S T R A T E G I C I N S I G H T
OUR BUSINESS PLATFORM WILL BEGIN TO DELIVER SUPERIOR OUTCOMES STARTING
FY 26, THEREAFTER EXTENDING INTO THE LONG TERM.
O V E R V I E W
I am pleased to present yet another performance growth year at Magnum
Ventures Limited.
The Company reported sales growth of 0.18% and a 14. 24% growth in
EBITDA during the year under review.
The performance of the Company during the year under review was also
the highest in the Company?s existence, indicating an attractive positioning for
growth in one business (hospitality) and resilience in the other (paper).
B I G M E S S A G E
The big message that one seeks to communicate is that the Company
embarked on debt re-arrangement during the year 2023-24 by repaying all the dues of
Alchemist Asset Reconstruction Company Limited from the NCD Issue proceeds. In doing so,
the Company focused on creating a platform for sustainable growth, the benefits of which
will become visible from FY 26 onwards. The need for arrangement was necessitated by the
need to repay RS 136.48 Cr to Alchemist Asset Reconstruction Company Limited during the FY
2023-24. The Company was faced with two divergent realities: increasing profitability on
the one hand and a large repayment liability on the other.
While it would have been comfortably possible for the liability to be
liquidated in the normal course of business, the Company took a differentiated view on how
it would like to address this reality. This differentiated view was inspired by
opportunities arising in a transforming India. The emerging India is increasingly marked
by sustained GDP growth, consumption cum infrastructure-driven growth, positive outcomes
from long-term economic policies, moderated inflation and political stability.
India has emerged as a striking contrarian in an economically
challenged world. Even as global growth declined during the year under review,
India?s growth increased. The result is that during the year under review, India
reported peak foreign exchange reserves, derived largely from rising foreign direct
investment. There is a growing visibility of India being perceived as a global investment
haven.
The hospitality business of the Company grew 18.75% to RS 105.27
Cr in revenues during the last financial year. The EBITDA generated by this business
increased 32.31% to RS 41.93 Cr; EBITDA margin jumped 3231 bps to 36%. The
proportion of revenues contributed by this business to the Company increased from 19% to
23% in FY 2023-24.
The rising financial interest of the global world in India will not
raise the level of water for all. The inflow will gravitate largely to companies present
in core sectors, possessing managerial competence, adequate skin in the game and robust
Balance Sheets. This puts a priority on companies to be prepared with a complement of
these capabilities if they seek to grow disproportionately across the foreseeable future.
At Magnum Ventures, we made a contrarian decision during the last
financial year in accelerating the repayment of our net liability of RS 136.47 Cr
(following a repayment discount as part of a one-time settlement) during the last
financial year. The dues to be paid to Alchemist by September 2025, which the Company
repaid in March 2024. This repayment was funded through the issue of 18% non-convertible
debentures aggregating RS 150 Cr. The Company began the year with a repayment liability of
RS 136.47 Cr, which was settled early using funds from 18% non-convertible debentures
totaling RS 150 Cr, resulting in a year-end liability of RS 141.5 Cr.
The big question is why the Company selected to borrow at a high cost
when it could have availed of the normal repayment facility at relatively no interest
outflow and moderated the liability in the normal course of the business. The rationale
for this contrarian decision is that the opportunities available to the Company now
widened in a single stroke: the Company is liberated from fund-raising constraints imposed
by ARC stipulations. The result is that the Company is growth-ready from an aspirations
point of view and is supported by a Balance Sheet that can help mobilise the necessary
growth capital.
We are confident that by living the ‘time cost of money?
ethic – we have taken a bold decision that should play out attractively across the
foreseeable future. The higher cost incurred to mobilise growth capital will be more than
covered by timely asset investments that graduate our company into the next orbit.
With the ARC-imposed restrictions over, your management moved with
speed to infuse additional capital to strengthen its business model. The Company made a RS
48.92 Cr rights issue during the year under review, principally to strengthen its paper
business. The business under-performed in FY 2023-24: revenues declined 0.68%. This
decline was not limited to our company; this was in line with the general weakness in the
paper sector the world over.
At Magnum Ventures, we could have addressed this weakness from a
perspective that ‘We will wait and watch?, absolving ourselves of any
responsibility of performance weakness. We took a contrarian position here as well: We
recognised that we could gave performed better had we invested proactively in
quality-enhancing equipment; we recognised that we could have escaped much of the market
weakness had we evolved our product mix.
