Mahindra Holidays & Resorts India Limited

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About the Company

Mahindra Holidays Resorts India Ltd (MHRIL) is an Indian travel company founded in 1996. It is a part of the Mahindra Group and provides holidays on a timeshare basis. Vacation ownership is its key offering and “Club Mahindra” is its flagship brand. MHRIL offers family holidays primarily through vacation ownership memberships for over a period of 25 years. Today they boast a fast-growing customer base of over 235,000 members and 50+ resorts at some of the most exotic locations in both India and abroad.

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Q3 FY23 Updates

Financial Results & Highlights

Detailed Results:

1. Operating cash in this quarter went up to INR 377  for 9 months FY23 from INR 252 crores for the 9-month period FY22.
2. The company increased its deferred revenue by INR 60 crores on a quarter-on-quarter basis and its deferred profits by INR 152 crores.
3. Operating profit growth delivered the highest ever income at INR 336 crores, which is 18% up on a Y-o-Y basis 
4. The highest ever EBITDA at about INR 99 crores, which is 17% on a year-on-year basis.
5. EBITDA margins have expanded compared to pre-pandemic levels and stand at a healthy 29.3% in Q3, which is up 300 basis points.
6.  EBITDA is up by 18% Y-o-Y, obviously, excluding one-offs.
7. Membership sales value of INR 188 crores is up by 20% Y-o-Y.
8. profit before tax on a 9 months basis, it is at INR 145 crores, which is a 17% Y-o-Y movement over the same period last year. 
9. Cash position stays extremely healthy at INR 1,089 crores, which is up by INR 71 crores during the quarter

Investor Conference Call Highlights 

1. The management stated a significant improvement in members who are paying higher down payment at the time of enrolment.
2. In the 9 months FY ’23, the company expanded our inventory by 300+ keys. 
3. The company plans to achieve guidance of 5,500+ rooms by FY ’25.
4. The average unit realization is up to about INR 4.5 lakhs in Q3 FY23 versus INR 4.2 lakhs in Q3 FY22.
5. The management stated that the company is also working towards the sustainability of the environment. Nine of Mahindra Holidays resorts are green resorts, platinum certified by IGBC.
6. The forex movements such as the rupee depreciating against euro and Thai baht had adverse impacts. Total mark-to-market impact at the consolidated PBT level, in Q3, has been about INR 35.66 crores.
7. The employee benefit expenses increased due to the additional headcount on account of higher room inventory, resumption of full scale of operations and annual increment. 
8. The management stated that the sales and marketing expenses increased largely due to the spends on brand marketing because of the focus of building a brand.
9. Depreciation increased due to capitalization of rooms at our Goa, Assonora and Ashtamudi Resorts. 
10. The management expected the cost to increase as they accelerated room inventory and member additions.
11. The company has been tightly managing operating costs, and also it used alternative energies like solar power to also save costs
12. The company stated the reason for members spending more on per available room night basis. People are spending more because we have created during this holiday season, lot of festive opportunities it used
13. The management stated their strategies that lead to customer retention. They  company hosted food festivals to create new experiences, which increases the average per cover, APC, that keeps moving up when people spend because, as in resorts, families come, and they do look at food as a very integral part of their holiday experience
14. The company is using a lot of data science and analytics capabilities to understand the pattern and requirements of the customers and also to get the right person on the table.
15. The company is aiming to increase our member addition rate by adding 100 odd rooms every quarter.
16. Since the company had a lot of businessmen as their customers the company is going to focus on corporate in a big way. 
17. The DSA program did not do very well during the pandemic. 
18. The company is focusing on being able to sell digitally, particularly to small towns by creating a new interface.
19.  9 months membership addition has jumped by 42%
20. The management stated that they are planning to work with Finnair to make Finland a destination. They have launched a flight from Mumbai to Helsinki direct, which wasn’t there. So there is work going on to visit Finland.
21. Timeshare sales in Finland continue to be robust. People continue to invest in buying Timeshare. They continue to holiday despite the situation of high inflation.
22. The company is focused on ensuring that the debt levels come down, which are coming down and ensuring that the EBITDA levels keep moving up.
23. The company has used its member base and monetized them more by creating this Horizon product.
24. The company paid off EUR 25 million of debt in July when the euro INR ratio had come down to INR 79.91. 

Analyst’s View

Mahindra Holidays & Resorts India Has established itself as a market leader in the family holiday business. Some of the key brands under the Mahindra Resorts and Holidays umbrella include Club Mahindra, Zest, and Mahindra Homestays.

The momentum in occupancy has continued in January ’23 as well with occupancy at 86%. Forward bookings for February, March and even April remained very, very strong. And based on these signs as the year continues to play out it is expected that occupancies will continue to build. 

This is a business which in the time to come, should generate significantly positive EBITDA. And with the lower debt levels, there will be a significant enterprise value. They have flexed their costs down, the margins are improving. The company is aiming to accelerate its travel tech platform, to monetize the existing member base which will increase the revenue. The company has also been expanding its presence in new markets and exploring new partnerships and collaborations. These strategies may help position the company for continued growth and success in the future.

Q2 FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company’s revenue grew by 6% YoY and profits fall by 31% YoY on consolidated basis.
2. The revenue fall by 1.55% and profits grow by 39% QoQ on consolidated basis.
3. The company has added ~4,400 members. This is a 12% year-on-year growth
4. AUR stands at INR 4.4 lakhs
5. 18 new DSAs being added during the quarter
6. 57% of our member acquisition came through referral and digital routes in Q2 FY23.
7. October ’22 occupancy closed at about 82.5%.
8. In H1 FY23, the company has added 200+ keys and compared to Q2 last year, the company has added 500 rooms in just one year. 
9. Occupied room nights have touched 100,000 room nights a month. This is the highest ever occupied room nights in quarter 2, which is a growth of 27% on a year-on-year basis. 
10. The Q2 VO income grew by about 16% on a Y-o-Y basis by INR 29 crores, largely driven by higher sales, better sales mix.
11. Value of the membership sales grew by 93% on a Y-o-Y basis
12. Q2 resort income at INR 68 crores 
13. EBITDA is up by 12.4% on a Y-o-Y basis, excluding one-offs. 
14. EBITDA margin is at 27.5%.
15. PBT margin is 14%, expansion of 270 bps YoY
16. PAT margin is 10.2%, 300 bps up on YoY basis
17. H1 performance
    1. Total income at INR 606 crores standalone basis, 30% Y-o-Y
    2. Resort income at INR 152 crores, which is up 130.6% on Y-o-Y basis
    3. EBITDA for H1 is at about INR 167 crores, up 17.2% Y-o-Y
    4. EBITDA margin at a 27.6%
    5. PBT grew 14% Y-o-Y, margin at 14.4%. 
    6. PAT margin at 10.6%, which is up by 360 basis points versus pre-pandemic (H1 FY20).
18. Cash position is at a INR 1,018 crores
19. Deferred revenue stands at INR 5,200 crores. Deferred revenue for the quarter has increased by INR 63 crores, which is the highest ever
20. Generated INR 230 crores of operating cash in H1
21. Member to room ratio is 58
22. In terms of room nights, 55% is owned and 45% is leased
23. Holiday Club Resorts
    1. Spa hotels delivered 70% occupancy during the quarter
    2. Revenue growth on is 14%
    3. EBITDA growth is 23% year-on-year
    4. The timeshare sales has grown by 12%. 
    5. The revenue from spa hotels has increased by 16%. 
    6. The total turnover has increased by about 8% as reported. 
    7. Consolidated EBITDA margin at 23.2%

Investor Conference Call Highlights 

1. The management stated the leisure accommodation continues to garner high ARRs, RevPARs at a very significant premium, almost double, compared to business hotels.
2. Mahindra Holidays achieved 79% occupancy during the quarter versus 73% in the same quarter last year; occupancy is 6 percentage points higher, even though the company expanded room inventory by 500 keys over the past year
3. In this quarter, the company has added 2 new resorts, totaling 116 keys through new resort in Mount Abu and Kathmandu, and extension of existing resort in Sikkim, in Gangtok.
4. The management is confident of achieving about 84% to 85% occupancies for the quarter, October, November, December.
5. Through Club Mahindra Horizons, the company has partnered with 400+ hotels and Club M Select provides an increased level of access and new benefits to our members.
6. AUR increase has also been due to better sales mix, a bit of price increase and Corporate Sales of INR 24 crores. 
7. Cumulative member base is 2,74,000 approximately, of which 85% of the members are fully paid.
8. On in-resort sales, during this quarter, three new on-site sales location were added: one at Gir, another at Jaisalmer, third one at Khajuraho. 
9. Total resort count is now 86 with 4,700+ keys; the management stated they are on a track to deliver their guidance of 5,500+ keys earlier than FY25.
10. The company has commenced construction to expand existing resort at Kandaghat, Shimla by 185 keys and after expansion this will become one of the biggest resorts of approximately 230+ keys at one location.
11. The company await final approval for another 240 key greenfield resort at Ganpatipule, which is overlooking the Arabian sea
12. In November, the company will be able to add 24 rooms through Janjheli project in HP
13. The highest ever Q2 resort income of INR 68 crores which is a growth of 34% Yo-Y. The management stated this would have only come through three means: number one, increase in inventory; number two, increase in occupancy on the expanded base; and number three, higher spends by members on our unique food and beverage offerings and activities.
14. The company has increased investment in Rocksport to 23.4% as on September’22. The management believe this will help them to increase customer engagement avenues, including driving vacation traffic of local tourists to resorts because of the unique offerings. It will help the company to drive in-resort sales and of course through cross-selling of products. 
15. Solar power is installed at 21 resorts now with 4 megawatt capacity.
16. The aim is to achieve carbon neutrality by 2040 through EP100. 
17. The management stated the employee benefit expenses have increased, driven by the headcount increase due to higher sales operations and additional room inventory. 
18. The management stated rent has increased in line with additional rooms — and this is lease rent; in the last year, Q2 FY22 received major waivers, that’s why the increase looks larger because of the reduced base in Q2 FY22 due to the waivers.
19. The management expects the consolidated results in Q3 and Q4 to be significantly better than last year. 
20. The managament stated the seasonality at least as far as member additions are concerned, is more or less ending.
21. The management stated they are focusing on higher down payment paying members
22. The management stated as far as traction is concerned, Horizon has seen good traction. Club M Select is picking up, and Rocksport in the resort is seeing very good traction.
23. In the total income, F&B segment dominants, and spa and other holiday activities have small share.
24. Member to room ratio is 58 which used to be 72 earlier; the management gave the reason that members accumulate nights by not going on a tour
25. HCR is now profitable; HCR has generated about EUR 33-odd million of cash in the last five years. And the management believe that the moment Russia-Ukraine situation clears up, they see them back to the peak levels.

Analyst’s View

The occupancies of the hospitality industry touched 82% in the month of October. Domestic air travel reached a robust 20.5 million passengers. Management expects Q3 and Q4 to be good in terms of occupancies. Mahindra Holidays & Resorts India Ltd is having resort occupancy of 89% which is almost equal to precovid levels and has also recorded highest ever resort income. Management believes that MHRIL is no longer a cyclical business. MHRIL have added 800+ rooms over from 2020 onwards still the occupancy has increased. MHRIL is focusing on data science to understand propensity to buy membership, propensity to refer and propensity to pay on time and propensity to spend at resort. Company is experiencing very high website traffic of almost 2 to 3 million each month and referral and digital contributed to about 57% of the sales. Seeing the tailwinds in travel and tourism industry and bullish the management guidance assisted with strong balance sheet and robust operating cash flows to which supports growth in addition of room inventory without any recourse to debt, MHRIL seems to be well positioned to ride the tailwind comfortably.

