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Mahindra Holidays and Resorts India

Mahindra Holidays and Resorts India

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Published by mabvij
hi..
i am vijay kumar
i am mba student..its my summer report on mahindra club...u may
hi..
i am vijay kumar
i am mba student..its my summer report on mahindra club...u may

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Published by: mabvij on Aug 13, 2009
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02/17/2013

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Mahindra Holidays and Resorts India (MHRL) is one of the leading leisure hospitalityproviders in India, offering family holidays with a range of services designed to meetthe diverse holiday needs of a family. In addition to providing Vacation Ownership(VO) memberships, it also manages the operations at its resorts, which helps it controlthe quality of its offering thereby enhancing customer experience.Apart from its flagship service offering of VO, as part of its growth strategy itdiversified its portfolio by introducing new vacation ownership offerings, Zest and ClubMahindra Fundays, Mahindra Homestays and travel and holiday related servicesthrough clubmahindra.travel.As of May 31, 2009, MHRL had 96,067 Club Mahindra Holiday vacation ownershipmembers.
Likely increase in income levels to augur well for MHRL
Over the next two decades, the Indian market is likely to undergo a majortransformation. Income levels will almost triple and India is poised to become the fifthlargest consumer market by 2025. As Indian incomes rise, the shape of the country’sincome pyramid will also change dramatically. Over 291 mn people will move fromdesperate poverty to a more sustainable life, and India’s middle class will swell byover ten times from its current size of 50 mn to 583 mn people.
Revenues extremely sensitive to incremental member additions
The fact that 60% of upfront onetime membership fess is booked upfront (currentlyaccounting for 75% of revenues), topline for MHRL is extremely sensitive toincremental membership additions. Hence, unless the incremental number of newmember addition is higher than the previous year, the topline for the company maynot grow.
Strong parentage
MHRL is a part of the Mahindra Group of companies that is amongst the top 10industrial houses in India. Forbes has ranked the Mahindra Group in its Top 200 list of the World’s Most Reputable Companies and in the Top 10 list of Most Reputable Indiancompanies. The Mahindra Group’s activities have spread over various areas such asautomotive, farm equipments, engineering, forging, steel, infrastructure development,leisure hospitality, information technology, systems and technology, consultancy andsoftware services, general retailing, and trade and financial services.
Outlook and valuations
Although the IPO is stiffly priced, we recommend
‘SUBSCRIBE’
from a long-termperspective at the lower end of the price band, betting on the strong parentage,management track record, early-mover advantage and the company’s dominantposition in the vacation ownership business suggesting growth potential over the longterm. At the upper band of INR 325, MHRL is valued at 34.2x its FY09 earnings and atthe lower price band of INR 275, it is valued at 29x its FY09 earnings (on a fullydiluted basis).
Prakash Kapadia
+91-22-6620 3119prakash.kapadia@edelcap.com
Reuters : NABloomberg : NA52-week range (INR) : NAPost IPO share in issue (mn) : 84.2M cap (INR bn/USD mn) : NAAvg. Daily Vol. BSE/NSE (‘000) : NAPromoters : 83.1Non-Promoters : 16.9
India Equity Research | Travel and Tourism IPO Note
 
MAHINDRA HOLIDAYS AND RESORTS
INR 275-325
Long-term play 
SUBSCRIBE
June 22, 2009
Market DataShare Holding Pattern (%)
Edelweiss Research is also available onwww.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Edelweiss SecuritiesLimited1
Mahindra Holiday Resorts
Edelweiss Securities Limited2
Investment theme
Unique business model
Mahindra Holidays and Resorts India (MHRL) is one of the leading leisure hospitality providersin India, offering family holidays with a range of services designed to meet the diverseholiday needs of a family. In addition to providing Vacation Ownership (VO) memberships, italso manages the operations at its resorts, which helps it control the quality of its offeringthereby enhancing customer experience.Apart from its flagship service offering of VO, as part of its growth strategy it diversified itsportfolio by introducing new vacation ownership offerings, Zest and Club Mahindra Fundays,Mahindra Homestays and travel and holiday related services through clubmahindra.travel.Club Mahindra Holiday membership currently entitles members the choice of holidaying atany of its 27 resorts, for seven days each year, in a season and apartment type of theirchoice, for 25 years. In addition, members can choose to access a range of resorts globallythrough our RCI affiliation.As of May 31, 2009, MHRL had 96,067 Club Mahindra Holiday vacation ownership members.
Right to use not ownership
MHRL memberships provide members the right to use its resorts over the period of theirmembership. This type of a membership, gives members the flexibility to choose a differentresort and the time to holiday every year.The holiday seasons are generally divided into three or four seasons, based on the demandfor a particular resort in a particular season. Each of the resorts has a unique weekclassification for the different seasons offered by them.
Venture into other segments will help strengthen presence
Apart from VO, MHRL launched Zest in November 2006, which targets young urban familiesfor short break holidays. Zest membership currently entitles members the choice of holidaying at any of its five Zest resorts, for six days each year, in a season of their choice,for 10 years. Club Mahindra Fundays was launched in October 2006 and targets corporatehouses. The membership currently entitles corporates for a period of 10 years to offer familyholidays to their employees. It also launched clubmahindra.travel in April 2007 to provide aone-stop shop for travel and holiday related services. Mahindra Homestays was launched inJuly 2008, which markets homestays to overseas and Indian travelers wishing to experiencethe real India by lodging with a host family in India.Additionally, a mixed-use model of being a vacation ownership company and also providingnon-members access to its unutilized apartments on a per-night-tariff basis enables MHRL toenhance revenues through optimum occupancy and sales from its restaurants and otherservices.
Likely increase in income levels to augur well for MHRL
Over the next two decades, the Indian market is likely to undergo a major transformation.Income levels will almost triple and India is poised to become the fifth largest consumermarket by 2025. As Indian incomes rise, the shape of the country’s income pyramid will alsochange dramatically. Over 291 mn people will move from desperate poverty to a moresustainable life, and India’s middle class will swell by over ten times from its current size of 50 mn to 583 mn people.Mahindra Holiday Resorts
Edelweiss Securities Limited3
Travel and tourism in India is expected to give a very dynamic performance over the forecastperiod, driven by strong economic growth, an expected increase in its share of GDP to over8% and increased traveler confidence. (
Source: Travel and Tourism – India: Euromonitor International: Country Market Insight, November 2008)
India has seen an increase inexpenditure on leisure and recreation to INR 370 bn in 2005 from INR 270 bn in 2003.
Good track record; membership addition key to success
Of the total revenues of MHRL, income from sale of vacation ownership accounts for 75% of the total operating income. The balance 25% comes from a combination of annualsubscription fee, and income from resorts.Over the past four years, the company’s operating income has posted a CAGR of 40% onaccount of increase in the cumulative member base from 28, 491 in FY05 to 92,825 in FY09,
 
