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June 23, 2009

Mahindra Holidays


Investment Argument

Ever Expanding Indian Tourism Industry: Constant expansion of India’s Middle Class population and rising disposable income levels are expected to be the biggest positives for the domestic Tourism Industry. The number of people being able to afford holidays and vacations is expected to rise rapidly in the next few years. The Ministry of Tourism, along with the State Tourism Boards, are also aggressively promoting domestic tourism within the country offering discounts and other incentives. India’s domestic trips are expected to register a CAGR of 11.7% over FY2007-12 to reach approximately 871 million trips in 2012. By 2012, the domestic tourism expenditure is expected to rise to Rs2,621.1bn clocking a CAGR of 13.6% over FY2007-12.

Industry leadership position: MHRIL enjoys leadership status in India’s Leisure Hospitality Industry. The company’s membership enrolments have increased at a CAGR of 32% over the last three fiscal. Over this period, average sales price of a Club Mahindra membership also increased at a CAGR of 13.2%. MHRIL accounted for 72% of the total active members across the Vacation Ownership Industry in India with RCI up to May 31, 2009. Thus, the market leadership position is a major positive for the company, which we believe will enable it to attract more customers going ahead. MHRIL added 19,292 new members in FY2009 and its cumulative member base increased to 92,825 in FY2009. The company currently has a land bank of about 251 acres across the country.

Unique Business Model: The company has a unique business model, which is aimed at growth while ensuring annuity-like income as well. While acquisition of new members will result in growth on account of the admission fee received, the entitlement and annual fees received from the existing customers are annuity in nature. The company also follows the right-to-use model owing to which it has the ownership right over the assets acquired by it.








Exhibit 7: Sale of Vacation Ownership Model Particulars Members Rooms Inventory Utilisation (%) Source: Company RHP, Angel Research 92,825 1,300

Attractive Financing Schemes: Currently, MHRIL offers EMI facility to its new customers for making their fee payments over a minimum period of 6 months to a maximum of 60 months. A customer’s eligibility to avail holidays is contingent on his payment of a certain number of EMIs. For instance, a customer who has opted to pay his fee in 36 EMIs will be eligible for a holiday after paying 12 monthly installments. However, a customer who has opted for 48 EMIs will be eligible for a holiday only after 18 months. Currently, the company has 63,000 members who are eligible for a holiday. On an average, around 6% of the new customers pay upfront and do not avail the EMI facility. The remaining 94% of the customers opt for the EMI schemes. It is to be noted that around 40% of the new customers go for EMIs, which extend for 60 months. This model helps the company to expand its assets based on the customer addition and out of the advance made by them.

Impressive Growth Strategy: MHRIL intends to grow its business by providing new offerings related to its main business and competencies like mass market vacation ownership membership targeted at the Mid-Income Segment. This project, which is still in the works, will have resorts in the more popular tourist spots. It is also exploring options to launch offerings targeted at new segments like teenagers and senior citizens. The company also intends to offer fractional homes to the discerning affluent families at attractive locations. Also on the anvil are holiday camps for children and off-season vacation ownership packages for senior citizens. All these above-mentioned initiatives will complement the company’s existing product offerings and act as a good growth stimulus.


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