Q1 FY23 Updates

Financial Results & Highlights

          *         excluding one off items

Detailed Results:

1.     Total income was the highest ever at Rs. 637 crores, up by 52%, the operating income went up by 63%, the EBITDA has grown by 75.3% and the margin has also grown from 18% to 20.7%.
2.     Sales value including upgrades were at about Rs. 146 crores in Q1 FY23 versus Rs. 20 crores in Q1 FY22.
3.     Generated highest ever resort revenue of Rs. 84 crores.
4.     PAT of Rs. 30 crores which is an improvement of Rs.51 crores over Q1 FY22.
5.     PBT margin at 14.9% is higher than prior to the pandemic which was 10.7%, PBT also grew by 24% YOY, if you were to exclude the one-offs- note this is on full scale of operations.
6.     Free cash flow- around Rs. 45 crores
7.     Cash position- Rs. 1,172 crores- cash increased on the back of high resorts revenue, member additions and better upgrade revenue- MHRIL have been driving higher down payments, lower EMI tenure from member additions.
8.     Finance cost of Rs. 6.8 or Rs. 6.9 crores- finance and depreciation costs because they are directly and due to the increase in room inventory. Finance cost under Ind-AS 116 only reflects the rentals that MHRIL pays for lease resorts and this is not a financing cost and have not taken a debt at the standalone level.
9.     Deferred revenue stands at Rs. 5,135 crores and continues to be zero debt at a standalone level.
10.   Net debt levels after making the partial loan repayment is around Rs.700 crores now at the total Group level constituting most of it is Euro denominated.

Investor Conference Call Highlights

1.     Referral and digital contributed to about 58% of the sales.
2.     Added about 3,807 members and these memberships came at a higher average unit realization.
3.     Increase in sales and marketing expenses- due to the brand building.
4.     The other expenses and rents have increased in line with the resort income and scale of operations.
5.     Optimized manpower by training them to do multiple jobs within the resort.
6.     In July 2022 provided a loan of €25 million to one of subsidiaries in Mauritius. This is an investment SPV to take advantage of the weakening euro (euro to rupee equation was extremely favorable in favor of rupee) and this loan that has been used by the Mauritius company to pay the debt that is there at the Euro level in Mauritius. This has helped us to reduce debt at a consolidated level.
7.     In July, MHRIL had an occupancy of 82%. August and September are also looking good.
8.     Company has also achieved the distinction of crossing 100,000 room nights in each month of the quarter. The total number of room nights that were occupied during the quarter was 316,000 room nights.
9.     Management believes that “We are no longer in Mahindra Holidays a cyclical business.”
10.   Target is to achieve another 1,000 to 1,200 room addition in the next 24 to 30 months through acquisition, greenfield and expansion of their existing resorts without taking any debt as the company has ample cash to fund it.
11.   Experiencing very high website traffic of almost 2 to 3 million each month.
12.   Management is very confident of maintaining higher spends from members by constantly providing differentiated offerings.
13.   The ARRs in the leisure destinations are probably at an all-time high.
14.   Horizons program- a tie up with about 360 hotels and resorts both in India and abroad. People are sometimes using this program to exchange their room at night with a property which could be in a city or a location where MHRIL is not present.

Analyst’s View:

The occupancies of the hospitality industry touched 65% in the month of May. Domestic air travel reached a robust 22.7 million passengers in the month of May. Management expects this quarter also to be good in terms of occupancies. Mahindra Holidays & Resorts India Ltd is having resort occupancy of 89% which is almost equal to precovid levels and has also recorded highest ever resort income. Management believes that MHRIL is no longer a cyclical business. MHRIL have added 800 rooms over from 2020 onwards still the occupancy has increased. MHRIL is focusing on data science to understand propensity to buy membership, propensity to refer and propensity to pay on time and propensity to spend at resort. Company is experiencing very high website traffic of almost 2 to 3 million each month and referral and digital contributed to about 58% of the sales. Seeing the tailwinds in travel and tourism industry and bullish the management guidance assisted with strong balance sheet and robust operating cash flows to which supports growth in addition of room inventory without any recourse to debt, MHRIL seems to be well positioned to ride the tailwind comfortably.

Q4 FY22 Updates

Financial Results & Highlights

1. It was a mixed quarter for the company with a rise in consolidated revenues of 17.3% YoY while PBT rose to a profit of Rs 31 Cr and PAT was at Rs 15 Cr. Both PBT & PAT saw improvement YoY. 
2. FY22 consolidated performance was also great with revenues increasing 17.9% QoQ and PAT up 578% YoY.
3. Standalone PBT & PAT was up 83.4% & 83.3% YoY for the quarter respectively.
4. The deferred revenue pool was at Rs 5083 Cr.
5. Strong cash position at Rs 1172 Cr.
6. Resort occupancy was at 77% for Q4. Resort income declined QoQ to Rs 57 Cr in Q4.
7. The member additions in Q4 were at 4058 vs 4789 the previous year. 
8. Member acquisitions through the Referral & Digital route was at 58% in Q4.
9. Consolidated EBITDA margin improved 720 bps YoY to 32.1% in Q4 due to a one-off gain from sale of investment.
10. Fixed assets for the company stand at Rs 2292 Cr as of 31st March 2022. This includes land worth Rs 1233 Cr and excludes long-term leases valued at Rs 268 Cr. 
11. The room inventory was at 4568 units.
12. Revenues for HCRO were up 41% YoY. Renting income & Spa hotel revenues were -2.8% YoY and 95.8% YoY respectively due to the summer holiday season in Finland. Time share sales increased 31.6% due to Omicron surge.
13. The unit delivered an operating profit in Q4 of EUR 0.6 mn and PAT of EUR -1.1 mn.
14. The company saw forex gain of Rs 0.27 Cr vs gain of Rs 10.16 Cr last year.

Investors conference call Highlights

1. The company has crossed the milestone of 4500+ keys. The management targets to reach 5500+ rooms in the next 24 to 30 months. 
2. The company has commenced expansion of resort at Kandaghat, Shimla. The expansion requires the company to invest INR 200 crore and will deliver 185 rooms.
3. The company is at its last stage of getting the last permissions to set up a resort in Ganpatipule with 236 keys and a total investment of INR 250 crores.
4. The company achieved very good growth in resort revenues by enhancing member engagement.
5. The company has increased its stake in Rocksport from 6.67% to 23.4% which will happen by Sept 2022 as the transaction completes. This will help the company increase customer engagement avenues.
6. The company was affected by inflationary pressures in its F&B services and has taken price increases in April 2022.
7. To manage resort costs, the company has installed solar plants at 14 resorts with a total capacity of 2,500 KW power. Further, 1000 KWP is ready for installation in Q1 FY23.
8. The company sold its investment in Nreach Online Services netting a one-off gain of Rs. 26.3 crore. This is a 9x return as the company had taken this 12% stake in 2016 at an investment of INR 3 crore.
9. The company’s expenses have increased 17% for FY22 which is on account of higher business activity, higher sales, marketing expenses and overheads. The company’s marketing expenses have increased by Rs. 34 crore which is in line with the additional sales volume.
10. The management states that Holiday Club Resorts largely focuses on domestic leisure travel, thus it will not be impacted by the Russia-Ukraine war.
11. The management is comfortable with a 55:1 member to room ratio, because it believes that there is a huge opportunity to serve existing members. Current ratio is 58:1.
12. Current occupancies at 90% show that huge traction is coming as dormant members are now holidaying, therefore inventory addition will help take care of members booking needs.
13. The company should be able to declare dividends once they get a clarification from the ministry of corporate affairs related to a transition difference according to the management.
14. The company has a debt of Euro 51 million at the HCRO holding company which was for the acquisition and at the operating level, the debt is at Euro 16 million.
15. The management is confident of crossing the 228-crore mark in FY23 for resort incomes which is their all-time best. This is expected to be driven mostly by F&B income.
16. The ASF for the year has been increased by about 7.8% as per the formula for WPI and CPI inflation.
17. The management states that in the ASF, the company never increases the base fee and only tops it up to the extent of inflation. 
18. The company plans to do a CAPEX of 1000-1200 crore over the next three to four years for acquiring resorts or building new resorts.
19. The company currently has three product types as compared to 2011 when it had only one. Thus, the company is covering various price points.
20. The company is happy to sell on EMI while trying for quality member additions but has various policies to encourage people to pay upfront. This includes shorter EMI tenures and higher value to upfront paying members.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customers’ advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The company saw a decent overall performance in both India & in HCRO with resort occupancy rising to 80% in Q4. HCR also reported positive EBITDA in Q4. The management expects the momentum for HCRO to rise again in Q1 according to Finland’s seasonal patterns. The recent hotel room price inflation has also seen many more additions to the 25-year product than others. It remains to be seen how long it will take for sentiments to completely normalize in the travel sector, & how long will it take for HCRO to become a consistent performer, and when will the company’s continued aggressive inventory expansion plans bear fruit. Nonetheless, given the company’s resilient model and the current valuation is not too far from its replacement cost, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.

Q3 FY22 Updates

Financial Results & Highlights

Detailed Results

1. It was a mixed quarter for the company with a rise in consolidated revenues of 13.3% YoY while PBT rose to a profit of Rs 20 Cr and PAT was at Rs 13 Cr. Both PBT & PAT saw improvement YoY.
2. But QoQ performance suffered a lot with revenues declining 1.5% QoQ and PAT down 78% QoQ.
3. Standalone PBT & PAT was up 16% & down -12% YoY respectively.
4. The deferred revenue pool was at Rs 5052 Cr.
5. Strong cash position at Rs 1108 Cr and receivables were at Rs 1135 Cr.
6. Resort occupancy was at 80% for Q3. Resort income rose to its highest ever level of Rs 70 Cr in Q3.
7. The member additions in Q3 were at 3701 which was up 13% YoY.
8. Member acquisitions through the Referral & Digital route was at 58% in Q3.
9. Standalone EBITDA margin declined 370 bps QoQ to 29.9% in Q3.
10. Fixed assets for the company stand at Rs 2266 Cr as of 31^st December 2021. This includes land worth Rs 1233 Cr and excludes long term leases which are valued at Rs 252 Cr.
11. The room inventory was at 4356 units.
12. Revenues for HCRO were up 9% YoY. Renting income & Spa hotel revenues were -27.5% YoY and 58% YoY respectively due to boost in traveller confidence from the vaccination drive in Finland. Time share sales declined 10.9% due to Omnicron surge.
13. The unit delivered an operating loss in Q3 of EUR -1.35 mn and PAT of EUR -2.17 mn.
14. 2 Spa Resorts which were shut in Jan 2022 are slated to open in the first half of Feb.
15. The company saw forex gain of Rs 7.79 Cr vs loss of Rs 7.05 Cr last year.