The result is that approximately 75% of our rights issue proceeds will
be invested in our paper business. The outlay will address import substitute products that
we expect will grow following the ban on single-use plastic and a consumer movement away
from plastic packaging. The Company will focus on the manufacture of furniture kraft paper
of a high burst factor and crockery paper. The manufacturer will strengthen our brand as a
niche boutique player with a growing insulation against commodity market cycles. Besides,
the Company expects an improvement in the paper market following the 2024 General
Elections. Had the Company not invested at this juncture, there is a possibility that it
would have lost its capacity to be at the right place at the right time, affectively
competitiveness and market share. On the other hand, this investment-driven quality
enhancement will graduate our paper business towards a superior product mix, corresponding
to an increase in average realisations from RS 44 per kg to RS 58 per kg; the enhanced
value is also likely to strengthen our EBITDA margin by 600 bps to 9%; this investment is
expected to be recovered in just 30 months, creating a sustainable growth platform.
The hospitality business of the Company grew 18.75% to RS 105.27 Cr in
revenues during the last financial year. The EBITDA generated by this business increased
32.31% to RS 41.93 Cr; EBITDA margin jumped 3,231 bps to 36%. The proportion of revenues
contributed by this business to the Company increased from 19% to 23% in FY 2023-24.
The Company?s hospitality business is at a point when it is
generating its growth resources from within in addition to a consistent surplus. During
the year under review, the Company increased its average room tariff 2.86% to RS 4,742 per
day. The Company made a momentous decision to raise its per day tariff beyond RS 7,000
(now attracting a tax of 18% compared with only 12% for a tariff below RS 7,000. Despite
this increase, average occupancy remained at 90% in FY 2023-24 compared with 85% in the
previous year.
At Magnum Ventures, we believe that the tariff increase beyond RS 7,000
represents a watershed for the hospitality business. From a ‘Keep the tariff below RS
7,000 at all costs and widen market share? approach, the Company is shifting to
‘Let us price in line with the brand of our property without losing market
share?. During the last financial year, the Company leveraged its locational
advantage (equidistant from existing and emerging airports), cuisine differentiation and
family weekend packages. Besides, with no new five-star hospitality properties being
launched in the National Capital Region, the Company expects its hospitality business to
ride prospective demand and tariff growth.
The Company expects to take its hospitality business ahead by bidding
for the lease of heritage properties being announced. In FY 2023-24, the Company bid for
the multi-decade lease of a heritage property in Uttar Pradesh; the Company was
shortlisted on the basis of its strong hospitality credentials.
Besides, India deepened its positioning as a large spiritual tourism
centre. The Indian wedding market is expected to become larger. India?s visibility in
the global tourism market is growing following increased aviation connectivity and
superior hospitality sector support. There is a greater focus on catering to the needs of
the Indian traveller. The complement of these realities is likely to enhance hospitality
tariffs across the foreseeable future.
The management sees in these emerging opportunities a platform for
sustainable growth. By the virtue of having exited the erstwhile restrictions placed by
the ARC, the Company is attractively placed to widen its hospitality portfolio through
relatively asset-light investments. The Company issued 7.5 million warrants at RS 60 each
to 21 shareholders who backed the Company?s growth direction and commitment,
enhancing capital access. If there is one word that proved to be the bottom line of our
performance during the year under review, it was ‘governance?. The Company
deepened its governance commitment through various ways: it liquidated a sizable liability
in one stroke, in doing so, it did not compromise its ability to service stakeholders; it
prioritised the Company?s long-term interests over the short-term; it exited the ARC
and its refinanced debt, it created the groundwork for a superior credit rating that could
translate into a lower funds cost across the foreseeable future; it empowered the
management to monetise the value of its hospitality brand through prospective funds
mobilisation; it sent out an unmistakable message to the markets that it is committed to
long-term stakeholder value creation.
Going ahead, the Company may consider the option to demerge its hotel
business that could empower the demerged identity to be valued independently and mobilise
resources on the strength of its prospects.
In view of this, it would be reasonable to conclude that the Company
created a new growth platform during the last financial year. This platform should begin
to deliver superior outcomes starting FY 26, extending sustainability into the long-term.
Parveen Jain Chairman