Mahindra Holidays

Stock Opportunities
102

Imp points Q3 con call Club Mahindra:

  1. Management view on cash generation & deployment in books: 1000-1200 CR is required for CAPEX next 3-4 years. Co plans to share some portion with shareholders, currently there are some technical difficulties due to MCA rules and working on it. Vision is to use cash generated in future for further debt free growth acceleration & drive profitability/ member / inventory addition
  2. 3-4 major valuation drivers (Asked by RARE Enterprise); (i)Work on brand building & in resort customer engagement as that is directly proportional to resort income & helps in customer acquisitions (ii) work on members engagement (iii) inventory additions (iv) member addition
  3. PBT was lower due increased dep / fin cost on new CAPEX
  4. Q3 is seasonally best for industry
  5. Q2 had some one-off items & if we normalize there is a 10% increase sequentially in profits
  6. Due to accounting treatment prescribed numbers look better for company when occupancies are lower
  7. Resort income that is income from F&B and activities to provide growth in future
  8. There is a focus on cost management in all resorts to improve efficiency & maintain same customer experience
  9. Deferred revenue has increased by 40% YOY
  10. Cash in books is 1108CR compared to 1048 in September 21
  11. 80% Occupancy in this quarter & 16% increase in room nights on YOY basis
  12. Jan 2022 have clocked in 66% occupancy
  13. Digital sales are 58% of total now
  14. HCR acquisition & thoughts:
    • This quarter operations were impacted due to omicron wave.
    • This is one of the best available company in time share / vacation industry which co managed to acquire & Finland as a location has a lot of strategic value as it is world’s happiest country
    • As on date have 60K members there & performance should come in
    • Acquisition right before pandemic has delayed benefits
    • New team has been formed & they are working on new strategy to be rolled out, performance should come in
1 Like
103

Very nice video on the journey of Mahindra Holidays.

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Can any senior member help me in understanding the debt on Mahindra Holidays…

As per the screener, it says around 2500 cr & a debt to equity ratio of above 10.

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That should be primarily on account of debt in their foreign subsidiary, Holiday Club Resorts (HCR), Finland. You will notice if you flip to standalone numbers, long term debt on MHRIL (standalone) is zero.

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I was further doing some research on Club Mahindra memberships, & came across this, has anyone tried : Club M Welcome | Club Mahindra

How is it different from the regular one? Looks like a premium version.
Disc: Not invested !!!

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I was further doing study & came to this video in my notifications (I am subscribed to the channel).
Though it’s a 42 min long video. If possible, watch the whole video, or you can start from 29:13.
Interesting analysis especially about Club Mahindra starts from 35:10.

Else, watch it at 1.5 x the speed.

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108

Hi Folks, I tried valuing Club Mahindra from the point of view of lifetime value of rooms. This is WIP & model is hyper sensitive to bunch of inputs. I would be refining them over time. In the meanwhile, happy to know any thoughts/suggestions on how the valuation can be approached primarily from a quantitative perspective. https://docs.google.com/document/d/18XvW_0kx9d8IeklQAZHAi_n6XX8bxvl7HSY56QPFLW8/edit

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Hi @Avinash_Baskar,

Great analysis, thanks for sharing. I have following thoughts.

  1. Since the model is for 25 years, do you think some buffer can be incorporated for capital misallocations (such as the foreign subsidiary that is more or less burning cash)?

  2. Another probably naive question is about the interest income MHRIL is generating through prepaid membership fees. Do you think over time as membership grows, interest income can be significant and hence baked in the model?

  3. Do you think comparing MHRIL with foregin companies with similar model will help in relative valuation? There are a few businesses in the US based on similar time share business model.

Let me know what you think.

Regards,
Mahesh

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110

Thanks @mahesh_s

  1. Definitely fair concern & can incorporate- Especially considering the fact that company cannot give large dividends at this point of time

  2. So the way I have accounted for interest income is in the AUR itself- For e.g. for 3.5 lakhs if a installment is being offered @ 15%, NPV of that would finally come back to the same AUR number

  3. I don’t think we can compare MHRIL with foreign companies because the business model is completely different- they sell fixed time, fixed place model- so in essence 52 owners for a single property whereas CM is notionally the same but in actuality the model is very different due to the resort choices. Add to that the aspects like Resort income, captive audience & family based value proposition and we get a different company with stronger competitive position and better value proposition in my opinion.

