Annual Report - 2008 - 2009 - Hotel Leela

HOTEL LEELAVENTURE LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

TO
THE MEMBERS

Your Directors have pleasure in presenting the Twenty-Eighth Annual Report
of the Company together with its Audited Statement of Accounts for the year
ended 31st March, 2009.

1. Financial Results:

The Company's performance during the year under review is summarised below:

Rupees in crores

Financial Year Financial Year
2008-09 2007-08

Income from Sales, Services and
other Income 582.16 589.10

Operating and other expenses
(before interest and depreciation) 296.58 284.90

Interest 26.73 35.56

Profit before Depreciation 258.85 268.64

Depreciation 63.29 49.09

Less: Withdrawal from
Revaluation Reserve 8.37 3.75

Less: Translation Difference
Account 10.47 -

Profit before Tax 193.45 223.30

Provision for Taxes/Fringe
Benefit Tax/Deferred Tax 47.58 73.18

Profit after Tax for the year 145.87 150.12

Prior Period Adjustments - Net (0.89) (1.56)

Profit of erstwhile Kovalam
Hotels Limited for the year 2006-07 - 1.43

Profit after Tax 144.98 149.98

Balance brought forward 201.44 193.39

Loss on erstwhile Kovalam Hotels
Limited for the Pre-amalgamation
period - (30.83)

Amount available for Appropriation 346.42 312.55

Appropriations:

Dividend on Equity shares 15.11 18.89

Tax on proposed Dividend 2.57 3.21

Transfer to General Reserve 11.00 89.01

Transfer to Capital Redemption
Reserve 30.00 -

Balance carried to Balance Sheet 287.74 201.44

EPS Basic (in Rs.) 3.84 3.97

EPS diluted (in Rs.) 3.13 3.11

2. Revaluation of Land Assets:

During the year, the Company had carried out revaluation of its land
properties by a reputed valuation consultant firm in order to assess the
intrinsic value of the same on the basis of realisable value as determined
by the valuer and the additional valuation amount has been credited to
revaluation reserves. The financial statement contain detailed particulars
and disclosures in this regard.

3. Buy Back of Foreign Currency Convertible Bonds:

During the financial year under review, the Reserve Bank of India
liberalized ECB Guidelines enabling the Companies to buy back their
outstanding Foreign Currency Bonds. Taking advantage of Liberalisation in
the global slowdown time, the Company managed to buy back a sizeable number
of its outstanding Euro and Dollar Bonds, which were issued by the Company
earlier, at a price substantially discounted as compared to the issue price
and the book value of the Bonds. The Bonds, bought back under the
'Automatic Route', were cancelled as per guidelines issued by the Reserve
Bank of India. The particulars of the repurchase and position of
outstanding FCC Bonds as on 31st March, 2009 are summarized below:

Particulars Euro Bonds US$ Bonds

Face Value Outstanding
Bonds as on 1.4.2008 * 51.40 Million US$ 100 Million

Face Value of Bonds * 12.20 Million US$ 33 Million
repurchased

Current Face Value of * 39.20 Million US$ 67 Million
Outstanding Bonds

Maturity Sep. 2010 April 2012

4. Issue of Secured Redeemable Non-convertible Debentures:

During the year under review, the Company has raised Rs.150 crores by issue
of Secured Redeemable Non-convertible Debentures on Private Placement Basis
from Institutional Investors/Banks for business needs. These NCDs have been
listed on the Wholesale Debt Market segment of the Bombay Stock Exchange
Limited. These NCDs are rated 'CARE A+' by Credit Analysis & Research
Limited, indicating adequate safety for timely servicing of debt
obligations and carry low risk.

5. Dividend on Equity Shares:

Your Directors are pleased to recommended a dividend of Rs.0.40 (previous
year Rs.0.50 per share) per equity share of Rs.2/- each, subject to the
approval of the shareholders at the ensuing AGM. The dividend would involve
a cash outgo of Rs.15.11 crores towards dividend and Rs. 2.57 crores
towards tax on dividend.

In terms of the Provisions of Investor Education and Protection Fund
(Awareness and Protection of Investors) Rules, 2001, the Company has
transferred unpaid/unclaimed dividends and principal/interest on debentures
aggregating Rs.10.29 lakhs to the IEPF during the financial year under
review.

6. Review of Operations:

The overall performance of the Company has been satisfactory during the
year under review considering the overall global economic slowdown. The
total income stood at Rs.582.16 crores (including income from discount on
redemption of Bonds) compared to Rs.589.10 crores in the previous year.

