Annual Report - Mahindra Holidays and Resorts - 2009-2010

MAHINDRA HOLIDAYS AND RESORTS INDIA LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Dear Shareholders

Your Directors are pleased to present their Fourteenth Report together with
the audited accounts of your Company for the year ended 31st March, 2010.



Financial Highlights
(Rs. Lakhs)
2010 2009
INCOME
Income from Vacation Ownership 40,031 34,277
Other Income 7,300 5,295
Interest Income 4,306 4,859
Total Income 51,637 44,431
Expenditure
Less: Employee Cost & other expenses (31,600) (28,869)
Profit before Depreciation, Interest and Taxation 20,037 15,562
Less: Depreciation (1,910) (1,669)
Interest (455) (703)
Profit for the year before tax 17,672 13,190
Less: Provision for Tax-Current Tax (5,505) (3,905)
- Deferred tax (net) (383) (589)
- Fringe Benefit tax - (355)
Net Profit for the year after tax 11,784 8,341
Balance brought forward from earlier years 10,369 5,612
Balance carried forward 22,153 13,953
APPROPRIATIONS
General Reserve (1,178) (834)
Proposed Final Dividend on Equity Shares (3,369) (2,351)
Income Tax on Proposed Final Dividend (560) (399)
Surplus carried to Balance Sheet 17,046 10,369

Dividend

Your Directors are pleased to recommend a dividend of Rs. 4 per Equity
Share of the face value of Rs.10 each for the financial year 2009-10. The
dividend, if approved at the ensuing Annual General Meeting, will be paid
to Shareholders whose names appear on the register of members of the
Company as on 16th July, 2010. The equity dividend outgo for the financial
year 2009-10, inclusive of tax on distributed profits would absorb a sum of
Rs. 3,929 lakhs (as against Rs. 2,750 lakhs comprising the dividend of Rs.3
per Equity Share paid for the previous year).

Operations and Financial Overview

Club Mahindra Holidays, the Company's flagship brand in the vacation
ownership business, along with Zest, continued to drive the Company's
business during the year. The Company ended the year with a cumulative
member base of 1,09,884 members resulting in a growth of 18.4% over the
previous year. The Company added 24,389 members on a gross basis this year.
During the year, Club Mahindra Holidays, the Company's flagship brand was
selected as a Consumer Superbrand by the Brand Council of India.

In line with the growth in membership, the Company added inventory across
multiple locations taking the total inventory of apartments available to
1,476 as on 31st March, 2010. The network of resorts was expanded with new
locations such as Gangtok, Corbett and Mashobra. The year also marked the
Company's entry into jungle tourism with Memorandum of Understandings
(MOUs) signed for resorts in Gujarat and Madhya Pradesh. In addition, the
Company expanded its existing properties at Coorg, Binsar and Ashtamudi and
also added a second smaller resort in Goa. In line with its commitment to
offer varied experiences to its customers, the Company set up log huts in
Binsar and floating cottages at Ashtamudi.

Apart from growth in members and increase in its offerings of resorts, the
Company introduced innovative and interesting facilities for its customers.
These included the launch of Svaastha spa at Coorg, Puducherry and
Kumbalgarh. Svaastha offers holistic wellness therapies for its members.
The Company also introduced a 'Gourmet express' option in its dining
programme in some of its resorts.

It has been the stated objective of the Company to expand its holiday
offerings across various segments and different holiday experiences so as
to progress steadily towards dominance in the Holiday market. Mahindra
Homestays, a novel and innovative concept of holidays in homes across the
country was launched in India in April 2009. Mahindra Homestays now offers
a choice of 240 homes across 15 locations in the country. Various State
Governments are appreciating the initiative taken by the Company in
promoting sustainable tourism and have entered into an MOU to promote
homestays. Rajasthan and Uttarakhand were two State Governments which
signed MOUs with the Company during the year.

The travel services business of the Company performed well and also
expanded its operations during the year.

During the second half of the year, the market witnessed positive trends in
domestic tourism. This adequately reflects in the growth of the Company's
cumulative members. As the economy stabilises and continues to pick up
pace, your Company expects growth in the size of the market and also in the
emergence of new segments thereby providing the Company with an opportunity
to launch different products meeting the requirement of these segments.

Your Company's total income grew by 16.2 per cent from Rs. 44,431 lakhs in
2008-09 to Rs. 51,637 lakhs in 2009-10. Profit before taxes (PBT) grew by
34 per cent from Rs. 13,190 lakhs in 2008-09 to Rs. 17,672 lakhs in 2009-10
and profit after taxes (PAT) grew by 41.3 per cent from Rs. 8,341 lakhs in
2008-09 to Rs. 11,784 lakhs in 2009-10. Diluted Earnings per Share (EPS) of
the Company increased by 34 per cent from Rs.10.65 in 2008-09 to Rs.14.27
in 2009-10.

Capital Expenditure

During the year, the Company added Rs. 6,896 lakhs to its gross block,
comprising investment in resort properties and Rs. 47 lakhs for product
development and software. The Capital work in progress as on 31st March,
2010, stood at Rs. 9,787 lakhs mainly representing resorts under
development-Tungi near Lonavla, Theog near Shimla and Virajpet in Coorg.

Awards and Recognitions

Your Company's focus on customer delight and commitment to offer great
holiday experiences has earned it the following awards and recognitions
during the year:

* The Company's resorts at Goa, Munnar, Coorg, Binsar, Dharamshala and
Kumbalgarh retained their RCI Gold Crown status. Goa received a special '10
Year RCI Gold Crown Award' as it retained the Gold Crown for a period of
ten consecutive years. Munnar which received the 10 year Gold Crown Award
in the previous year, continues to retain its Gold Crown status.

* The Company's resorts at Thekkady and Yercaud got affiliated to RCI.

* The Company's resorts at Goa and Coorg have been awarded the prestigious
ECOTEL Certification.

* The Company's Resorts at Thekaddy and Kumbalgarh received Branch Hygiene
Code (BHC) certification while the resorts at Goa, Munnar, Coorg, Binsar,
Manali, Dharamshala, Ooty and Kodaikanal continue to retain their BHC
certification.

* The Company's Resort at Puducherry received the Food Hygiene
Certification of International Standard from 'Branch Hygiene Code' of
Netherlands.

* Wanderlust, a highly regarded global travel publication in United Kingdom
(UK), accorded Mahindra Homestays with the Wanderlust Eureka Award (UK) for
Travel Innovation. Mahindra Homestays was listed as one of the top 100
hotel experiences by Sunday Times Travels, UK.

Corporate Social Responsibility Initiatives

In line with its commitment of contributing towards Corporate Social
Responsibility initiatives on a yearly basis, your Company has made
significant financial contributions during the year under review towards
the socio-economic well being and development of the communities and the
ecosystem that it interacts with. These initiatives are primarily carried
out at your Company's Resort locations with focus on Education, Environment
and Health.

More details on the initiatives taken by your Company in this regard are
discussed in the Management Discussion and Analysis Report forming part of
this Annual Report.