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Good Analysis @Avinash_Baskar . Thanks for shairng.

If we do some operational comparion with Taj and take out some of the key model impact and compare the over all valution & potentail gap in market cap.
i am a member of CM also invested in it share.

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Mgmt used the term AUR (Avg unit realisation) in their concall…
So I want to know what is this exactly ?
They have quoted this to be 4.5 lakhs for Q3FY23

Is this the revenue earned by the 1 room in 1 qtr ?

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@Harsh04 - AUR is not revenue earned by the room in 1 qtr. It is simply the total value of sales done in the period/# of new members added in the period. So for e.g if 100 new members are added and they have signed for 50 Red Studio membership @ 5 lakhs & 50 Blue Studio memberships @ 3 lakhs…AUR would be (505 lakhs+503 lakhs)/100 …The practical implication of this is it gives us how much of value a new member pays upfront as that is the amount used to fund the building of rooms and other services over the life time of the member in addition to ASF.

Only caveat in AUR is the management number also includes upgrades so it is usually overstated. But the sales upgrades numbers & con-calls can help us zero in on non-upgrade AUR.

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Thanks @Hirendrasingh - Yea that could be a good next step. Will see if I can get some of those especially from a cost perspective.

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116

Regulators seem to be asking to disclose how much revenue earned through members vs walkin customers?

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117

Was this breakdown given?

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Mahindra Holidays is an interesting company. One, its accounting baffles a lot of investors and second, its a sleeper for many years.

So, a company which going by standard accounting, has hardly any net worth and hardly generates 150 Cr PAT. This is due to the fact that it can recognize only 4% of sales on yearly basis based on the nature of product it sells.

Analyzing the company based on Balance sheet and P&L will give completely wrong impression about the company.

So, then how to analyze the company? First lets look at tangible data and then go to intangibles.

Tangibles (as of Q3 FY25):

  1. 1500 Cr Cash
  2. 1200 Cr Receivable
  3. ~6000 Rooms valued at 4000 Cr (My estimate - A single resort room today will cost north of 1 Cr)
  4. Zero debt

Next, on a going concern basis, the company generates 600 Cr cash flows on yearly basis.

Intangibles:

  1. Float - Doing business on other peoples money, take cash from customers, build resorts.
  2. 3 Lakh members pulling more members to join, assuming they are happy and satisfied.
  3. Rise is affluence and tourism to act as tailwind for growth.
  4. Brand Mahindra that inspires trust.
  5. Low Volatility - Unlike hotel industry, where room rents and revenues move to extremes, based on demand and supply situation, MHRIL is very steady, due to the nature of business

What is negative about the company:

  1. Slow growth - Adding members and building resorts takes time, its slow growth industry.
  2. Non Sense product - Who in his sensible mind will like to pay now for staying in resort for next 25 years (but we still have 3 lakh members and growing steadily)
  3. High Sales and Marketing costs - Related to point 2, if product in senseless (like ULIP in insurance), you have burn money to sell it.
  4. HCRO Subsidiary - I don’t understand why they acquired it and what value it brings to the table.

Now, If we just look at at first 3 tangibles, (1500 Cr+ 1200 Cr+ 4000 Cr = 6700 Cr), and the fact that it sells at 6700 Market Cap, it looks like Ben Graham net net on liquidation basis, with no value to 600 Cr operating cash flow, possible growth and even to strong intangibles.

But is it really a bargain? Will value show up in share price some day? As an investor, you have to decide. But here are few interesting pointers:

The company always traded at this kind of valuation since last 10 years (2015 to 2025), years have passed but rerating never happened. Many renowned investors have come and gone. Which will make any bull believe that something is wrong in the thesis.

I think management could have done something positive (e.g. buybacks etc) to instill confidence in long term investors, which it has not.

All the things that I have mentioned in this post, may already be discussed before, but still I though my post may add value. Apologies, if it has not.

Couple of twitter thread on MHRIL for reference:

Disclosure - No investment in MHRIL

1 Like
119

Agreed .

