The download from my day: Mahindra Holidays: Jain Matrix

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.

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.

Fig 1 – Resorts and Members, JainMatrix Investments

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.

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.

Fig 2 – Financials Snapshot, JainMatrix Investments

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%.

Fig 3 – Consolidated Cash Flows are positive, JainMatrix Investments

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

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.

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.

Source: http://jainmatrix.com/2013/03/08/mahindra-holidays/

The download from my day