ValuePickr Forum

Mahindra Holidays

(Varun) #41

Lower vacancies are due to the fact that people can not travel to every destination every time. There are off seasons. Will you go to a beach or deserts in May-June? or mountains during rainy seasons or winters (other than snow / New Year Holidays)? Occupancy can never be 100% for any hotel chain anywhere.

180 lakh weeks at an average occupancy rates of 75% mean 945 lakh nights and to satisfy all 235 lakh customers average is just 4 nights per customer and the customer base is increasing more than increase in no of rooms. So all the members have to upgrade their rooms which is not feasible.

**I have assumed 75% occupancy instead of 80% reported as I have visited their properties. They have special rooms for non-members which are smaller and do not have valley/beach views and these rooms are given to gift voucher customers or sold on other websites.

Regarding your other point, to value this as a hotel business instead of timeshare, it is not possible as timeshare is a long term contract involving 25 years.

In case people are not satisfied and are unable to get rooms during the seasons they wish and they withdraw their membership, the growth will turn into de-growth for the company but remaining customers will start enjoying their memberships again… satisfied customers mean more members… which means the cycle repeats… So, IMO the company can not be valued on the basis of hotels it owns, unless the company stops membership program all together…

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(Varun) #42

receivables will result in cash only if customers are happy!! just a precaution.

(Bhupesh) #43

rightly said, Some where before 2016 they recognized lot of credit loss …

Reconciliation of credit loss allowance adjusted from Trade Receivables



Valuation on Balance sheet : On liquidation basis … EV = > Cash + Receivables + Resort land /room sale = 484+1766+ 1803 = 4053 crores

You need to adjust liabilities to arrive at EV, liability to serve customer/ maintain the resort / provide for booking facility etc for the members who have paid for 8 - 25 years. Unless you can show that ASF and profit from restaurants is good enough to meet those requirements.

(Bhupesh) #44

In my view at lower end, company can be valued based on assets (hotel rooms, land, cash & receivables) specially when lot of hard asset is involved.

So first bottom line of the value is 1803 Cr. What you will add on top of it should be the question! How much of (cash + Receivables - service liabilities )

(Bhupesh) #45

Company on drive to meet investors ?
Among MF, Sundram, Parag Parikh and BNP Paribas have increased stake in Q3 while Mirae Asset and Reliance have exited the stock. Source

(Shailesh) #46

The point for any discussion is to offer alternative … so that users can take action. Here one user @Tauqeer wanted option to value such a business. I offered him some options you too can do the same.

I am sure you have alternative valuation worked out for this business since I see you have been tracking this stock for long … Kindly share what you think is fair value of share @ what price you will buy and what price you will sell .

Now coming to point of liability to serve customers and maintain resort will ASF / restaurants profit is good enough to cover it … Mahindra Holidays clearly states it in its business model … So I will not repeat it

37%20PM

Now on Receivables as part of EV … Yes there might be defaults … Hence you have concept of Margin of safety ( which I have clearly highlighted in my valuation ) …Past so many years defaults have not exceeded by 10% of receivables … even assuming 10% default this reduces EV value by 180 crores … If you feel 20% default will happen you can reduce EV by 320 crores ie ( 4050 - 320 ) ie 3700 + crores - still it is far higher than current 2800 crores .

Well does that mean you should buy stock – NO … You need to look at every stock in context on what stock you have in Portfolio . is this stock @ better value than them and then take call …

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(Bhupesh) #47

The point for any discussion is to offer alternative … so that users can take action. Here one user @Tauqeer wanted option to value such a business. I offered him some options you too can do the same.

We are just trying to work further on same model. CM Cost model may not be clear in every one’ mind. so good it is now recorded here.

I am sure you have alternative valuation worked out for this business since I see you have been tracking this stock for long … Kindly share what you think is fair value of share @ what price you will buy and what price you will sell.

Most of the time it has remained in expensive category, so there was no incentive to work on details. Also there has been lot of unknown in their business practices and reporting, for example members to room ratio, defunct members etc. Last time I attempted to evaluate it in detail was in August 2013 when it looked promising at ~218 (pre 2017 bonus allocation so net ~50% return since then).

There is no point giving individual valuation unless well supported by the working, for me it has always been in work in progress. I can participate in valuation discussion where we try to arrive at valuation.

Now on Receivables as part of EV … Yes there might be defaults …

Because defaults directly hit the bottom line, it may need more precise look.

