Stock Review: Mahindra Holidays

 

In the past one year, the stock of Mahindra Holidays & Resorts has underperformed the benchmark indices. It fell by more than 20% in contrast to the 10% gain in the Sensex. A major reason for the depressed stock performance is the company's inability to expand the number of its active members.
Mahindra Holidays sells vacation ownership to travellers on a fixed upfront fee followed by a recurring annual maintenance fee. The company has been grappling with the issue of non-performing members — those who do not pay annual membership fees. It had to write-off around 2,000 non-performing members in the last quarter. At present, of the total membership of 1,25,000, only 64% are active members or those who are eligible for holidays. For this reason, analysts believe that the company will add members at a slower pace than what it had added in the past three years. During the period, the company's vacation membership grew at a compounded annual growth rate of 33%. The growth is expected to drop down to as low as 16% in FY12.

In FY11, the company's net profit fell by 14% to . 100 crore in comparison to last fiscal's numbers. Its net sales showed a meagre growth of 5.7% to . 500 crore. For fiscal 2012, the company has earmarked a capital expenditure of . 700 crore, which will largely be funded through internal accruals. The funds will be used to add around 800 rooms to its total room count of 1,624 rooms. Over half of the new rooms will be a result of green field expansion.

Of the total capital expenditure, the company will use . 300 crore for acquisitions. Though the expansion plan indicates future revenue potential, a lot will depend on the company's ability to achieve its targets for rooms and memberships. This looks to be a daunting task given its past record. In the last fiscal, it added only 148 rooms against the target of 500 rooms. Also, maintaining a higher proportion of active members will be crucial for the future growth.