Mahindra Holidays to list on mkts in June

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Mahindra Holidays and Resorts' initial public offer (IPO) is likely to hit markets before June end. The company has the Securities and Exchange Board of India (SEBI) nod and it recently sought ROC permission to offer its IPO. The company had initially filed offer documents in December, 2007 but did not proceed due to unfavourable market conditions. There have been revived efforts for IPO by refiling draft offer documents with SEBI on September 30, 2008.

Mahindra Holidays and Resorts plans to sell 93 lakh shares, representing 11% of the post-issue paid-up capital. The offer price will be determined two days before the issue opens.

Commenting on the issue, Arun Nanda, Chairman of Mahindra Holidays Resorts India, said the company had done remarkably well in spite of the slowdown. He said they have a four-year CAGR (Compound Annual Growth Rate) of 43%, PAT (Profit After Tax) of 76% and member enrolment in excess of 25%. He further added that 35% of their sales are by referral from existing customers.

Also read: Mahindra Holidays IPO opens on June 23

Here is a verbatim transcript of the exclusive interview with Arun Nanda on CNBC-TV18. Also watch the accompanying.

Q: Walk us through how many members you stand at currently and when you receive a fee how do you account for it? Do you pick it all up as income or do you pick it up as a liability since it is going to be used over a couple of years. Just to get an understanding first as to how do you read your sales numbers itself?

A: I am delighted because after a gap of 15 months we are able to bring an IPO to the Indian investors. Club Mahindra has been in operation for about 12 years. We today have more than 96,000 members and 27 resorts. We take a one-time fee which is split into two parts--60% of that is what we call enrolment fee and 40% of that is what we call right to use over a period of 25 years.

The company has done remarkably well in spite of the slowdown. We have a four year CAGR (Compound Annual Growth Rate) of 43%, PAT (Profit After Tax) of 76% and member enrolment in excess of 25%. What's most creditable to the management of Ramesh Ramanathan's team that 35% of our sales are by referral from existing customers; an endorsement by an existing customers is a true test that how good your product is.

Q: You said it's a 43% CAGR over four years. What was it last year, only FY09? I am asking this because it would have been a trying year and that would be perhaps the bottom, the least that the company will deliver?

A: The PAT last year was about close to Rs 82 crore.

Q: In the pace of growth, what was the rate of growth last year in terms of revenues and profit?

A: The profit was flat because we have had build-up cost anticipating the growth because in the first six months we had nearly 30% growth but on the topline we had 18% growth. The topline in this business, even if you are in a steady state growth because this 125th and the annual subscription fee that we collect from member stacks up every year and in year six we have six fractions of 125 and in year ten it will be ten fractions. So there are three figures which keep on accumulating like annuity; one is the 125th that's been amortised. Second, the annual maintenance fee that we take from members which is close to Rs 8,500 on a average index to consumer price index and the third is, the expenses that people spend at the resorts, last year there were 96,000 members, next year it will be more than 96,000 members which we are currently adding in at the rate of about more than 2,000. So these three incomes will keep on multiplying every year till you reach year 25, after year 25, one year gets knocked-off and one year gets added. That's the beauty of this business.