Let me make a disclosure here, I bought MH membership in 2004 sold in ~2013-14, largely remained an unsatisfied member, had detailed email arguments with then top three in Mgmt MD, Head Customer relations and one more in Sales. I disengaged with them when Chairmen’ internal mail by mistake(?) landed in my mail box, it said “Is he the difficult guy, we want to take back his membership”. So you can take it that I may have certain biases, I am also here to reflect upon my biases when I evaluate it as business. I have bought very little position (< 0.25%) in MH in Nov 18, for tracking and thought they would answer certain investor questions which remains unanswered till now even after a acknowledgement from them and a reminder to them.

Now coming to point of liability to serve customers and maintain resort will ASF / restaurants profit is good enough to cover it … MH clearly states it in its business model … So I will not repeat it

Let build on these two cost element. Divide business into two parts to evaluate profitability of them separately. If they are not eating into each other?

  1. Customer acquisition and inventory provisioning
  2. Run and Manage.

Well does that mean you should buy stock – NO … You need to look at every stock in context on what stock you have in Portfolio . is this stock @ better value than them and then take call …

Very valid point, if you find stock at discount but if growth element is small, it may not make sense to invest in the stock considering other opportunities around.

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(Bhupesh) #48

Pl correlate new member addition with different EMI schemes available over the time!

(% Increase in ASF - Av (CPI+WPI)/2 Inflation) is good proxy of membership growth (or active member Growth) in previous years.

CM1.xlsx (14.4 KB)

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(Varun) #49

The way I see the graph is %age of new members added is decreasing every year… The average additions per year are about 17000 from past 10 years and it is not rising… Inventory is not rising compared to member additions… They need to add at least 330 rooms but their average is clearly less.

Lets extrapolate these number for next 5 years,

total members should be around 321000 (17000/y increase),
total rooms around 4750 (250/y increase),
total week nights = 4750*52 = 247000
that means unservicable members = 74000 vs 55000 now.

(anandrkris) #50

Q3 2019 Investor Presentation.

Disc: Tracking position

(Bhupesh) #51

Does any one knows if overseas debt is guaranteed by the Indian parent entity (or banks will have recourse on local assets only)? Why analyst reports does not cover that part of the business well while advising buy or sell? :grin:

(Tauqeer) #52

Seems Mr. Market is pricing with a different valuation … The entire Mahindra Holiday presentation talks about INDAS 115 vs IND GAP to rationalize the facts but so far traditional valuation model seems to hold frm.

(venkat) #53

One interesting aspect of IND AS 115 on Mahindra Holiday.

Govt has made IND AS 115 mandatory for companies in presentation of accounts. But ICDS regulations under Income Tax has not been modified. So for tax purposes, company has to continue to follow earlier policy i.e recognise admission fee of 60% as income in the year of sale and pay taxes . But for audited accounts only 4 % of the fee is treated as income thanks to IND AS 115.

So the company is very adversely affected. Company has to pay taxes on income it did not recognise as income in the audited accounts. See the Provision for Tax for the current year and the Profit before Tax. The Tax provision is as high as 60 % of PBT for 9 month period ended 31st Dec 2018.
Until govt rules change, company will have to pay taxes on income it did not recognise in the current year.

So company is faced with a Double Whammy.

  1. Company has to postpone recognition of admission fee as income in the year of sale thereby reducing profits.
  2. Higher tax due to IT Act not recognising IND AS 115. This will increase the cash outflow in the initial years.

No wonder, the market is giving its own valuation for the share.

Disc; Invested

3 Likes
(Gaurav Agarwal) #54

Consolidated (FY18) debt - 713cr. Company didn't publish consolidated numbers for q2fy19. Mngt on national television saying company has No Debt. What a Joke!!

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(Bhupesh) #55

My Post @

(Bhupesh) #56

They have been manipulating analyst for long now. Earlier Arun Nanda used to come every Q on CNBC and say with these changes we are just about to take off again.

Now with new accounting changes, one side they are saying nothing has changed at business /cash flow side, simultaneously saying 95% of their result going to be predictable. Technically nothing wrong in that, but better why mix two in same para?

From Q2FY19 earning call
“So, I think, the metrics that should be more relevant for our business would be that whenever we take in a new number, we start multiple series of annuity income streams and those are fairly predictable. And in fact now in the new accounting standard, 95% of our revenues are going to be predictable. So, as I see it we have been in the last 3 years to 4 years able to generate both momentum in member additions as well as resort additions. And with this new accounting standard, it is even more clearer that the revenue visibility will be significantly higher.”

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(Bhupesh) #57
  1. How many times they have taken this one-time cancellation since 2009? How much is struck off from the receivables?

  2. How much of this receivables (1621 Cr) can be converted into free cash?