Feb 09, 2013, 04.32 PM IST | Source: Moneycontrol.com

Buy Mahindra Holidays; target Rs 437: Ventura Securities

Ventura Securities is bullish on Mahindra Holidays and Resorts India (MHRIL) and has recommended buy rating on the stock with a target price of Rs 437 in its February 07, 2013 research report.

Ventura Securities is bullish on Mahindra Holidays and Resorts India (MHRIL) and has recommended buy rating on the stock with a target price of Rs 437 in its February 07, 2013 research report.

"MHRIL reported a decent revenue growth of 19.3% YoY to Rs 172.4 crore in Q3FY13 as against Rs 144.5 crore in Q3FY12 on the back of improved average realisations (from Rs 3.4 lacs to Rs 3.8 lacs; +11.8% QoQ). The realisations improved on account of improved product mix which resulted due to company’s conscious decision to stop selling "Zest" during the quarter. The company reported 17.6% and 13.7% growth in EBITDA and PAT at Rs 46.8 crore and Rs 30.1 crore respectively.

The company reported an improvement in EBITDA margins by 110 bps YoY to 26.2% which is partially attributable to its continued initiatives to acquire members through web (~10% v/s 2% YoY), thereby reducing acquisition costs. PAT margins during the quarter improved to 16.8% as compared to 16.7% YoY.

During the quarter, MHRIL added 4,021 members (on net basis) taking its cumulative base to 1,55,221. The member cancellations, at 1,002, were higher on a QoQ basis (+22.9%). However, we believe that the cancellations will decline owing to MHRIL’s key customer centric initiatives such as improving room inventories, "member first" philosophy and online booking. The company stopped selling its product "Zest" as it has inched up its focus towards its flagship product "Club Mahindra".

MHRIL closed Q3FY13 room inventory at 2,242 (v/s 2,276 in Q2FY13) as the company gave up some of the not-so-popular resorts. For 9MFY13, MHRIL has added ~193 rooms on a net basis. It is important to note that the occupancy has improved by 480 bps YoY to 83% (largely by members).

The company is planning to open its new resort in Coorg (~100 rooms) in Q4FY13 and has started construction of new resorts in Kanha (Madhya Pradesh), Naldehra (150 rooms - near Shimla) and Munnar (Kerala) (~50% expansion of existing property of 112 units).

For 9MFY13, the company has securitized receivables of ~Rs 175 crore and receivables stands at Rs 954 crore.

Mahindra Holidays & Resorts India Ltd (MHRIL) witnessed improvement in average realisations (from Rs 3.4 lacs to Rs 3.8 lacs; +11.8% QoQ) owing to its conscious decision of focusing on its flagship product "Club Mahindra" and stop selling "Zest". Moreover, despite marginal decline in room inventory, the management is confident of achieving its room inventory addition guidance of ~700. While in the recent past, MHRIL was plagued by significant member cancellations, its refurbished business model coupled with increasing room inventory should help in stemming the attrition going ahead; boosting net member additions and consequently revenues. MHRIL is expected to witness healthy growth of ~17% CAGR in its top-line to Rs 791 crore by FY14 on the back of acceleration in net member additions (12.2% CAGR). We believe that this acceleration is achievable owing to huge untapped opportunity for VO industry in India, adherence to its "Member First" policy and focus towards increasing room inventory. At the CMP of Rs 296, MHRIL is trading at 21.6x and 17.5x its estimated earnings for FY13 and FY14 and we reiterate a BUY with the price target of Rs 437 representing a potential upside of ~48%," says Ventura Securities research report.

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