 "Improving outlook for Mahindra Holidays")
Analysts are turning positive about Mahindra Holidays and Resorts India Ltd’s (MHRIL) future prospects thanks to the company’s change in business strategy, resulting in improved financial performance. In addition to robust occupancies over the past two quarters, a reduction in promotion costs, online initiatives and discontinuation of lower margin products led to the improved show.
According to analysts, the industry dynamics and future prospects for the company are bright. Says Rashesh Shah of ICICI Direct, “Given the self-funded nature of its business (which aids in future growth), low penetration in the vacation ownership industry gives an investor good long-term visibility for this business.”
The company is on track with its expansion plans and it has added eight new resorts and 227 rooms in the past 12 months. Negligible debt offers room for expansion as the same is funded by internal accruals and membership fees.
After a successful offer for sale (OFS) earlier this month, the company plans to launch an institutional placement programme (IPP) to buy new resorts as part of its ongoing expansion strategy. Since the OFS (floor price of Rs 270 per share) received good response with oversubscription of 1.3 times, IPP is also expected to do well. While the future prospects and outlook have improved, the stock has thus far been a major underperformer vis-à-vis the Sensex. Since its listing four years ago, investors in the company have lost about 14 per cent compared to Sensex gains of 32 per cent.
At Rs 257, the stock trades at 15 times FY14 estimated earnings and is cheap compared to the consumption-driven stocks in other categories. Most analysts, according to Bloomberg, have a ‘buy’ call on the stock with a consensus target price of Rs 363.
<B>Improved financial performance in FY13</B><BR>
Even though the company’s topline of Rs 578 crore grew 15.5 per cent in FY12, profitability took a hit as the operating profit declined 24 per cent and net profit growth was also marginal at two per cent thanks to downturn in business on the one hand and expansion on the other. However, the company’s financial performance rebounded sharply in FY13 led by robust business activity in June and December quarters, which form around 70 per cent of sales and 60 per cent of profits.
The company stopped giving white goods as gifts to members from September 2012 quarter (Q2) and saved on sales and marketing expenses (26 per cent of sales in nine months ended December 2012, compared to 32 per cent in FY12). Online booking (10 per cent of sales) has been a success and that has also helped the company to cut costs. Then in the December 2012 quarter (Q3), the company discontinued membership under the less profitable offering ‘Zest’ although it formed a substantial 10-15 per cent of total membership addition.
Zest was a low-duration membership plan or shorter version of the flagship product ‘Club Mahindra’ membership and required separate resorts all together. As a result, while profitability started improving from the September 2012 quarter, it got a further boost in the December 2012 quarter as scrapping of Zest helped improve realisation (up 31 per cent year-on-year in Q3). In short, both the strategies have worked for the company and benefits will continue even going ahead. Says Sumant Kumar, analyst, Elara Capital, “The company is likely to show better margins as well as healthy earnings growth, going forward.”
Occupancy rate in each quarter has improved over the years. For example, the same in busiest quarters of June 2012 (89 per cent) and December 2012 (83 per cent) was highest in two years (comparable with the same quarters of the previous years).
According to analysts, the industry dynamics and future prospects for the company are bright. Says Rashesh Shah of ICICI Direct, “Given the self-funded nature of its business (which aids in future growth), low penetration in the vacation ownership industry gives an investor good long-term visibility for this business.”
The company is on track with its expansion plans and it has added eight new resorts and 227 rooms in the past 12 months. Negligible debt offers room for expansion as the same is funded by internal accruals and membership fees.
After a successful offer for sale (OFS) earlier this month, the company plans to launch an institutional placement programme (IPP) to buy new resorts as part of its ongoing expansion strategy. Since the OFS (floor price of Rs 270 per share) received good response with oversubscription of 1.3 times, IPP is also expected to do well. While the future prospects and outlook have improved, the stock has thus far been a major underperformer vis-à-vis the Sensex. Since its listing four years ago, investors in the company have lost about 14 per cent compared to Sensex gains of 32 per cent.
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Going ahead, outperformance for the scrip will depend on the company’s ability to sustain its recent financial performance in the quarters ahead as well as improve customer satisfaction levels.
At Rs 257, the stock trades at 15 times FY14 estimated earnings and is cheap compared to the consumption-driven stocks in other categories. Most analysts, according to Bloomberg, have a ‘buy’ call on the stock with a consensus target price of Rs 363.
<B>Improved financial performance in FY13</B><BR>
Even though the company’s topline of Rs 578 crore grew 15.5 per cent in FY12, profitability took a hit as the operating profit declined 24 per cent and net profit growth was also marginal at two per cent thanks to downturn in business on the one hand and expansion on the other. However, the company’s financial performance rebounded sharply in FY13 led by robust business activity in June and December quarters, which form around 70 per cent of sales and 60 per cent of profits.
The company stopped giving white goods as gifts to members from September 2012 quarter (Q2) and saved on sales and marketing expenses (26 per cent of sales in nine months ended December 2012, compared to 32 per cent in FY12). Online booking (10 per cent of sales) has been a success and that has also helped the company to cut costs. Then in the December 2012 quarter (Q3), the company discontinued membership under the less profitable offering ‘Zest’ although it formed a substantial 10-15 per cent of total membership addition.
Zest was a low-duration membership plan or shorter version of the flagship product ‘Club Mahindra’ membership and required separate resorts all together. As a result, while profitability started improving from the September 2012 quarter, it got a further boost in the December 2012 quarter as scrapping of Zest helped improve realisation (up 31 per cent year-on-year in Q3). In short, both the strategies have worked for the company and benefits will continue even going ahead. Says Sumant Kumar, analyst, Elara Capital, “The company is likely to show better margins as well as healthy earnings growth, going forward.”
Occupancy rate in each quarter has improved over the years. For example, the same in busiest quarters of June 2012 (89 per cent) and December 2012 (83 per cent) was highest in two years (comparable with the same quarters of the previous years).