Investors conference call Highlights

1. The profit before tax for this quarter was lower than last year despite higher revenues due to an increase in depreciation and financing costs.
2. The management plans to focus on branding and marketing as the company has not invested in brand building for the past few quarters.
3. The company has added 123 rooms this quarter and is on track to reach 5,500 rooms inventory in two to three years.
4. Resort revenues grew 57% YoY to Rs 70 crores as members preferred to stay indoors and spend on F&B and other indoor experiences.
5. The management is confident that resort revenues will be a major growth driver and will strongly augment the company’s revenue stream.
6. The management believes that post the third wave, there will be a phenomenal bounce back in domestic pleasure travel as pent-up demand plays.
7. The management believes that there won’t be serious aftermath because of the third wave and expects a significant demand jump after this period.
8. The company has received certification from bureau veritas for 40 resorts and 14 associate resorts with the highest rating of platinum for covid safety.
9. The company was forced to increase the food and beverage prices to beat inflationary costs.
10. The company’s AUR is also healthy at 3 lacs this quarter largely driven by the higher sales of the 25-year product.
11. For inventory additions, the company has projects going on in Asenora, Ashtamuri, Kandaghat and will start a new project in Ganpatipule.
12. The company has Rs 600 crores of capex in play currently and plans to invest an additional Rs 1000 to 1200 crore to add 1200-1500 rooms over the next three to four years.
13. HCR received a government subsidy of 1.14 million euros as a part of the covid-19 relief in Q3 FY’22.
14. The company is at its all-time high in terms of the percentage of people who are giving the company a 30% down payment or more.
15. The timeshare and vacation ownership business has become even more attractive with domestic travelers increasing due to the prevailing inflationary situation.
16. The company also gives pre-purchase discounts to engage members in food experiences and increase member commitment.
17. Despite Finland currently pulling down ROEs and ROCEs the management is confident about growth there and plans to use it as a pull to create member addition acceleration in India.
18. The new accounting standards which came in do not allow the company to disburse dividends because of the transition issue, the management is working with MCA to get an exception to this rule.
19. The management states that the campaign Jaana Kaha Hai has worked well for MHRIL, and it has provided a big boost to the digital acquisition of customers.
20. The management is very optimistic about the resort income for the coming quarters ahead with leisure and F&B opportunities rising as the greater number of rooms gets added resulting in more room nights.
21. The company is highly focused on increasing member experience by creating new leisure facilities and improving the dining experience to give a comfortable and enjoyable experience which results in higher spending of members and higher resort income.
22. The management’s deep observation of the membership area is that the higher a member engages, the more likely is he to refer and share his experiences to friends and families. Thus, customer engagement is key to generating organic referrals
23. The management states that the three value drivers for the company are member addition, inventory increase, and member experience.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customers’ advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The company saw a decent overall performance in both India & in HCRO with resort occupancy rising to 80% in Q3. The management expects the momentum for HCRO to rise again in Q4 according to Finland’s seasonal patterns. The recent hotel room price inflation has also seen many more additions to the 25-year product than others. It remains to be seen how long it will take for sentiments to completely normalize in the travel sector, & how long will it take for HCRO to become a consistent performer, and how long will it take for the company’s continued aggressive inventory expansion plans to bear fruit. Nonetheless, given the company’s resilient model and the current valuation is not too far from its replacement cost, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.

Q2 FY22 Updates

Financial Results & Highlights

Detailed Results

1. It was a good quarter for the company with a rise in consolidated revenues of 16.05% YoY while PBT rose to a profit of Rs 78 Cr and PAT was at Rs 60 Cr. Both PBT & PAT saw improvement YoY.
2. Standalone PBT & PAT grew 19.57% & 20.59% YoY respectively.
3. The deferred revenue pool was at Rs 5012 Cr.
4. Strong cash position at Rs 1041 Cr and receivables were at Rs 1129 Cr.
5. Resort occupancy was at 73% for Q2.
6. The member additions in Q2 were at 3943.
7. Member acquisitions through the Referral & Digital route was at 56% in Q2.
8. Standalone EBITDA margin declined 160 bps YoY to 33.6% in Q2.
9. Fixed assets for the company stand at Rs 2255 Cr as of 30^th September 2021. This includes land worth Rs 1233 Cr and excludes long term leases which are valued at Rs 263 Cr.
10. Revenues for HCRO were up 5.73% YoY. Renting income & Spa hotel revenues were up 9% YoY and 16% YoY respectively due to boost in traveller confidence from the vaccination drive in Finland.
11. HCRO also got a govt subsidy of EUR 1.4 million in Q2 which was included in other income.
12. The unit delivered an operating profit in Q2 of EUR 3.89 mn and PAT of EUR 1.94 mn.
13. Consolidated EBITDA margin improved 377 bps YoY to 27.8% in Q2.

Investors conference call Highlights

1. Many states including Maharashtra, Gujarat, Rajasthan, Goa, Uttarakhand, Tamil Nadu, and others saw occupancy of over 80% in Q2.
2. MHRIL has also introduced various new dining experiences at its branded restaurants like Barbeque Bay, Temptation, Finz, MamaMia and launched a new cafe brand, Unwind. It is also looking to focus on food festivals and new themes to enhance member dining experiences.
3. MHRIL is also planning to launch themed adventure activities such as jungle theme, Planet of the Apes, pirates’ theme, etc in partnership with Rocksport which was acquired recently by MHRIL.
4. The management states that it sees greater demand for the 25-year product among the new additions.
5. The management states that the new campaign Jaana Kaha Hai has worked well for MHRIL and it has provided a big boost to the digital acquisition of customers.
6. The company has gotten permission for all new expansion except for the Ganpatiphule resort.
7. MHRIL is looking to add room inventory in its Udaipur and Ahmedabad locations.
8. Resort performance has risen to Rs 50.8 Cr vs the pre-pandemic level of Rs 44.1 Cr.
9. HCRO delivered its highest ever profit performance with PAT at EUR 2.45 million.
10. The management admits that the recent price inflation in hotel rooms has been a motivating factor in new customers choosing the 25-year membership to lock in prices.
11. The company is also moving away from discounts and will increase dependence on sales and marketing for customer acquisition.
12. ASF volumes were down during the pandemic and have started coming up as more and more people are going for vacations.
13. The company is not looking to institute any offers or incentives for early booking for its members.
14. Staff to room ratio is bound to come down to a specific level due to the addition of technology and the streamlining of the customer experience.
15. The company is looking to rationalize energy costs and work towards becoming 100% renewable by 2040. Most of it will be through the solarization of the resorts.
16. The management expects MHRIL to deliver better margin performance in the future.
17. The company is seeing a lot of demand coming from small towns mainly through existing member referrals. There are 3 major margin levers that the company is working on which are optimizing manpower productivity, bringing down the cost of acquisition by focusing on digital and reducing energy costs through solarization.
18. The first long-term customer to come off their membership period will be in 2025 as that was the year the company started the 25-year product. Before that, it used to sell a 33-year product.
19. The management states that even after customer acquisition, there is much room for the growth of the business through the upgradation of memberships.
20. The opening up of international travel should not affect the demand for MHRIL as it will open up the members for its international locations as well.
21. Q3 is expected to be low for HCRO while Q4 is expected to do well according to the seasonal trends in Finland.
22. The 1-week product and 6-week product was seeing good demand for HCRO.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customers’ advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The company saw a good overall performance in both India & in HCRO with resort occupancy rising to 73% in Q2 with many states boasting of over 80% occupancy. HCRO has seen its highest ever quarterly profit made in Q2. The management expects the momentum for HCRO to fall off in Q3 and rise again in Q4 according to Finland’s seasonal patterns. The recent hotel room price inflation has also seen many more additions to the 25-year product than others. It remains to be seen how long it will take for sentiments to completely normalize in the travel sector how long will it take for HCRO to become a consistent performer, and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive acquisitions. Nonetheless, given the company’s resilient model and the current valuation is not too far from its replacement cost, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.

Q1 FY22 Updates

Financial Results & Highlights

Detailed Results

1. The quarter was mixed for the company with a rise in consolidated revenues of 29% YoY while PBT fell to a loss of Rs 19 Cr and PAT was at a loss of Rs 21 Cr. Both PBT & PAT saw improvement YoY but were down QoQ.
2. Standalone PBT & PAT grew 13% & 11% YoY respectively.
3. The company has announced a bonus issue of 1:2.
4. The deferred revenue pool was at Rs 5022 Cr.
5. Strong cash position at Rs 950 Cr and receivables were at Rs 1170 Cr.
6. Resort occupancy was at 51% for Q1. Local restrictions from mid-April to early June led to low occupancy and thus lower resort income.
7. The member additions in Q1 were at 1062.
8. Member acquisitions through the Referral & Digital route was at 63% in Q1.
9. Standalone EBITDA margin improved 50 bps YoY to 33.7% in Q1.
10. Fixed assets for the company stand at Rs 2158 Cr as of 30^th June 2021. This includes land worth Rs 1145 Cr and excludes long term leases which are valued at Rs 232 Cr.
11. Revenues for HCRO were up 65% YoY. Time share & Spa hotel revenues were up >62% YoY due to boost in traveller confidence from the vaccination drive in Finland.
12. HCRO also got a govt subsidy of EUR 2.58 million in Q1 which was included in other income.
13. The unit delivered an operating loss in Q1 of 3.46 million euros and PAT loss of 3.98 million euros.
14. Consolidated EBITDA margin improved 270 bps YoY to 18% in Q1.

Investors conference call Highlights

1. The management reiterates the company’s goal to expand to 5500 rooms in the next 4 years.
2. Around 60% of resorts are owned while the rest 40% are leased.
3. HCRO launched its 8th spa in Vierumaki which is an hour away from Helsinki. The place is a very active sports holiday destination with golf courses, tennis courts, and a spa.
4. The management expects the good momentum for HCRO to continue as occupancy is expected to remain high with the peak of the summer season to come in mid-August for Finland.
5. The management states that margins have remained high despite a fall in occupancy due to cost reduction, particularly in marketing.
6. The movement in lease liabilities is mainly due to the renewal of some leases.
7. Digital lead generation has been a factor in reducing customer acquisition costs, but customer referrals have had a bigger impact on this metric.
8. Although there may be cases of customers not getting their desired booking in specific locations during the respective peak seasons, it is dependent on the type of membership taken by the customer. Thus, the company will be looking to educate the customer on how to maximize his or her chances of getting a booking and induce them to upgrade their membership if they are not getting their desired bookings.
9. The management remains confident about the prospects of HCRO. The major factors behind this confidence are the CEO Maisa Romanainen, the fact that Finland has a big holiday culture that leads to occupancy of near 95% in peak times, and that there are more holiday goers each year in Finland than in India despite the huge population divergence between the two nations.
10. Lastly, the option of being able to offer existing MHRIL customers something beyond India and establishing itself in Europe are the final factors behind the management’s confidence in HCRO.
11. The company is also looking to add 60 rooms in Puducherry by the end of FY22.
12. The company sees that member additions for Zest and Bliss increase at the time of the rising cases while in all other times, the flagship 25-year product is the one that remains at the top.
13. The management believes that the major differentiating factor that has helped MHRIL maintain higher occupancy levels than everyone else in the hotel industry is that it is providing the chance to holiday in a safe environment with an apartment structure. The quality and uniqueness of the resort offerings may also have enhanced customer stickiness for MHRIL.
14. The cost of acquisition is not affected by the upgrading from Zest to CMH 25 as it is not a new member addition for the company.
15. The highest occupancy levels have been seen in resorts in Maharashtra.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customer’s advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The company saw a good standalone performance in India with resort occupancy staying resilient at 51% in Q1 despite the 2^nd wave of COVID-19. It has a big cash chest of above Rs 950 Cr which it plans to utilize to expand room inventory to 5500 rooms and in resort acquisitions in both major states and new states. HCRO has seen very good rise in revenues as occupancy levels are high due to the confidence boost from the local vaccination program. The management expects the momentum for HCRO to continue as Finland reaches its peak summer season in August. Even though travel & tourism is a sector that seems to take a long time to recover and come back to normalcy, MHRIL is utilizing its firepower (read Balance Sheet strength) to continue its expansion plans in Goa and other sites. It remains to be seen how long it will take for sentiments to normalize in the travel sector especially given the slow vaccination rate in India, and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive acquisitions. Nonetheless, given the company’s resilient model, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.

