Mahindra Holidays

Stock Opportunities
1

Business Model = Almost like an insurance company â Pay now to enjoy future benefits. Customers provide a float which the company can utilise to build new resorts. In exchange customers get to holiday for one week per year in a destination where club Mahindra resorts are present.

Number of owned resorts = 42 + benefits at over 6500 RCI affiliated places

Total number of members = 160,000 growing at about 15% - 20% pa

Total number of rooms = 2500 rooms, inventory growing @ 21% pa

Domestic Strategy = Build Greenfield projects in cities where Indians travel the most

International Strategy = Where low cost carriers will go â Dubai, Malaysia, Thailand

Sources of Income = New memberships (over 55%), ASF (Annual subscription fee, about 15%), Balance from food, travel and other miscellaneous items

Member expenses = 1. Membership â Rs. 2,50,000 per year, 2. ASF (annual subscription fee) = Rs. 10,000 â 20,000 per year,

Target market = Middle class & upper middle class of India which is set to grow substantially over the years

Moat = A strong and trusted brand is required for customers to trust to pay for 25 years in advance. Besides a competitor will require a larger network of holiday destinations than what Mahindra Holidays already provides

What makes it special = It is like a vicious circle, where the bigger the company becomes, stronger its attraction to new members is. Therefore the monopoly can grow on a sustainable basis.

Member addition cyclicality = Taking a vacation is a discretionary expense. In tough times, member additions will decline while in booming times member additions will increase

Risks = 1. Customer satisfaction â There is always going to be a certain percent of unhappy customers with every service provider. And they are likely to be more vocal. The company needs to keep a watch on this aspect 2. Overall market for time share vacations stagnates 3. A big player like say the Tataâs enter with their network of hotels, offering stays on a time share basis

Triggers = 1. As interest rates drop, people will find it cheaper to buy memberships on an EMI basis. 2. As general economy and sentiments improve, discretionary spend increases dramatically 3. More members get more members â referralâs increase 4. Online bookings (over 50% currently) has made the process quicker, more transparent and trustworthy

Valuation = At about Rs. 250, stock is trading below its IPO price 3 years ago. Maybe a stock to keep an eye on given its unique business model

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From investor point of view this might be a good stock as the business model is attractive. However, i have not checked the valuation part.

However, there was an article on moneylife regd timeshare business.

From a customer perspective this is a VERY BAD DEAL and I wont suggest anyone to become a member of any timeshare.

The quality of their resorts is good but the biggest problem they have more members then available rooms. Also very few people will like to go to rajasthan in summer and hill stations in winter. The rooms are never available even when you call 3-4 months in advance.

Disc : I am a member and looking at ways to exit.

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I too echo Manish’s views from a customer’s point of view. The management traps customers by giving inducements and fail to deliver what is promised. There are forums where unsatisfied customers who vent their anger. I realized the management’s lack of genuineness early enough and I gladly forfeited my investment!

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Yes I agree with the concern of under-delivering, and clearly if customers are not satisfied, the business model is just good on paper. Cause any business needs to first get the basics right

Having said that, in the last few concalls and interviews, the management has agreed that they have had a problem with ‘Customer Experience’. And they have taken the following steps to address the problem

1). Their new policy is to always keep at least ‘x%’ (I forgot the number) more inventory than required. This will give customers choice of their destination and reduce the time needed to make bookings. Besides they claim that seeing the demand they do not want to be behind the curve

2). ‘Members first policy’ and investment in software to make the process online, creating transparency and speed

They believe that consumer complaints have reduced drastically over the last 2 years since the initiation of these strategies. They claim that the proof of these steps having worked well for the company can be found in the ratings and reviews on websites such as ‘TripAdvisor’ over 10lakh fans on Facebook and a 15% growth in members in a tough macro economic environment. Of course there are online reputation management firms whose job is to create hysteria on the web. So the reviews and fan page could possibly be a result of that effort

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i dont buy the mgmt dossier.

There business models hinges on fooling customers by hiding info like hike in ASF, unavailability of resorts, giving rooms to the non-members etc.

These things may be good in short to medium term but in the long run will damage the brand and trust.

I dont give much weightage to trip advisor ratings becoz anyone can post them. If I was running a hotel I would ask my friends and relatives to post good reviews on the site.