The revenues of the Company from its various units are summarized as under:

Rs. in crores

Name of the Unit 2008-09 Percentage Percentage
of revenue 2007-08 of revenue

The Leela, Bangalore 176.72 40% 215.49 43%
The Leela, Mumbai 145.49 33% 177.39 35%
The Leela, Goa 61.82 14% 60.94 12%
The Leela, Kovalam 53.67 12% 51.15 10%
Total 437.70 100% 504.97 100%

The Average Room Rates in the city of Bangalore came down by 12% and in
Mumbai by 6% during the year. However, the Company's overall ARR increased
by 8%. As in the past, this year also, the Company maintained its market
dominance in terms of revenue, ARR and Occupancy in Bangalore, Goa and
Kovalam.

7. Product Enhancement:

In our endeavor to be one of the best in its class, we continue to invest
resources in renovation and upgradation of our properties, service
standards and deploy the latest technological advancements.

Recently renovated 66 rooms, catagorised as Conservatory Rooms at our Goa
property are being very well received by our guests. Further enhancements
of facilities and renovation works at other rooms are also going on.

Health club and Spa at our Mumbai property were renovated during the year
with the contemporary technology and concepts in guidance with ESPA of
London. Lobby and some key public areas were also renovated at this
property.

The Company has also revamped and refurbished guest-rooms and public areas
at its Bangalore and Kovalam properties.

8. Marketing Alliances:

The Company has marketing alliances with Germany based Kempinski Group of
Hotels, US based Preferred Hotel Group effective June 2008, and is also a
member of Global Hotel Alliance based in Geneva, Switzerland.

The directors are pleased to announce that the Company has entered into an
alliance with Preferred Hotel Group whereby all our hotels from June 2008
have become members of this luxurious collection under their most premier
segment Preferred Hotels and Resorts. The other segments in Preferred Hotel
Group are Preferred Boutique, Historical Hotels of America, Summit Hotels &
Resorts and Sterling Hotels.

This alliance, amongst others, will derive benefits for the Company of
Preferred Hotels and Resorts branding, greater recognition of brand in the
USA as premium and luxury hotels, opportunity to leverage additional 29
Global Sales Offices in the USA, Singapore, Hong Kong, Japan and Australia;
preferred relationship with four of the largest consortia - American
Express, CWT, BCD and Hogg Robinson, and also lower commission on receipts
through American Express Credit Card, which will result in substantial
savings; opportunities to participate in many more road shows in our main
source markets. The alliance will assist the Company to acquire more
international business and improve our competitive positioning in the
market.

Towards our endeavor to introduce world-class standards, we had entered
into an agreement with ESPA of London, one of the leading Spa management
companies in the world. ESPA manages our Spas at Mumbai, Bangalore, Goa,
Udaipur, and Delhi.

9. Expansion/Up-gradation Plans:

India is one of the fastest growing tourist markets in the world owing to
its splendid historical architecture, rich heritage and ancient culture
along with beautiful beaches and rural tourism, and the inherently rooted
concept of hospitality in form of 'Atithi Devo bhava'. In India, the
tourism industry is bound to grow stronger post the present recessionary
trend.

At present, your Company operates six hotels at the locations viz. Mumbai,
Bangalore, Goa, Kovalam, Udaipur and Gurgaon comprising 1523 guest rooms
and 90 serviced apartments.

The Operations in Gurgaon commenced during the financial year 2008-09. The
opening of Gurgaon hotel and residences heralded the arrival of the Company
in the Delhi National Capital Region. This property, with 322 guest rooms
and suites and 90 serviced residences, is operated under the 'The Leela
Kempinski' brand. This contemporary designed hotel with large banquet halls
and state of the art facilities has been well received by the business
clientele.

The Leela Palace Kempinski, Udaipur 'The Jewel by the Lake' was inaugurated
in April 2009 by Shriji Arvind Singhji Mewar, the Maharana of Mewar, Shri
Deepak Parekh, Chairman of HDFC and our Chairman Capt. C.P. Krishnan Nair
in the presence of Board Members, other celebrities and entrepreneurs.

This elegantly luxurious resort has 86 guest rooms and suites and is
located on the bank of Lake Pichola. With the opening of this resort, your
Company has established its presence in the significant Rajasthan market.

The upcoming projects of the Company under various stages of development
are as follows:

The Leela IT Park, Chennai:

* The Company is constructing a world class IT Park 'The Leela IT Park' at
MRC Nagar, next to the Company's upcoming Hotel in Chennai. The
construction of the building, with 13 floors, is at an advanced stage of
completion. This property is expected to be operational during the current
year.

The Leela Palace, Chennai:

* The Company is constructing 'The Leela Palace' hotel at MRC Nagar,
Chennai, facing the Bay of Bengal. The construction of this hotel, with 380
guest-rooms, is at an advanced stage of completion and its soft opening is
planned in the year 2010.

The Leela Palace, New Delhi:

* In order to fulfill the long felt need to have a presence in the national
capital, the Company is constructing a hotel at the prestigious diplomatic
enclave of Chanakyapuri, New Delhi. The construction activity is being
carried out in full swing and every effort is being made to ensure a soft
opening by July, 2010 i.e. prior to the Commonwealth Games.

