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• Mar 7, 2013
• CMP: Rs 276
• Mid Cap – Market Cap 2334 crores
• Advice: BUY

JainMatrix Investments presents investors the complete report on Mahindra Holidays published earlier for subscribers only.

Here is a note on Mahindra Holidays.

Summary:

• Mahindra Holidays is an Indian leader in Vacation Ownership/ Timeshare. It has an excellent brand and is part of a prestigious group. In its business segment, it is a revenue and market share leader.
• It has added significant capacities in the past years, in India and abroad. The next few quarters should see MH being able to monetize these assets.
• The 52% fall in share price in the last 3 years should thus be seen as an opportunity to BUY the share at a lower price, and better entry valuations.  

Business Snapshot:

• Mahindra Holidays and Resorts (MH) is a Travel & Tourism firm and a leader in Vacation Ownership.
• MH had Revenues of 637 crores and Profits 105 cr in FY12.
• The MD & CEO is Rajiv Sawhney. MH is part of the USD 16 billion Mahindra group.
• MH has over 1,55,000 members (customers), and 40 resorts with 2,200 rooms. There has been an aggressive increase in room inventory in the past few years. (Fig 1). The resorts growth strategy too is mapped in Fig 1.
• Started in 1996, the company’s flagship brand is ‘Club Mahindra Holidays’.  Other brands in the portfolio are Zest Breaks, Club Mahindra Fundays and Mahindra Travels.

•  Revenues are from Members, who 1) buy the timeshare/ initial payment 2) annual subscription charge 3) Spend on services during the stay 4) unused rooms sold to non-members (like any resort).
• Promoter hold 83%, while rest is with Institutions 4.5%, Individuals 6% and Others 2.5%. This is a good sign. But the Promoters may need to divest their holding to 75% soon.

Pricing Snapshot

The available 4-year share price history of MH shows us:

• The IPO was in June 2009, and pricing was Rs 300 . It got oversubscribed 9.8 times.
• The share has been quite volatile, as from a post IPO price of 395 in July 2009, it rose to a peak of 574 in March 2010, then fell to a low of 255 in May 2012. See LINK 
• Today at 275, it has given a negative return to IPO investors over 4 years.

Financial Snapshot

•  Consolidated Revenues, EBITDA and PAT have gained by 14%, 4.2% and 6.7% CAGR over 5 years. While revenues are good, EBIDTA and PAT margins have fallen.
• P/E has moved in a range of 23-41 times, indicating the perceived leadership position of MH.
• The total debt of about Rs 1070 cr (FY12) does not look too high, when we see that the D/E is 2.0 on an overall basis. Dividend at 40% gives a dividend yield of 1.45%.

• Further, the Free Cash Flow mapping can be seen in Fig 4. Except for FY10, the FCF is zero or positive. We can see that a number of new resorts and new rooms have been added at MH – Fig 1. In spite of this addition, MH has maintained positive FCF. This is a good sign of financial control.

News, Opportunities and Concerns

News

• MH has added international locations like Austria, Bangkok, Pattaya and Kuala Lumpur. It has obtained a license to operate in the UAE and is looking to make this operational soon.
• MH is proceeding with a stake sale under the offer for sale (OFS) route on 7th March 2013. It has fixed ‘floor price’ at Rs 270 per share for the sale of its 4.02% in the company, to fetch around Rs 92 cr. The company is offloading shares to comply with SEBI’s guidelines on minimum public shareholding. The OFS received a good response, and was subscribed 1.3 times.
• 40% of bookings today are done through their Interactive Online portal, from zero 15 months ago.

Opportunities

• Leisure travel in India is at an early stage of growth, and is a function of affluence and lifestyle.
• As per MH data, the total VO membership is 3.5 lakh (giving MH a 44% membership marketshare). The target market is households with annual income> 17 lakhs, which numbers 30 lakhs. Thus there is ample opportunity, of over 8 times for this industry.
• MH has an excellent brand of Club Mahindra, something that is well recognized and valuable. Plus the rub off of the Mahindra group.
• 90% of the MH resorts have a rating of 4 or over out of 5 on TripAdvisor. This is an excellent rating.
• MH is able to fund capex from membership fees and internal accruals. This is financially prudent.

Concerns and Threats 

• The current economic slowdown can slow discretionary expenditure at consumer level.
• Resort and rooms addition is a very capital intensive exercise, and something MH should not overstretch itself on.
• Looking at the 5 star hotel industry in India, the annual demand growth for hotel rooms remaining subdued at around 7 per cent in 2012-13 and 2013-14. This will be compounded by large-scale room additions: CRISIL Research expects 14,500 rooms to be added in 2013-14 to the existing 46,200 rooms. This is a negative indicator for the demand for MH.

Opinion, Outlook and Recommendation

• MH is emerging from a 2-3 year period of investments in room addition. In this period, it has managed to add to its number of members, and has a good inventory of rooms available for them.
• All this has been done without overstretching the balance sheet, and with just a small blip on the financials.
• The OFS activity will also make available additional funds to MH for corporate use.
• The business outlook in the next few years for MH is positive.
• The fall in share price of 52% from the peak in March ’10 to today should be seen as an opportunity to buy a strong business at a lower cost.

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Disclaimer:

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent Financial Expert/Advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com