Sustainability

Sustainability initiatives took a quantum leap during the year with a lot
of involvement from employees and the community. A five year strategy map
was formulated and the same was reviewed regularly. Through focused and
continuous dissemination, the vast majority of employees were made aware of
these initiatives enabling high participation. Your Company is happy to
report that for the second year in succession, your Company was certified
under the Global Reporting Initiatives (GRI) (as part of the Mahindra
Group), as assured by Ernst & Young. The first pilot assessment of Social
Return on Investment (SROI) was completed. Through this, your Company has a
framework and mechanism to evaluate and measure the efficacy of several
sustainability and community development initiatives.

Initial Public Offer (IPO) and Changes in Share Capital

To further augment the capital base for future growth plans, your Company
made an Initial Public Offering of 92,65,275 shares of the face value of
Rs. 10 each during the year. This issue, which constitutes approximately 11
per cent of the fully diluted post issue paidup share capital of your
Company, comprised a fresh issue of 58,96,084 equity shares of Rs.10 each
and offer for sale of 33,69,191 equity shares by the Promoters of the
Company viz. Mahindra & Mahindra Limited. Consequent to allotment of the
above fresh equity shares, the number of issued and subscribed equity
shares increased from 7,83,33,688 to 8,42,29,772, increasing the paid up
share capital of the Company from Rs. 7,833.37 lakhs to Rs. 8,422.98 lakhs
as on 31st March, 2010.

The issue which was priced at Rs. 300 per share, received an overwhelming
response and was oversubscribed by over 9 times. The shares were allotted
on 8th July, 2009 and were listed on National Stock Exchange of India
Limited and Bombay Stock Exchange Limited on 16th July, 2009. The listing
of shares has enhanced your Company's brand name and visibility in the
marketplace.

During 2009-10, the Company utilised Rs. 6,761.75 lakhs from the IPO
proceeds.

Corporate Governance Report

A Report on Corporate Governance along with a Certificate from the
Statutory Auditors of the Company regarding the compliance of conditions of
Corporate Governance as stipulated under Clause 49 of the Listing Agreement
forms part of the Annual Report.

Management Discussion and Analysis Report

A detailed analysis of the Company's operational and financial performance
and initiatives taken by the Company in key functional areas such as Human
Resources and Information Technology is separately discussed in the
Management Discussion and Analysis Report, which forms part of this Annual
Report. This report also discusses in detail, initiatives taken by the
Company in the area of Corporate Social Responsibility and Sustainability.

Stock Options

Your Company has formulated the Mahindra Holidays & Resorts India Limited
Employees' Stock Option Scheme 2006 (MHRIL ESOS). The MHRIL ESOS is
administered and implemented by Mahindra Holidays & Resorts India Limited
Employees Stock Option Trust in accordance with the directions of the
Remuneration Committee and in terms of the Deed of Trust. Details required
to be provided under the Securities and Exchange Board of India (Employee
Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
are set out in Annexure I to this Report.

Directors

Mr. Vineet Nayyar and Mrs. Rama Bijapurkar, Directors, retire by rotation
at the ensuing Annual General Meeting and being eligible, offer themselves
for re-appointment. As stipulated in terms of Clause 49 of the Listing
Agreement with the stock exchanges, brief resume of Mr. Vineet Nayyar and
Mrs. Rama Bijapurkar, is provided in the report on Corporate Governance,
which forms part of this Annual Report.

Directors' Responsibility Statement

Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors,
based on the representations received from the Operating Management, and
after due enquiry, confirm that:

i) In the preparation of the annual accounts, the accounting standards
issued by the Institute of Chartered Accountants of India and the
requirements of the Companies Act, 1956, to the extent applicable to us,
have been followed;

ii) They have, in the selection of the accounting policies, consulted the
Statutory Auditors and these have been applied consistently and reasonable
and prudent judgements and estimates have been made so as to give a true
and fair view of the state of affairs of the Company as at 31st March, 2010
and of the profit of the Company for the year ended on that date;

iii) Proper and sufficient care has been taken 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

iv) The Annual Accounts have been prepared on a going concern basis.

Subsidiary Companies

As on 31st March, 2010, your Company had five subsidiary companies:
Mahindra Hotels and Residences India Limited, Mahindra Holidays and Resorts
USA Inc., MHR Hotel Management GmbH, Heritage Bird (M) Sdn Bhd and BAH
Hotelanlagen AG.

Mahindra Hotels and Residences India Limited was incorporated on 26th
April, 2007 to carry out the business of hotels and restaurants, including
ancillary activities such as interior decoration, recreational facilities
and travel agency.

Mahindra Holidays and Resorts USA Inc., was incorporated in the State of
Delaware, USA, on 24th October, 2003 to carry out the business of resorts,
hotels, vacation facilities, leisure activities and related ancillary
activities.

MHR Hotel Management GmbH was incorporated on 16th February, 2007 under the
laws of Austria and became a subsidiary of your Company on 12th March,
2007. The Company was formed to carry out the business of managing hotels.

Heritage Bird (M) Sdn Bhd was incorporated on 7th July, 2007 under the laws
of Malaysia and became a wholly-owned subsidiary of your Company on 3rd
March, 2008. The principal activity of the company is purchasing,
maintaining and leasing resorts.

During the year, BAH Hotelanlagen AG became a subsidiary of your Company on
11th January 2010. The company was incorporated in Austria to carry out the
business of hotels, tourism and related activities.

The statement pursuant to Section 212 of the Companies Act, 1956 containing
details of the Company's subsidiaries is attached.

Your Company had made an application to the Central Government and had
obtained exemption from attaching the accounts of its subsidiary companies
with this Annual Report. In terms of the approval granted by the Central
Government, a copy of the Balance Sheet, Profit & Loss Account, Reports of
the Board of Directors and Auditors of the subsidiaries have not been
attached to the Balance Sheet of the Company. These documents are however,
available on the Company's website and shall also be submitted on request
to any member, desiring to have a copy, on receipt of request by the
Company Secretary, at the Registered Office of the Company.

Auditors

Messrs. Deloitte Haskins & Sells, Chartered Accountants, retire as Auditors
of the Company and have given their consent for re-appointment. The
shareholders will be required to elect Auditors for the current year and
fix their remuneration. As required under the provisions of Section 224(1B)
of the Companies Act, 1956, the Company has obtained a written certificate
from the above Auditors proposed to be re-appointed to the effect that
their re-appointment, if made, would be in conformity with the limits
specified in the said section.

Public Deposits, Loans and Advances

The Company has not accepted any deposits from the public or its employees
during the year under review. Your Company has also not made any loans or
advances which is required to be disclosed in the Annual Accounts of the
Company pursuant to Clause 32 of the Listing Agreement.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings
and Outgo

Your Company continuously strives to conserve energy, adopt environment
friendly practices and employ technology for more efficient operations.
These initiatives have been discussed in greater detail in the sections on
Sustainability Initiatives and Information Technology in the Management
Discussion and Analysis report.

The particulars relating to the energy conservation, technology absorption
and foreign exchange earnings and outgo, as required under Section
217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 are given in
the Annexure 2 to this Report.

Particulars of Employees as required under Section 217(2A) of the Companies
Act, 1956 and Rules made thereunder.

The Company had 44 employees who were in receipt of remuneration of not
less than Rs. 24,00,000 during the year ended 31st March, 2010 or not less
than Rs. 2,00,000 per month during any part of the said year. However, as
per the provisions of Section 219(1)(b) (iv) of the Companies Act, 1956,
the Directors' Report and Accounts are being sent to all the shareholders
of the Company excluding the statement of particulars of employees. Any
shareholder interested in obtaining a copy of the statement may write to
the Company Secretary. None of the employees of the Company are related to
the Directors of the Company.

