Mahindra Holidays & Resorts - Closing in on The Finishing Line; Result Update Q3FY15 :: Edelweiss

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Mahindra Holidays & Resorts India Ltd (MHRIL) -BUY :: Ventura

We initiate coverage on Mahindra Holidays & Resorts India Ltd (MHRIL) as a BUY with a Price Objective of `451 representing a potential upside of ~37.0% over a period of 15 months. At the CMP of `329, the stock is trading at 23.7x and 19.0x its estimated earnings for FY13 and FY14 respectively. MHRIL is the market leader in the Vacation Ownership (VO) industry and faces limited competition (other sizable player being Sterling Resorts). MHRIL is expected to witness healthy growth of 17.7% CAGR in its top-line to `867.2 crore by FY14 on the back of acceleration in net member additions (13.4% CAGR). We believe that this acceleration is achievable owing to huge untapped opportunity for VO industry in India, adherence to its “Member First” policy and focus towards increasing room inventory (FY13 - ~600 rooms; FY14 - ~425 rooms). While in the recent past, MHRIL was plagued by significant member cancellations, its refurbished business model coupled with increasing room inventory should help in stemming the attrition; boosting net member additions and consequently revenues.
 Robust model with front ended cash flows and steady annuity income streams
Owing to MHRIL’s stable stream of cash flows and self funding nature of the business model, the company has been able to maintain its debt at negligible levels as compared to the hotel industry which has high gearing. MHRIL’s strategy is to fund capex (building room inventory) and customer acquisition costs from membership fees (via both upfront and securitization of receivables). Also, majority of the resort and company level expenses are funded through Resort income and Annual subscription fees (ASF). With an estimated growth of membership base at a 13.4% CAGR, the fund flows, going forward, will ensure that the company maintains debt at negligible levels. Also, the annuity stream in form of ASF will become stronger. Further, we believe that the low gearing status is an added advantage especially during the period of hardships (viz slowdown in membership base, delay in payment of membership fees) as it will be in a good position to raise liquidity from external sources.

MAHINDRA HOLIDAYS & RESORTS Still some way to go: Edelweiss

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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:: Edelweiss PDF link

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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.

Mahindra Holidays Resorts India - Value Pick :Anand Rathi

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  Mahindra Holidays Resorts India                         Closing 307                                                                                                                             Target   465

Investment Arguments

~ Diverse Product portfolio

~ Capex and expansion plans on track

~ Improving operating matrix slowly and gradually – Q3 results

~ Improving Industry Outlook

~ Attractive Valuations

  

~Valuation

With a unique revenue model, capex and expansion plans on track and member additions with lower cancellations shows a better outlook for the company. Currently the stock is trading close to lowest PE from its listing. We see a price target of Rs.465 for next 24 months.   

Mahindra Holidays UW(V): 1Q sharply below expectations  HSBC

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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.

Mahindra Holidays UW(V): 1Q sharply below expectations  HSBC

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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.

Buy Mahindra Holidays and Resorts: Target Rs 420:: Anand Rathi

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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.

Mahindra Lifespace Developers: Buy : Business Line

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At a time when most realty players are finding it a demanding task to go back to their 2007-08 peak numbers, Mahindra Lifespace Developers (Mahindra Life) has easily managed it. It has expanded its sales and net profits at a comfortable pace over each of the last three years.

Negligible debt on the books, a good business mix of residential space and integrated development and sound backing of well-established parent (Mahindra & Mahindra) brightens prospects of Mahindra Life vis-à-vis other mid-sized players. Investors with a three-year perspective can consider buying the stock. At the current price, the stock trades at 13 times its expected consolidated per share earnings for FY-12. Investors would do well to buy the stock in small lots on declines linked to markets.

Mahindra Life expanded consolidated sales at 38 per cent compounded annually over the last three years to Rs 612 crore in FY-11 while net profit grew 18 per cent annually to Rs 108 crore. A strong residential market in Mumbai, where volumes held up despite volatile prices and a lucrative SEZ in Chennai helped the company grow sales even during the downturn. The company closed FY-11 with a 38 per cent growth in profits.

Mahindra Life has negligible debt on a standalone basis and a consolidated debt:equity of 0.5, commendable considering the long term nature of projects such as special economic zones housed under its subsidiaries.

The residential segment is the mainstay for Mahindra Life's revenues. The company sold 1.4 million sq ft of residential space in FY-11 against 1.2 million sq ft in the previous year. This came with price hikes of 5-15 per cent in Mumbai, despite a good part of the year seeing a slump in prices in parts of the city. That inventories (other than SEZs) have sharply declined in the latest fiscal also suggests that execution as well as sales have picked up pace. Launches, though, have been sluggish in the March quarter.

The company expects to come up with over 2 million sq ft of launches in Mumbai, Hyderabad, Nagpur and Chennai over the first half of FY-12.

Mahindra's integrated cities — the Mahindra World City in Chennai and Jaipur have also been ramping up on their customer base. At its Chennai SEZ, the company added eight customers to take the total to 57. Despite the introduction of Minimum Alternate Tax, we don't foresee occupiers exiting the SEZ, given their massive investments in these zones. There is however concern over SEZs attracting fresh customers. As we write this, the Madras High Court has issued notices to the Government against the MAT levy, on a petition made by South-based SEZ developers. We are not factoring in additional revenues for Mahindra Life from SEZ space not yet leased

MAHINDRA HOLIDAYS-Weak quarter; low volume growth :Edelweiss

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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%.