which have shown a 34% CAGR increase over the same period. Of the income from sale of vacation ownership, MHRL accounts 60% of its revenues upfront in the year of themembership addition; the balance 40% is accounted over the period of the membership,which ensures an annuity stream from its existing members.The strong growth of membership addition, we believe, is on account of changingdemographics, increasing aspirations of the middle class, emergence of low-cost airlines andan integrated business model that entails presence across the value chain right from memberacquisition (marketing and sales of lifestyle offerings), servicing of and contact with members,identifying land and developing resorts, acquiring resort properties, to resort operations(delivering family holiday experiences) and providing value-added services.Apart from the income from sale of vacation ownership, the annual subscription feecontributes to more than 11% of the income from operations, which are ~ INR 6100 permember on the membership base last year.While MHRL has been able to grow its member base at a healthy growth rate in the past,sustaining similar growth rates over the next couple of years may not be as easy given therecent economic slowdown as it relies on heavily on discretionary spending by consumers.
Strong parentage
MHRL is a part of the Mahindra Group of companies that is amongst the top 10 industrialhouses in India. Forbes has ranked the Mahindra Group in its Top 200 list of the World’s MostReputable Companies and in the Top 10 list of Most Reputable Indian companies. TheMahindra Group’s activities have spread over various areas such as automotive, farmequipments, engineering, forging, steel, infrastructure development, leisure hospitality,information technology, systems and technology, consultancy and software services, generalretailing, and trade and financial services.
Revenues sensitive to incremental member additions; topline could decline despitemembership growth
The fact that 60% of upfront onetime membership fess is booked upfront (currentlyaccounting for 75% of revenues), topline for MHRL is extremely sensitive to incrementalmembership additions. Hence, unless the incremental number of new member addition ishigher than the previous year, the topline for the company may not grow. What this alsomeans is that even if the overall membership base for the company will grow due to newmember additions, the topline will not grow unless the incremental member additions ishigher than the previous year. If the recent phase of economic slowdown and job cutspersists, it could affect the company’s growth.Mahindra Holiday Resorts
Edelweiss Securities Limited4
Growth in members has slowed down in FY09, leading to profit decline
During FY09, MHRL reported 11.5% Y-o-Y growth in revenues and 13.6% fall in EBITDA. This,we believe, is on account of marginal decrease in the addition of members during the year.Addition of incremental members stood at 19,292 in FY09 against 20,420 during FY08. Thedecrease in the incremental members can be attributed to the IT slowdown in the southernregion, and volatility and fall in stock markets affecting sales in the western region.
EBITDA margins drop substantially in FY09
Of the total operating costs, employees and sales promotion and commission are the twomajor costs. The share of employee and sales promotion has been steadily rising from 45.7%in FY05 to 57.5% in FY09. During FY09, since the membership base saw a marginal declineand costs saw an increased pressure, EBITDA margins saw a huge fall from 33.9% in FY08 to26.20% in FY09.During FY09, 35% of its sales were through member referrals. Despite this, we saw anincrease in sales promotion and commission and discounts offered, clearly indicatingdeferment in purchase decisions by consumers leading to increased costs.
Issue details
Issue opens June 23, 2009Issue closes June 26, 2009Fresh issue 58,96,084 Equity sharesOffer for sale 33,69,191 Equity sharesFace value INR 10Price band INR 275-325
Source: Company 
Objects of the issue
Objects of the issue are(a) Financing of expansion of some of the resorts and setting up of new projects(b) For certain general corporate purposesThe company intends to utilize the net proceeds from the issue in the following manner:
(INR mn)Particulars

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