The Ministry of Urban Development, Government of India has increased the
FAR for all hotels in the National Capital Territory of Delhi from the
normal permissible FAR of 150 to 225. With the additional FAR being
utilized, this hotel of the Company would be of about 250 guest rooms and
suites instead of 206 guest-rooms and suites as planned earlier, resulting
in substantial reduction in the cost per guest-room; making the project
more economically viable.

Other Projects:

The Company has acquired seven acres of land in close proximity to the Taj
Mahal, Agra.

The projects in Agra, Hyderabad and Pune are expected to be taken up in due
course and are likely to be operational in 2012/13.

10. Audit Observation:

The explanation given in the Notes to Accounts is self explanatory.

11. Awards and Accolades:

The Company has received the following awards during the year 2008 and
2009:

* The Leela Palace, Kempinski, Bangalore was awarded The best Eco Friendly
Five Star Deluxe Hotel in the country for the year 2009 by the Government
of India.

* For the first time ever The American Academy of Hospitality Sciences has
honoured Capt. C.P. Krishnan Nair, Chairman with Lifetime Achievement Five
Star Diamond Award 2009 in recognition of him as a visionary
environmentalist and hotelier dedicated to promoting social corporate
responsibility.

* WTA 2008 for The Leela Palace, Kempinski Bangalore as 'India's Leading
Business Hotel'.

* The Leela Palace, Kempinski Bangalore in the Conde Nast Gold List 2008
for the 'Best Rooms' in the world.

* The Leela Kempinski Kovalam Beach was conferred the 'Best Culinary
Establishment in Kerala' by India Exhibition and Conference Services (IECS)
for a second consecutive year.

* Pevonia Asia Spa Award for the Best Ayurvedic Spa (Hotel), 2008 - Divya
Spa at The Leela Kempinski Kovalam Beach.

12. Management Discussion and Analysis (MDA):

As required by Clause 49 of the Listing Agreements with the Stock
Exchanges, Management Discussion and Analysis Report is appended herewith
and forms an integral part of this report.

13. Corporate Governance:

As required by Clause 49 of the Listing Agreements, a separate section
containing the Report on Corporate Governance together with the Certificate
on the compliance with the conditions of corporate governance issued by a
Practicing Company Secretary are appended hereto and they form part of this
Annual Report.

As part of good Corporate Governance, the Company has voluntarily obtained
a Secretarial Compliance Certificate from a Practicing Company Secretary in
respect of compliance of all rules, regulations under the various
applicable provisions of the Companies Act, 1956 and the applicable
regulations under the Listing Agreement entered into with the Stock
Exchanges. A copy of the said certificate is also appended to this report.

14. Directors:

In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Company, Mr. M. Narasimham, Mr. C.K. Kutty,
Mr. R. Venkatachalam, and Mr. P.C.D. Nambiar, Directors of the Company,
retire by rotation at the forthcoming Annual General Meeting and being
eligible, offer themselves for re-appointment. Brief resume of the
Directors proposed to be re-appointed stating the nature of their expertise
in specific functional areas, their shareholding along with other relevant
details are given at the end of the Notice of the Annual General Meeting.
The Board commends their re-appointment by the members at the forthcoming
Annual General Meeting.

None of the directors of the Company are disqualified from being appointed
as directors as specified in section 274(1) (g) of the Companies Act, 1956,
as amended.

15. Auditors:

M/s. Picardo & Co., Chartered Accountants, Statutory Auditors of the
Company, retire at the ensuing Annual General Meeting. They have confirmed
their eligibility and willingness for re-appointment. The Company has
received a certificate from the Statutory auditors to the effect that their
re-appointment, if made, would be within the limits prescribed under
section 224(1B) of the Companies Act, 1956.

The Board commends their re-appointment as statutory auditors.

16. Particulars of Employees:

Information in accordance with sub-section (2A) of Section 217 of the
Companies Act, 1956 read with the Companies (Particulars of Employees)
Rules, 1975, as amended, forms part of this Report. However, as per
provision of section 219(1) (b) (iv) of the Companies Act, 1956, the
reports and the accounts are being sent to all the shareholders of the
Company excluding the statement of particulars of employees. The Company
will make these details available upon request by any member of the Company
interested in obtaining them on writing to the Company Secretary.

17. Wholly-owned Subsidiary Companies and Consolidated Financial
Statements:

During the year under review, the Company acquired a private limited
company together with immovable assets owned by the said company, which
included land in Agra, suitable for constructing a five star hotel. The
said company viz. Iskon Estates Private Limited has become a wholly-owned
subsidiary of the Company with effect from 10th January, 2009.

During the preceding year, the Company incorporated nine wholly-owned
subsidiaries. Since the eight subsidiaries could not meet their business
objectives, they had voluntarily applied for striking off their names from
the Register of Companies maintained by the Registrar of Companies,
Maharashtra, which has been approved during the year and hence their
accounts are not prepared separately.

