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Investment Rationale
~ Diverse Product portfolio
~ Capex and expansion plans
~ Member additions continue with lower cancellations
~ Improving operating matrix slowly and gradually
~ Improving Industry Outlook
Company Background
Mahindra Holidays & Resorts India Ltd is one of the leading leisure
hospitality providers in India, offering quality family holidays with a
range of services designed to meet the diverse holiday needs and
interests of a family. The company is a part of USD 11.1 billion
Mahindra Group. The company's flagship brand Club Mahindra is
India's No 1 holiday brand, and the largest vacation ownership
brand outside the US.
The company provides family holidays primarily through vacation
ownership memberships. Their members can choose to stay and
holiday at resorts in a range of holiday destinations for a predetermined
number of days in a year for a fixed number of years.
Their resorts offer the use of furnished accommodation, such as
apartments and cottages, and an experience through resort specific
amenities and facilities, such as restaurants, ayurvedic spas, kids
clubs and a variety of holiday activities.
At present, the company has 36 properties, an asset replacement
value of Rs 3,000 crore with total membership of ~1,25,000, 64%
are active members or those who are eligible for holidays. The total
count of the rooms currently is 1624 rooms. The company has 36
resorts across India and Thailand.
~ Diverse Product portfolio
The company offers a range of solutions to all kind of customers
with the range of products and services, which includes Club
Mahindra Holidays, Zest, Club Mahindra Fundays, Mahindra
Homestays and clubmahindra.travel.
- Club Mahindra Holidays is engaged in the vacation ownership
business.
- Zest, another product of the company in the vacations ownership
space entitles their members short breaks for six nights each year in
studio apartments for a period of 10 years.
- Club Mahindra Fundays is a corporate product-based on the
point-based system.
- Mahindra Homestays provide the customers with choice of
homes across different budget categories and property types.
- Club Mahindra Travel is a travel integration service for Club
Mahindra Holidays' members to take care of their range of travel
needs from accommodation to the deals on air tickets, complete
holiday packages, replete with sightseeing tours and meals to
documentation requirements.
The company's flagship brand Club Mahindra is India's No 1 holiday
brand, and the largest vacation ownership brand outside the US.
~ Capex and expansion plans
The company has earmarked a capital expenditure of Rs 700 crore
for FY12, which will largely be funded through internal accruals. The
funds will be used to add around 800 rooms to its total room count of
1,624 rooms. Over half of the new rooms will be a result of
greenfield expansion. Of the total capital expenditure, the company
will use Rs 300 crore for acquisitions. The expansion plan indicates
future revenue potential.
~ Member additions continue with lower cancellations
Member additions continue though at a slower pace. The company
has also been successful in improving the customer mix with
reducing membership cancellations. The total membership count is
almost 1,25,169.
~ Improving operating matrix slowly and gradually
The financial performance of the company is improving though at a
slower pace as member additions are happening slowly with lower
rate of cancellations.
With a unique revenue model it generates revenue by selling
vacation ownership to members and also provides accessibility to
non members for its unused apartments on tariffs as well this will
further enhance the revenue through optimum occupancy and sales
from restaurants and other services. Going forward the delayed
project of Tungi and expansion plans going on at Coorg will add on
to the rooms which will further generate revenue going forward.
~ Improving Industry Outlook
The Indian tourism industry has been direct beneficiary of growing
Indian economy. The tourism demand is expected to reach US$
266.1bn by 2019. The changing preference of the consumers,
increase in international tourist, rising domestic demand as well is all
demanding for vacation ownership industry. This kind of industry
provides dedicated products and services to leverage the vast
unexplored domestic tourism potential.
Valuation
With a unique revenue model, capex and expansion plans on cards
and member additions with lower cancellations shows a better
outlook for the company. Currently the stocks is trading close to
lowest PE from its listing and close to 52 week low. We see a price
target of Rs.420
Concern
Company’s ability of achieving targets for rooms and memberships
seeing its past performance.
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