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Mahindra Holidays
UW(V): 1Q sharply below expectations
1Q earnings were 48-50% below our and consensus estimates,
led by weak sales growth and resultant poor margins
While we await operational data, we continue to expect
earnings volatility following the top management change
Reiterate UW(V) with INR344 TP; we are 12% and 3% below
consensus for FY12e and FY13e earnings, respectively
Q1 FY12 was an all-round disappointment to us: MHRL’s reported earnings of INR169m,
+27% y-o-y, were c48% below our estimate and c49% below the consensus estimate. The
major disappointment came from a weak top line of INR1.2bn, +24% y-o-y, vs our estimate of
INR1.6bn. We attribute the weak top-line growth to 1) member cancellations (other operating
income fell c57% y-o-y) or 2) a general slowdown in new member additions. Owing to lack of
operating leverage of weak top line, the EBITDA margin fell sharply to c18.8% (HSBC est:
34.5%). A lower tax rate of 28% (HSBC est: 33%) helped salvage bottom-line growth of 27%
on the weak base (Q1 FY11 reported the lowest earnings in the past 10 quarters).
Earnings volatility likely to continue over FY12e: MHRL in the past 3-4 months has seen
multiple top management changes in the form of a new chief executive officer and chief
financial officer. We expect this to impact long-term vision and strategy over the next 2-3
quarters. The company also has been restructuring its membership base over the past 3-4
quarters, which will make implementation of new management’s strategy a late starter. Hence,
we expect earnings growth over FY12 to remain volatile. We are cutting our FY12e EPS by
5% and FY13e EPS by 7% on the back of the weak Q1 FY12 results.
Reiterate Underweight (V) rating with INR344 target price: We continue to value
MHRL at INR344, our DCF-based target price, which implies an exit PE of 23.5x FY12e
earnings. A lower-than-anticipated growth outlook – FY11-13e earnings CAGR of 26%
vs 36% previously –will restrict valuation expansion in our view. We are 12% and 3%
below consensus on FY12e and FY13e earnings, respectively. Potential downside
catalysts include consensus earnings estimate cuts and weak volume data over FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra Holidays
UW(V): 1Q sharply below expectations
1Q earnings were 48-50% below our and consensus estimates,
led by weak sales growth and resultant poor margins
While we await operational data, we continue to expect
earnings volatility following the top management change
Reiterate UW(V) with INR344 TP; we are 12% and 3% below
consensus for FY12e and FY13e earnings, respectively
Q1 FY12 was an all-round disappointment to us: MHRL’s reported earnings of INR169m,
+27% y-o-y, were c48% below our estimate and c49% below the consensus estimate. The
major disappointment came from a weak top line of INR1.2bn, +24% y-o-y, vs our estimate of
INR1.6bn. We attribute the weak top-line growth to 1) member cancellations (other operating
income fell c57% y-o-y) or 2) a general slowdown in new member additions. Owing to lack of
operating leverage of weak top line, the EBITDA margin fell sharply to c18.8% (HSBC est:
34.5%). A lower tax rate of 28% (HSBC est: 33%) helped salvage bottom-line growth of 27%
on the weak base (Q1 FY11 reported the lowest earnings in the past 10 quarters).
Earnings volatility likely to continue over FY12e: MHRL in the past 3-4 months has seen
multiple top management changes in the form of a new chief executive officer and chief
financial officer. We expect this to impact long-term vision and strategy over the next 2-3
quarters. The company also has been restructuring its membership base over the past 3-4
quarters, which will make implementation of new management’s strategy a late starter. Hence,
we expect earnings growth over FY12 to remain volatile. We are cutting our FY12e EPS by
5% and FY13e EPS by 7% on the back of the weak Q1 FY12 results.
Reiterate Underweight (V) rating with INR344 target price: We continue to value
MHRL at INR344, our DCF-based target price, which implies an exit PE of 23.5x FY12e
earnings. A lower-than-anticipated growth outlook – FY11-13e earnings CAGR of 26%
vs 36% previously –will restrict valuation expansion in our view. We are 12% and 3%
below consensus on FY12e and FY13e earnings, respectively. Potential downside
catalysts include consensus earnings estimate cuts and weak volume data over FY12.
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