Acknowledgement and Appreciation

Your Directors take this opportunity to thank the Company's customers,
shareholders, suppliers, bankers, financial institutions and the Central
and State Governments for their unstinted support. The Directors would also
like to place on record their appreciation to employees at all levels for
their hard work, dedication and commitment.

For and on behalf of the Board

A.K. NANDA
Chairman
Place: Mumbai
Date : 29th April, 2010.

Annexure 1 to the Directors' Report for the year ended 31st March, 2010

Information to be disclosed under Securities and Exchange Board of India
(Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999:

a) Options
granted 11,99,850

b) The pricing Grant I- Grant II- Grant III- Grant V-
formula Granted on Granted on Granted on Granted on
15th July,2006 30th March, 1st November, 1st November,
2007 2008 2007
The options were granted prior to the listing of Company's
shares.

These options were granted, based on the valuation done by
an independent Chartered Accountant using Discounted Cash
Flow Method.

c) Options 679,319 Options stand vested on 31st March, 2010.
vested

d) Options 612,708
exercised

e) The total 612,708 equity shares of Rs. 10/- each. These were
number of transferred from the Trust to the Eligible Employees.
shares arising
as a result of
exercise of
options

f) Options 200,998
lapsed

g) Variation The Mahindra Holidays & Resorts India Limited Employees'
of terms of Stock Option Scheme 2006 formulated prior to the Initial
options Public Offering (IPO) of the Company was ratified by the
Company subsequent to IPO on 16th December, 2009 by seeking
the consent of shareholders through Postal Ballot.

h) Money Rs. 13,605,216
realised by
exercise
of options

i) Total number 386,144
of options in
force

j) Employee-wise details of options granted to:

i) Senior Managerial Personnel been granted:

Names of Directors Number Number Number Number
and Senior of options of options of options of options
Managerial Persons granted in granted granted in granted in
to whom stock July 2006* in March November November
options have 2007** 2007# 2008##
been granted

Mr. A.K. Nanda 200000 - 9510 10500
Mr. Ramesh Ramanathan 100000 12200 - 10100
Mr. U.Y. Phadke 10000 - 3170 3500
Mr. Cyrus J. Guzder 10000 - - -
Mr. Rohit Khattar 10000 - - -
Ms. Rama Bijapurkar - - 15000 -
Mr. Vineet Nayyar - - 10000 -
Mr. R. Radhakrishna 15000 5440 - 4470
Mr. Ravindera Khanna 12000 3570 - 2830
Mrs. Vimla Dorairaju 12200 3910 - 3090
Mr. Aniruddha Haldar 9000 1870 - 2200
Mr. M. Harinath 9150 2040 - 1670
Mr. Ulrich Wolffram - 8200 - 4470
Mrs. Sumathi Mohan 4400 1800 - 1420
Mr. P. Ravi Shankar - - - 10000
Mr. S. Padmanabhan - - - 5000

* 525892 options have been vested till 31st March, 2010, of which 507700
options have been exercised by the eligible employees.

** 69789 options have been vested till 31st March, 2010, of which 43220
options have been exercised by the eligible employees.

# 28342 options have been vested till 31st March, 2010, of which 78342
options have been exercised by the eligible employees.

## 55896 options have been vested till 31st March, 2010, of which 44046
options have been exercised by the eligible employees.

ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year.

Name of Employee Number of options Number of options
granted in July 2006 granted in March 2007

Mr. Ramesh 100000 12200
Ramanathan

Mr. Ulrich Wolffram - 8200

iii) Identified employees who were granted option, during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:

NIL

k) Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise
of option calculated in accordance with Accounting Standard (AS) 20
'Earnings per Share':

Rs. 14.27.

l) Where the company has The Company has calculated the employee
calculated the employee compensation cost using the intrinsic
compensation cost using the value of stock options. Had the fair
intrinsic value of the stock value method been used, in respect of
options, the difference between stock options granted, the employee
the employee compensation cost compensation cost would have been higher
so computed and the employee by Rs. 20.76 lakhs, Profit after tax
compensation cost that shall have lower by Rs. 20.76 lakhs and the basic
been recognised if it had used and diluted earnings per share would
the fair value of the options, have been lower by Rs. 0.03.
shall be disclosed. The impact
of this difference on profits
and on EPS of the company
shall also be disclosed.

m) Weighted-average exercise prices and weighted-average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock.

Options Exercise Price Fair Value (Rs.)
Grant Date (Rs.)
15th July, 2006 16.00 4.28

30th March, 52.00 16.36
2007

1st 52.00 16.55
November,
2007

1st 52.00 16.04
November,
2008

n) A description of the method The fair value of the stock options have
and significant assumptions been calculated using Black Scholes
used during the year to estimate Options Pricing Model and the significant
the fair values of options, assumptions made in this regard are
including the following as follows:
weighted-average information:
Grant Grant Grant Grant
dated dated dated dated
15th July, 30th 1st 1st
2006 March, November, November,
2007 2007 2008

(i) Risk-free interest rate, 7.82% 7.92% 7.72% 7.34%
(ii) Expected life, 4.50 5.00 5.00 5.00
(iii) Expected volatility, Nil Nil Nil Nil
(iv) Expected dividends, and Nil Nil Nil Nil

(v) The price of the underlying Not Applicable as the shares of
share in market at the time the Company are not listed at the
of option grant time of option grant.

Note:

(i) The entire options granted under Grant-IV on 4th February, 2008 were
either lapsed or surrendered.

(ii) The options granted under Grant I, Grant II & Grant III stand
augmented by 5 Bonus options for every 3 existing options on account of 5:3
Bonus Issue made in November, 2007.

Annexure 2 to the Directors' Report for the year ended 31st March, 2010.

PARTICULARS AS PER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT
OF BOARD OF DIRECTORS) RULES, 1988 AND FORMING PART OF THE DIRECTORS'
REPORT FOR THE YEAR ENDED 31ST MARCH, 2010.

A. CONSERVATION OF ENERGY

a. Energy Conservation measures taken:

The operations of your Company are not energy-intensive. However, adequate
measures have been initiated to reduce energy consumption.

b. Additional investments and proposals, if any, are being implemented for
reduction of consumption of energy: Nil

c. Impact of the measures taken/to be taken at (a) & (b) above for
reduction of energy consumption and consequent impact on the cost of
production of goods: The above measures have resulted in reduction of
energy consumption.

d. Total energy consumption and energy consumption per unit of production
as per Form-A of the Annexure to the Rules in respect of industries
specified in the schedule: Not Applicable

B. TECHNOLOGY ABSORPTION

Research & Development (R & D)

1. Areas in which Research &
Development is carried out : The Company has not carried out any R & D
activities during the year

2. Benefits derived as a
result of the above efforts : Not Applicable

3. Future plan of action : Not Applicable

4. Expenditure on R & D : Nil

5. Technology absorption,
adaptation and innovation : Nil

6. Imported technology : Nil
for last 5 years

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

The Company continues to strive to improve its export earnings. Further
details in respect of exports are set out elsewhere in the Report.
Particulars with regard to Foreign Exchange Earnings and Outgo are given in
the Notes on Accounts.
For and on behalf of the Board

A.K. Nanda
Chairman
Place: Mumbai
Date : 29th April, 2010.