Q4 FY21 Updates

Financial Results & Highlights

*contains a one time impact of Rs 200 Cr on tax expense due to change in tax rate

Detailed Results

1. The quarter was down for the company with a fall in consolidated revenues of 21% YoY while PBT fell to a loss of Rs 11 Cr and PAT was at a loss of Rs 10 Cr.
2. FY21 performance was down with 24% YoY revenue decline and PAT loss of nearly Rs 14 Cr mainly due to the fall in Q1.
3. The deferred revenue pool was at Rs 5081 Cr.
4. Strong cash position at Rs 940 Cr and receivables were at Rs 1205 Cr.
5. Occupancy (of operational rooms) was at 85% for Q4. MHRIL added 9 resorts in FY21.
6. The member additions in FY21 were at 12031 with 4789 in Q4.
7. Room inventory increased by 465 rooms to a total of 4197.
8. Digital referral and member engagement rose to an all-time high of 55% in FY21. 34% of new member sales was to the age group of 25-40. 38% of new members were from tier 2 & 3 cities.
9. 80% of bookings done online with 64% done through app.
10. The company reduced overall costs by 22% YoY in FY21 with a major reduction of 23% and 30% in Sales & Marketing and Other Expenses respectively while rent & employee expenses were down 32% and 11% respectively.
11. Standalone EBITDA margin improved 200 bps YoY to 24.9% in Q4. Fy21 EBITDA margin rose 820 bps to 31.5%.
12. Standalone revenues were flat YoY while PBT rose 10% YoY.
13. The company has identified and cancelled 13,962 overdue memberships. The revenue impact of these cancelled memberships was Rs 8.6 Cr and the deferred cost impairment was at Rs 11.7 Cr.
14. Fixed assets for the company stand at Rs 2143 Cr as of 31^st March 2021.
15. Revenues for HCRO were down 39% YoY. Spa hotel revenues were down 56% YoY due to limited operations and resort closure.
16. The unit delivered an operating loss in Q4 of 1.57 million euros and PAT loss of 4.62 million euros.
17. Consolidated EBITDA margin improved 130 bps YoY to 18.9% in FY21 but fell 370 bps YoY in Q4 to 15.1%.

Investor Conference Call Highlights

1. The cumulative member base was at 254,431 at the end of FY ’21.
2. MHRIL launched Club Mahindra Assonora Resort in Goa with 152 rooms. It is also the only resort in the country with a mini water theme park with a lazy river.
3. The management reiterated that the company is aiming to go to 5500 rooms in the next 4 years.
4. MHRIL aims to add 57 more rooms to the new 157 room resort in Goa.
5. It is now in very advanced stages of getting approval for 150 rooms project in Ganpatipule.
6. It is also looking to start an expansion project at Kandaghat Shimla with additional 160 units.
7. The deferred cost on the deferred revenue pool I expected to be Rs 550 Cr for 25 years which yields a profit of Rs 4500 cr in the period according to the management.
8. Total savings on lease rentals was at Rs 52 Cr in FY21.
9. HCRO is expected to open up soon as vaccinations are going at a very fast rate in Finland and the country has already vaccinated 30% of its population.
10. The one-time impact from the cancellation of the overdue memberships is reflected in other expenses.
11. With the planned new inventory goal of 5500, the company is also aiming to add as many members to maintain a ratio of members to rooms of 60 times i.e. a member count of 5500*60=3,30,000.
12. The management remains optimistic about the future of the tourism industry as it is a big source of employment and the emergence of drivable destinations because of the pandemic.
13. Although the EMI scheme generates a significant interest income as the schemes are financed by MHRIL itself, the focus remains to get higher down payment paying customers to ensure commitment to the product. This shift is also why the cash position is growing consistently.
14. The management has stated that MHRIL doesn’t need to depend on rental savings in the future as resort income and food and bev margins will rise as occupancy comes back to normal levels.
15. The company has also received incentives of 1.5 million euros from the Finland govt for HCRO.
16. HCRO has a debt of 26 million euros and a cash position of 12 million euros.
17. Given the customer experience over the years, the company is now also looking to target more members with a stable source of income or salaried customers.
18. The company is waiting for a resolution from the Ministry of Corporate Affairs on how to distribute its earnings as dividends.
19. The company’s EMI program is of 4 years and it has 45,000 members on it currently. A large portion of the company’s debtors is formed from the pending EMIs from these members.
20. The owned to leased ratio is 60-40 currently. Even in a lease resort, it takes at least 1.5 years for refurbishment and transformation before the company can open it up for its customers.
21. The focus for resort acquisition for MHRIL is firmly in India with major states and Maharashtra, Gujarat & Rajasthan always on the radar while on the lookout for new states to enter like Odisha.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customer’s advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The company saw a good standalone performance in India with resort occupancy rising to 85% in Q4 and 465 new room additions. It has a big cash chest of above Rs 940 Cr which it plans to utilize to expand room inventory to 5500 rooms and in resort acquisitions in both major states and new states. Although it has done a one-time cancellation of overdue 13962 overdue members, the overall impact was mitigated to a large extent due to adequate provisions. On the other hand, HCRO has seen performance fall due to limited operations and resort closure. But the management remains confident of HCRO’s prospects shortly as the vaccination speeds up in Finland. Even though travel and tourism is a sector that seems to take a long time to recover and come back to normalcy, MHRIL is utilizing its firepower (read Balance Sheet strength) to continue its expansion plans in Goa and other sites. It remains to be seen how long will it take for sentiments to normalize in the travel sector especially given the rise of the 2nd wave of COVID-19 in India, and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive moves on Capex. Nonetheless, given the company’s resilient model and the current valuation is not too far from its replacement cost, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.

Q3 FY21 Updates

Financial Results & Highlights

Detailed Results

1. The quarter was down for the company with a fall in consolidated revenues of 14% YoY while PBT fell 50% YoY and PAT was at a loss of Rs 0.67 Cr.
2. 9M performance was down with 25% YoY revenue decline and PAT loss of nearly Rs 4 Cr mainly due to the fall in Q1.
3. The deferred revenue pool was at Rs 5388 Cr.
4. Strong cash position at Rs 848 Cr and receivables were at Rs 1585 Cr.
5. Occupancy was at 75% for Q3. As of 31st Dec 2020, 2 new resorts were added taking the total room inventory up to 3776 rooms. Resort occupancy was at 85% in Dec.
6. The member additions in Q3 were at 3291. The cumulative member base was at 2,63,952.
7. Digital referral and member engagement rose to an all-time high of 56% in Q3 FY21.
8. The company reduced overall costs by 17% YoY with a major reduction of 13% and 21% in Sales & Marketing and Other Expenses respectively while rent & employee expenses were down 27% and 14% respectively.
9. The company is continuing with planned Capital investments in two ongoing projects at Goa & Ashtamudi, Kerala.
10. 9M Standalone EBITDA margin improved 750 bps YoY to 33.8% in Q3.
11. Standalone revenues were down 8% YoY while PBT and PAT rose 41% YoY and 64% YoY respectively.
12. Revenues for HCRO were down 26% YoY. The unit delivered an operating loss in Q3 of 1.57 million euros and PAT loss of 2.54 million euros.
13. Resort occupancy started falling due to the second wave and went from 71% in Oct to 37% in Dec.
14. The main drop was in Spa Hotels which saw revenue fall of 40% YoY. HCRO also saw cost savings of 19% YoY.
15. The company also had a forex loss of Rs 7.05 Cr in Q3.
16. Consolidated EBITDA margin improved 300 bps YoY to 19.6% in Q3.

Investor Conference Call Highlights

1. The management has stated that the focus on acquiring members with higher down payment continues.
2. The company has also launched the ‘Travel with Confidence’ campaign in Q3 where it offers members discounted COVID tests, travel, and COVID insurance, special discounts for renting a car from Mahindra First Choice Wheels alliance along with sanitizing the car.
3. The company has introduced new resort experiences and thematic evenings to ensure physical distancing and has also re-engineered menus with in-room dining services.
4. The company has also completed the stake purchase of 6.67% in Great Rocksport.
5. The company also added a new resort in Jaipur. This facility has been leased and operated by MHRIL.
6. The sales of the 25-year product have been coming back to normal levels in Q3 and the product mix is shifting more towards the long end.
7. Digital marketing and adoption have indeed risen fast in FY21 and the high referral % has helped keep the cost of customer acquisition low for the company.
8. There was indeed a dip in the deferred revenue pool in YTD FY21 as a large number of member additions in the first 6 months were in lower tenured products. But this situation was abnormal and has seen reversal already in Q3.
9. The management has refrained from providing any specific guidance but has stated that member additions and resort occupancy trends are expected to continue at current momentum.
10. The management expects the situation in HCRO to improve in the next quarter when the second wave subsides and businesses start opening up as usual.
11. The management expects HCRO to bounce back fast in FY22 once things normalize.
12. On a broad level, the management is looking to utilize the cash in books to fund room inventory expansion in the next 3-4 years through greenfield, brownfield, and expansion through acquisition. The plan is to add roughly 1500+ rooms for Rs 1200 Cr.
13. The management remains confident of retaining HCRO and its prospects in the future despite the Mahindra Group’s announcement that it will be looking to exit low ROI and low profitable businesses.
14. The management expects the Finland business to start its resurgence in FY22 and make a full turnaround in the next 2-3 years.
15. The management has clarified that a member cannot start holidaying till full payment has been received and thus no issues arise in case of a member default as no services have been rendered at that point.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customer’s advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The company saw a good standalone performance in India with resort occupancy rising to 85% in Dec. the company is also seeing the long duration products come back to normalcy and product mix shifting towards the long end. It has a big cash chest of above Rs 800 Cr which it plans to utilize to expand room inventory in the next 3-4 years. On the other hand, HCRO has seen performance fall due to the second wave coming back to Europe. But the management remains confident of HCRO’s prospects in the near future. Even though travel and tourism is a sector that seems to take a long time to recover and come back to normalcy, MHRIL is utilizing its firepower (read Balance Sheet strength) to continue its expansion plans in Goa and other sites. It remains to be seen how long will it take for sentiments to normalize in the travel sector and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive moves on Capex. Nonetheless, given the company’s resilient model and the current valuation is not too far from its replacement cost, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.

Q2 FY21 Updates

Financial Results & Highlights

Detailed Results

1. The quarter was down for the company with a fall in consolidated revenues of 11% YoY but PBT and PAT grew 14% and 21% YoY respectively.
2. H1 performance was down with 30% YoY revenue decline and PAT loss of nearly Rs 4 Cr mainly due to the fall in Q1.
3. QoQ performance was phenomenal for the company.
4. The deferred revenue pool was at Rs 5376 Cr.
5. Strong cash position at Rs 791 Cr and receivables were at Rs 1596 Cr.
6. Occupancy was at 30% for Q2. As of 30^th Sep 2020, 37 resorts are operational.
7. The member additions in Q2 were at 2681. Net member additions in H1 were at 3951 with the member base rising to 2,60,955.
8. Digital referral and member engagement rose to an all-time high of 53% in Q2 FY21.
9. The company reduced overall costs by 29% YoY with a major reduction of 36% and 41% in Sales & Marketing and Other Expenses respectively.
10. The company is continuing with planned Capital investments in two ongoing projects at Goa & Ashtamudi, Kerala.
11. In HCRO, 30 out of the 33 resorts are operational.
12. The company saw 90%+ in key resorts during the holiday season.
13. Revenues for HCRO were down 19% YoY. The company saw a cost reduction of 16% YoY. The unit delivered positive PBT in Q2 and PAT of 0.55 million euros.
14. The company also had a forex loss of Rs 9.11 Cr in Q2.
15. Consolidated EBITDA margin improved 356 bps YoY to 24.1% in Q2.

