This is the 8th post in our quarterly result update series for Q2FY21.
In this post, we’re sharing the latest updates of the stocks from our watchlist. Please don’t treat this as a buy recommendation. We find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in the future. The purpose of this post is to bring clarity to our understanding of the businesses we are tracking. We make our notes on the quarterly results and conference calls. Putting it up here makes it easier for us to refer them at a future date.
You can see the earlier updates here.
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Please click on the read more button for more details on each stock.
Mahindra Holidays
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.
Thomas Cook India
Thomas Cook is the biggest travel company in India in terms of reach. They have been innovators in the sector for more than a century now. The company is going through the toughest of times with the travel industry being hit hard due to COVID-19. The management is doing well to use this period of slow operations to focus internally and improve the cost structure and operations of the company while seeking to reimagine how the industry will be changed from the ongoing pandemic. These efforts have borne fruit as the company has been able to successfully reduce costs by 53% YoY in Q2 and H1. The company has taken encouraging actions for DEI like winning various commitments for large tourist attractions in the Middle East like Dubai Safari Park which should help expand this business line once normal tourist activity resumes. It remains to be seen how long it will take for things to normalize for the travel industry and how consumer behaviour will evolve from COVID-19. Nonetheless, given the company’s resilient balance sheet and the management’s focus on improving the internals of the company and to focus on new avenues for the industry, Thomas Cook seems to be a resilient travel industry stock in an industry plagued with shutdowns and bankruptcies these days.
VIP Industries
VIP has been the market leader in the soft and hard luggage segment in India for a long time now. The company is one of the biggest luggage manufacturers in the world by volume. However, the company and the industry have been facing tough times with sales contraction due to a fall in demand and disruption from COVID-19. The company is doing well to switch to Bangladesh for soft luggage procurement and is looking to enter into international operations by leveraging its low-cost manufacturing operations in Bangladesh. It has also seen good demand from the mask category and is looking to enter other adjacent segments. As per the management, the demand scenario at the moment is very uncertain and it will take at least 1-1.5 years to come back to pre-covid levels. It remains to be seen how fast demand comes back to the sector and how will the company fare in the meantime. Given the slowdown in travel and travel activities at the moment, demand-revival seems a distance away. Nonetheless, given the company’s strong brand image and leadership position in the industry along with the resilient balance sheet of the company, VIP industries remains a pivotal mid-cap stock to watch out for.
Wonderla Holidays
Wonderla Holidays is India’s leading amusement park operator. This business has strong entry barriers because of high Capex and long gestation cycle. Wonderla has been able to manage its operations well over the years and create a niche space for itself. However, COVID-19 played a spoilsport for them. The business for the first half of the year was fully impacted with nil operating revenue from park operations. In the meantime, the company has focussed on cost-cutting measures. They also improvised by venturing into the Wonder Kitchen segment. It serves two purposes: keeps the employees engaged and also gives some much-needed revenue. However, it is too small and the business model is still evolving. The Bangalore park was reopened on 13th November after complying with all COVID-induced restrictions. It remains to be seen how much time it will take for normalcy to come back in their business. However, Wonderla has the potential to positively surprise once all the parks are opened and the footfall comes to pre-COVID level.
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