Mahindra Holidays

Earlier I did not eloborated on my reason of not trusting that sales man.

If their average sale price is less then the white season studio membership then how 80% of member are in Red+ White? Pl note even upgrade revenue is also included in the average price they report. Check my blog Mahindra Holidays - #55 by Gupta

If only 125000 members are active,

  1. It is not good business model/sales where 40% member find loosing downpayment is better then continuing the membership.
  2. They cancelled 9556 membership in Q4. If defunct membership is so alarming ~40% ( which I do not believe, as accounts does not support that otherwise it will reflect in dues outstading) more trouble for the business.
    you can find active membership count from (ASF collected / av ASF) ( adjust for change in ASF dues).

Source : http://www.clubmahindra.com/sites/default/files/InvestorsandAnalyst%20Meet-Highlights.pdf

Inventory Addition Plans
• Additional investment of INR 800 - 1,000 Crs over next 5 years to take the total room inventory count to 5000 by 2024

• Income trend as per old accounting standard Ind AS 18 from FY15 to FY19
– VO Income CAGR growth of 6%
– Resort Income CAGR growth of 14%
– ASF Income CAGR growth of 11%
– Interest & Other CAGR Income of 14%
Total Income CAGR growth of 10%

• CAGR of PBT of 23% from FY15 to FY19
• CAGR of PAT of 19% from FY15 to FY19
• More than 1,000 crores of operating cash flow generated over the past 4 years
• Targeting to add members with higher down payment & lower EMI tenure

Few highlights on our Finland subsidiary, Holiday Club Resorts Oy (HCR)
• Debt in HCR reduced from 51.7 m€ in September 2014 (at the time of acquisition) to 22.8m€ in March19
. Mr. Kavinder Singh – Managing Director & CEO of Mahindra holidays is now also the Vice Chairman of HCR Oy.
. Appointment new CEO, Ms. Maisa Romanainen for HCR, who comes with 29+ years of experience in retail and consumer space

Mahindra Holidays to pump in Rs 1,000 crore; looking to acquire new resortsThe company has cash reserves of Rs 655 crore on its books and will be using it to fund its expansion plan. Currently, not considering any debt options from the market. http://www.moneycontrol.com/news/business/mahindra-holidays-to-pump-in-rs-1000-crore-looking-to-acquire-new-resorts-4548371.html

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MHRL is firming plans to get into high end hotels. Though will start off with leisure destinations than urban. Mahindra Group to check into upscale hotel segment to tap burgeoning demand | Business Standard News
Pros: Bigger Market than just restricting one to Vacation Ownership.
Cons: Is it hiding the fact that number of ppl signing up for vacation ownership has been falling?



In todays’ world were the Millenials are not even buying cars (Maruti posts 9 straight month of productino cuts, its not difficult to imagine that Vacation Ownership maybe loosing its mojo…

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It is bit old from August, I missed it earlier. Management is blaming investors not able to value the business. :slight_smile:

They have launched many different product in last ten-12 years nothing worked … Zest, Homestay, now Bliss. Good thing these did not require much capital.

After three month where they are with property management business?

Management has been too much focused on telling story in each result call. Nanda used to come after every quarterly result (2010-13) on CNBC and say we are just about to turn around, 10 year after IPO they still waiting for that turn around.

When they looked focused on acquiring good quality customer, I started seeing some value emerging (now I have tracking position less then 0.5% of portfolio), Any diversion in business model should errored value.

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Good interview on axis capital here.

https://axis-capital.kpoint.com/kapsule/gcc-e40afdf5-81ff-4366-ae28-a894735cf203/nv3/embedded

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During recent conference calls, it seems management is more interested in how the market is valuing their company rather than growing their business. Instead of ranting, I feel it might be more prudent to securitize their receivables, get the cash and buyback their stock.

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It has been the case since many years now.

  • Since 2011-12 after every quarterly results Mr Nanda used to come on CNBC and tell people they are just on the cusp of revival.
  • They take a long effort to explain accounting changes in every con-call.
  • Investor presentation always had slides on how unique is their business (annuity) model, now they also tell us about cash and land value.

One interview from 2013, you will feel as if it was yesterday
https://economictimes.indiatimes.com/et-now/daily/face-to-face-with-arun-nanda-mahindra-holidays/videoshow/20725720.cms

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All ingredients of wealth destroyer business. I am yet to understand PPFAS love for this company.

