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June 23, 2009

Mahindra Holidays

Hospitality

Profit per member and DCF-based valuations: Based on this, we have arrived at a per member Profit after tax of Rs34,756, which translates in to total net profit of Rs80cr for FY2010E assuming 23,000 new member additions, based on the revenue-expenditure matching principle. Using a DCF model, factoring in during the high growth phase, a 20% growth in new member additions for the first five years and 15% growth for the next 15 years, we have arrived at a fair valuation of Rs2,494cr for the company. (Refer Exhibit 9).

Marketing Costs/Customer Service Costs /Customer

75,000 63,925

PBT/Customer PAT (33% Tax Rate)/Customer

51,875 34,756

Incremental Customers for Yr 1 PAT (Rs cr) Source: Angel Research; Note: * assuming that the clients use the privileges twice in three 3 yrs i.e. 66% utilisation

23,000 80

Exhibit 8: Profit Per Member model

Basic Assumptions for Profitability (Rs)

Avg Collection/Customer

225,000

Room Inventory

1,300

Cumulative Gross Block (Excl Free hold Land) (Rs cr)

342

No of Clients*

100,000

Capex/Member

34,200

Net Collections (Post Capex)

190,800

Exhibit 9: Valuation based on DCF (Rs cr)

CoE (%) Terminal Growth Rate (%) Growth Rate in FCF (Yr 1-5, %) Growth Rate in FCF (Yr 6-15, %)

14 5 20 15

Year

1

FCF Disc. Factor PV of FCF

80 0.9 70

NPV of FCF Terminal Value PV of FCF

1,388 8,997 1,106

Enterprise Value (Rs cr) Source: Angel Research

2,494

96

115

138

166

0.8

0.7

0.6

0.5

74

78

82

86

2

3

4

5

Particulars

FY2006

FY2007

FY2008

FY2009

Cumulative Member (Nos)

38,691

53,113

73,533

92,825

Client Addition

10,200

14,422

20,420

19,292

Direct Sales & Travelling Exp

51.0

76.8

123.7

141.7

Marketing Cost

50,000

53,238

60,573

73,450

% chg

6.5

13.8

21.3

Exhibit 10: Marketing Cost for a new client Addition

Source: Company RHP, Angel Research

8

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