In terms of the approval granted by the Central Government under Section
212(8) of the Companies Act, 1956 vide its letter No.47/227/2009-CL-III
dated 17.4.2009, copies of the Balance Sheet, Profit and Loss Account and
other documents of the three wholly owned subsidiary companies have not
been attached to the Annual Report of the Company. The Company will make
available these documents upon request by any member of the Company
interested in obtaining the same. Further, these documents will also be
available at the Registered Office of the Company for inspection by any
member of the Company. As required under the aforesaid approval, a
summarized statement of financial position of the subsidiaries has been
appended to this Annual Report.

The Consolidated Accounts, prepared in accordance with the Accounting
Standard 21 and Clause 32 of the Listing Agreement form part of this Annual
Report. The relevant statement as required under Section 212 of the
Companies Act, 1956 about the wholly-owned subsidiary companies is also
given elsewhere in this Annual Report.

18. Fixed Deposits:

The Company has not accepted any deposits from the Public or from the
shareholders.

19. Directors' Responsibility Statement:

Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956,
the Directors hereby confirm that:

(a) in the preparation of the annual accounts, the applicable accounting
standards have been followed and there are no material departure from the
same;

(b) the Directors had selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as on 31st March, 2009 and of the profit of the Company for the
year;

c) they have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and

(d) they have prepared the annual accounts on a 'going concern basis'.

20. Additional information in accordance with the provisions of Section
217(1)(e) of The Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of the Board of Directors) Rules, 1988.

(a) Conservation of Energy and Water:

Energy conservation continues to receive the highest priority throughout
the year. The Company monitors energy costs and periodically reviews the
consumption of energy and water. It also takes appropriate steps to reduce
the consumption through efficiency in usage and timely maintenance /
installation/upgradation of energy saving devices, like building management
system, dimmers, energy efficient pumps, and so on, wherever necessary.
During the financial year under review, the Company had installed 5
(previous year 11) more wind mills to generate power (a non-conventional
energy source) in the State of Tamil Nadu. The Company also plans to
install 3 wind mills each in the State of Maharashtra and Karnataka during
the current fiscal year.

To conserve ground water, your Company has implemented appropriate
rainwater harvesting projects at its locations. The Company has also
encouraged and invested in systems for recycling and refuse of water.

(b) Technology Absorption:

In the opinion of the Board, the required particulars, pertaining to
technology absorption in terms of Rule 2 of the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 are not
applicable as the hotel forms a part of the service industry and the
Company does not have any significant manufacturing operations.

(c) Foreign Exchange Earnings and Outgo:

The Company has a strong commitment towards international business and
continues to be a huge net contributor of foreign exchange. The particulars
of foreign exchange earnings and outgo are given in the notes to accounts
on page no. 69.

21. Acknowledgements:

The Board wishes to place on record its appreciation for the continued
support and co-operation received from the Government of India, especially
the Ministry of Tourism, the Airports Authority of India, various
Government regulatory authorities, Stock Exchanges, Financial Institutions,
Banks, State Governments of Maharashtra, Goa, Karnataka, Kerala, Tamil
Nadu, Rajasthan, Haryana, Andhra Pradesh, Uttar Pradesh, NCT Delhi and also
the Kempinski Group of Hotels, Preferred Hotel Group and Global Hotel
Alliance and other business and referral associates.

Your directors take this opportunity to express their sincere thanks to all
the investors, shareholders and stakeholders for the faith and confidence
they have reposed in the Company.

Your directors attribute immense importance to the contribution of our
family of staff - the people who work so loyally to give intrinsic values
to 'The Leela' brand. On behalf of the Board, I thank The Leela Team for
sharing our vision and philosophy; and for the dedication and commitment at
all levels to ensure that we remain in the forefront of our competitive
industry as one of the finest Hotel Groups in India.

On behalf of the Board of Directors

Place : Mumbai, Capt. C.P. Krishnan Nair
Date : 27th June, 2009 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS:

INDUSTRY STRUCTURE AND OUTLOOK:

The economic meltdown in the U.S., Europe and rest of the world has
affected the travel and tourism industry worldwide and in particular the
hotel Industry during the year 2008-2009.

The 26/11 attack in Mumbai further accumulated the problem and prompted a
number of foreign governments to issue travel advisories against travel to
India. As a result, the hotel Industry saw a marked drop in occupancies and
revenues. The growth in foreign tourists' arrivals which had recorded an
annual increase of about 13% in the last 3 years was down to 6% in 2008-09.

Due to several ways of cost-cutting measures adopted by the business
enterprises and others worldwide, travel to India and incomes of hotels may
continue to be affected during the current year too, until the recession in
the U.S., Europe and the rest of the world shows signs of abatement.

