By Yes Securities
Mahindra Holidays MD & CEO highlighted key themes like domestic business which is debt free coupled with high occupancies, focus on member acquisition with higher down payment; this helps generate cash that can be deployed for inventory addition and also drive resort income which carries higher margin, Holiday Club Resorts (HCR) is no longer a drag on consolidated financials after a turnaround achieved in the previous fiscal.
We expect stock to remain upward biased with valuation at 27x FY21 PE on standalone basis.
MHRL has focused on acquisition of quality members who pay higher upfront vacation ownership fees and bring higher spend propensities, thereby boosting resort income. Company is in the midst of adding 500 rooms over two years at a cost of Rs 500 crore, indicative of the strength of underlying demand. While the switch to INDAS 115 has lowered the company’s revenue profile, the unit economics and cash flows remain unchanged even as tightening of member acquisition standards has enhanced operating cash generation capabilities.
We expect India business margin to inch up from current 13-14% as revenues rise faster compared to 6-7% rise in operating costs. Mahindra Holidays has managed to turn around Finland subsidiary Holiday Club Resorts which posted profit of 4.7 million euro on revenues of 159million euro in FY18.
Thus, HCR has stopped being a drag on consolidated financials. Management indicated it aspires to cover key European destinations through tie ups and drive in-bound travel in to India. In domestic business, company has solved the twin problems of debt and low occupancy that hurt the hospitality business especially in downward cycle. Cash generation is robust coupled with solid revenue visibility given that 96% of the VO sales sit as deferred revenues. The company is confident about improving annual membership growth addition currently pegged at 18k in the medium term, though the management refrained from providing any guidance.