MANAGEMENT DISCUSSION AND ANALYSIS

Mahindra Holidays & Resorts India Limited ('MHRIL','Mahindra Holidays' or'
the Company') is a leading player in the leisure hospitality industry-
offering quality holidays designed for the discerning and differentiated
needs of families. In the process, the Company is changing the way India
holidays. By delivering unique holiday experiences for Indian families at
attractive price points, Mahindra Holidays has created a significant and
growing business out of domestic tourism.

The Company has pioneered vacation ownership in India and is currently the
market leader in the segment. This has been recognised by the country.
MHRIL was awarded the status of a Business Superbrand in 2009 by the Brand
Council of India; and the flagship brand 'Club Mahindra Holidays' was
selected as a Consumer Superbrand.

With its innovative products and services aimed at families, Mahindra
Holidays has revolutionised the holiday experience and has created a
distinct image for itself in the markets that it operates. Indeed, by
virtue of its successful growth over the years and ensuing scale of
operations, the Company has redefined leisure hospitality as a new and
relevant segment in the market.

Mahindra Holidays offers complete holiday solutions to its customers,
drawing on its wide range of products and services. These are: Club
Mahindra Holidays, which is the Company's flagship brand, Zest, Club
Mahindra Fundays, Mahindra Homestays and clubmahindra travel, an IATA
accredited travel agency. Today, the Company is well positioned to leverage
its branding, expertise and capabilities to further grow and expand its
business in terms of geographic coverage, product innovation and scale.

This chapter presents an overview of the markets and opportunities as well
as the operational and financial performance of the Company during the
year. It also brings out Mahindra Holidays' strategy and discusses
important initiatives taken by the Company during the year to achieve its
growth and performance objectives.

Introduction

The Indian economy showed tremendous resilience in the face of one of the
worst global recessions in recent times. Although 2009-10 started amidst
significant uncertainty, the situation improved substantially as the year
progressed. Unlike the advanced economies which continue to be deeply
affected by the downturn in economic activity, India recorded strong growth
during 2009-10. India's GDP has grown by 7.4 per cent in 2009-10-20 basis
points higher than the initial forecast of 7.2 per cent, and 70 basis
points above the GDP growth of 6.7 per cent achieved in 2008-09. Most
economists expect even better results in 2010-11, with the country
achieving around 8.5 per cent GDP growth.

An important feature of this performance is that both services and
manufacturing have contributed significantly to the growth process.
Services have been growing at 8.7 per cent over the year and a broad-based
turnaround in manufacturing activity has led to a growth of 10.8 per cent
in 2009-10. Indeed, after many years, India has seen manufacturing grow at
a rate faster than services. Apart from being one of the quickest to emerge
from the recession and post strong results, India is the fastest growing
large economy in the world-second only to China.

These positive developments have had important consequences for the
operational performance of the Company and its future strategy. Two of
these need to be mentioned upfront.

First, with a steady acceleration in economic growth, consumer confidence
improved significantly as the year progressed. Given that Mahindra Holidays
deals in products and services at the upper end of the discretionary
expenditure category, improved confidence led to greater customer interest,
and resulted in a significant increase in customer acquisition during the
year.

The Company crossed the 100,000 member (customer) mark in its flagship
vacation ownership brand, Club Mahindra Holidays. With significant growth,
the Company has developed a strong pipeline of new products for
differentiated socio-economic segments of the market, which it plans to
implement during the next few years. More of this is discussed later in the
chapter.

Second, with the revival of market sentiments, the Company was able to tap
capital markets to finance its future growth plans.

The performance of the share from the date of listing until the end of the
financial year on these exchanges is shown on the right.

During the year, Mahindra Holidays successfully carried out an Initial
Public Offer of 92.65 lakh equity shares which was oversubscribed by more
than nine times. The net proceeds to the Company from the issue was Rs.
17,688 lakhs and the shares were listed on the National Stock Exchange and
the Bombay Stock Exchange on 16th July, 2009.

We now discuss in greater detail the markets and opportunities, products,
operational and financial performance, as well as initiatives in the areas
of process innovation, sustainable development and key functional areas
such as human resources and information technology. We shall end the
chapter with a discussion on risks and concerns and the outlook of the
Company for the future.

Markets and Opportunities

Improvement in performance of the Indian economy, especially during the
second half of the fiscal year, had significant positive consequences for
the hospitality industry. As mentioned earlier, with improvement in
consumer confidence, the demand for the Company's products and services
picked up and remained strong.

It is also important to note that in spite of a marginal fall in consumer
demand during the first half of 2009, the fundamentals of the domestic
consumer market continued to be very strong.

First, driven by strong and sustained growth of the economy in the last
seven years, disposable incomes have increased at a significant pace.
According to recent research by the McKinsey Global Institute, the number
of household, earning over Rs.5 lakhs per annum will increase from 3.6
million in 2005 to 8.8 million in 2015. Moreover, over the same period, the
share of wallet spent on discretionary items is forecasted to grow from 50
per cent to 70 per cent. This is expected to give a considerable push to
the demand for leisure travel and other market segments that the Company
addresses.

Second, expenditure on leisure and recreation has increased very rapidly
during the last few years due to an increase in the number of leisure
travellers, as well as growth in their per capita holiday spend. According
to Euromonitor International, holiday takers as a percentage of total
population have increased from 2.5 percent in 20% to 4.5 percent in 2006.
Another estimate from the Ministry of Tourism, Government of India, pegs
the growth of domestic tourists from 22 crores in 2000 to 52.7 crores in
2007. These trends, coupled with increasing levels of well-being and
changes in lifestyle, indicate very strong growth potential of the travel
and tourism sector. These augur well for the sector as a whole and the
specific segments in which the Company operates.

As far as the specific market for vacation ownership is concerned, there
has been a considerable increase in the awareness and acceptance of the
concept in India over the last few years. Besides, Mahindra Holidays
benefits from the credibility and brand image that it has developed with
successful execution of projects and the delivery of quality holiday
experiences to its members. An important indication of this is the
considerable growth in membership through referrals from our existing
customers.

In addition to its achievements, the Company also benefits from the
'Mahindra' brand a name associated with trust, credibility and transparency
which allows us to introduce and market the vacation ownership concept to a
wide cross-section of people across different socio-economic segments and
geographies.

For its future growth, the Company is actively looking at newer markets and
designing innovative products to suit the needs of specific consumer
segments. In fact, moving sales and marketing beyond the top metropolitan
and Tier I cities by strengthening its sales and distribution network
through a combination of the Company's own offices and its franchisees has
been an important focus area for the Company during the year. As on 31st
March, 2010, the Company had a network of 17 branch offices, 5 on-site
offices, 41 retail outlets and 91 franchisees to distribute and service its
products and services.

Business Performance

Mahindra Holidays is a leading player in the leisure hospitality industry.
This is different from traditional holiday products which are built around
the concept of rooms and suited to individual travellers or couples.
Instead, the Company focuses on providing a complete holiday experience for
the entire family. This includes choice of apartment type and size, as well
as an array of different activities for all members of the family. By
offering quality services at attractive rates, the Company has not only
expanded the market for holidays, but also established leisure hospitality
as a new and relevant segment in the hospitality industry.

During the year, the Company continued to deliver to its customers quality
family holidays in line with its vision of 'Good Living. Happy Families'.

