ANNUAL REPORT 2000-2001 TOURISM FINANCE CORPORATION OF INDIA LIMITED CHAIRMAN'S STATEMENT Chairman's Statement for the 12th Annual General Meeting to be held on the 10th September. 2001 WELCOME Ladies & Gentlemen. It gives me great pleasure to extend to you all a very warm and cordial welcome on behalf of the Board of Directors and on my own behalf, to the 12th Annual General Meeting of Tourism Finance Corporation of India Ltd. (TFCI) PERFORMANCE DURING 2000-2001 The 21st century is the era of the 'New Economy', the economy of intense competition, falling margins and rising customer expectations. After one decade of liberalization and reforms Indian financial sector is still undergoing a metamorphosis,increasingly realising the importance of developing the cutting edge in its core business domain and at the same time covering the flanks through extending its presence in non-traditional areas. Indian economy showed a relatively strong path during the year. Sustained economic growth, a low rate of inflation, a downtrend in interest rates, a stable balance of payment position and depreciation of the rupee were the main features of economy. The growth rate of Indian economy during the year, as measured by GDP, is estimated to be 5.21% as against 6.4% during 1999-2000 and 6.6% during 1998-1999. The growth wa mainly contributed by the service sector which recorded a growth of 7.7%. It is estimated that tourism account for more than 8% of world exports and 30% of international trade in services. The hotel and tourism has been identified as the second most competitive industry in -India after IT which can successfully compete in the global market and has potential to grow in the global scenario. The performance of hotel industry in terms of occupancy has marginally improved during the current year. The industry has also seen an increased preference for budget hotels over luxury segment hotels. Budget hotels are expected to be the fastest growing sector and is also expected to attract better growth rates in the next few years. TFCI with its strong corporate franchise, in-depth knowledge of the Tourism Industry and Indian Financial sector is uniquely positioned to take advantage of this opportunity. The effect of the recent economic slowdown in US is felt in the Indian industry and trade also. Consequently hotels in the luxury sector are noticing an unnerving trend causing concern. Corporate travel from US is expected to go down by 15% in the current year compared to previous year though leisure travel is to remain stagnant. Further, due to lack of new business initiatives the corporate travel has been reduced and the addition of new capacity in rooms has also made the market more competitive . This has been putting pressure on the ARRs of some of the class hotels resulting in lower margins for them. Due to the over all slowdown in the industry the disbursement during the year had declined to Rs. 60.73 crore as compared to Rs. 111.71 crore in the preceding year. However, the sanctions during the year had increased to Rs. 105.55 crore as against Rs 82.42 crore during the previous year. TFCI has, till now, cumulatively catalysed investments of over Rs. 7279.39 crore to tourism related projects. The assistance provided by TFCI since its inception is expected to result in cumulative addition of 28295 hotel rooms besides up-gradation of other tourism related facilities 8 services. Your Corporation has not only funded hotel projects but also a variety of other tourism related projects like Rope-ways, Multiplex, Cruise,Water Parks, Air Facilitation Centers, Amusement Parks, Entertainment Centers etc. These investments are expected to generate a direct employment to about 57273 persons in these projects. Notwithstanding the difficulties in the operating environment, your Corporation, by virtue of maintaining the quality of business and effective follow-up, had been able to record a total income of Rs.137.53 crore during the year (previous year Rs.141.32 crore). It earned a pre-tax and post-tax profit of Rs. 15.67 crore (Previous year Rs. 19.89 crore) and Rs 12.81 Crore (previous year Rs. 15.60 crore) respectively. Your Corporation's net- worth has increased from a level of Rs.150.12 Crore at the end of the previous year to Rs. 154.16 Crore as at the end of March 2001. The Capital Adequacy Ratio (CAR) of your Corporation as on 31st March, 2001 was at 18.64%, as compared to 16.3% during last year, which is well above the RBI's prescribed norm of 9%. The Return on Average Assets was 1.36%, Return on Net Worth was 8.31% and the Debt: Equity ratio was 4.38 :1, indicating strong financial ratios of your Corporation. RESOURCES During the year, your Corporation had successfully raised resources aggregating Rs.108.80 crore by way of private placement of bonds. Your Corporation had redeemed bonds aggregating to Rs.228.54 crore (by exercising the call option Rs.98.66 crore and on redemption dates Rs.129.88 crore) and also repaid the line of credit availed from the institutions to the extent of Rs. 33.75 crore Your Corporation is constantly exercising the call options on bonds with a view to reducing the cost of funds and to optimize the returns. DIVIDEND As recommended by the Board, your Corporation proposes a dividend @ of 10% for the year 2000-01. CORPORATE GOVERNANCE POLICIES Transparency and accountability leading to management reliability are the cornerstones of corporate governance. Your Corporation has consistently been practising good Corporate Governance with a view to enhance the value to all stakeholders, provide transparent atmosphere in business dealings. Your Corporation has well defined system of functioning, professionalism and accountability. The integration of the Indian economy with the global economy implies that Corporate Governance will assume new dimensions and added significance. During the year 2000-01 the Board met seven times. The Audit Sub-Committee constituted by the board comprises of 3 Non-Executive Directors. The committee peruses internal audit reports, RBI inspection reports, statutory audit reports and reviews internal controls and systems, corporate accounting and reporting practices and also reviews the accounts of the company, before being presented to the Board every quarter. Your Corporation has been complying with all the recommendations in this