In India, the recent elections culminated in a stable Government, which
promises to deliver a slew of pro-active reform measures in its first 100
days in office. Thereafter, as reflected in the election manifesto, with
the proposed measures the Indian economy is poised to get a kick-start.
Also, the fiscal and monetary measures announced by the Government earlier
and the RBI in recent months are already showing its positive effects in
the economy. The Budget for 2009-10 is also expected to announce liberal
measures in the areas of F.D.I. limits, disinvestment in P.S.Us., etc. The
hotel industry is also hopeful that its long standing demand for inclusion
of hotels as an 'Infrastructure facility' under the Income Tax Act would be
accepted by the Government. It is expected that the economic growth rate in
India will be at a higher than the other emerging economies. This should
have a positive impact on the hotel industry with prospects for larger
number of business travelers and tourists.

Except for second half of fiscal year 2008-09, the travel and tourism
Industry in India has witnessed significant growth over the last several
years and that the economies get on to a higher growth trajectory.
According to a study by The World Travel and Trade Council, India is the
third fastest-growing tourist destination in the world. Another survey
conducted by a world-renowned consultancy firm has ranked India second in
the 'value for money index' in the tourism sector.

As the travel and tourism sector continues to remain one of the largest
economic activities in the world, with the hotel Industry providing
employment to 53 million people in the country, the highest in any sector,
the tourism industry is bound to bounce back as the global financial
conditions improve. It is expected that in the second half of the current
financial year, the global crisis is expected to begin easing and that the
economies get on to a growth trajectory. A recovery on financial situation
worldwide, it is hoped, would set the trend for increased business visits
and tourists' arrivals in India.

At present, there are about 1.2 million hotel rooms in India, of which the
star category hotels account for a mere 80,000 rooms. The country needs a
large number of premium hotel rooms and related infrastructure to meet the
demand as the situation gains momentum from the present situation. It is
expected that the travel and tourism sector, which contributes 6.1% to
India's gross domestic product (GDP) would generate further employment
opportunities. It is hoped that the tourism industry will be provided with
incentives to bridge shortfalls in guest rooms by granting to it the
'Infrastructure' status under Section 80IA of the Income Tax Act, as it is
the case with Airports, Ports, etc. The grant of such status would enable
the hotel industry to avail of long-term financial assistance from term
lending institutions with longer repayment schedules and moratorium period
since hotels are highly capital intensive by nature, especially because of
the spiraling land costs. It would also enable hotels to plough-back
profits that are tax exempt up to 100% for the first 10 years under this
Section for deploying further resources for setting up newer hotels.

The Commonwealth Games in October 2010 in New Delhi is expected to give a
fillip to the tourism industry. An estimated 30,000 guest-rooms are
required for this event in the National Capital Region of Delhi, in
addition to the existing 11,000 guest-rooms, to house the foreign visitors
visiting Delhi during the Commonwealth Games. It would also benefit other
tourist destinations, as a number of these visitors would also be likely to
undertake trips to such locations.

THE LEELA - DYNAMISM IN OUR STRIDES:

At present, your Company operates six hotels at Mumbai, Goa, Bangalore,
Kovalam (Kerala), Udaipur and Gurgaon totalling to 1,523 guestrooms and 90
serviced apartments.

The operations of the Gurgaon hotel commenced during the financial year
2008-09. The opening of Gurgaon hotel and residences heralded the arrival
of the Company in the Delhi National Capital Region. This property, with
322 guestrooms and 90 serviced residences, is operated by the Company under
the 'The Leela' brand.

The Leela Palace, Udaipur, was opened in April 2009. This resort is
strategically located on Lake Pichola. With the opening of this resort,
your Company has established its presence in the significant Rajasthan
market, which is part of the Golden Triangle.

The Company is making all-out efforts to commission its next hotel at
Chanakyapuri, New Delhi, again very strategically located near the
Diplomatic Enclave. It will have 250 guestrooms and suites and all the
facilities of a world-class luxury hotel. This hotel is scheduled to open
before the start of the Commonwealth Games in New Delhi.

The Company's Chennai hotel with 380 guest-rooms and suites facing the Bay
of Bengal is also being implemented and is expected to be ready for
operations in mid-2010.

The Company has already acquired land in Agra, Hyderabad and Pune. These
projects will be taken up in a phased manner after completion of the New
Delhi and Chennai projects.

With the completion of the projects at New Delhi and Chennai, the Group
will have eight properties, and with 2,703 guest-rooms in the luxury
category. It is Company's endeavors to ensure that all its hotels prove to
be market leaders in each of the locations, it operates.

Marketing Alliances:

The Company has Sales and Marketing alliances with Kempinski Hotels,
Europe's oldest Hotel Group, established in 1897, and is also a member of
The Global Hotel Alliance based in Geneva, Switzerland, which is an
alliance of high profile independent hotels worldwide.