I am holding it for last 10 years with multiple partial entries and exit … My XIRR is just 16% for Mahindra Holidays vs 31% for overall portfolio

Inspite of underperformance I still find it to be more stable business … It is my only major exposure in tourism sector …

Yes HCR was stupid acquisition to massage Senior Management egos

1 Like
120

You have covered Negatives very well.
.
I would like to highlight some point which you may help further…

  1. Not all 6000 rooms are their own.
  2. 3 Lakh member pulling more member… but it has always been the case 3 Lakh members have high base of 3 Lakh members. They are unlikely to give any higher growth momentum than before,
  3. Receivables + Cash, how much of it will be required to run business, let’ say if they stop accepting new member and just serve 3 Lakh members?
  4. Can we make a twin P&L and cash flow statement to simplify it.
    (Membership sale on cash+ down payment + EMI) + Resort Income + ASF + EMI interest income) , Similarly on expenses side.
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Very pertinent points, thanks for your inputs. My response inline, and I need few inputs further.

  1. Do we know how many rooms are owned by the company and how many leased? I could not find them in annual report or investor presentation. The data is important, and if you have any way of finding it, it will help.
  2. Agree, its a low growth company and growth on base of 3 Lakh members will be tepid. But I don’t think growth is the only recipe to make reasonable return. At a right price, zero growth can also make respectable returns.
  3. This is a very interesting point, that I missed covering in my initial post.
    Assuming hypothetical situation that they have no more new business, and that 3 lakh members have stagnated forever.
    How much cash + receivable is required to run existing business?

My view is none or very marginal. Why? To run existing business you need resort rooms which are sufficient to serve existing customers, and the company does have sufficient rooms for that purpose.

Ok, what about maintenance of keeping up the resorts? That’s built in the charges that existing customers have to pay on yearly basis as ASF.

Once the existing customers are served without any additional need to cash, other major expense is sales and marketing costs, which you dont need to pay for, given that business is stopped. Also, you don’t have any debt in the business.

So, net net you are left with Cash + Receivable (assuming it will be converted into cash) + Resorts (after service period of existing customers is over) that you own as owner.

Probably I am oversimplifying things here, but this is how I would like to approach the end state. Happy if you can find tons of loop holes in this logic and highlight as many flaws as possible.

  1. Its doable, but I don’t have energy to do it. To simplify thing, I analyzed the liquidation value of the business and concluded that it roughly matches the market cap, again which may be flawed. I also concluded that one gets a running business with operating cash flow of 600 Cr on top of liquidation value. However, as I said, all my logic may be flawed.

Infact market has been telling that this company has hardly any value, and as an prospective investor you are betting against the market :slight_smile:

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  1. They pay over 100Cr in rental, that easily well over 1000 units. My understanding is they keep 25 to 30% capacity on lease/rental

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  2. point was different, how much help 3Lakh member can provide bringing new members? I see no material change compared to when they had 1Lakh or 2 Lakh members

  3. I do not want anyone to break too much of their head. :smiley: My understanding is that ASF does not cover all operational and maintenance cost. You need bit extra on top of ASF to maintain resorts and also spend for water, electricity, diesel, changing towels etc, also pay employees. If simple calculation dis-approve it, good enough.

So, net net you are left with Cash + Receivable (assuming it will be converted into cash) + Resorts (after service period of existing customers is over) that you own as owner.

yes, so what value you will give to it today? discounted at what rate? 8, 12or 14% or higher? Property price may not increase in line with equity return expectations. So you need to buy property cheap or earn 5-7% yield now. Also, after 25 years you may need major refurbishment in your property!

  1. I did that exercise in 2013-14 :smile:
    CM analysis copy.xlsx (38.4 KB)
    Never did it again. As this stock will unlikely bring you above market return.(My opinion, I may get wrong). Even these post I am replying as return back to community. I intend to not spend any time on analysis. For me simple matrix is now per room (in service) market cap and watch on marketing expenses and operating leverage which may kick-in in 2027 when 25 year membership will start expiring. How many as compared to current enrollment rate? Even in previous years Zest (10-year product) membership have expired.

I myself have owned this membership, have analyzed this company at the time of IPO. Have closely watched mgmt interviews for years after IPO. I waited 10 years to buy it in 2019, but sold quickly near Covid melt down, thinking that sector will take long time to recover. Bought again last year, temptation of momentum gain, (ignoring my earlier valuation thesis), paid for my mistake. Now I have tracking position only.