regard and modification / improvement would be considered as and when it is felt necessary. GROWTH PERSPECTIVE IN TOURISM INDUSTRY Tourism is now firmly established in many countries as the fastest growing economic sector and also as a principal source for foreign exchange earnings and employment. Its multiplier effect ripples solidly through the economy and its high value added nature generates an increasing flow of capital. The future is expected to witness a growth making travel and tourism not only the biggest industry in the world but also as the most potent tool for development and propagation of peace. Tourism plays a prominent role in modern socio-economic system. Its importance as an instrument of economic development with equity and employment generation is well recognised, besides a critical foreign exchange earner. Travel and Tourism provide direct and indirect employment for over 220 million people, accounts for about 12% of the global work force. Over 8 million persons, roughly 2.5% of the total labour force in India find their livelihood from this segment of industry. According to WTO, world tourism grew by an estimated 7.4% in the year 2000 spurred on by a strong global economy and special events like Summer Olympics, European Football Championship, World Expo 2000 etc. held to commemorate the new millennium. "Tourism at the turn" of the century had grown faster than expected. All regions of the world hosted more tourists in the year 2000. Increasing number of tourists were found seeking exotic destinations in India. Eventually the total tourist arrivals to the country during the calendar year 2000 experienced a healthy growth of 6.4% over that of the previous year. India having established itself as a treasure of IT intellectuals, "export of software" has in the recent past relegated tourism from second to third position in export earning. However, there is growth in global tourism, inspite of the global economic slowdown. Tourism Industry is expected to record a growth of 4.1% in the year 2001, after consolidating the earlier growth of 2000. Unlike I.T. Industry, Tourism & Hospitality Industry provides jobs and opportunities to all categories of people. It is an important instrument for sustainable human development including: Poverty elimination, Environmental regeneration, Job creation and Advancement of women and other disadvantaged groups. Another important feature of the tourism industry, which is of particular significance to India, is its contribution to national integration and environment of social and cultural lives of people. Over 100 million domestic tourists visiting different parts of the country every year return with a better understanding of the people living in different regions of the country and observe unity in the cultural diversity of India. Tourism also encourages preservation of monuments and heritage properties and helps the survival of art forms, crafts and culture of the rural areas. Tourism has been identified as a rapid growth area by the Government and appropriate measures are being taken for its development. The central and the state governments have initiated measures for exploiting the economic potential of tourism by conducting awareness programs / cultural events etc. Larger budgetary allocation have been made for creation of better infrastructure facilities and use of information technology. Private investment has been encouraged in tourism sector including hotels. Enlargement of scope of tourism related activities etc. which is expected to give a boost to the tourism industry enabling it to attract more tourist in the country in future, is an on going efforts of the authorities. TFCI is uniquely positioned to take advantage of this opportunity. Present spell of global economic slowdown is expected to end soon. Globalization of markets and expected higher rates of growth of the Indian economy are bound to raise the demand for quality accommodation. The present room availability is around 70,000 rooms. The target set by the Government is around 1,30,000 rooms to cater to the projected tourist arrivals of atleast 5 million by 2005. To achieve this target in time, entrepreneurs should take the advantage of the economy and revive their initiative and gear up their activity. Your Corporation is equipped with the skills and expertise, developed over the years, as a leading financial institution in tourism sector, to guide and assist the prospective entrepreneurs to accomplish their goals. Importance given by the Government to the tourism industry is evident from the incentives and reliefs offered by the central and the state government. With the revival of economy, the tourism industry is expected to gain considerable growth momentum. Government also desires a strong private sector participation for infrastructure development, that is one of the major factors for the growth of tourism in the country. Hotels being an important part of infrastructure, your Corporation has been playing significant role in the establishment of hotels and the other centers of tourist attraction. In short the bright future for the Tourism sector is growth for your Corporation too. ACKNOWLEDGEMENTS I am thankful to the Government of India, its various Ministries, Departments, Reserve Bank of India, the all India Institutions and the Banks for the valuable cooperation and guidance received. I am grateful to all my colleagues on the Board for their guidance, continued inspiration and wise counsel. Their unstinted cooperation and invaluable support all along has gone a long way in shaping this institution. On behalf of the Board and on my own behalf, l also wish to thank the esteemed shareholders/bondholders of TFCI for the ample trust reposed by them in the management and members of the Board. Lastly, l would like to express my sincere and deep appreciation for the dedication, devotion and commitment with which the staff of TFCI at all levels have worked during the period, thereby posting a satisfactory performance by TFCI I heartily congratulate them all. I am sure that TFCI in the coming years, will continue to receive the inspiration, help and co-operation from all concerned, as has been hitherto. This would help the corporation to grow still further in the years to come. Thank you. September 10, Z001 (P.V. NARASIMHAM) New Delhi CHAIRMAN