* As mentioned earlier, Club Mahindra Holidays, the Company's flagship
brand in the vacation ownership business was selected as a Superbrand in
2009.

* The operations of the Company met the needs and requirements of its
growing member base, which stood at 1,09,884 as on 31st March, 2010.

* The Company increased its inventory across multiple locations taking the
total to 1,476 as on 31st March, 2010. It expects to add significantly
higher inventory during 2010-11.

* Other products of the Company-Fundays, Homestays and Travel-also
performed creditably during the year.

* Mahindra Holidays reported exceptional results for 2009-10, especially in
the current economic milieu. The highlights of the Company's financial
performance during the year as a standalone entity are given below.

* Total income of the Company (including other income) grew by 16.2 per
cent from Rs. 44,431 lakhs in 2008-09 to Rs. 51,637 lakhs in 2009-10.

* Profit Before Depreciation, Interest and Taxes (PBDIT) increased by 28.8
percent from Rs. 15,562 lakhs in 2008-09 to Rs. 20,037 lakhs in 2009-10.

* Profit Before Taxes (PBT) grew by 34 per cent from Rs. 13,190 lakhs in
2008-09 to Rs. 17,672 lakhs in 2009-10.

* Profit After Taxes (PAT) grew by 41.3 per cent from Rs. 8,341 lakhs in
2008-09 to Rs. 11,784 lakhs in 2009-10.

* Diluted EPS of the Company increased by 34 per cent from Rs. 10.65 in
2008-09 to Rs. 14.27 in 2009-10.

A point needs to be noted. The Company's PBDIT grew faster than total
income; its PBT grew faster than PBDIT; and its PAT grew faster than PBT.
We consider this an example of creating consistent shareholder value.

Vacation Ownership

Vacation ownership accounts for a significant part of the Company's
business and continues to drive its growth. Revenues from the business
increased from Rs. 34,277 lakhs in 200809 to Rs. 40,031 lakhs during 2009-
10, and currently accounts for 78 per cent of the total revenues of
Mahindra Holidays.

The Company has recorded significant growth in the membership of its
vacation ownership business during the last few years. During the year, it
added 24,389 members on a gross basis in its vacation ownership business.
Cumulatively, the membership stood at 1,09,884 as on 31st March, 2010.

The Company has two key products in this business: Club Mahindra Holidays
and Zest.

Club Mahindra Holidays

Club Mahindra Holidays is the Company's flagship product in the vacation
ownership business. Membership of the product entitles a week's holiday
every year for a period of 25 years in a chosen apartment type and season
category.

As opposed to the conventional timeshare model which entitles ownership at
a fixed resort location for a fixed week every year in a fixed season and
room type, Club Mahindra Holidays offers an extremely flexible customer-
centric product-where one can choose the time and duration of the holiday,
trade up or down on the weeks and/or apartments, accumulate or advance the
entitlement across an increasing number of resort locations.

The most important benefit of the product is that the holiday entitlements
are protected from the effects of inflation. The product comes with
definite and consistent value additions in terms of quality of service and
choice of holiday locations. A Club Mahindra member is also entitled to the
membership of RCI which allows access to over 6,450 RCI affiliated resorts
worldwide.

Zest

Zest is another product of the Company in the vacations ownership space
that entitles its members short breaks for six nights each year in studio
apartments for a period of 10 years. It is aimed at the upwardly mobile
younger generation in metropolitan cities, who like to take short breaks to
unwind and de-stress themselves from their busy and hectic lifestyle.

Other Products

Club Mahindra Fundays

Club Mahindra Fundays is a corporate product based on a flexible point-
based system. Organisations enrolled with the product can purchase points
and use them to offer holiday entitlements to its employees as well as
offer group vacations either as a part of their reward and recognition
programme or as an employment perquisite or compensation package. The key
benefit of the programme is that it allows the users to spend it on
holidays which suit their needs, tastes and preferences.

Mahindra Homestays

Mahindra Homestays is a new product of the Company which was launched in
July 2008 with a concept of providing the experience of authentic India-
from customs to cuisine, language to architecture and traditional
hospitality by living in Indian homes. Originally designed for foreign
tourists coming to India, the project was recently extended to domestic
tourists. Currently, the product provides extensive choice of homes across
different budget categories and property types: palaces, heritage
properties, plantations, rural and city homes.

Mahindra Homestays started its promotion in India since April 2009 and
received an overwhelming response during the year aggregating to 70 per
cent of all bookings.

The Mahindra Homestays product, which was launched with 32 homes, saw an
increase to 240 homes aggregating 663 rooms across 15 states.

The Company now has signed Memorandum of Under standing (MoU) with the
governments of Kerala, Rajasthan and Uttarakhand, which will allow it to
grow faster in these states. Wanderlust, a highly regarded global travel
publication in United Kingdom (UK), accorded Mahindra Homestays the
Wanderlust Eureka Award (UK) for Travel Innovation.

Club Mahindra Travel

Club Mahindra Travel, registered with IATA in Chennai, started as a travel
integration service for Club Mahindra Holidays' members to take care of
their entire range of travel needsfrom accommodation to the best deals on
air tickets, complete holiday packages, replete with sightseeing tours and
meals to documentation requirements such as visa processing, foreign
exchange and travel insurance. The product operates through a separate
website www.clubmahindra.travel.

This travel services business also expanded its operations during the year
under review. Apart from serving the travel related needs of its vacation
ownership customers, the business branched out into services for corporate
clients. During the year, this business added corporates such as Mahindra
and Mahindra, Usha International, Marico, Mahindra Poweral, Mahindra
Satyam, Godrej, Kotak Mahindra, HSBC, Cargill, Swizera, State Bank of India
and UTV to its clients list. It also added value to Mahindra Holidays'
members by entering into exclusive deals with several airlines, sales
offers and designing product packages with Homestays.

New Products

As a part of its strategy for growth, Mahindra Holidays plans to enter new
segments by offering innovative products aimed at the different needs of
specific socio-economic and varied age segments of consumers. These include
tented accommodation closer to our resorts, for the younger generation,
offering camping, adventure and nature activities relevant to this segment.
Other services in the offing include a product for senior citizens, an
exclusive product specifically designed keeping in mind the needs of the
high-end consumers and a deeded product offering partial ownership of high-
end villas in close proximity to some of our existing resorts. The Company
expects to launch these sometime during the current year.

Properties and New Projects

Mahindra Holidays currently has a pan-India presence through its extensive
network of resorts. Currently, it has 33 resorts across a cross-section of
destinations: hills and hill stations, beachs, backwaters, wildlife, forts
and heritage. It also operates resorts in Thailand.

Most of these resorts are either owned or managed under a long lease. The
chart gives the distribution of 1,476 units across 33 resorts in terms of
status of ownership or management.

In line with the growth in membership, the Company added inventory across
multiple locations taking the total number of available apartments to 1,476
as on 31St March, 2010. The network of resorts was expanded with new
locations such as Gangtok, Corbett, and Mashobra. The year also marked the
Company's entry into jungle tourism with MoUs signed for resorts in Gujarat
and Madhya Pradesh. In addition, it has expanded its existing properties at
Coorg, Binsar and Ashtamudi and also added a second smaller resort in Goa.
In line with its commitment to offer varied experiences to its customers,
it set up log huts in Binsar and floating cottages at Ashtamudi.

