Mahindra Holidays & Resorts - Still some way to go; visit note; Reduce:: Edelweiss PDF link

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Mahindra Holidays & Resorts (MHRL IN, INR 269, Reduce)

We met with the management of Mahindra Holidays & Resorts (MHRIL) recently. The company is expecting a significant rise in membership additions driven by increased communication with existing members, improving their overall experience through blackout of key resorts to non-members, acquisition of new resorts (250 rooms expected to be added over next few days) and introduction of a strong referrals programme. However, EBIDTA margins are likely to remain under pressure in the near term which will also keep earnings growth in check. We maintain ‘REDUCE’, given its rich valuations.

Uptick in membership additions likely

The new senior management team is taking a number of steps to improve the overall performance which has already been reflected in the last couple of quarters in terms of better membership additions. The key disappointment this year so far has been low new room additions (144) as against the expected 600 rooms at the beginning of the year. However, with 250 rooms expected to be added shortly, this could give a further fillip to an improving net membership trend. We are estimating a membership addition of ~20,000 in FY13 (versus 17,500 in FY12E). 

EBIDTA margins to remain under pressure

EBIDTA margins for the 9mFY12 period are down 500bps YoY. Key reasons for the decline, particularly in Q3FY12, have been expenses incurred on renovation in few resorts and a blackout of non-members from key resorts (higher margin). A rebound in margins to earlier levels, however, looks unlikely given the fact that new resorts - coming up shortly - will take time to break even.    

Outlook and valuations: Cautious; ‘REDUCE’

We will watch closely the success of the strategy adopted by the new team to increase membership additions. We continue to value MHRIL, using DCF methodology with target price of INR242. We maintain our ‘REDUCE’recommendation on the stock. 

Mahindra Holidays & Resorts - Still some way to go; visit note; Reduce

Regards,