Mahindra Holidays-Strong Q3 earnings as margins expand , HSBC Research,

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Mahindra Holidays (MHRL IN)
UW(V): Strong Q3 earnings as margins expand 
Q3 earnings were 29% above our estimates as better
realization improved margins (which we expected to occur in
Q4 FY11)
Weak volume growth is a concern; we do not expect
valuation to expand on lower volume growth outlook
Retain UW(V) and TP of INR344. Slower-than-expected
inventory addition and volumes are key downside catalysts

Buy Mahindra Holdiays & Resorts: 2011 Mid-Cap pick: Antique

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Mahindra Holdiays & Resorts (I) Limited
Sunny days ahead


Investment rationale
Diversified product profile
MHRIL has a diversified product basket which is customised to various price
points and customer preferences. Its formidable marketing reach helps monetise
this product basket in the form of an increasing member base.

MAHINDRA HOLIDAYS:Weak quarter; low volume growth :: Edelweiss

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MAHINDRA HOLIDAYS & RESORTS INDIA
Weak quarter; low volume growth


􀂄 Slow new membership growth; provision continues for inactive members
Mahindra Holidays & Resorts India (MHRIL) added net 4,164 members in Q2FY11
against 3,945 in Q1FY11 and ~7,000 in Q4FY10. It cancelled 688 memberships
during the quarter and created provision for another 1,109 inactive members for
the coming quarters. Owing to addition of just 8,100 members in 1HFY11, we
reduce our estimates for growth in membership addition to 16% for FY11-12.
􀂄 Muted sequential sales growth; EBIDTA margins strained
Sales declined 5.4% Y-o-Y, but increased 11.5% Q-o-Q as membership addition
improved on a sequential basis. During the quarter, company provided INR 278
mn for the cancelled members. EBIDTA margins declined to 25.2% in Q2FY11
compared with 37.2% in Q2FY10, as other expenses like higher rent and supplies
hit the expenses. On sequential basis, EBIDTA margins improved 260bps as the
company was able to control certain other expenses.
􀂄 Negative rooms growth; Tungi project postponed to Q3FY11
MHRIL dropped two resorts during the quarter, taking 43 rooms out of the
inventory. During the quarter, the company added 27 rooms in Saraska, taking
the total numbers of rooms at the end of Q2FY11 to 1,473 against 1,489 in
Q1FY11. The Tungi (Maharasthra) project, where MHRIL was supposed to soft
launch 80 rooms in Q2FY11, has been postponed to Q3FY11 as the company still
awaits the occupancy certificate. Few more resorts on both ownership and lease
basis are expected to be added in H2FY11. The company maintains its stand of
estimated 500 room addition in FY11.
􀂄 Outlook and valuations: Member addition dwindles; maintain ‘REDUCE’
We believe MHRIL is facing headwinds in membership additions sooner than
expected. We also believe that new schemes to be launched are far in future to
have a meaningful impact on the near-term financials. As we are reducing our
membership growth estimates to 16% for both FY11 and FY12, we are cutting
EPS estimates by 10% and 14.9% for FY11 and FY12, respectively, and the target
price to INR 346 from INR 370. We continue to value the stock through DCF
methodology. At CMP of INR 441, the stock is trading at P/E of 32.6x and 26.4x
FY11E and FY12E earnings, respectively. We maintain our ‘REDUCE’
recommendation on the stock.

Mahindra Holidays & Resorts - BUY- Prominent player in leisure hospitality --SKP Securities

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Company Profile
Mahindra Holidays & Resorts India Ltd (MHRIL) is a leading player in the
leisure hospitality industry, provides family holidays primarily through
vacation ownership memberships. Mahindra Holidays currently has a pan-
India presence through its extensive network of 33 resorts and 1476
apartments. Currently company has 109,884 vacation ownership members as
on March 31, 2010.
Investment Rationale
Prominent player in leisure hospitality
• Club Mahindra has the highest brand equity among timeshare
companies in India. With the escalating demand of VO products,
MHRIL with its strong brand and pan India presence is well poised to
take advantage of it.
• In terms of market share, MHRL has accounted for 72% of the total
active members across the vacation ownership industry in India with
Resort Condominiums International (RCI) up to end May 2009.
Mounting member base – strengthening top line
Membership enrollment has increased at a CAGR of 31% over the last
five years and reached to 113829 as on June 30 2010.
Company has launched new services offerings such as, Zest – targeting
young urban consumers, club mahindra fundays, club mahindra travel
etc, which will help company to capture more potential members in
near future. Increasing the membership base and the number of resorts
would enable company to increase the total income from vacation
ownership.
Distinctive and a Vigorous Business Model
Company follows a mixed use model by generating revenue from
selling vacation ownership to members and also provides accessibility
to non members for its unused apartments on a per night room tariff.
This enables MHRIL to enhance its revenue through optimum
occupancy and sales from restaurants and other services.
Company also provide financing option to its members, and attract a
interest a rate of 15-16% in a year.
Members pay an upfront membership fee and are also required to pay
an annual subscription fee each year thereafter.
Valuation
Vacation Ownership Industry is at its nascent stage and MHRIL is favorably
placed with 70% market share of total VO memberships in India. Innovative
and distinctive product in its portfolio, constant growth in membership, high
quality of services makes MHRIL a prominent player in VO industry.
At the current market price of Rs. 462, MHRIL is trading at PE of 26.4x
and 22.1x of FY11E and FY12E earnings of Rs. 17.5 and Rs. 20.9
respectively. We expect revenues and PAT to post CAGR of 25% and
30%, respectively, over FY10-12 E. We recommend BUY rating on the
stock with a target price of Rs. 580/- (25% upside) in 12 months.