Investor Conference Call Highlights

1. The company has 80% of its resorts in about 6 to 7 hours from the metro or big cities.
2. Through Great Rockport investment, MHRIL is looking to introduce soft adventure-related experiences for its members in its resorts.
3. The management believes in the growth potential for the company as its target market is the 17 million to 20 million households having an income of INR 15 lakhs and more. The number of households who own vacation ownerships is approximately 350,000, which translates to barely 2% penetration. Thus there is a big room for market expansion and capture for the whole industry here.
4. The major savings in other expenses have come due to a reduction in resort consumption, energy, and travel expenses. These include waivers received by minimum electricity demand charges from various state electricity boards as well.
5. As of date, MHRIL has 26 resorts which are Bureau Veritas platinum-certified as COVID-safe and 15 resorts are ISO 22000 under food and food safety management system-certified.
6. Resort occupancy in Sep was at 41% and is expected to rise with the onset of the festive season in Q3.
7. The states of Maharashtra, Uttarakhand, and Himachal have seen occupancies shooting upwards of 75%.
8. At present, 52 resorts are operational.
9. The company has continued on with its Capex plan despite the disruption from COVID-19.
10. In Q1, the majority of additions were in GoZest while in Q2 the majority of additions have shifted to the flagship 25-year product.
11. The major strategy for GoZest is to create a funnel for future conversion and getting a younger audience for the company. The cost of acquisitions during the upgrade to the 25-year product is almost nil. This is should help to bring down the weighted average cost of acquisition going forward.
12. Video sales have proved to be more efficient for the company since the volumes of meetings have gone up as compared to in-person meetings. The company is also offering an option to the customers to be able to lock-in their 25 years of holidays or 10 years of holidays at the current prices which has been very helpful in improving conversion given the uncertainty.
13. The company hasn’t seen any defaults in its VO business due to the pandemic. Some people have requested deferral which comes with a penalty but it is a very small portion of the set.
14. The ultimate goal for sales in MHRIL is to sell the flagship CMH25 product. The lower tenure products also are mostly geared to convert into CMH25 at the end.
15. In the company’s portfolio, the dominant part comes from the 25-year product, followed by 10 and followed by 3 and this is the way the management wants it to be.
16. Although Rocksport was a small investment for MHRIL, it is considered to be a strategic one as it creates an option for member engagement in cities and offers something unique which has not been offered by MHRIL before. This new channel can also act as a source for lead generation for the company. The company has only bought 7% of the equity as of now.
17. Despite the big cash reserves, the company is not in a position to pay out the dividend or even do a buyout because its net worth is negative according to Ind AS 115 due to an accounting entry called transition reserve. The company is taking this matter up with the Ministry of Corporate Affairs.
18. The inventory addition of 152 rooms in Goa is expected to be completed by Q4.  MHRIL is also looking to add 57 more rooms to this location. The company is also looking at expansion opportunities in some of its existing resorts.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customer’s advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The cash of around 791 Cr on the books gives them the comfort to tide the storm of COVID. The company is doing well to expand on its short term offering of Gozest which can be used to convert to 25-year memberships in the future and on its online referral and user engagement growth. The company has also done strategic investments into Rocksport which should help increase user engagement in cities and also provide a source for lead generation. Moreover, HCRO is doing much better with a swift come back to profitability in Q2. Even though travel and tourism is a sector that seems to take a long time to recover and come back to normalcy, MHRIL is utilizing its firepower (read Balance Sheet strength) to continue its expansion plans in Goa and other sites. It remains to be seen how long will it take for sentiments to normalize in the travel sector and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive move on Capex. Nonetheless, given the company’s resilient model and the current valuation is not too far from its replacement cost, MHRIL can turn out to be a pivotal travel sector stock in the times ahead.

Q1 FY21 Updates

Financial Results & Highlights

* A one-time transition impact of Rs 199.7 Crs

Detailed Results

1. 1. The quarter was dismal for the company with a fall in consolidated revenues of 48% YoY and negative PBT of Rs 35 Cr.
   2. Deferred revenue pool was at Rs 5430 Cr.
   3. Strong cash position at Rs 776 Cr and receivables were at Rs 1636 Cr.
   4. Occupancy was at 0% for Q1. As of 31^st July 2020, 20 resorts are operational.
   5. The member base was at 258,528 with net additions of 1270 in Q1.
   6. One-off overdue cancellation of 820 members was done in this quarter.
   7. The company saw consumer preference shift towards Gozest which is the 3-year membership due to its lower transaction value.
   8. The company reduced overall costs by 37% YoY with a major reduction of 57% and 55% in Sales & Marketing and Other Expenses respectively.
   9. The company partnered with Bureau Veritas, a global leader in Testing, Inspection, and Certification of ‘CovidSafe’ protocols.
   10. In HCRO, 30 out of the 33 resorts are operational.
   11. The company saw 90%+ in key resorts from mid-June. The company expects significant growth in performance in Q2.
   12. Revenues for HCRo were down 66% YoY. The company saw a cost reduction of 53% YoY. Overall loss after tax for the unit was at 4.78 million euros.
   13. The company also had a forex loss of Rs 8.6 Cr in Q1.
   14. Consolidated EBITDA margin improved 67 bps YoY to 15.3% in Q1.

Investor Conference Call Highlights

1. 1. 19 out of the company’s resorts are already certified COVID Safe from Bureau Veritas.
   2. The company has moved on to a 100% virtual sales mechanism.
   3. Despite no resort income in Q1 at Mahindra Holidays, the company delivered profit before tax growth of 27.3% YoY.
   4. HCRO was EBITDA positive in June.
   5. The company saw occupancies of 35-40% in Rajasthan in July.
   6. The company’s capex plans to reach 5000 units by FY24 remains on track.
   7. The management has stated that the company will continue to follow the partly owned partly leased model to maintain enough room inventory to service the growing member base and will look to invest in distressed assets if the opportunity arises.
   8. The current ratio of owned to leased is at 60:40.
   9. The management’s primary aim is to maintain cumulative member base growth of 8-9% per year.
   10. The management believes that once member growth comes to 20,000, resort income will also start to contribute significantly.
   11. The dominant product sold in Q1 was the 3-year membership Gozest.
   12. The management insists that the customer acquisition costs for Gozest is significantly lower than that for the flagship 25-year product. This is mainly because the company is doing simple low-cost digital campaigns only for the 3-year product on its existing database which has a significant number leads.
   13. The management has stated that the customer does not need to worry about any lost holidays in the current period as the company allows for holiday accumulation for up to 3 years.
   14. Almost 7 of the company’s resorts are now running on solar power.
   15. The management is confident that some of the cost savings in Q1 are sustainable and can persist in the long term.
   16. The net impact on deferred revenue from the cancellations in Q1 was at Rs 100 Cr.
   17. The company’s primary aim for the Gozest product is to use this as an entry-level product and convert these customers into 25-year members. This is the way short term products are utilized across the industry.
   18. The 820 cancellations done in Q1 was done by the company itself and is one time only. This was done as the company felt that it couldn’t collect from these members due to COVID-19 so it took the step to directly cancel these memberships.
   19. The company is adding 150 rooms in a Goa project while 57 rooms are to be added to another project in Goa. Another project for 33 rooms is going on in Ashtamundi. The company is also looking to add 150 rooms to Ganpatipule in phases and 160 units to an existing lot in Kandaghat, Shimla.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customer’s advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The cash of around 776 Cr on the books gives them the comfort to tide the storm of COVID. The company is looking to use this cash to buy out good properties at distressed valuations in the current COVID pandemic. The company is also doing well to expand on its short term offering of Gozest which can be used to convert to 25-year memberships in the future. Moreover, HCRO is doing much better with a swift come back to normalcy in June. Even though travel and tourism is a sector which seems to take a long time to recover and come back to normalcy, MHRIL has the firepower (read Balance Sheet strength) to make some interesting moves. It remains to be seen how long will it take for sentiments to normalize in the travel sector and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive moves. Nonetheless, given the company’s resilient model and the current valuation being close to its replacement cost, MHRIL can turn out to be a pivotal travel sector in the times ahead.

Q4 FY20 Updates

Financial Results & Highlights

* A one-time transition impact of Rs 199.7 Crs (explained below)

Detailed Results

1. 1. Standalone Results: The Total Income for the quarter ended on 31st March 2020 is Rs 255.5 Crs as compared to Rs. 252.1 Crs for the same period last year.
   2. Profit Before Tax for the quarter ended on 31st March 2020 is Rs 29.1 Crs as compared to Rs 22.8 Crs the same period last year. PBT margin improved 232 bps YoY to 11.4% in the quarter.
   3. Profit after Tax (before one-time transition impact on account of lower tax rate adoption) for the quarter ended on 31st March 2020 is Rs 30.5 Crs as compared to Rs. 14.4 Crs the same period last year.
   4. The Company has exercised the option of Lower Corporate Tax Rate and accordingly re-measured accumulated deferred tax asset & current tax, which has resulted in a one-time transition impact of Rs 199.7 Crs in Profit & Loss Account of the current quarter and the financial year.
   5. In Q4, Member additions were 3616, and resort occupancy was 72.2%. They were adversely affected due to the COVID-19 pandemic in March-20.
   6. For the whole year, member additions were 15697 and resort occupancy at 80.3%. Room inventory was at 3732 at the end of FY20.
   7. Total members count at the end of FY20 stood at 2,58,336.
   8. Cash and cash equivalents are at 780.7 Cr. Up 209 Cr.
   9. The deferred revenue pool was at Rs 5519 Cr on 31^st March 2020. The receivables for the company stood at Rs 1682 Cr which represents a good opportunity for raising funds through securitization if required.
   10. The company has guided that the major impact from COVID-19 will be limited to resort income and it will not affect VO income and ASF, Interest & other non-operating income.
   11. The Company’s material subsidiary, Holiday Club Resorts Oy, Finland (HCRO), has recorded a turnover of Euro 38.9 million for the quarter ended 31st March 2020 as against Euro 46.7 million for the same period last year. (Under Finnish GAAP).
   12. FY20 turnover was Euro 157 million vs Euro 161 million in FY19. Around Euro 32.1 million od debt was paid off in FY20 bringing overall debt down to Euro 19.6 million and reducing finance costs by Euro 0.5 million in FY20.
   13. The Consolidated turnover is Rs. 631.4 Crs for the quarter ended 31st March 2020 as against Rs. 656.6 Crs for the same period last year.
   14. The Consolidated Profit before Tax is Rs. 41.1 Crs for the quarter ended 31st March 2020 as against Rs. 69.3 Crs for the same period last year.
   15. The Consolidated Profit after Tax (before one-time transition impact on account of lower tax rate adoption) is Rs 38.2 Cr for the quarter ended 31st March 2020 as against Rs 52.3 Cr for the same period last year.

Investor Conference Call Highlights

1. 1. Management expects domestic tourism to bounce back soon after the lockdown ends. Especially in resorts that are at a drivable distance.
   2. Management conveys that the realizable value on the books of the company is around 12000 Cr while the current market capitalization of the company is around 1700 Cr.
   3. The above valuation does not include the future earning potential of the business.
   4. As per the management, around 1700 Cr of debtors which is there on books, can be securitized at a much attractive rate (at least 200 basis points less) compared to the rates at which other Mahindra group company does.
   5. Management conveys that the performance of HCRO (the Finland resort company) has improved after MHRIL took it over fours back. They believe that the value of HCRO has enhanced over the last 4 years and debt on the standalone books of HCRO has gone down significantly
   6. Resort operation has improved in such a way that all resorts are near break-even levels on the basis of Resort Income itself. In this calculation, management has not included ASF income.
   7. Foreign exchange loss which appears in the book is just an accounting entry due to IndAS116. Both the asset (that is the resorts in Finland) and the liability (loan outstanding which is backed by the foreign asset) are outside the country, so from practical purposes, there is no foreign exchange loss.
   8. The loss which appears in the books is because the Deferred Tax Asset was adjusted (One-Time) as the company has opted for a lower rate of tax.
   9. Drastic accounting changes, especially in relation to the following points have made the reported numbers go haywire over the last two years:
      1. Vacation Ownership Income
      2. Hedge Accounting
      3. Lease accounting
      4. Change in the Tax rate
      5. Adjustments in Deferred Tax Assets

   Management conveys that the underlying strength of the business is intact and that is evident in the strong Balance Sheet and cash position.

