Good At Right Price - Mahindra Holidays & Resorts India

Mahindra Holidays & Resorts India (MHRI), a part of Mahindra Group, is the first quality issue tapping the market in 2009. The company is making an issue of 92.65 lakh shares, of which fresh issue constitutes 58.96 lakh shares while the balance are promoters’ offer of sales. At the time of going to press, the company had not announced the price band. However, based on the valuation matrix, we feel that the issue can offer good price appreciation to the investors if the offer is made at a price band of Rs 250-300. But for the benefit of our readers, we would again revisit the IPO once the price band is announced and the same would be put up on our website www.dsij.in

MHRI is engaged in providing family holidays through vacation ownership membership. Members can choose to stay and holiday at resorts in a range of holiday destinations for a pre-determined number of days in a year for a fixed number of years. It has integrated business model and its services are spread across the entire value chain. It includes the acquisition of members, servicing of members, building of resort and operating it. Recently, it entered into travel and holiday-related services through its travel portal clubmahindra.travel. At the end of May 31, 2009, the company has a total of 1261 apartments and cottages spread over 27 resorts across India and Thailand. Out of total 27 resorts, the company owns 11 which cover 74 per cent (937) of total apartments, while rest of the resorts are leased either for long-term or short-term.[PAGE BREAK]

The company has seen revenue growing by CAGR of 43 per cent from FY05 to FY09 and profits for the same period grew 57 per cent. For FY09, MHRI posted total income of Rs 442.12 crore and net profit of Rs 79.8 crore. For March 2009, the company saw dip in its profit, which came down from Rs 84 crore of March 2008 due to slowdown in the economy.

The company has 91,997 members for its holiday resorts as on May 2009. The revenue model for the company entails earning revenue from sale of vacation ownership and other related services and helping members to finance their membership. Over and above that, the company collects annual maintenance charges from its members.

The company is tapping the market to increase the inventory of apartments. It would be expanding its existing resorts at Coorg and Ashtamudi and renovate resort at Ooty and construct new resorts at Tungi (Maharashtra) and Theog (Himachal Pradesh). All these activities will be completed by FY12.

We feel that a company like Mahindra Holidays should charge P/E of near about 25 to leave some scope for investors to make money. Since the company made net profit of Rs 80 crore for March 2009 and based on the same, the market cap should be in the region of Rs 2,000 crore. With post-issue equity capital of Rs 8.42 crore, we feel that the fair price band should be about Rs 250-300 per share.