Mahindra Holidays & Resorts Research Report By HDFC Sec

Mahindra Holidays & Resorts India Limited (MHRIL) is a leading player in the leisure hospitality industry. Founded in 1996, it has established vacation ownership in India, and is the market leader in the business.

It offers holidays to its customers that are designed for the discerning and differentiated needs of families. Apart from providing quality rooms in the form of furnished apartments and cottages at resorts in unique and popular destinations, Mahindra Holidays offers its members family-friendly amenities including dining, holiday activities, spa and wellness facilities for a complete holiday experience.

As on Dec, 2017, there were over 4500 people on the rolls of the Company. The company has almost 2,30,000 members spread across different membership schemes.

Club Mahindra is the flagship brand of the company along with Club Mahindra Fundays and Club Mahindra Travel. Holiday Club offers conventional vacation ownership program and also engages in resort management contracts earning fee from managing resorts.

Mahindra Holidays & Resorts India (MHRIL) offers a compelling play on the large growth opportunity in the vacation ownership industry wherein the potential is estimated to grow multi fold from the current industry size.

We believe company would add members at 9-11% cagr over the next 5-7 years in India, which would take total members above 3 lakhs (c. 2.30 lakhs) in the next four years, on the back of ongoing initiatives in internal processes and engagement outreach.

Apart from that MHRIL had raised its stake from ~20% to c.95% in Holiday Club Resorts (HCR), Finland. HCR has > 50,000 members in EU as on Mar 2017. ‘Club Mahindra’ members will also have the option of visiting HCR’s resorts in Europe.

The acquisition has made Mahindra Holidays the largest timeshare operator outside the US and would remain growth driver in the long run. Synergies to aid margins too in the next two years.

Earlier in Feb 2017, we had initiated coverage on MHRIL at Rs 295 (adjusted for bonus 1:2) with TP of Rs 363 and 447 which had got achieved in JUL 2017.

With 2.3 lakhs membership base, MHRIL operates 49 resorts across variety of locations in India. MHRIL has planned upon capex of Rs 600cr over the next two-three years. We expect ~10% CAGR in user base while the annuity and resort income is likely to exhibit faster growth.

The acquisition of Finlandbased Holiday Club Resorts (HCR) has extended MHRIL footprints on EU including Finland, Spain and Sweden, bringing in more than 50,000 members to the fold.

We value the stock at 26x FY20E EPS and recommend BUY with sequential targets of Rs 358 and Rs 440 towards the next 4-6 quarters.

Key risks would include lower than estimated growth in membership addition that may have a cascading impact on annuity & resort income as well as margins.