   10. Management admits that new member acquisition would probably take a hit in this period of Covid-19. However, it drew parallel with the growth of domestic tourism demand in China and expects a similar trend to follow in India. Moreover, the management is trying its best to ramp-up the digital conversion process of member acquisition.
   11. In March 2020, the company managed to close about 30-35% of the planned acquisition due to the outbreak of Covid-19.
   12. Members can accumulate their outstanding holidays for three years. Hence, a member who would not holiday during the peak season of March to July, they will have enough time to utilize them at a later date.
   13. There is a significant reduction in other operating expenses for the company. The company has a large amount of variable costs. So, if the company runs the resorts, those cost happens, and if they don’t run the resorts, it will not happen. For example, energy cost reduces drastically when the resorts are not in occupation.
   14. The employee cost has a lot of variable components attached to it. Most of the employee cost is towards sales. Incentive on closing sales is a large portion of the remuneration of a sales employee. Since lesser sales happened in the last quarter, the employee cost also has gone down.
   15. Customer acquisition cost also includes a lot of variable components. And that has also come down.
   16. The dominant part of the products sold in the last year is still the 25-year product.
   17. Management does not expect members to default on ASF dues as they have already made a long term commitment in club Mahindra and they would not want to let go of availing the services.
   18. Management does not want to securitize the receivables due to two reasons:
       1. They have around 800 Cr cash and are in no need of raising any more cash at the moment.
       2. They do not want the banks to do the follow-up for payments as they are a hospitality company. Their model of recovering payment is very different from how banks do.
       3. The company gets a significant interest income from the same and is confident that the default would not be very significant even in these times.
       4. The larger part of the Debtor is the EMI part and the smaller part is towards ASF dues.
   19. In the current scenario, the competition will become weaker and many good quality resorts will be available at bargain values. MHRIL is ready to pounce upon them and if they get the right property, in the right location, and at the right price.

Analyst’s View

MHRIL is the leading vacation ownership company in India. It has a unique business model where the company funds its Capex from customer’s advance money. Because of this model, they are in a much better position against other hotels in terms of Balance Sheet strength. The cash of around 776 Cr on the books gives them the comfort to tide the storm of COVID. The company is looking to use this cash to buying out good properties at distressed valuations in the current COVID pandemic. The company is also doing well to expand on its short term offering of Gozest which can be used to converted to 25 year memberships in the future. Moreover, HCRO is doing much better with a swift comeback to normalcy in June. Even though travel and tourism is a sector which seems to take a long time to recover and come back to normalcy, MHRIL has the firepower (read Balance Sheet strength) to make some interesting moves. It remains to be seen how long will it take for sentiments to normalize in the travel sector and whether the company will be able to capitalize on its resilient balance sheet and cash reserves to make any aggressive moves. Nonetheless, given the company’s resilient model and the current valuation being close to its replacement cost, MHRIL can turn out to be a pivotal travel sector in the times ahead.

Q3 FY20 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company’s deferred revenue pool has risen to Rs 5476 Cr.
   2. The company has maintained a strong cash position with more than Rs 694 Cr in cash.
   3. The company’s receivables rose to Rs 1699 Cr which can also be converted into a saleable asset through securitization.
   4. The asset base of the company was at Rs 1840 Cr on 31^st Dec ’19.
   5. The room inventory for the company stands at 3652 rooms while the occupancy rate in YTD was at 83%. The occupancy rate in Q3 was at 83.9% which was 195 bps higher YoY.
   6. The company has added 3805 new members bringing the total member count to 2,54,988.
   7. The EBITDA margin for the company has risen to 26.3% from 18.7% a year ago.
   8. The PBT margin stood at 14.5% which was 104 bps up YoY.
   9. The resort income came in at Rs 66 Cr which was up 14% YoY.
   10. The company added new resorts in Phuket, Pattaya, Khajuraho, Bhandhavgarh and Rishikesh.
   11. Standalone Q3 PBT and PAT growth were both 17% YoY post Ind AS 116 impact showing good operating performance. Similarly, in 9M PBT and PAT both grew 23% YoY post Ind AS 116 impact showing a good YTD so far.
   12. The turnover of the Holiday Club Subsidiary has fallen 6.5% YoY in euro terms in Q3 but it rose 3.5% in the 9M period.
   13. PBT in Q3 for Holiday Club came in at (0.43) million Euros as compared to (0.86) million a year ago. EBITDA rose to 1.2 million from 0.9 million a year ago showing good margin improvement.
   14. Renting income rose 15% in Q3.

Investor Conference Call Highlights

1. The management has reiterated its commitment to stay on the current model as here the capital expenditures and operating expenditures are being funded by the members themselves. The company does not need to resort to debt for expansion and can stay in the asset-light model, unlike its competitors.
2. The ARR in the quarter was between Rs 3800-4000. The management has stated that a primary reason behind robust growth in room revenue is the room count increasing.
3. The management expects ARR to rise slowly and increase 3-5% each year. This is because room revenues account for 5% of total income and this is not expected to change drastically in the future.
4. Around 240 members retired in the quarter. This number has been at 700+ for the year so far. The company expects a total of 1039 retirements in FY20.
5. The management believes that the company has done well in its quest to attract quality customers and this has been a result of the company’s efforts to target different segments with different programs. The company is also expected to perform well in the future as disposable income rises and the value proposition of its offering rises.
6. The company has a new Chief Operating Officer with experience in Unilever and Aviva. This person is expected to help the company refine its customer acquisition and member servicing capabilities.
7. The company is also striking new alliances with multiple consumer lifestyle brands for referrals and cross-selling opportunities and to enhance MHRIL’s online presence.
8. The management is hopeful of maintaining and even pushing member growth forward without changing the fundamental nature of the product being long-tenured.
9. As mentioned time and again, the company will continue to focus on generating high quality leads to improve conversion rates. The company will also focus on improving the booking experience to do so. The company will keep pushing for innovation in resort offerings and experiences to keep existing customers loyal and also to spur interest in non-members.
10. The management believes that as the brand’s puling power increases the customer acquisition cost will go down and help the company rise to greater heights.
11. But in the quest to achieve the above ambitions, the company will not compromise on company fundamentals and embark on indiscriminate discounting just to grow the top line.
12. The gross AUR for the company is at Rs 3.5-3.6 Lacs at the sales level. It has stayed steady at this level for the past few years. The management has said that the reason for AUR to remains stable is that the shorter duration products like Bliss have kept it down. Bliss may appear as a low priced low duration product but on a room-night basis, it is more expensive than the 25-year product.
13. The majority of retirements in the year are from the ZEST product which was a 10-year product targeted at young people which has been discontinued by the company. The company has also gotten some retiring members of ZEST to upgrade to the standard 25-year product.
14. The company is looking to pilot a new product which shall sit in the middle of the standard 25-year product and the 10-year Bliss. This product is expected to be launched in FY21 in Q1 or Q2 if the pilot succeeds.
15. The net room addition in Q3 was only 43 despite the addition of 5 new resorts. This is because the company has moved out of a resort in Kerala Kumarakom which reduced the overall room additions. Another reason is also that in remote locations like Khajuraho, the company has only taken small inventory at the resort there which it shall increase as traffic increases.
16. The 9M Capex done so far is around Rs 100 Cr. This has been used to add 54 rooms YTD and also on ongoing projects.
17. The management has mentioned that the reason for the increase in sales and marketing expenses in Q3 was due to a few key seasonal initiatives like the Santa campaign.
18. The company has plans for greenfield addition of 150 rooms in Goa, 120-130 rooms in Ganpatipule and brownfield addition of 140 rooms in Kandaghat near Shimla.
19. The company also has small inventory at good resorts in many of its locations where it can scale up inventory easily once traffic at any of these locations rises for the company.

Analyst’s View

Mahindra Holidays has been a consistent and the largest player in the vacation ownership segment for a long time. The company had a good quarter which saw consolidated profits rising well mainly on the back of room additions in the year so far. The company continues to hold large cash reserves and receivables which is expected to be used in new resort acquisitions and CAPEX for the company. The management also stresses that although the high sales and marketing expenses that the company is incurring currently, once it has established its brand presence, the brand pull will bring customer acquisition costs down for the company which will lead to even better profit generation for the company. The management is also very optimistic about its prospects in the standalone business and has accordingly planned for a good number of room additions in multiple high traffic locations like Goa. It remains to be seen whether the company will be able to maintain its member growth rate given the current economic slowdown persisting and the multiple headwinds faced by the travel industry. Nonetheless, given the company’s resilient performance in tough industry conditions and its ever-increasing revenue pool, MHRIL is a good stock to watch for any investor banking on the travel and leisure theme.

Q2 2020 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company’s deferred revenue pool has risen to Rs 5412 Cr.
   2. The company has maintained a strong cash position with more than Rs 675 Cr in cash.
   3. The company’s receivables rose to Rs 1678 Cr which can also be converted into a saleable asset through securitization.
   4. The room inventory for the company stands at 3609 rooms while the occupancy rate in Q2 was at 74.4%. The low occupancy rate was due to unprecedented floods in Himachal Pradesh, Uttarakhand, Maharashtra, and Kerala
   5. The company has added 3905 new members bringing the total member count to 2,51,424.
   6. The EBITDA margin for the company has risen to 22.5% from 16.1% a year ago.
   7. The PBT margin stood at 11.1% which was 90 bps up YoY.
   8. The resort income came in at Rs 44 Cr which was up 4% YoY.
   9. Standalone PBT and PAT have risen 23% & 24% YoY respectively showing stellar operating performance.
   10. The turnover of the Holiday Club Subsidiary has risen 2% YoY in euro terms but the PBT has risen 82% YoY.

Investor Conference Call Highlights

1. The company has yet to decide on which tax regime to follow and will decide by next quarter.
2. The management believes that their strategy on heavy down payments and light EMIs has worked well and they have also noticed very high levels of upgrades.
3. The company has instituted many cost-reducing and environmentally conscious commitments like rainwater harvesting, use of solar power, eliminating single-use plastics from all resorts and offices.
4. The company’s new strategies for offering new experiences like village experience in Pondicherry are working well.
5. The occupancy rate in Finland SPA hotels was at 74% which is 11% higher than the occupancy rate of 63% a year ago.
6. The management believes that improving the digital experience for bookings has been the key factor for the consistent rise in bookings and occupancy for the company.
7. The management believes their target market to be around the size of 10-12 million households in India. They believe that the total customer experience and network effect should help them keep a steady pace of member additions with more than enough room to grow at present.
8. The company also exploring brand alliances with lifestyle brands for promotional collaborations for both partners involved.
9. The management believes that increased brand building and promotions should help bring in momentum in terms of member acquisitions or lowering the cost of new acquisitions.
10. The flagship product of 25 years still forms a large portion of new member additions for the company.
11. The management has maintained that they will be keeping cash reserves at current levels and not reduce it by giving out dividends as they believe that they will need this cash to reinvest into the business.
12. The management has stated that member retirements will not be at too high numbers as the number of members whose membership is expiring is very less when compared to new additions today.
13. The company will continue to grow inventory buy or lease or acquire new facilities and they will probably continue to maintain the current owned/leased ratio.
14. The focus for new acquisitions is mainly in India and in international markets the company is looking at inventory sharing agreements and alliances.
15. The management has mentioned that 23%-25% is the range of cost of acquisition of new members. This is mainly due to higher expenses on brand building and a high cost of acquisition in the digital medium.

Analyst’s View

Mahindra Holidays has been a consistent player in the hospitality segment for a long time. The company had a decent quarter which saw consolidated profits rising drastically as the Holiday Club turned profitable. The company continues to hold large cash reserves and receivables which is expected to be used in new resort acquisitions and resort maintenance for the company. The management also stresses that despite crossing 250,000 members this quarter, they still have significant room to grow in terms of members and they are committed to using their residual member base to maintain their new member additions with referrals and network effect. It is good for the company that its international subsidiaries have started generating profits but it remains to be seen what is the level of growth these entities will provide since their revenue growth is muted. Nonetheless, given their good performance despite difficult market and economic conditions in the country, MHRIL remains a stock to keep an eye on for any investor banking on the thriving travel and holiday industry in India.