The quality of their resorts is good but when you plan for a vacation the first thing they tell you sorry sir it is booked and it spoils your mood. Inspite of holidaying for about 14 days a year i am not able to use my seven days with club mahindra and now have more than 21 days pending.

Last year the cost of membership for red season ( anything below is useless otherwise the resort will not be available for booking at the desired time) was 4.5 lacs. You can invest that money and with the return alone you can plan your holiday.

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A simple calculation based on initial data tells me that 2500 rooms are not enough for 1,60,000 users, if every user utilizes his 7 days. The number of users that can be accommodated will be 2,500*52 = 1,30,000. So, 30,000 users can’t be accommodated every year. And, add to that non members using their property. If they want to follow member first policy, they will need to stop taking new members for many years.

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Chairman of the company Arun Nanda has been predicting turn around of Mahindra Holidays from past 3-4 years. Look all his interviews on moneycontrol … One he gave toETNow few days back @ http://www.youtube.com/watch?v=6MYETr17S_8In this video he isdreaming of 2003- 2007 days again.

Looking at his all interviews of last 4-5 years,eitherhe does not understand customer or he has been fooling investors.

They still have problem with

*Adding room inventory.

*Managing sales cost.

*Sales tactics

Can they really grow by more then 20% for 3 consecutive years in next 5 years?I do not expect it to happen unless interest rate in economy comes back to 8-8.5%. But any improvement in marketing cost can improve their bottom line drastically. But as such timeshare are sold then bought so it would be hard task for management to achieve.

Another major problem with them is that their flagship product defines the company rather company defining the product. They have failed to create another stream of revenue. They had to kill Zest recently, Travel business is also not helping much.

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I think they should buy Sterling and launch a second product with less price and en-cash aspirations in CM and value in Sterling.

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Q1/Fy 13-14 Results out…

Total Income up 14.5% to 180.3 Cr from 157.44 Cr.
EBIDTA up 25.7% to 34.69 Cr from 27.6 Cr.
Net Profit up 10.8% to 21.02 Cr from 18.97 Cr.

EBIDTA margin is 19.2% v/s 25.5% (MQ-13) and 17.5% (JQ-12)
NET Profit margin is 11.7% v/s 15.4% (MQ-13) and 12.1% (JQ-12)

Employee costs to Income is 21.2% v/s 20.3% (MQ-13) and 21.7% (JQ-12)
Sales & Marketing expenses to Income is 25.4% v/s 24.8% (MQ-13) and 30.1% (JQ-12)
Other expenses to Income is 34.2% v/s 29.4% (MQ-13) and 30.6% (JQ-12)

Tax Rate 32.5% v/s 36.1% (MQ-13) and 29.5% (JQ-12)

Reduction in Sales & Marketing Exp helped EBIDTA.
But 65.4% rise in Depreciation (up 51% Q-o-Q) affected net profits.

EPS 2.4 v/s 2.25
Recorded TTM (sum of 4 quartr) diluted EPS: Rs. 12.89

On 29/07/2013, stock on BSE closed at Rs. 256.50/- Down 2.2%

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From AR12-13

Note 19 : Trade Receivable (unsecured) : 627 Crore worth of unsecured trade receivables !! (These looks to be dues from defunct members, good to wipe-out profit for next 4 years, if these are provisioned for)

Note 10 : Unearned Revenue 553,703,963/-

Note 15 : Other Non-Current Assets (Unsecured, considered good), Long Term Trade receivablesdue for payment after one year)-- 363 Cr

Any one has idea what 10, 15 are for?

While business model should be self sustained, As 50 customer pays enough in advance to build a hotel room) , after spending 172Cr from IPO in 2009 on rooms, they still does not have capacity for 160000 members. ( remember not all rooms are owned by the Mahindra Holidays, good number of these are leased or on short term arrangement) .Currently they are paying around 25Cr as rent for leased properties.

A good portion of revenue shown (accrued) can not be realized realistically, so effectively their sales and profits are lower then the reported.

If they stop accepting new members now (no new membership sales, no marketing cost, non eligible members relinquish their membership) , can they survive onASF+ earning fromDeferred Income - more then 1 year over due Advance towards members facilities.

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Sterling holidays looks better. The company is turning around and is available at 1/3 rd mcap of mahindra holidays. They have 1600 rooms and are increasing the inventory. RJ and RD are invested

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Firstly I am a member of Mahindra Holidays & I am a happy member. Yes read lots of forums about unhappy & anger towards the company, but i have used there resorts since past 6 years and its money’s worth. Excellent maintained properties & now with there web portal no issues for rooms availability.

