We maintain ?buy? on Mahindra Holidays and Resorts (MHRL) due to its long-term growth story. We assign a target price of R308 per share based on average of DCF methodology, P/E multiple and EV/Ebitda multiple, further reduced by R35 per share to incorporate unearned revenues.
We believe MHRL is through with the consolidation phase as it has achieved the optimal ~60x member-to-room ratio, 92% rooms provided to members, hassle-free online booking, stable cash flows, consistent inventory addition and stable member additions.
Although the management is comfortable with the company?s current members-to-room ratio (~61:1), it is targeting addition of ~500 rooms and ~18-20k members in FY14, thereby creating more rooms for non-members; 1% rise in rooms provided to non-members adds 0.5% to Ebitda margins. MHRL recently increased new membership fees by 10%, which is a pleasant surprise.
After marking its presence in Dubai and Bangkok in FY13, the company is aggressively looking to expand its footprint to Sri Lanka. The management expects approval for its Tungi resort (Mahabaleshwar) in one-two weeks. It also added a new category (Blue/White, R0.15-0.16 million) targeting senior citizens and added ~600 members under it in Q4FY13.
We believe MHRL membership growth will be aided from this category.