The pace at which inventory has been added during the last couple of years
is expected to continue during 2010-11. The Company is implementing
greenfield projects in Tungi (near Lonavala) and Theog (near Shimla). In
addition, expansion of existing resorts is underway in Ashtamudi and Coorg.
Mahindra Holidays also has a land-bank in five locations across four
different states, where it plans to build new resorts.

Resort Operations

Efficient and effective resort operations are key to the functioning of
Mahindra Holidays, where the focus is on delivering a quality holiday
experience to its members. All resort locations have 'Fun Dining' and 'Fun
Zone' which, respectively, cater to the different dining and fun activity
needs of individual members of the family. Most of the larger resorts also
Mahindra Holidays is the only player in the leisure hospitality segment
which apart from providing standard holidaying activities such as local
sightseeing tours, also offers a range of adventure activities such as
river crossing, river rafting, outdoor camping and rock climbing.

feature activity areas with trained personnel for engaging kids and
toddlers. Besides, as a Company that markets long duration products and
services to its members, Mahindra Holidays ensures that quality of
infrastructure and facilities are well maintained and upgraded regularly to
meet the expectations of its customers. In its endeavour to deliver a
complete family holiday experience to its customers, the Company continues
to design and introduce innovative products and services at the resorts.

Apart from growth in members and increase in its offerings of resorts, the
Company has introduced innovative and interesting facilities for its
customers. This includes the launch of the Svaastha spas at Coorg,
Puducherry and Thekkady. Svaastha offers holistic wellness therapies for
its members. The Company also introduced a 'Gourmet Express' option in its
dining programme in some of its resorts. Another innovative holiday
solution introduced during the year was the floating cottages at Ashtamudi,
together with a floating restaurant and water sports facilities.

Mahindra Holidays is the only player in the leisure hospitality segment
which, apart from providing standard holidaying activities such as local
sightseeing tours, also offers a range of adventure activities such as
river crossing, river rafting, outdoor camping and rock climbing. During
the year, the Company introduced zorbing and paragliding at select
locations.

In 2009-10, the Company's resort operations introduced the barbeque concept
with the workshop by a leading barbeque master chef from the United States.
The year also saw the introduction of Gourmet Express-Take Away delivery
concept and the launching of Club Mahindra Executive Trainees (CMET)
training programme on North Indian Street Food.

Besides, F&B easyware was also launched during the year, with Company's
intranet as a depository of all F&B related information and recipes.

During the year, with the feedback from members, the resorts also
introduced new activities such as fireball tables, outdoor pool tables and
toddlers' space. For greater member engagement and convenience, talk-back
feedback machines were installed at larger resorts and pre-arrival SMS was
introduced as additional member touch point. Facilities were also added for
corporate team-building exercises, celebration packages and theme parties
for birthdays at the resorts.

Mahindra Holidays' focus on customer delight and commitment to offer great
holiday experiences has earned it the following awards and recognitions
during the year:

* The resorts at Goa, Munnar, Coorg, Binsar, Dharamshala and Kumbalgarh
retained their RCI Gold Crown status. Goa received a special '10 Year RCI
Gold Crown Award' for having retained the Gold Crown for 10 consecutive
years. Munnar which received the 10 year Gold Crown Award in the previous
year, continues to retain its Gold Crown status.

* The resorts at Thekkady and Yercaud got affiliated to RCI.

* The resorts at Goa and Coorg have been awarded the prestigious ECOTEL
certification.

* The resorts at Thekkady and Kumbalgarh received Branch Hygiene Code (BHC)
certification while those at Goa, Munnar, Coorg, Binsar, Manali,
Dharamshala, Ooty and Kodaikanal continue to retain their BHC
certification.

* The resort at Puducherry received the Food Hygiene Certification of
International Standard from 'Branch Hygiene Code' of Netherlands.

* Wanderlust, a highly regarded global travel publication in the UK,
accorded Mahindra Homestays with the Wanderlust Eureka Award (UK) for
Travel Innovation. Mahindra Homestays was listed as one of the top 100
hotel experiences by Sunday Times Travels, UK.

Member Relations

As a Company that offers long-term holiday solutions to its customers,
efficient and responsive member relations lie at the core of its strategy
for success and future growth. Mahindra Holidays has a dedicated in-house
team of 195 employees in its member relations department, including a call
centre which handles all activities related to member contact, holiday
planning and reservations, relationship building, feedback, handling member
queries and complaints. The team operates through multiple platforms
including voice, text messages, email and web based self-help solution.
Besides, there are opportunities for exclusive personal contact at resort
locations.

Once a sale is registered, the member relations team takes over the process
by welcoming the member into the Club Mahindra family. This is initiated by
a welcome call, where the executive explains the product features and
offerings and the benefits associated with the membership. Apart from voice
based contact, the Company has developed an effective and transparent web
based solution which allows the members to update their contact details,
view their payment details, their holidaying history, check room
availability to plan holidays, and make payments through the payment
gateway.

As a part of a new member engagement initiative called 'Sparsh' which
started during the year, members can now view and avail exclusive offers
and discount schemes on the website for a variety of products and services.
These promotions are worked out by the Company in collaboration with world-
class retail products and service companies across several consumer
categories and are exclusive to members. Mahindra Holidays is also in the
process of launching 'web chats' as another mode of contact with its
members.

The processes of the member relations department are certified by ISO. In
addition, the Company is in the process of getting the prestigious Customer
Operations Performance Centre certification for the Club Mahindra call
centre during 2010-11.

Human Resources (HR)

HR is key to the Company's business. Mahindra Holidays has some of the best
practices in place to attract and retain skilled talent and its HR
processes and policies are aligned to enable employees meet their career
objectives.

During the year, the Company carried out significant activities and
developmental programmes for its executives in line with its objective of
'making people future ready'. To begin with, the recruitment process was
redesigned to improve the quality of hiring. This also involved
introduction of behavioural metrics and use of social media. Moreover, the
Company intensified its training efforts during the year. A series of
'Development Centres' were conducted which benefited 57 senior managers.
The development plans of individual employees are being based on the
feedback from these Development Centres.

Another programme called 'i-Mentor' was launched in October 2009 to develop
and provide new skills through on-the-job training and thus enhance
performance. Around 130 supervisors have been trained under this
initiative. Besides, several employees were nominated for external
training, including overseas programmes. Overall, the Company invested four
days per employee on training and development in 2009-10.

MHSET-Mahindra Holidays Sales Executive Trainee Program is a new initiative
launched by the Company to attract, recruit, induct and groom young talent
for future sales positions. This programme is specially designed for
aspiring sales professionals. It focuses on developing a cadre of sales
executives with cross-functional experience and an innate aptitude to make
a career with the Company.

The HR function at Mahindra Holidays is also actively involved in giving
direction to the strategic priorities set by the management. Given the
difficult economic situation, especially at the beginning of the year, HR
played an important role in increasing awareness among the employees and
was instrumental in introducing and increasing the acceptance of measures
taken by the Company to control costs. In another initiative, HR, in
collaboration with Mahindra Institute of Quality, has embarked on a TQM
(Total Quality Management) journey to create a framework to
institutionalise quality across the Company through large-scale process
improvements. During the year, Mahindra Holidays also introduced a
computerised query response tool on the Company's intranet, called the HR-
Helpdesk, to address standard queries and requests from employees.