Yes i agree there were issues earlier but now its all resolved. Also to mentioned i had purchased membership from the market at half the rate so no complains for paying up more.

Now coming to the company; after a long time it has posted good set of numbers & even members addition is happening since past 2 quarters. It now has 46 resorts in India and few abroad. Its running a asset light model lately by taking up resorts at key locations on lease and not owning them.

They took over a European time share company based from Finland for Rs 600 cr, This company has 30 resorts making Mahindra Holidays the 3rd largest timeshare company in the world.

Mahindra Holidays has grown from 18 resorts in 2011 to 46 resorts currently in India & with there global acquisition there balance sheet remains intact which is good.

Its a great annuity income model; good promoters, market leaders, rising urban incomes should augur well for the company going forward.

With a mcap of 2500 cr …if the growth comes back as shown in todays Q1 results than this stock could be a 20% compounder.

Guys suggest you to have a fresh look at this company.

Disclousre: I have entered the stock in April 2015 and I am adding to my position.

Manish Shah

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If you can substantiate your observation/ recommendation with data that would help people picking it up further.

  • posted good set of numbers (data?)
  • members addition is happening since past 2 quarters (comparative data?)
  • good promoters ( Is mgmt competent? Arun Nanda has been seeing green shoots from last 5 years )
  • 3rd largest timeshare company in the world (how it would change the prospects/results?)
  • Buying membership from second sale in half price changes value proposition, can not be compared with value of the customer who bought in full price with same resort experience.
  • They have not increased Membership price from last three years.
  • Would competition from Sterling would have positive effect on the time share business.
  • Is their selling cost really coming down?
  • How many membership are defunct?
13

A beautiful write-up on this . I am not a member of CMH but I stayed in Wyndham and the experience is fabulous is it at all comparable with it ?

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Company’s business model is that of a pre-paid vacation rather than a timeshare. In a timeshare you actually own the property and benefit from appreciation of the value of the property. In a timeshare, you are free to sell your ownership interest to any willing buyer at any price you can negotiate. More importantly you can transfer the ownership interest to your hairs so it becomes a family asset that gets passed down generations. With portals like Air BnB, it’s easier than ever to actually monetize a timeshare property.

For Mahindra, the model looks good for owners but not so good for customers. Ultimately, anything that is not good for customers is not good for shareholders and owners.

Here are the costs of Mahindra vacation offer

Amortisation cost - Since this is a 25 year pre-paid vacation, you have to amortize the cost over a 25 year period. That works out to be 10k for their cheapest membership option.

Opportunity cost - You can always invest the 250,000 and earn a real rate of return of 8% (assuming a nominal return of 15% and inflation of 7%). This cost component works out to be 20k (8% of 2.5 L).

Annual Subscription Cost - This is 10-20k per year subject to upward revision where members don’t have a say. It’s a take it or lose it proposition. Let’s take it as 15k.

Forfeiture Cost - I have heard from a few of my friends who are members that they are unable to utilize full 7 days every year. While they can accumulate certain number of days for a later use, I am assuming they will have to forfeit some of it. I am assuming this cost to be 1 day per year. So you can utilize average 6 days of vacation per year.

Total Cost works out to be

Amortization Cost = 10k
Opportunity Cost = 20k
Ann Sub Cost = 15k

Total Annual Cost = 45k.
Cost per room night = 45k / 6 = Rs 7500

At this price of Rs 7500 per room per night, you can book many resorts of comparable quality without any long term commitments or advance booking and you can utilize the services of a travel agent to take care of booking air travel, ground transport and hotel so there is no hassle of booking all this yourself.

Am I missing something here?

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No you are absolutely right from customer point of view

From Share holder point of look at price . MH bought 30 resorts in Finland ( along with members revenue ) at 600 crs and for 45 resorts in India ( that too all are not owned ) price is at 3500 - 4000 crs .

It is 10X price to what private owner will pay

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Would you be able to guarantee Rs.7500/night for the next 25 years? As they say, intangible benefits could not be quantified.

