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Slow new membership growth; average realisation surprises positively
Mahindra Holidays & Resorts India (MHRIL) added net 3,758 members in Q3FY11
against 4,905 in Q3FY10 and 4,164 in Q2FY11. On gross basis, the company
added 4,851 members, 4,239 as Club Mahindra memberships and 612 as Zest
memberships. In the first nine months of FY11, the company added 11,867
members on net basis and 15,403 on gross. Owing to lower-than-estimated
membership addition, we are revising our membership addition growth to 15%
from the earlier estimates of 17%. Average realisation during the quarter was INR
0.31 mn, up 7% Q-o-Q and 20% Y-o-Y. Owing to better-than-estimated
realisation, we are revising upwards our FY11 realisation growth estimates to 15%
from the earlier 12%.
Muted sales growth; EBIDTA margins improved
Sales increased 13.4% Y-o-Y and 24.5% Q-o-Q due to higher realisation per
member. Y-o-Y, 20% higher realisation and lower right-offs balanced the 23%
decline in membership addition. EBIDTA margins improved 260bps Y-o-Y due to
the operating leverage of the model. Occupancy levels have improved to 81.4%
from 74% recorded during Q3FY10.
Muted rooms growth; Tungi project still awaiting approvals
MHRIL ended the quarter with 1,555 rooms, adding 82 rooms with 32 apartments
in Coorg, 30 in Navalgarh, 10 in Osian and 10 in Swamimalai. The 150-room
Tungi project has now been postponed to Q4FY11 as the project is still waiting for
some approvals to start. The company maintains its stand of estimated 500 room
addition in FY11.
Outlook and valuations: Member addition an issue; maintain ‘REDUCE’
We believe headwinds in membership additions will continue for few more
quarters before the restructuring starts showing results. We also believe that new
schemes to be launched are far in future to have a meaningful impact on the
near-term financials. We believe that only meaningful addition of rooms will help
the company to sell the offerings aggressively. We maintain our FY11 and FY12
estimates with our target price of INR 364. We continue to value the stock
through DCF methodology. At CMP of INR 339, it is trading at P/E of 26.7x and
18.3x FY11E and FY12E earnings, respectively. We maintain our ‘REDUCE’
recommendation on the stock.
Company Description
MHRIL was started in 1997 and offers a unique vacation ownership model to Indian
consumers with resorts spread across India. The company has different schemes for
families, singles and corporate. With almost 100,000 members spread across different
membership schemes, the company uses the upfront membership fee charged from
members to build resorts. With its resorts located across India, the company plans to
aggressively expand its reach both in terms of members and new resorts.
Investment Theme
With its unique business model, although MHRIL is in a sweet spot to exploit the growth
in the Indian travel & tourism sector, but we are concerned with the accounting
treatment of the income and expenditure done by the company. We believe with its
aggressive income recognition principle, the future expenses to serve the existing
members is not getting properly accounted. Due to the limited history of its operations,
we believe only 5-10 years down the line we will have the visibility of its full scale
expenses.
Key Risks
Launching new schemes, restart to sell the Purple membership, increase in overall
average membership fee are some of the factors that could provide risk to our estimates.
Settlement of ongoing Munnar property and IT dispute can also provide upside risk to
our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Slow new membership growth; average realisation surprises positively
Mahindra Holidays & Resorts India (MHRIL) added net 3,758 members in Q3FY11
against 4,905 in Q3FY10 and 4,164 in Q2FY11. On gross basis, the company
added 4,851 members, 4,239 as Club Mahindra memberships and 612 as Zest
memberships. In the first nine months of FY11, the company added 11,867
members on net basis and 15,403 on gross. Owing to lower-than-estimated
membership addition, we are revising our membership addition growth to 15%
from the earlier estimates of 17%. Average realisation during the quarter was INR
0.31 mn, up 7% Q-o-Q and 20% Y-o-Y. Owing to better-than-estimated
realisation, we are revising upwards our FY11 realisation growth estimates to 15%
from the earlier 12%.
Muted sales growth; EBIDTA margins improved
Sales increased 13.4% Y-o-Y and 24.5% Q-o-Q due to higher realisation per
member. Y-o-Y, 20% higher realisation and lower right-offs balanced the 23%
decline in membership addition. EBIDTA margins improved 260bps Y-o-Y due to
the operating leverage of the model. Occupancy levels have improved to 81.4%
from 74% recorded during Q3FY10.
Muted rooms growth; Tungi project still awaiting approvals
MHRIL ended the quarter with 1,555 rooms, adding 82 rooms with 32 apartments
in Coorg, 30 in Navalgarh, 10 in Osian and 10 in Swamimalai. The 150-room
Tungi project has now been postponed to Q4FY11 as the project is still waiting for
some approvals to start. The company maintains its stand of estimated 500 room
addition in FY11.
Outlook and valuations: Member addition an issue; maintain ‘REDUCE’
We believe headwinds in membership additions will continue for few more
quarters before the restructuring starts showing results. We also believe that new
schemes to be launched are far in future to have a meaningful impact on the
near-term financials. We believe that only meaningful addition of rooms will help
the company to sell the offerings aggressively. We maintain our FY11 and FY12
estimates with our target price of INR 364. We continue to value the stock
through DCF methodology. At CMP of INR 339, it is trading at P/E of 26.7x and
18.3x FY11E and FY12E earnings, respectively. We maintain our ‘REDUCE’
recommendation on the stock.
Company Description
MHRIL was started in 1997 and offers a unique vacation ownership model to Indian
consumers with resorts spread across India. The company has different schemes for
families, singles and corporate. With almost 100,000 members spread across different
membership schemes, the company uses the upfront membership fee charged from
members to build resorts. With its resorts located across India, the company plans to
aggressively expand its reach both in terms of members and new resorts.
Investment Theme
With its unique business model, although MHRIL is in a sweet spot to exploit the growth
in the Indian travel & tourism sector, but we are concerned with the accounting
treatment of the income and expenditure done by the company. We believe with its
aggressive income recognition principle, the future expenses to serve the existing
members is not getting properly accounted. Due to the limited history of its operations,
we believe only 5-10 years down the line we will have the visibility of its full scale
expenses.
Key Risks
Launching new schemes, restart to sell the Purple membership, increase in overall
average membership fee are some of the factors that could provide risk to our estimates.
Settlement of ongoing Munnar property and IT dispute can also provide upside risk to
our estimates.
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