As on 31St March, 2010, there were 1,814 people on the rolls of the
Company. Industrial and employee relations remained cordial throughout the
year.

Information Technology (IT)

Being in the service delivery business across several locations, IT is
critical to the operational performance of Mahindra Holidays in meeting its
business objectives. Thus, the Company has invested significantly in
technology and continuously strives to have the best-in-class
infrastructure and expertise to support and augment the efficiency of its
operations.

The Company has IT solutions which span across all critical functions
including a complete customer relationship management (CRM) solution which
covers all processes from lead generation to handling member relations,
reservation engine, property management solution for the resorts and
solutions for finance as well as human resources. It uses a multi-protocol
label switching (MPLS) network to meet its requirements for connectivity
across all its operating locations.

During the year, Mahindra Holidays upgraded its IT infrastructure. This
involved upgrading network security and the technology platform which
included moving to the latest Windows 2008 and MS Exchange 2007 for
servers, and upgrading to the Windows 7 operating system and Office 2007
for desktops. The Company also rolled out the Office Communicator solution,
which allows employees to interact and share documents and presentations
from their workstations.

The Company also started working on revamping its Club Mahindra website
using Web 2.0 technology. It has initiated the process of getting the ISO
27001 certification for the IT department and expects this to be completed
during 2010-11.

Financials

Table 1 presents the abridged profit and loss statement of Mahindra
Holidays & Resorts India Limited.

Table 1: Abridged Profit and Loss Statement
(Rs. Lakhs)
2009-10 2008-09

Operating Income 51,019.55 44,033.18
Other Income 617.15 397.80
Total Income 51,636.70 44,430.98
Operating Expenses 20,949.95 19,225.43
Other Expenses 10,649.86 9,644.09
Financial Expenses 455.23 702.95
Depreciation 1,909.63 1,668.68
Total Expenditure 33,964.67 31,241.15
PB DIT 20,036.89 15,561.46
PB DT 19,581.66 14,858.51
PB IT 18,127.26 13,892.78
PBT 17,672.03 13,189.83
Tax 5,888.29 4,848.96
PAT 11,783.74 8,340.87
Diluted EPS (Rs.) 14.27 10.65

The Company delivered exceptional results during 2009-10. Here are the key
highlights.

* Driven by strong growth in operating incomes, total income of the Company
grew by 16.2 per cent from Rs. 44,430.98 lakhs in 2008-09 to Rs. 51,636.70
lakhs in 2009-10.

* At the same time, the Company was able to control its costs well.
Operating expenses, which include employee costs and sales and marketing
expenses, grew at a much lower rate of 9 per cent during the year. As a
result, there was an impressive increase in profits.

* Profit before depreciation, interest and taxes (PBDIT) increased by 28.8
per cent from Rs. 15,561.46 lakhs in 2008-09 to Rs. 20,036.89 lakhs in
2009-10. Financial expenses of the Company came down by 35 per cent to
Rs.455.23 lakhs during 2009-10. This was a result of reduction of secured
loan funds from Rs. 2,469.45 lakhs to Rs. 1,001.65 lakhs at the end of
2009-10.

* Therefore, cash profits (PBDT) increased from Rs. 14,858.51 lakhs in
2008-09 to Rs. 19,581.66 lakhs in 2009-10.

* After accounting for depreciation, which grew to Rs. 1,909.63 lakhs
during 2009-10, profit before taxes (PBT) increased from Rs.13,189.83 lakhs
in 2008-09 to Rs. 17,672.03 lakhs in 2009-10.

* Profit after taxes (PAT) grew by 41.3 per cent from Rs. 8,340.87 lakhs in
2008-09 to Rs. 11,783.74 lakhs in 2009-10.

* Diluted EPS increased by 34 per cent from Rs. 10.65 in 2008-09 to
Rs.14.27 in 2009-10.

Table 2 compares the profitability ratios for 2008-09 and 2009-10.

Table 2: Profitability Ratios

2009-2010 2008-2009

PBDIT/Total Income 38.8% 35.0%
PBDT/Total Income 37.9% 33.4%
PBT/Total Income 34.2% 29.7%
PAT/Total Income 22.8% 18.8%

Mahindra Holidays continues to be a zero long-term debt company.
Surplus funds generated during the year have been invested in credit worthy
instruments, including money market mutual funds and deposits with banks.
The liquidity situation of the Company during the year remained
comfortable.

Mahindra Holidays has invested significant resources in technology by
putting in place systems and processes to ensure quality of service and
overall holiday experience of the customers. Equally, the Company
recognises the need to continuously strengthen its systems as it embarks on
a new growth trajectory. Thus, it has undertaken a comprehensive company-
wide initiative called 'Project PariNAAM' to transform the organisation and
make it ready for scale and growth while further strengthening its
financial and operational controls. The objective of this initiative is to
enhance the holiday experience by aligning all processes to the single goal
of creating best in class end-to-end guest management, developing and
enabling self-help processes on the web for customers and by employing the
best design architecture and technology platform to meet the requirements
of a significantly scaled-up business model.

The overarching objective of 'Project PariNAAM', is to transform the
organisation and make it future ready in terms of scale and growth. It is
expected that the changes consequent to the implementation of Project
PariNAAM will further strengthen the operational and financial controls
within the organisation. This project is being carried out under the direct
supervision of the top leadership of the Company and will involve use of
the best talent and technology to deliver a comprehensive solution.

Corporate Social Responsibility

Mahindra Group has been at the forefront of taking affirmative action as a
responsible organisation that seeks to meaningfully contribute to the
socio-economic well being and development of the communities and the
ecosystem that it interacts with in carrying out its business. As a part of
the Mahindra group, the Company is committed to contribute 1 per cent of
its profit after tax to CSR activities every year primarily in the areas of
education, a health and environment-both through group-level and Company-
level activities.

Apart from working with local NGOs and contributing resources for socially
relevant projects in these areas, the Company also encourages community
service by its employees by involving them in the implementation of these
CSR activities through its ('Employee Social Options Programme').

Some of the major activities carried out during the year are given below.

* Education:

Sponsorship of education for the girl child among the underprivileged,
which included providing amenities for local educational institutions and
sponsoring educational materials for the poor and needy at resort
locations. During the year it sponsored the education of 1,000 girl
children through the 'Nanhi Kali' project. It also carried out repair and
maintenance work and provided infrastructure facilities at various
educational institutions close to its resort locations at Ashtamudi, Coorg,
Munnar and Goa.

* Environment:

The Company provided solar water heating systems and solar electric panels
to old age homes and orphanages at Kochi and Thekkady. The other activities
during the year involved plantation of trees at resort locations and
promoting environment friendly paper bags with a 'Say No To Plastic'
campaign (at Munnar, Thekkady and Ashtamudi).

* Health:

The Company sponsored facilities such as drinking water at Madikeri in
Coorg; public toilets for the poor; medical equipment to run hospitals and
primary health centres in remote locations such as Munnar and Thekkady; and
running awareness campaigns among backward sections on how to take
precautionary measures to prevent various diseases. Besides, it regularly
carried out blood donation and medical check-up camps to benefit the local
communities in which it operates.

The Company also conducted a pilot assessment study on the 'Social Return
on Investment' to quantify the impact of its intervention and initiatives
on the socio-economic well being and development of the beneficiaries.