Notes from Annual Report FY18-19

Management Discussion Analysis

Industry Overview

The Indian economy has seen growth decelerate a bit in FY19 and the outlook for the current year remains stable. Due to global oil prices, inflation is expected to remain range-bound, which should see the current monetary policy stance of the RBI last for a while. Furthermore, due to the demand slowdown in key sectors like Automobiles, etc; the RBI is generally expected to keep an accommodative stance with rate cuts at specific times to boost lending and general demand. This should help drive demand, consumer confidence and discretionary spends in 2019-20. This augurs well for the domestic travel and tourism industry.

The size of the Indian travel and tourism industry is currently estimated at around $247 billion and is expected to grow at 7% annually till 2028. The key trends include explosive growth in outbound travel, particularly from Tier-II cities; rise in weekend travel – short trips as a segment; high propensity to spend on in-trip experiences, and an increase in the average travel budget.

As far as the vacation ownership industry in India is concerned, the market penetration is still very low. If one compares the Indian vacation ownership industry with the US in terms of its share in the hospitality sector, the scope for growth in India is at least five times that of its current size. Similar conclusions can be drawn if one considers other surrogates such as ownership and sale of cars.

Strategic Priorities

The Mahindra Holidays have identified 3 three key strategic priorities which they believe shall help differentiate from the market and take advantage of the industry opportunities. They are:

1. Building an ‘Experience Ecosystem’

The central idea in this is to significantly upgrade the ‘club’ value proposition of the brand by building a complete experience ecosystem, offering an unparalleled choice of experiences, destinations, and itineraries. The company wants to do so by offering unique benefits and privileges and engage with its members beyond the 7-day holiday period in a year. The key initiative taken to do so are:

• Choice of Resorts: The company has brought its resort count up to 61 and offers its members access to 94 resorts (including 33 from their Finnish subsidiary) in India, Asia, and Europe. The company has also added destinations in the USA, Sri Lanka, and Bhutan through tie-ups and inventory arrangements.
• Club M Select: This is an exclusive subscription program launched in FY19. It allows members access to several luxury lifestyle offerings such as gourmet dining, international cruises, yachts and over 4 lakhs hotels; and over 60,000 international excursions at attractive rates. It has a dedicated helpdesk and is fully integrated with the company’s website for bookings and payments.

• Dreamscapes: It is an online platform that offers a wide variety of in-city experiences like hot air ballooning, scuba diving, etc. curated for members with preferential rates and end-to-end support for instant booking and payments. This platform was extended to ‘Bliss’ and ‘GoZest’ members starting from FY19.
• Festivals & Theme Based Vacations: g. Kumbh Mela, Statue of Unity, Rann Utsav, etc.
• Exchange Program: This helps expand the set of destinations on offer to members. Members can exchange their Club Mahindra room nights for stays in top-rated hotel chains and cruise experiences. In FY19, the coverage was increased to over 75 hotels in more than 50 locations in India and abroad.

• Heart-to-Heart Events: These are in-city member meets organized by Mahindra Holidays which include leisure and edutainment activities for member families. During the year, coverage of these events was expanded to Tier 2 and Tier 3 cities. Over 18,000 members and their families participated in these events in 2018-19. This has helped the company get referrals from its members.

2. Enhancing ‘Member Life Time Value’

The company has invested in digitization and advanced analytics to enhance the ‘Members Life Time Value’ by driving upgrades and referrals, increasing member engagement and spends at resorts. Some of the important initiatives taken under this are:

• Resort Recommendation Engine: MHRIL is the first in the industry to introduce a resort recommendation engine based on a machine learning algorithm. This has helped to significantly improve the booking experience for the members. Based on the member profile and past booking preferences, the system offers personalized resort recommendations for the members that are available over the next 15, 30 and 60 days. This also ensures constant availability for the members and helps in better inventory management which is expected to result in a higher occupancy rate.

• Member Segmentation and Affinity Models: The company has implemented a member segmentation model based on members’ ‘lifetime value’ and affinity models to drive upgrades and referrals for members.

• Member Upgrades: The company uses automation and online payments to identify and process membership upgrades through payment links that are sent once a member confirms.
• Advance Purchase Options: MHRIL provides online advance purchase options for F&B, spa, and holiday activities as well as local travel at the time of booking a holiday and it also has a separate payment gateway infrastructure for such transactions. This is expected to help drive extra sales and enhance the overall ‘leisure value’ of the member’s holiday.
• Improved Receivables Management: The company uses advanced analytical models to proactively identify cases with a higher propensity of non-payment of installments and annual service fees for improved receivables management.

3. Focus on ‘Digital-Mobile-Social’

The key thrust for marketing and brand building activities has been to bring alive the ‘Club Mahindra’ experience and generate a pull for the brand by making it more aspirational and exciting. A key strategic priority for the company has been to reinvent its marketing strategy around digital formats and platforms, keeping in mind the current phenomenon of media consumption through social media and mobile devices. Some of the initiatives taken towards this are:

• Video Content: The company has been trying to build aspiration around the brand with engaging videos to showcase resort properties, highlighting unique ‘Only at Club Mahindra’ experiences like staying in an igloo or showcasing the unique dining concepts. The company also invested in regional language content to establish better connect.

• Social Media: The company continues to engage consumers through social media channels by showcasing resorts, building user-generated content and creating innovative contests. Mahindra Holidays has around 1.8 million followers on Facebook and is seeing a significant increase in engagement across other platforms.

• Brand Campaign: The company has engaged in a comprehensive brand campaign to create brand affinity and enhance interest in MHRIL’s resorts and offerings. They have run a TV commercial showcasing the resorts and experiences. Their “Where are you going this summer” video was run across leading TV channels and generated 10 million views on social media. They also ran the “Win a trip to NASA” contest addressing kids drew huge interest and entries aiding sales.

• Resort Campaign: The company has engaged members at the resorts with specially curated activities and events like ‘Jungle Diaries’, ‘Tea Trails’, ‘Coffee Trails’ and ‘Forever Beautiful, Forever Kerala’. These campaigns helped create unique and memorable experiences for the members.

Financial performance in 2018-19

• The company adopted a change in accounting standard from FY19 in which revenues have to be recognized 4% each year for a 25-year tenure while all expenses are to be recognized upfront.
• The company had a deferred revenue figure of Rs 5239 Cr as of the end of the year.
• They have also maintained a strong cash level of Rs 572 Cr along with receivables which are at Rs 1621 Cr.
• The company maintained a PBT margin of 20.9% in FY19 as compared to 19% in FY18.
• Normalized FY19 revenues according to previous accounting standard was up 7% YoY while PBT and PAT for the period were up 16% and 15% YoY respectively.
• The company also saw an upward valuation of PPE to Rs 2021 Cr as compared to Rs 968 Cr last year. This was mainly due to a rise in the value of land assets from Rs 167 Cr in FY18 to Rs 1129 Cr in FY19.
• The European business segment was flat for the year with a small drop in revenues to 154 million Euros in FY19 from 159 million Euros in FY18.
• The standalone inventory turnover ratio stood at 5.51 times while the current ratio was at 2.41 times.
• The company remains debt-free on a standalone basis and has a consolidated debt of Rs 830 Cr.

Operational Performance in 2018-19

• The occupancy rate for FY19 was 83% which was 2% lower than FY18. This was mainly due to low occupancy in August due to Kerala and Coorg floods.
• FY19 saw 18,377 new member additions with resort income coming at Rs 220 Cr and 6 new resorts added to the company’s portfolio.

• The cumulative number of members has risen to 2,43,574 by the end of FY19.

• Room inventory has grown to 3595 in FY19 from 3472 in last year.
• The company experienced significant growth in member upgrades. This has helped them grow revenues by 7% in FY19 despite only 0.8% new member additions.
• The company experienced a drop in new member additions in the past 2 quarters mainly because of their insistence on the higher down payment and lower EMI structure. Despite the drop in additions, the company is adamant about keeping the new policy as they believe it is helping them attract a higher quality customer profile and reduce delinquency.
• The company attributes its good performance to the following factors:
  • The continued success of pull-based digital and referral leads which accounted for 44% of sales in FY19.
  • Successful expansion in high potential Tier 2 and Tier 3 cities. The company has a sales network of 124 locations at the end of FY19.
  • Good international performance which has seen the company expand to 8 countries.
• The company has received a good response on its new ‘Bliss’ product which is targeted towards the age group of 50+. More than half of these customers paying full amount upfront with more than 90% of the segmentable to do the same.

• The company introduced a new product towards the end of FY19 called ‘GoZest’. This is a three-year, points-based product aimed at millennial travelers. It is an experiential product designed to give the ‘Club Mahindra’ experience to the young target group and generate interest for the core offering.

• The Company is currently undertaking two projects: a greenfield project at Assanora (Goa) and an expansion project at Ashtamudi (Kerala). These are being implemented in phases, which will eventually add close to 300 units. With the completion of the phases that are in advanced stages of construction, 200 units are expected to be added in 2019-20.
• In addition, a 140-unit expansion project at Kandaghat (Himachal Pradesh) is in the planning and approvals stage.
• The company made significant expansion in their ‘Host’ and ‘Champs’ programs where the number of ‘Host’s & ‘Champs’ grew to 542 (from 330 in FY18) and 155 (from 78 in FY18) respectively.
• The adoption of the mobile app increased from 1.1 lakh unique members in FY18 to 1.3 lakh unique members in FY19. The website and mobile app accounted for >86% of total bookings in FY19.
• Unique member holidays increased by 7.3% in 2018-19.

Holiday Club Resorts Highlights

• HCR had 33 resorts of which 25 are in Finland, 2 in Sweden and 6 in Spain.
• 81% of its business comes from Finland, 13% from Sweden and 6% from Spain.
• The timeshare related business contributes about 55% of its revenues, while the hotel business accounts for the remaining 45%.
• Its current timeshare membership is about 60,000 families and 1,100 companies.
• HCR’s Spa Hotels service over 1 million guest visits annually.

• Revenues for HCR were flat for the year with a small drop in revenues to 154 million Euros in FY19 from 159 million Euros in FY18.
• Almost all of the drop in revenues was seen in Finland while a small portion was seen in Spain which was compensated by a small rise in revenues in Sweden.
• The company has restructured its business model in Gran Canary in Spain. They have focussed on rentals instead of time-sharing sales and have seen an increase in profitability of around 0.7 million Euros as compared to last year.
• The company also incurred a one-off loss of EUR 2.9 million due to delay in the construction of villas in Sweden.
• The company added Ms. Maisa Romanainen as CEO of the Holiday Club. She has worked in the consumer sector in Finland for Stockmann which is the biggest retailer in the country.

Analyst’s View

Mahindra Holidays has been a consistent player in the hospitality segment for a long time. Considering the long term nature of their unearned revenue which is set to grow considering the change in accounting changes, the company seems to be set on making the most of the situation and enable long term value creation by improving margins using innovative operational initiatives and rigid cost control. The company has seen its highest ever occupancy rate along with its highest room capacity and their Holiday Club subsidiary is on its way to turning profitable in FY20.  It remains to be seen whether they are able to continue the same performance standards that they envision in the near future. Nonetheless, based on their current performance, their strong cash position, revenue book, and their increasing member count, MHRIL remains a prime stock to watch out for any investor banking on the theme of holiday and tourism.

