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Maintain ‘buy’ on Mahindra Holidays with a revised target price of Rs 439 per share (Rs 347 earlier). We value the stock using average DCF, P/E and EV/ebitda methodologies, further reducing by Rs 26 per share to incorporate unearned revenue. Mahindra Holidays’ strategy of continuing to ramp up branding should keep the momentum strong in member additions and drive growth. Room additions also remain sturdy with a target of adding 800 rooms over next 2 years (current room inventory at 2,867).
Mahindra Holidays’ Q2FY16 revenues at Rs 230 crore came in 6% below estimate (up 17% y-o-y) on lower resort and sale of vacation ownership (VO) income. Net member addition surged 49% y-o-y at 4,341 – the fifth consecutive quarter of 20% plus growth. However, focus on adding lower category members led to realization falling 7% y-o-y to ~R0.33 million. This along with lower upgrades led to VO income increasing by 28% y-o-y, lower than member addition growth.
The company mentioned this is just a pre-emptive step to manage its business better. Resort income, at Rs 349 million (up 16% y-o-y), came in below estimates on lower F&B and holiday spends. During the quarter, the company did not add any rooms and closed down a 24-rooms property.
Mahindra Holidays’ S&M spend remained strong, up 48% y-o-y/9% q-o-q to Rs 523 million. Referral and digital contributed 51% of total sales, though marginally down on expanded base. Management stated S&M expenses will remain high in order to boost member addition.