2,738 which is very low compared to the average market Revenue Generation Index of INR 3,828. • It is suggested to management not to reduce the ARR below certain point as this is leading to lower profits.
OBSERVATION- Restaurant RESTAURANT • It has been observed that on various website and mobile applications, the information regarding the status of the restaurant is Incorrect as it says it has been “CLOSED”, which could be one of reasons resulting in lower footfalls.
SUGGESTIONS - RESTAURANT • Currently, Restaurant has majority of in-house customer and less of locals visiting the restaurant. • In order to attract the local crowd, management can introduce the following. • Transformation of Restaurant Into a multi cuisine restaurant. • Hold live screening of sports events like the ongoing World Cup, IPL, ISL etc. and offer packages of drinks and starter at reduced cost. • Improve on the quality of food served. • Themed restaurant can be introduced as the upcoming young generation is more keen on new things. • Introduction of Bollywood Night, Live Rock Music, Karaoke Night on different days. • Happy Hours and Thirsty Thursday can be introduced in the restaurant to attract local customers. • Membership cards with loyalty point system can be introduced by the management to attract customers. • First Floor section of the restaurant is lying idle and can be used as a play area wherein Pool Table can be placed there for attracting young crowd.
SUGGESTION – OPEN SPACE ON FIRST FLOOR • The weightage of clientele in Hotel comprises of 50% Business Corporates, 49% Domestic Tourist and 1% Foreign Tourist. • A Fitness Gym with basic equipment's like- Treadmill, Cycle, Weights and Bench can be introduced. Since it is generally noted that corporate delegates prefer maintaining their routine while at work to stay fit.
` SUGGESTION – BANQUET HALL • Hotel has a fully equipped business centre and meeting/function venue located at the 5th floor of the hotel with a beautiful sea view complementing to cater the needs of corporate clients. • Management has earned a revenue of INR 10 lacs (approx.) in the FY 18, currently this is only being booked by corporates and is advertised as a Business Centre. • Hotel does not have a significant revenue from banquet hall. As per Industry standard, a three star hotels in goa earns around 5% of its revenue from banquets and conferences. Hence efforts should be made to attract Group tourist/guest and small corporates to revive the revenue. • Management is suggested to advertise there banquet as a place which can be booked for Kitty party, Birthday party, Family Get-together etc. This can help earn revenue to the hotel in addition to the current corporate tie ups. • Management is also suggested to introduce Kids Menu at a lower per plate price in order to attract local people to celebrate there kids party. • The above suggestion will help the management to attain good occupancy of the banquet and revenue.
SUGGESTION – CATEGORIES OF ROOMS • Hotel has 5 rooms on each floor. Management currently has categorized its room into Sea View and Deluxe. • We observed that one room on each floor is bigger in size than rest of the rooms which can be sold at a slightly higher price. • Hotels' first floor room has big size veranda attached to the room which can be recreated to something new and can be sold off at a higher price than rest of the rooms. Management can have rope Restaurant in the big veranda and create partitions in order to have privacy. Management can create a nice sitting area in the veranda where customer can relax and ease out. • Conclusion - We suggest management to have five categories of room apart from two. The categories are- • Sea View • Deluxe • Premiere Sea View- Big in Size • Premiere Deluxe- Big in Size • Veranda/Balcao Room- First Floor Room with Big Balcony.
GENERAL SUGGESTION Electronic Key • It has been generally observed that customers usually reluctant to switch off the electricity switches. Linking room's AC power to the room's key card can save the electricity cost of the hotel. Spa • Spa helps oneself to disengaged from work, family and friends for few hours, it slows down and allows the body to re-generate. Thus keeping this in mind, management of Hotel can introduce a Spa Facility in there hotel which helps customer to relax, chill out and recharge.
GENERAL SUGGESTION Sign Board • Install a large glow sign board with the hotels name, since the current board is not visible. Balcony • Installation of full/partial separations between the balcony of rooms can be made for better privacy.
GENERAL SUGGESTION Advertisement • Management should aggressively advertise there restaurant using different medium like- newspaper, billboards, radio channels, business magazines, pamphlet distribution outside colleges, coaching centres etc. • Management should focus on building relation with other corporates to have delegates lunch in the restaurant. Special discount offers can be made available to corporates based on frequency of events held. Mini Bar • While conducting the market research of other competitive hotel in the nearby area, MARC found out that the other hotels does not maintain Mini Bar in there hotel room. • Per discussion with other hotel management it was noted that they serve customer on need basis since they have in house restaurant. • On the contrary, MARC noted that Hotel is maintaining huge stock of Mini Bar (in all rooms) thereby resulting in blockage of funds. • It is suggested that, mini bar should be provided as an added advantage to the room (Premier Sea View, Premiere Deluxe, Veranda/Balcao Room) so that it could fetch higher ARR to the hotel.
COMMENTS – SWIMMING POOL • The current swimming pool at Hotel is small and not suitable for adults to swim. • On comparing the swimming pool of Hotel with the swimming pools of its competitors, we observed that Hotel’s pool is 5 to 6 times smaller in size and unattractive. • This may be one of the reasons why tourists and corporates might prefer other hotels in the nearby vicinity with larger pools so that they can swim or relax comfortably. • Per discussion with management, we were informed that as per government regulations it is not possible to obtain the permission to make modification to the existing structure of the hotel. Thus the suggestion to have infinity pool or increase the existing size of the swimming pool is not justified.
OCCUPANCY COMPARISON • Hotel has a good occupancy rate throughout the year, but there are competitors like Goa International Hotel, Sandalwood Resort & Retreat & The Crown Goa that have an occupancy rate of 90%. However the occupancy is higher than the average market occupancy for FY 17. • The ARR of Hotel is very less in comparison to other competitor hotels, so It can be concluded that management can increase their ARR as other hotels are selling higher and also meeting the target of higher occupancy.
RATINGS OVERVIEW – BOOKING.COM • Hotel has below average ratings in all the key areas as compared to the competition. • Customer feedback should be considered and accordingly improvements could be brought in.
TRIP ADVISOR RATING – RESTAURANTS • In the areas of Food & Value, Hotel is on par with the competition. • It however falls behind its nearest competitors in the area of service. • This can be mainly attributed to the long time taken to prepare the dish, less number of waiters.
Thank You! Ashutosh Kharangate Managing Director Email: ashutosh@masgoa.com Mob: +91-9049990770
