Subscribe to Mahindra Holidays IPO: Angel

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Angel Broking has come out with its research report on Mahindra Holidays and Resorts India's initial public offering (IPO). Mahindra Holidays has opened for subscription with an IPO of 92,65,275 equity shares of Rs 10 each, at a price band of Rs 275-325 a share. The issue will close on June 26, 2009. The research firm has recommended investors to subscribe the issue albeit at the lower end of the price band.

Angel's report on Mahindra Holidays' IPO:

Through this IPO, which also involves an offer for sale by the promoter company M&M, MHRIL intends to finance expansion of its resorts in Coorg, Ooty and Ashtamudi, and for setting up new ones in Tungi and Theog. However, MHRIL is being priced at a 'considerable' premium to the other listed hospitality players, who already have premium properties. Nonetheless, we believe that the good reputation enjoyed by the promoter group, justifies the premium valuation for the company to an extent, and hence we expect the IPO to be received well in the primary market. Also, in a pre-IPO placement that was done in February 2008, State Bank of India (SBI) and Jacob Ballas picked up 3% stake in the company at Rs 479 per share, which had valued MHRIL at USD1billion.

On the lower and upper end of the IPO price band, the stock would quote at 15.2x and 17.9x its post diluted FY2011E Earnings. On the basis of our workings on profits earned per member, we have arrived at a value of Rs 2,494 crore for the business, which translates into a per share value of Rs 296. Hence, we recommend a Subscribe on the IPO albeit at the lower end of the price band. Assumptions in our model: 1) Average revenue per member of Rs 2,25,000; 2) Estimated capex of Rs 34,200 to be made per member addition; 3) Marketing costs of Rs 75,000 per new member, and 4) Cost of providing service for the next 25 years Rs 63,925 per new member.

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To read the full report click on the attachment......