Sustainability

Sustainable development aims at achieving economic growth and improvements
in well being while preserving the natural resources and ecosystem for
future generations. As a part of the Mahindra Group, the Company recognises
the importance of sustainability and is committed to conserve the
ecological integrity of its locations through responsible business
practices and by greater accountability and transparency.

Mahindra Holidays actively participated in the Group's journey for
Corporate Sustainability Reporting. The 'Sustainability Report' of the
Group is prepared in accordance with the internationally accepted framework
specified by the Global Reporting Initiative (GRI). GRI is a Netherlands
based multi-stakeholder network of thousands of experts worldwide, which
has pioneered the development of the world's most widely used
sustainability reporting framework. The United Nations is one of its key
stakeholders. This reporting framework sets out the principles and
indicators that organisations should use to measure and report their
economic, environmental and social performance.

During 2009-10 the Company has created a five-year 'Sustainability Roadmap'
with a well laid out plan of initiatives to be carried out until 2013-14.
This follows the triple bottom line approach of 'People, Planet and
Profit'.

The Company has achieved 100 per cent awareness building among its
employees and associates, as well as some of its members and general public
through programmes and workshops. This awareness campaign has been followed
up with adoption of sustainable practices such as measures to reduce the
energy and water consumption at all major resorts. This includes adoption
of CFL bulbs to save energy, reducing the flush tank water pressure to
conserve water and manage kitchen waste by preparing vermin-compost to be
used as garden fertiliser. The Company also encourages its employees to
reduce paper consumption by storing information digitally. As mentioned
earlier, two of our resorts are ECOTEL certified: Coorg received a five-
globe certification and Goa a four-globe.

Threats, Risks and Concerns

Mahindra Holidays has a risk management framework in place for
identification of risks, assessment of the nature and severity of risks and
their potential impact, and measures to mitigate them. This framework also
has established mechanisms for adequate and timely reporting and
monitoring. Risks are reviewed periodically and updated to reflect the
business environment and change in the size and scope of the Company's
operations.

Macroeconomic Risks

The global economic slowdown affected India and the hospitality industry.
Although the situation has improved considerably, such cyclical downturns
may continue to resurface in the future. Besides, inflation continues to be
on the high side. If the situation persists, it might adversely affect
consumer confidence and impact the ability of people to spend on
discretionary items, affecting the growth of the industry.

The Company recognises these risks and has initiated measures to minimise
its impact. This includes expanding the bouquet of products and services
offered to the customers to include shorter duration products as well as
offerings aimed at different socio-economic segments. It has also sought to
de-risk itself by expanding the addressable market, such as expanding its
travel services product to corporate clients and marketing 'Homestays' in
the Indian market.

Operational Risks

Operational risks mainly relate to meeting customer expectations in terms
of quality of service and maintaining a balance between the inventory of
resorts and growth of customers. These assume significance given the long
service duration of our key products.

Given the inherent nature of the product which offers flexibility in terms
of usage across various resorts and seasons the Company may not be able to
make available the choice of location/dates desired by the customers on
every occasion, which could result in dissatisfaction. To mitigate these
risks, the Company invests significant resources in systems and processes
to ensure quality of service and overall experience of the customers. As
regards room inventory, the Company has been judicious in the use of
different options fresh developments, expansions, leases of different
durations and acquisitions-to maintain a balance between the demand and the
supply.

Another operational risk is in the ability to consistently attract, retain
and motivate managerial talent and other skilled personnel, especially in a
high growth industry. We believe that our human resource practices to
enhance employee engagement and satisfaction mitigate these risks.

Financial Risks

The Company's business involves significant investments in building resorts
for its operations. These expose the Company to risks in terms of timely
and adequate availability of funds at competitive rates to finance its
growth. Besides, the Company offers its customers schemes to finance the
purchase of vacation ownership and similar products of the Company, which
exposes it to credit risks.

Currently, Mahindra Holidays is a zero debt company. The Company has been
conservative in its use of debt and the public offer concluded during the
year is aimed at strengthening its ability to continue with a strong and
stable capital structure without compromising on growth. The Company
undertakes comprehensive assessment of the profile of its customers and
carefully monitors its exposure to credit risk. Besides, it has adequate
systems in place to minimise the impact in the event of default-for
instance,through high down payments and moratorium on the first vacation
until a certain number of payments are received.

Regulatory and Legal Risks

Mahindra Holidays is exposed to regulatory and legal risks in carrying out
its business. These include risks relating to land acquisition, conversion
of land for commercial usage and development of properties, tax
proceedings, legal proceedings on properties, customer complaints, non-
compliance of regulations including environmental regulations and those
pertaining to the hospitality sector.

The Company has systems and controls in place to mitigate these risks and
minimise instances of non-compliance.

Internal Controls

The Company has an adequate internal control system, commensurate with the
size and nature of its business. The system is supported by documented
policies, guidelines and procedures to monitor business and operational
performance which are aimed at ensuring business integrity and promoting
operational efficiency. Besides, it has a sound ERP solution that
implements these processes, strengthening controls and minimising the
possibility of errors and lapses.

The Company has an internal audit function. Given the size of the Company's
operations in terms of number of resort locations and nature of its
business, it also uses independent internal audit firms to conduct periodic
audits in line with an audit plan that is drawn at the beginning of the
year. The scope of the exercise includes ensuring adequacy of internal
control systems, adherence to management policies and compliance with the
laws and regulations of the country. Internal auditors also report on the
implementation of their recommendations.

Reports of the internal auditors are placed every quarter before the Audit
Committee of the Board of Directors, which reviews the adequacy and
effectiveness of the internal control systems and suggests improvements for
strengthening them.

Outlook

At the macro level, the outlook for the Indian economy improved
considerably during the year. The resilience that the economy exhibited
during the crisis and the subsequent improvement in performance are
expected to continue during the next few years. Thus, consumer confidence
is expected to remain strong and improve during the period.

Therefore, we believe that the fundamental growth story of the Indian
economy is intact and the hospitality sector will continue to see
significant growth in the foreseeable future. In fact, given the strong
growth of the domestic economy and the Company's focus on these markets,
Mahindra Holidays is favourably placed to benefit from this opportunity.

During 2010-11, the focus of the Company will be to expand its presence
both in terms of geography and the socio-economic segments that it
addresses. It believes that the new products and services which it plans to
launch during the year will open up newer opportunities and increase its
penetration and reach in the domestic market. Simultaneously, these will
widen the base and so mitigate the risks associated with addressing a
relatively smaller segment of the market. With the successful completion of
the initial Public Offering, Mahindra Holidays is well positioned in terms
of having necessary long-term risk capital, important for unencumbered
growth in resource intensive infrastructure sectors such as hospitality.
Therefore, the Company's outlook for 2010-11 is optimistic.

Cautionary Statement

Certain statements in the Management Discussion and Analysis describing the
Company's objectives, projections, estimates, expectations or predictions
may be forward-looking statements within the meaning of applicable
securities laws and regulations. Actual results could differ from those
expressed or implied. Important factors that could make a difference to the
Company's operations include poor macroeconomic growth and consumer
confidence, inability to add resorts and increase the inventory of room,
cyclical demand and pricing in the Company's principal markets, changes in
tastes and preferences, government regulations, tax regimes, economic
development within India and other incidental factors.