The Company has entered into an alliance with Preferred Hotel Group whereby
all our hotels from June 2008 have become members of this luxurious
collection under their most premier segment Preferred Hotels and Resorts.
This will enable our hotels to acquire greater recognition of this brand in
the USA as premium and luxury hotels and would give opportunity to leverage
further 29 global sales offices in the USA, Singapore, Hong Kong, Japan and
Australia among others. This will also facilitate our relationship with
four of the largest consortia - American Express, CWT, BCD and Hogg
Robinson.

Towards our endeavor to introduce excellent facilities, we have entered
into an agreement with ESPA of London, one of the leading Spa management
companies in the world, for our Spas at Mumbai, Goa, Udaipur, New Delhi and
Chennai.

Risks and Concerns:

(i) General economic conditions:

The hotel business is dependent on global economic conditions as well as in
India. This sector has been affected by the global economic recession and
its revival is dependent on several economic factors all over the world.
Local market conditions, excess hotel room supply in some cities, reduced
international or local demand for hotel rooms, government policies and
regulations on taxation, etc. do affect the hotel business.

(ii) Socio - political risk:

In addition to the economic risk, your Company faces risks from the socio-
political environment internationally as well as within the country. As a
result, threat of terrorist activities, occurrences of infectious diseases,
natural calamities and so on, may affect the flow of foreign tourists to
India.

However, the UPA Government's second term augurs well for the political
stability and for introduction of economic reforms, which should give the
economy a much-needed kick-start for revival.

(iii) Competition from International Hotel Chains:

Having witnessed a high growth rate, the Indian subcontinent has become the
focus area of major international hotel chains. Several global players have
announced their plan to have tie-ups with developers and investors to
benefit from the demand-supply imbalance. These entrants are expected to
intensify the competitive environment. However, some of them have either
deferred or even sold the same considering the prevailing liquidity crisis
and overall market conditions.

(iv) Increased outbound travel:

Due to overall competitiveness of international airfares and higher
disposable income available with travellers, destinations such as, Europe,
Southeast Asia and Australia have become more affordable to domestic
travellers. This has increased the number of outbound travellers and it is
bound to present a mild risk to the hotel industry in India. In fact, the
number of outbound travellers from India has crossed about 7 million,
whereas the number of inbound foreign travellers to India is only about 5.1
million.

(v) Foreign exchange fluctuation risks:

Your Company keeps a close watch on its foreign currency exposure and
hedges currency risks in consultation with its advisors. Net foreign
currency and derivative instruments exposures are reviewed regularly.

Risk Management - Leveraging Our Experience:

Risk management is an integral part of the Company's business process. With
the help of experts in this field, risks are carefully mapped and a risk
management framework is evolved. Pertinent policies and methods are set
forth to mitigate such risks.

To counter risk from growing competition, your Company is renovating and
continuously repositioning its properties. It is also improving its service
standards, in consultation with international experts, to provide
exceptional services, consistently, across all its hotels.

Efficient Internal Control Systems:

Your Company has two prominent firms of Chartered Accountants as its
Internal Auditors. These firms carry out in-depth internal audits for each
operating unit. The detailed process of review not only ensures reliability
of control systems and compliances with applicable legislation, defined
policies and processes, but also reviews efficiency of systems and ensures
safeguarding of tangible and intangible assets. The Audit Committee of the
Board reviews the findings of the Internal Auditors and closely monitors
the implementation of their recommendations, by reviewing the compliance
reports furnished.

Human Resources and Industrial Relations - The Intangible Imperatives:

Your Company attaches highest importance to human resources and it focuses
on developing a performance culture throughout the organisation. Some of
initiatives undertaken by the Company, in this regard, are as follows:

* Performance Management System (based on Balanced Score Card) to measure
objectively the achievement in Key Result Areas.

* Variable salary package linked to performance.

* Providing opportunities to high performers for attending training
programmes and additional exposures.

* Web-based rewarding system called 'GEMS' (Guest Expectations: Manage and
Serve) with the objective of identifying high performers in guest services
and to reward innovative suggestions to improve guest services.

* Employee Satisfaction Surveys, with the help of internationally
recognised agencies to seek constant feedback from the employees to
ascertain their level of satisfaction and also to ensure that the employee
morale and motivation levels remain high.

* Several initiatives have been started in all the units of your Company
involving the employee as an individual; employee and his family; and
employee and the society. This has resulted in more engaged employees
leading to higher guest and employee satisfaction.

* Strengthening of the existing, 'Leela Management Training Program' as
well as a state-of-the-art facility called the 'Leela Centre for
Excellence', have enhanced your Company's capability to develop promising
talents and to attract young budding catering college graduates as well as
MBAs. This is also aimed at providing them with in-house training, so that
they can fill the requirements of the Company, due to its rapid expansion
plan. It is finally the high standards of service and operational
excellence, rendered by the dedicated employees of your Company that
enables it to be amongst the lop performing hotels in the country.

