Huge market potential and current share make up a case for Mahindra Holidays & Resorts India Ltd.
Over long term, Mahindra Holidays & Resorts India Ltd. continues to focus on expanding resort network at an accelerated pace. It has multiple annuity revenue streams and enhanced operational efficiencies. Key growth differentiators include its unique and solid business model and large base of loyal and committed members.
About Mahindra Holidays & Resorts India Ltd.
Started in 1996, Mahindra Holidays & Resorts India Ltd. is a part of leisure and hospitality sector of Mahindra Group. It offers quality family holidays principally through vacation ownership memberships. The company brings values like reliability, trust and customer satisfaction. Flagship brand ‘Club Mahindra’ has 250,000+ members, eligible for holidaying at 100+ resorts in India and abroad. The company forms part of Mahindra Group.
Growth Enablers of Mahindra Holidays & Resorts India Ltd.
- Laying base for future growth: In 4Q21, the company saw member additions at 4,789, exhibiting a rise of 32% in comparison to previous year. Member additions saw growth every quarter to reach a total of 12,031 members during FY21. Cumulative member base is now 2,54,431. The company saw high resort occupancies at 85% in 4Q21 and this was close to pre-pandemic levels. For FY21, there were occupancies of 72% and in FY22 occupancies were 74%. The company’s milestone of 4,000+ rooms was achieved, resulted from addition of 465 rooms during FY21. This took the company’s total inventory to 4,197 rooms. During FY22, the company added 385 rooms on a gross basis, taking total inventory to 4,568 room units across its 84 resorts as of Mar 2022. The company has this unique business model, enabling it to see steady annuity income. This is because revenue recognition for vacation ownership happens equally for as long as membership tenure is there. Flagship product is for 25 years, equating to 4% recognition every year. Total income in FY22 grew at 17.8% from INR908.8 crore in FY21 to INR1,070.7 crore in FY22. Growth was principally due to solid 84.6% rise in resort income, which increased from INR104.4 crores in FY21 to INR192.7 crores in FY22. Its PAT saw a growth of 20.3% from INR125.8 crores in FY21 to INR151.3 crores in FY22.
- A peek into past: During FY20, the company saw creditable performance. This was despite unstable macroeconomic environment and unfavourable consumer sentiments for discretionary purchases. All this was visible in first three quarters of FY20. Outbreak of COVID-19 pandemic resulted in slowdown of economic activity in Mar 2020. If history is any indication, March is a peak month for the company. Due to COVID-19, business operations of the company were impacted. In near term, domestic travel should stem healthy growth as members opt for holidays within scope of drivable distances. This is something the company should be able to serve, with 60 resorts across India. The company performed well in FY20 and was because of unique business model and predictability of revenues in form of various annuities such as a deferred revenue of INR5,500+ crores which is to be recognised over membership and 250,000+ member base that makes contribution to revenues with help of holiday spends and annual subscription. Room inventory of the company has increased from 2,816 units in FY15 to 3,732 units in FY20, exhibiting an addition of 916 rooms over last 5 years. The company targets to add ~1,000 rooms in 4-5 years, entailing capex of ~INR8 billion-9 billion. This should be completely funded by internal accruals.
- Capitalising on new emerging trends: Mahindra Holidays & Resorts India Ltd. should be able to capture emerging trends in Indian hospitality industry. After several months of lockdown, revenge/reward tourism was seen principally due to pent-up demand for leisure travel. After easing of lockdown restrictions, bounce back in occupancies was seen in 3Q21 and 4Q21. Now, the company expects this kind of similar rebound in occupancies.
- Strong demand outlook: Indian hospitality industry is at an inflection point and is all set on path to recovery due to revenge travel trend post-pandemic and favourable supply-demand situation. For the company, situation is even better as it gets credited with ‘Vacation Ownership (VO)’ and ‘Annual Subscription Fees (ASF)’ (which is a recurring income) from members. Inflows it get from new members (VO) help the company to fund growth capex for newer resort additions. Apart from this, ASF enables the company to meet regular operating expenditure at resorts. Given a revival in occupancy because of improving industry trends, the company’s resort income is expected to follow.
- Financial projections: Over FY22-25E, the company continues to target inventory of more than 5,500 rooms. While member-to-room ratio can come ~59x, experts expect a significant growth in active member count. VO and ASF are expected to compound at mid-teens and low-teens between FY22-FY25E. Occupancy is expected to significantly improve to more than 80% by FY25. Therefore, resort income should be able to get compounded at high-teens.
- Highest ever resort revenues: In 1Q23, the company’s focus on adding room inventory at a rapid pace and creating immersive experiences at its resorts supported in delivering highest-ever resort revenues, industry-leading occupancies and higher member spends. The company saw healthy financial performance as can be exhibited from growth of income & PAT. In 1Q23, total income came in at INR637 Crores, up 52.3% year-over-year, while EBITDA grew by 75.3% year-over-year to INR132 Crores.
- Addressable market: The company’s business model is distinct because of its large and growing VO member base with predictable occupancies. It should be able to exploit domestic leisure travel demand as most of its resorts are within drivable distances from cities. Vacation Ownership market is large and attractive with low penetration, providing significant opportunities. VO penetration in India sits at ~2% v/s ~11% in US. In FY22, the company’s performance stemmed from growing profitability and margins and solid balance sheet. Pace of recovery after Omicron in Jan 2022 was more encouraging. From consumer’s standpoint, sentiment for leisure travel saw pick up in momentum after restrictions were removed. As a result, there was significant improvement in performance in FY22. The company added 12,764 members to its vacation ownership business in FY22 against 12,031 in FY21. The company believes that vacation ownership industry in India offers significant growth opportunities. In comparison between India and US, scope for growth of vacation ownership in India is minimum 5x of its current size.
Conclusion
The company continues to have a zero-debt balance sheet and it funds its capex from customers’ advance subscription money. Going by industry trends, nuclear families and young population have increased disposable income which they plan to spend on luxury and leisure products. As a result, demand for the company’s venues is likely to increase. Apart from this, improving pan India rail/ road/ air connectivity should help enhance tourism in new geographies.
The company is bound to see recovery in its revenues and cash flows as it receives membership money upfront and levies annual subscription fees. As a result, it is able to maintain consistency in cash flow. It also has solid brand equity in leisure travel segment, and its healthy balance sheet and low working capital requirements should complement its growth strategies. Simply put, stable FCF generation, healthy demand outlook stemming from balance sheet, and market share should put the company in a strong position.