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Sterling never was a competition … because of solvency issues, after those got resolved, for 3-4 years it tried to revive the business but never was a serious competition. No competition does not mean much, this product need to be sold, it rarely bought by the customer.

It takes time to develop a new resort, also good resorts does not get sold at distress valuation. So quick bargain deals (in time like these) does not happen. They also face legal (environmental) issues in launching resorts as the preferred areas are usually sensitive zones. To overcome capacity constraints (there may be other reasons also) they lease resorts, usually they are small resorts, no match to their big resorts in terms of experience. They have never been ahead of membership curve in terms of room capacity. So they become victim of their own strategy as and when high membership growth is available. As they can not service new customer well so negative feedback loop kicks-in.

They are well known company from well known group, why accounting changes should affect them negatively? Only negative affect of this accounting regulations is that they may not be able to declare dividend for some time.

Some positives which have now accumulated over time :

  • no longer term EMI sale, higher down payment
  • reduced cost of customer acquisition
  • online system penetration in resorts booking.
  • price

Negatives

  • discretionary product
  • high ticket size
  • need to be sold / high sales cost
  • competition from up coming business models (airbnb etc)
  • difficult to part with the membership
  • only covers part of the overall vacation cost
  • susceptible to disruption (flood etc)
  • sold/bought as investment so Interest rate cycle does matter.

disclosure : I started buying last year (much less then 1% of PF), sold in May because of covid situation.

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Ram Dhawad_CLT VP Meet_July 2020.pdf (2.6 MB)
Attached my presentation i covered at the valuepicker USA meet locally. Please feel free to refer this and reach out for any questions.
thank you.
Ram

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So may investor fell prey to statements and dreams like “Mr. Market is valuing MHRIL at Mcap of INR 2300 Cr Vs realizable assets of INR 9104 Cr…”

Doesn’t work this way. My humble opinion.

What matters is earning growth in the future coming back to shareholders vs valuation. Would these co. liquidate these assets and give back to shareholders that we value it this way.

Anyways … everyone has their own way and no one is right or wrong.

Coming to Mahindra Holidays … Just did a Google on members experience and most queries are on refund etc. This model is not scalable atleast and no green shots emerging.

Management talks less on business prospects and more on accounting policies and focus can clearly be seen to propel the market cap.

For now it is a no brainer for not to go. In future if something changes we will change too.

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Thanks for your Inputs and agree on the business dynamics not in consumer favor but tilted more towards the company. Have highlighted that on the last slide and that is the risk in long run.
At least I wouldn’t be their member with current terms.
On TS industry, yes it is at a very nascent stage in India compared to the developed world.

Usual discount given on full payment is 5-8 % on listed price … these are difficult times

one of the old price list - column 4 (when they were selling at as little as 10% down payment)

Fail to understand why MHRIL has both Deferred Tax both as an asset aswell as a liability on its Balance Sheet. Should it not have been netted off.
Also if they have Deferred tax as an Asset then why did they make that one time tax outgo of 199Cr this FY. Whats the hurry to pay taxes in advance. Even Sin industry like ITC has deferred tax as a libility even though we all know taxes keep rising each year for them? :face_with_raised_eyebrow: :face_with_raised_eyebrow:

I don’t think so there is any tax outgo of Rs 199 Crs. They have opted for the newer tax rates which has led to a reduction of their Deferred Tax Assets which they earlier must have created at a higher tax rate.

Management in Q4FY20 Call Mentioned that there will be no tax outgo for a few years due to change in revenue recognition accounting norms.

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Despite healthy growth in new member additions quarter on quarter all year round in fy21, why has the ASF fallen? Uploading: Screenshot_20210504-200254.png…

Updates based on Q4-21 investors presentations.


How much we opened up (full!) under continued threat of Covid!


8% membership CAGR over last 5 years! + membership cost (inflation) = Real growth !


Room Growth (~6+%) < membership growth (8%) :unamused:


Real measure of customer attachment and proxy for business growth numbers >
(ASF - (ASF due more than 1 year old))
.
CAGR ~ 14+%
membership CAGR over last 5 years + (factor of WPI & CPI inflation) = growth


Second proxy for business growth numbers. - Resort Income
CAGR ~ 11+%
membership CAGR over last 5 years + (factor of food + labor cost inflation) = growth

All these calculation are excluding HCRO.

Disc: No position