Industrial relations throughout the year were cordial in all units of the
Company. Periodic wage settlement agreements were entered into, with staff
representatives and unions at the units.

As on 31st March, 2009 the Company had 2,689 employees.

Cautionary Statement:

Statements made in the Management Discussions and Analysis, describing the
Company's objectives, projections, estimates, predictions and expectations
may be 'forward-looking statements', within the meaning of applicable
securities laws and regulations. As 'forward-looking statements' are based
on certain assumptions and expectations of future events over which, the
Company exercises no control, (he Company cannot guarantee their accuracy
nor can it warrant that the same will be realized by the Company. The
Company assumes no responsibility to publicly amend, modify or revise any
forward looking statements on the basis of any subsequent developments or
events or for any loss any investor may incur by investing in the shares of
the Company based on the 'forward-looking statements'.

Operating Performance and Financial Results:

The financial statement of your Company forms part of the annual report for
2008-09, the highlights of which are given below:

(i) Revenues:

The total revenue of the Company decreased by 12%, from Rs.589 crores to
Rs.517.52 crores, excluding extra ordinary income on discount on Redemption
of Bonds of Rs.64.64 crores.

Room and rental revenues decreased by 14%, from Rs.347.62 crores to
Rs.299.12 crores. The Average Room Rate (ARR) decreased by 4%, from
Rs.12,138 to Rs.11,610.

The Food and Beverage revenue decreased by 10%, from Rs.130.11 crores to
Rs.117.54 crores.

(ii) Operating expenses:

The operating expenses decreased by 4% to Rs.296.32 crores.

(iii) Earnings before Interest and Depreciation:

The KBIDTA decreased by 30%, from Rs.228.08 crores to Rs.159.04 crores.

(iv) Interest and Depreciation:

Interest Cost was reduced from Rs.35.56 crores to Rs.26.73 crores.

Depreciation for the year was Rs.54.92 crores against Rs. 45.34 crores in
previous year.

(v) Profit before Tax:

The Profit before Tax decreased by 13%, from Rs.223.30 crores Rs. 193.45
crores.

(vi) Profit after Tax:

The Profit after Tax, for the year 2008-09, decreased to Rs.144.98 crores,
from Rs.149.98 crores of 2007-08, declined merely by 3%.

Balance Sheet:

(i) Share Capital:

There was no change in the Share Capital of the Company, which stood at
Rs.75.56 crores, same as of the previous year.

(ii) Secured Loans:

Secured loans of the Company have increased to Rs.1818.62 crores, from
Rs.1291.11 cores on account of borrowing for various ongoing projects and
restatement of foreign currency term loans.

(iii) Unsecured Loans:

Unsecured loans have decreased to Rs.630.88 crores, from Rs.744.54 cores,
on account of buy back of outstanding Foreign Currency Bonds.

(iv) Fixed Assets:

The gross fixed assets of the Company have increased by Rs.1,809.08 crores
due to capital expenditure for the on going projects and capitalization of
exchange fluctuation on foreign currency term loans of Rs. 175.40 crores
and revaluation of land to the extent of Rs.1033.26 crores.

(v) Investments:

Increase of Rs.45.95 crores in the investments of the Company is mainly due
to acquisition of M/s. Iskon Estates Private Limited, which has since
become a wholly-owned subsidiary of the Company.

Persons constituting group coming within the definition of 'group' as
defined in the Monopolies and Restrictive Trade Practices Act, 1969 for the
purpose of regulation 3(1)(e)(i) of the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997,
includes the following:

1. Leela Lace Holdings Private Limited.

2. Leela Lace Software Solutions Private Limited

3. Leela Fashions Private Limited

4. Leela Scottish Lace Private Limited

5. Mrs. Laxmi Nair

6. Mrs. Madhu Nair

7. Ms. Amruda Nair

8. Krishnan Nair Leela Family Trust

9. Capt. C.P.K. Nair (in his individual capacity and as trustee of Krishnan
Nair Leela Family Trust)

10. Mrs. P.V. Leela Amma (in her individual capacity and as trustee of
Krishnan Nair Leela Family Trust)

11. Mr. Vivek Nair (in his individual capacity and as trustee of Krishnan
Nair Leela Family Trust)

12. Mr. Dinesh Nair (in his individual capacity and as trustee of Krishnan
Nair Leela Family Trust)

SECRETARIAL COMPLIANCE REPORT:

CIN : L55101MH1981PLC024097
Nominal Capital : Rs.180 Crores

To
The Board of Directors
Hotel Leelaventure Limited Mumbai.