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2.5 Lakh membership cost must be of lowest Blue season, Otherwise Red cost is around 4.7 Lakh.

easiest calculation > make 25 portion of purchase price and invest each portion to earn interest until Nth year when you use that portion.

division + ASF
10 k + 15k = 25 K -> 25/6 = 4166/- per day for First year
11 k + 16k = 27 K -> 27/6 = 4500/- per day for Second year
12.1 k + 17.1k = 28.2 K -> 28.2/6 = 4700/- per day for First year

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I am a shareholder and a member of Club Mahindra. [Member since 2013, I wish I was SH also since the day of taking Membership]

Initially, like majority of potential customers who are looking to take MHRIL membership, I was very skeptical about the High initial payout in form Membership Fee. The key arguments against taking a membership in my mind were -
a. Locking in for 25 years
b. High Membership fee (well to each customer, his Initial membership fee will seem high for the initial years but with passage of time and inflation that perception changes)
c. Necessity to plan holidays well in advance in order to get a booking

Being a SH, I used to keenly observe each aspect of the properties and the hospitality extended to me during my holidays. After visiting 5 CM resorts spread across Karnataka/Kerala/Goa/Himachal and Tamil Nadu I can safely conclude the following -

a. MHRIL resort standards are uniformly high. When people calculate the outgo for a night stay at a MHRIL resort, they should also benchmark the outflow with comparable resorts in and around. For instance MHRIL Coorg property can be compared to Orange County at Coorg. A nights stay at Orange County will set you back by 15 to 20k easily even after factoring in discounts. MHRIL works out far cheaper for a White/Blue or even Red membership.

b. MHRIL offers not merely a stay but a vibrant holiday experience. The staff in all places I visited was courteous and willing to help and more importantly, they seemed like a happy bunch of lads while at work.
What makes for a complete holiday experience would be factors like
i. the kind of Food on offer at the Resort
ii. Evening entertainment events for the family
iii. assistance in planning your holiday once you reach the resort
iv. Providing ready assistance in chores at the Resorts

c. MHRIL cannot be merely analysed based on its P&L. A significant part of the valuation comfort comes from the strength of its Balance Sheet i.e. its Resort Assets which i feel cannot be replicated by any other player in India today. These resort assets are poised to appreciate with passage of time.

To conclude,

a. MHRIL offers a genuinely good product. Further, the resort upkeep and hospitality are of high standards. I feel the management can do a better job in Projecting the properties it has in its repertoire so that it has a more forceful impact on potential customers who can then convert.

b. Entering this space and building a niche brand like MHRIL… I dont see that happening going forward. So biz continuity as well as exclusivity is assured.

c. My initial skepticism about the price diametrically changed after being a customer for last 3-4 years and first hand experiencing 5 resorts. I now see the value proposition. I believe there are bound to be more like me who will be willing to spread the word, which is very important for this biz.

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@rohanthegreat You are very lucky and very fortunate to enjoy holidays with MHRIL during the days of your choice. All their properties are great and well maintained. I was very excited to join as a member based on the promise of their officials(I was a fool not to check up with those who were members already). About 6 months into the membership, I realized that I will not get booking of my choice dates and place. They have this funny rules for preference to members from Pink category who can hog all the most sought after dates. Then the next best dates go to Red category and then White and Blue categories. Blue will never get dates during vacations, they will only get during off season. I had taken Red and yet they refused dates as I had requested only couple of months earlier. So I cancelled my membership, obviously lost Rs 50000. Now I am happy that I didn’t loose further. I know this is not the forum to air customer grievances. As an investor we have to see that the end customer is satisfied with the service provided. It may a great company for investors but not for all customers. Admn…If I have crossed the limits of the rules in this forum, please delete this message

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  1. They have not increased price in last 3-4 years,
    New Management has broken the the mindset of projecting membership as (real-state) asset whose price will always increase. This has provided much needed correction, bubble they created earlier on by taking ~10% price increase every year.

  2. They have recognized lot of default membership in last few years,
    and have taken accounting hit, so more clean balance sheet now.

  3. New telecom regulation forced them to go for online marketing
    Moderation in customer addition expectations & reduced cost of new member acquisition have helped them.

Over all in last 8 years, after their IPO they still to double stock price. Mahindra liquidate their holding whenever price reaches a recent top.

It is still an ethically inferior business model they are operating. Let’s see if they are willing to correct those shortcomings also for long term growth.

Btw: Sterling still has quite large resort and land bank