Monday, October 19, 2009


Membership-led growth

Leading player with differentiated offering for leisure travellers: Mahindra Holidays & Resorts India (MHRIL) offers a differentiated product, offering quality holiday services to leisure travellers with its unique Vacation Ownership (VO) model. We expect the business model to be self-sustainable with negligible debt and free cash flow of INR 5,000 mn over FY10-12E. We expect the company’s membership to grow at 25% CAGR over FY10-12E with its diverse product offering and regular addition of resorts.

Leisure travel and vacation ownership set to boom in India With rising income levels, favourable demographics, growing urbanisation and better infrastructure, more Indians are ready to take holidays. The Indian timeshare industry posted a CAGR of 15% since 1998 (Source: AIRDA estimates) and we expect growth to pick up in the future. With growing consumerism, MHRIL will benefit with an increasing population opting for VO-based holidays.

Upfront membership fee utilised to build fixed assets: As MHRIL charges membership fees upfront, it helps the company build resorts without resorting to borrowed capital. Securitisation of membership fee receivables gives the company access to lump-sum money. As company retains the title of the property, it provides holiday resorts services over a period of time to members. Members gain as the company goes on adding more resorts every year. The company gains as it gets the membership fee upfront and uses the money to create resorts. We expect the company to generate free cash flow of INR 5,000 mn over FY10-12E.

Outlook and valuations: Attractive; initiating coverage with ‘BUY’ At CMP of INR 346, MHRIL is trading at 18.8x our FY11E consolidated EPS of INR 18.3 and 13.8x our FY12E consolidated EPS of INR 24.9. On historical PEG basis, the stock is trading at an attractive 0.4x. Our DCF analysis gives a fair value of INR 404 over the next 12 months. We expect memberships to touch approximately 175,000 by FY12E from 98,224 members as of Q1FY10. We expect revenues and PAT to post CAGR of 33% and 38%, respectively, over FY09-12E. Given the company’s unique business model, brand image, track record of execution, critical mass of members, relatively less volatile business model compared with a hotel, healthy return ratios, and attractive valuations, we initiate coverage on the stock with a ‘BUY’ recommendation.

To see the full report: MAHINDRA HOLIDAYS & RESORTS