Hidden Gems - MAHINDRA HOLIDAYS AND RESORTS

Though perceived to be hospitality player, Mahindra Holidays and Resorts, considering the way it operates, follows a non-banking financial company (NBFC) business model. This is clear from a close scrutiny of its balance sheet. At the end of FY09, MHRI had a total debt of Rs 665 crore. Out of this, Rs 640 crore is unsecured debt, which is not debt in the traditional sense. According to the company's red herring prospectus, its average cost of funds from various banks ranged between 10% and 11.75%. It observed that the company's earnings come from the difference between the interest it pays to banks and the interest rate in-built into the EMI schedule of its members. It is seen that the spread between the EMI's interest component and the bank's interest maybe as high as 5%, depending on the interest rate cycle and this spread is the company's operating margin. So the company's revenue growth is tied to the interest rates rather than factors related to the hospitality industry.