We have examined the registers, records, books, forms, returns and
documents of Hotel Leelaventure Ltd. ('the Company') as required to be
maintained under the Companies Act, 1956 ('the Act'), the rules made there
under and also the provisions contained in the Memorandum and Articles of
Association of the Company ('the requirements') for the year ended 31st
March, 2009. Based on our examination as well as information and
explanation furnished by the Company to us and the records made available
to us, we hereby report that:

1. The requisite statutory registers and other records required under the
Act and the Rules made thereunder have been maintained in accordance with
the Art either in physical and electronic mode as applicable.

2. The requisite forms, returns and documents required under the Act and
the Rules made there under to be filed with the Registrar of Companies and
other authorities have been duly complied with.

3. The Company has a Board consisting of 15 members.

* Board of Directors: The Board has met 6 times and the minutes have been
recorded properly in the minutes book maintained for the purpose.

4. As required under the Listing Agreement and Companies Act, the Company
has the following Committees:

* Audit Committee: The Committee has met 5 times during the year under
review. The minutes are properly recorded.

* Share Transfer and Investors Grievance Committee: The Committee has held
two meetings and the minutes are properly recorded.

* Remuneration Committee has met once to decide about the appointment of
three relatives of the directors in the employment of the Company. The
necessary approval under Section 314 is to be obtained at the Annual
General Meeting to be convened.

5. The Annual general meeting for the year 2007-08 was held on 16th August,
2008. The minutes of the meeting have been properly recorded in the minutes
book maintained for the purpose.

6. The re-appointment of directors, who retire by rotation, has been made
in accordance with the Act.

7. Due disclosures under the requirements of the applicable statutes have
been made by the Company. The Company has also complied with the
requirements in pursuance to the Listing Agreements with the Stock
Exchanges. The Company has complied with SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations 1997 as amended from time to time. The
Company has filed statements with the Stock Exchanges under the regulation
8 (3) of the said Regulations within 21 days from 31st March, 2009 and from
the book closure date for the purpose of payment of dividend for the year
ended 31st March, 2008.

8. The Company has complied with the requirements of the Depositories Act,
1996 as amended pertaining to dematerialization of shares and wherever
required, share certificates have been issued and delivered to shareholders
within the statutory period and the transfers / transmissions thereof have
been carried out and registered as per the requirements.

9. The split shares for the split of one equity share of Rs.10/- each into
5 shares of Rs. 2/- each were exchanged for those shareholders who were
holding the shares in physical mode. The new certificates are being
exchanged as and when shareholders submit their old share certificates.

10. During the financial year, the Company has bought back Foreign Currency
Convertible Bonds of the face value of Euro 12.20 million and US$ 33
million under Automatic Route in compliance with applicable ECB Guidelines
as amended.

11. Declaration and payment of dividend during the year under review and
transfer of monies lying in unclaimed dividend account to the Investor
Protection and Education Fund, wherever applicable, have been duly complied
with as per the requirements of the Act.

12. The Company has complied with the provisions of Section 293(1) (a) and
293(1)(d) of the Act in respect of monies borrowed from financial
institutions and banks.

13. Charges created / modified / satisfied by the Company were notified to
the ROC and were entered in the Register maintained for the purpose during
the financial year ended 31st March, 2009.

14. The Company has complied with the provisions ol section 372A and other
provision of the Act in respect of guarantees given, loans granted to
companies including subsidiaries and investments by way of equity shares
made in subsidiaries and other companies during the financial year ended
31st March, 2009. The Company has, wherever required, obtained the
necessary approvals of the Board, Committee thereof, shareholders, the
Central Government or other authority(ies) as per the requirements of the
Act.

15. The Company has not accepted any Fixed Deposits during the year under
review. The dividend declared for the financial year ended 31s1 March, 2008
has been paid during the year under review. The Annual Return and the
Annual Reports have been filed with the ROC as required under the Act. The
Company has, therefore not defaulted in any of the Provisions of Section
274 (1) (g) of the Act, which would otherwise disqualify the Directors of
the Company from acting as a Director of any other Company.

16. The Company has complied with the relevant clauses of the Listing
Agreement with the Stock Exchanges pertaining to submissions of the
statements, documents, disclosure requirements, publication in newspapers,
press releases, Corporate Governance standards as prescribed in clause 49,
within the time limit specified in the Listing Agreement.

17. The Company has complied with the relevant provisions of SEBI
(Prohibition of Insider Trading) Regulations 1992 as amended from time to
time. The Company has within the time limit specified in the Regulations,
submitted the information received from the employees/directors/
stakeholders as shareholders with regard to any purchase or sale in excess
of requisite percentage of the paid up share capital to the Stock
Exchanges.

18. The Company has also instituted the Code of Conduct for Directors and
other Senior Executives of the Company and has complied with the said Code
as required under the Clause 49 of the Listing Agreement.

For V. Sundaram & Co.

V. Sundaram
Place : Mumbai, Practicing Company Secretary
Date : 27th June, 2009 COP - 3373