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Tuesday, September 15, 2009

Mahindra Holidays & Resorts India Ltd:What to be done with it?

Scripscan:Mahindra Holidays & Resorts India Ltd
cmp:325
Code:533088

Story:Mahindra Holidays and Resorts India Ltd (MHRIL) is a leading player in the vacation ownership space. It plans to expand the inventory of apartments and enhance facilities at Coorg in Karnataka, Ashtamudi in Kerala, renovate the resort at Ooty (Tamil Nadu) and construct new resorts at Tungi in Maharashtra and Theog, Shimla, Himachal Pradesh.As of May 31, 2009, MHRIL had a little over 96,000 members and 27 resorts across India and Thailand. Vacation ownerships through memberships provide members the right to use the company?s resorts over the period of their membership. Members have the flexibility to choose different resorts and time every year. They are also provided a fixed price structure. For FY2009, 67.25% of total income will primarily come through sale of vacation ownerships.An important factor working for MHRIL is the location of its resorts. Places such as Coorg in Karnataka, Ashtamudi in Kerala and Theog, Shimla in Himachal Pradesh are lesser known and under-explored in terms of resorts and holidaying spots and therefore fuel the excitement of holiday-seekers. And planned arrangements and homely ambience are a god-send for the busy city dweller. Brand positioning has worked for the company. Apart from the Club Mahindra brand, the company launched ?Zest? in November 2006 to target young urban families. As on May 31, 2009, the company had 4,070 Zest vacation ownership members. The company launched a separate brand called Club Mahindra Fundays in October 2006 to lure the corporate houses. It has a travel and holiday related services portal, called clubmahindra.travel. There is a focus on foreign tourists through the brand ?Mahindra Homestays?, which markets homestays to overseas and domestic travelers. Catering to such wide range of holiday-seekers offers a tremendous potential, considering their preferences in terms of time and locations.The company?s net profit and revenues have grown steadily at a compounded annual growth rate (CAGR) of 59% and 37% in the past three years. Going forward, however, it would be tough to maintain this momentum given the high base effect and economic slowdown. The impact of a slowing economy was visible in the FY09 results, with the company reporting sales growth of 11% and net profit decline of 5%.The counters valuation is on the higher side, considering the valuations enjoyed by peers in the hospitality sector. EIH, which owns Oberoi chain of hotels, is trading at a P/E multiple of 28-30. Country Club, which also sells vacation ownership, is trading around 7 times its 4-quarter trailing EPS. Although the company offers a strong pedigree and robust growth potential,but valuation would check the price in the near term. Long-term investors can consider accumulating the stock.

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