Q1 2020 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company’s deferred revenue pool has risen to Rs 5356 Cr.
   2. The company has maintained a strong cash position with more than Rs 655 Cr in cash.
   3. The room inventory for the company stands at 3619 rooms while the occupancy rate in Q1 has been at a record high level of 91%.
   4. The company has added 4371 new members bringing the total member count to 2,47,710.
   5. The EBITDA margin for the company has risen to 21.4% from 14.3% a year ago.
   6. The PBT margin stood at 10.8% which was 190 bps up YoY.
   7. The resort income came in at Rs 69 Cr which was up 7.5% YoY.
   8. The company has also added 6 new resorts, bringing their total roster up to 61.
   9. Standalone PBT and PAT have risen 32% YoY showing stellar operating performance.
   10. The turnover of the Holiday Club Subsidiary has risen 19.6% YoY in euro terms.
   11. The average occupancy rate at Spa hotels has risen 20% YoY while overall occupancy has risen 5% YoY.

Investor Conference Call Highlights

1. The management has stated that their focus on cost control measures in F&B and holiday activities have helped boost operational efficiencies which has resulted in higher margins in Q1.
2. The ongoing expansion in the Ashtamudi resort has been completed and it has resulted in an addition of 56 units.
3. The Goa project is on track with the first phase of 150 rooms to be done by Q4.
4. The company is committed to reaching 5000 rooms in the next 4-5 years and they have set aside almost Rs 1000 Cr for Capex to fulfill this target. This CAPEX is expected to be financed by internal accruals.
5. The management is satisfied with the performance and revenue growth in Holiday Club despite it being the lean quarter in both Sweden and Finland.
6. The company believes in the long term growth of the domestic tourism industry despite the current macro environment. This is evident from the high occupancy rate in Q1 despite headwinds in the tourism sector due to airline sector troubles.
7. The company is optimistic about the additional growth and revenues that would be generated due to new member additions.
8. The management believe that the current level of member growth is good and it vindicates all the efforts that the company has undertaken to attract and offer a better value proposition to domestic customers.
9. The management believes that the current revenue recognition structure shall eventually help create long term value as they will have a steady and rising revenue book to draw turnover from while they continue to improve their margins using cost control and innovations.
10. The company is confident that the holiday season of August will not be adversely affected due to the heatwave in Europe.
11. The company is expecting improving performance from Holiday Club now that the new CEO has arrived to focus on bringing the unit back in the green.
12. The company has maintained that the issue price hikes only in April every year and the hike this year has been 2.6% which was derived from the CPI and WPI model that the company uses.
13. Other than the Ashtamudi and Goa expansions, the company is also planning an expansion of 140 rooms in their Kandaghat unit.
14. The management believes that the near 8% resort income growth is very good and they are satisfied with this bit of performance.
15. The current customer acquisition stands at 23-24% of initial upfront fees and the company is always on the lookout to reduce this figure.
16. The management wants to point out the fact that the company is the #1 vacation ownership company outside North America and given the opportunities it sees in the next few years, they believe they can vie for a spot in the World Top 3 in this industry.

Analyst’s View

Mahindra Holidays has been a consistent player in the hospitality segment for a long time. Considering the long term nature of their unearned revenue which is set to grow considering the change in accounting changes, the company seems to be set on making the most of the situation and enable long term value creation by improving margins using innovative operational initiatives and rigid cost control. The company has seen its highest ever occupancy rate along with its highest room capacity and their Holiday Club subsidiary is on its way to turning profitable in FY20. Despite the headwinds that the travel and tourism sector has faced from the Jet Airways fiasco, MHRIL has stayed resilient and strong on its performance. It remains to be seen whether they are able to continue the same performance standards that they envision in the near future. Nonetheless, based on their current quarter performance, their strong cash position, revenue book, and their increasing member count, MHRIL remains a prime stock to watch out for any investor banking on the theme of holiday and tourism.

Q4 2019 Updates

Financial Results & Highlights

Detailed Results

1. 1. Revenues and profits for the whole year has seen a sharp drop due to changes in accounting regulations. While reported numbers are showing fall, the cash flow of the business continues to be strong and healthy.
   2. The company has a deferred revenue figure of Rs 5239 Cr as of the end of last quarter.
   3. They have also maintained cash levels of Rs 572 Cr along with receivables which are at Rs 1621 Cr.
   4. The occupancy rate for FY19 was 83% which was 2% lower than FY18. This was mainly due to low occupancy in August due to Kerala and Coorg floods.
   5. Room inventory has grown to 3595 in FY19 from 3472 in last year.
   6. As mentioned in the previous quarter, the profits have fallen significantly on a YoY basis due to the change in accounting standard from FY19 in which revenues have to be recognized 4% each year for a 25-year tenure while all expenses are to be recognized upfront.
   7. This however has not impact on cash flows and so it does not adversely affect the cash generating ability of the company.
   8. Deferred revenue will increase each year while the income derived from it should also grow leading to improved profitability.
   9. FY19 saw 18,377 new member additions with resort income coming at Rs 220 Cr and 6 new resorts added to the company’s portfolio.
   10. The company maintained a PBT margin of 20.9% in FY19 as compared to 19% in FY18.
   11. Normalised FY19 revenues according to previous accounting standard was up 7% YoY while PBT and PAT for the period were up 16% and 15% YoY respectively.
   12. The company also saw upward valuation of PPE to Rs 2021 Cr as compared to Rs 968 Cr last year. This was mainly due to rise in value of land assets from Rs 167 Cr in FY18 to Rs 1129 Cr in FY19.
   13. The European business segment was flat for the year with a drop in revenues to 154 million Euros in FY19 from 159 million Euros in FY18.
   14. Almost all of the drop in revenues was seen in Finland while a small portion was seen in Spain which was compensated by a small rise in revenues in Sweden.

Investor Conference Call Highlights

1. The company has added 3 destinations in Diu, Hampi and Ahmedabad in the last quarter.
2. The company is operating at the highest levels of PBT margin ever at 21%.
3. The cumulative number of members has risen to 2,43,574 by the end of FY19.
4. The company is experiencing significant growth in member upgrades. This has helped them grow revenues by 7% in FY19 despite only 0.8% new member additions.
5. The revenues in Finland were down mainly due to an extended summer last year which resulted in lower performance.
6. The company also incurred a one off loss of EUR 2.9 million due to delay in construction of villas in Sweden.
7. The company has restructured their business model in Gran Canary in Spain. They have focussed on rentals instead of time-sharing sales and have seen an increase in profitability of around 0.7 million Euros as compared to last year.
8. The company has added Ms Maisa Romanainen as CEO of Holiday Club. She has worked in the consumer sector in Finland for Stockmann which is the biggest retailer in the country. The company hopes that she will be instrumental in helping them capture the resident market in Finland.
9. The company states that all the 123 rooms added this year have been through the leasing route. The company has also added locations in Darjeeling, Namchi, Kalimpong and Sri Lanka in addition to the 3 locations added in the last quarter.
10. The company has a 200 room resort in Goa under construction which is expected to complete by the end of the third quarter of FY20. They also expect 56 rooms to be added in Ashtamudi in the current quarter.
11. The company is also running an inventory exchange program with 70 to 80 hotels both in India and abroad. This is to provide their customers access to rooms in locations where they are not present at reasonable rates.
12. The company will not be committing to any of this inventory so it won’t have any P/L impact.
13. This inventory program is also put in place to help manage demand in peak times at the company’s most popular locations with the help of other local players without spending a lot on expansion on those locations.
14. The company has a pipeline of 500+ rooms where 150 have already been added in the last year and around 385 are expected to be added in the current financial year.
15. The company has been experiencing a drop in new member additions in the past 2 quarters mainly because of their insistence on the higher down payment and lower EMI structure. Despite the drop in additions, the company is adamant on keeping the new policy as they believe it is helping them attract a higher quality customer profile and reduce delinquency.
16. The company is also restructuring their sales and marketing operations to be able to consolidate on their new member additions while trying to maintain and increase profitability.
17. The company has received good response on their new Bliss product which is targeted towards the age group of 50+. They have not only seen good acceptance; the company has also seen good behaviour in payments. More than half of these customers paying full amount upfront with more than 90% of the segment able to do the same. Thus the company believes that this product shall prove to be a significant cash generator in the future. The company will be monitoring the operating cash flow generations carefully to see whether significant cannibalization in taking place in the existing products or not.

Analyst’s View

Mahindra Holidays is an interesting business. They look like a traditional hotel and hospitality company but there is a difference in how they operate. Being a vacation ownership company, they sell future vacations to their customers in the present day and use that funds for the development of resorts and create exciting resort experiences for their customers. Hence, like any other hotel company, they do not have to take up debt on their books for growth. Moreover, while hotels provide food and lodging facilities, a vacation ownership company provides a complete vacation experience. Families can spend quality time together in the resorts and refresh themselves with exotic in-resort offerings of MHRIL. But their business model is very much dependent upon the growth of new member additions. Company has to be on toes to keep on getting new members on board to maintain its business. Growth in membership is the source of funds which is used to further grow the resort count and room inventory.  Stock price has corrected to a great deal once the new accounting treatment started hitting the financial accounts.  Club Mahindra is the world’s leading vacation ownership company outside of USA. Given the cash on books, geographical spread of resorts and a decently growing membership base, MHRIL is worth a serious look.

Q3 2019 Updates

Financial Results & Highlights

Detailed Results

1. 1. The financials prior to the current year have been prepared according to Ind AS 18 while from current year onwards, Ind AS 115 becomes applicable.
   2. Thus while compiling YoY growth figures, the financials calculated according to Ind AS 18 would be more reliable.
   3. The company has seen revenue grow almost 7% YoY with profits growing at more than 18% YoY.
   4. This should indicate improving margins for the company.
   5. Resort occupancy has been at 82%.
   6. Member addition comes at 12,706 for 9MFY19 which is 7% up YoY.
   7. The QoQ numbers have been very good mainly owing to the lower base in the previous quarter.
   8. Despite the low previous quarter, the 9M numbers are moderately up indicating good progress for this financial year.
   9. Maintaining a strong cash position of Rs 521 Cr.
   10. The change in accounting standard has brought a big change in revenue recognition.
   11. Previously in Ind AS 18, 60% of revenue has to be recognized upfront with 40% deferred over the membership period.
   12. Currently in Ind AS 115, only 4% of transaction was recognized as upfront revenue with 96% being deferred over the membership period.
   13. This shall result in understated revenues for the future as compared to the past.
   14. This shall have no cash impact and will only be increasing deferred revenue pool.
   15. The company has also benefited from upwards valuation of their land and property holdings which has seen their balance sheet size double as compared to last year.

Investor Conference Call Highlights

1. Concentrating on enhancing resort experience to boost resort incomes.
2. Focus on digitization and customer analytics is high in order to provide a greater value proposition to newer customers like having higher down payment and lower EMI tenure for whoever wants such service.
3. 85% of bookings take place online. Introducing pre booking of holiday experiences and pre check-in to enhance customer experiences.
4. Half of all online bookings come from mobile app.
5. Have been awarded by American Society for Quality in Hospitality for a member loyalty project.
6. Expansions going on for Goa and Asthamudi which should add 200 rooms from next year onwards.
7. Trying to lower customer addition costs for higher margins.
8. Capital expenditures for the current year come up to Rs 40 Cr.
9. Cost of acquisition for each member roughly comes out to 25% of membership fees.
10. Trying to develop a smaller duration product to attract younger customers particularly millennials so that these customers can be converted into long term customers in the future.

Analyst’s View

Mahindra Holidays has been a consistent player in the hospitality segment for a long time. They have been steadily growing their business and brand over the years and look to be a reliable bet in the hospitality sector. They have expanded their footprint beyond the country as well. This has led to a good growth in members count and the count of resorts over the years. Recent accounting policy changes have led to a change in booking of revenue. However, the cash flow situation remains healthy. Growth in members, a healthy room inventory vis-à-vis the member count and growth in income from resorts would drive the progress of the company going forward. The industry is highly competitive, especially on the digital holiday booking side. It would be interesting to see how MHRIL tackles the challenges of industry and consumers and adapt to the changing digital environment.

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