Moneycontrol PRO

Holiday package cos faring better than hotel cos

At a time when the hotel industry is witnessing a slowdown, the vacation ownership sector is growing steadily, against odds, says Nirmal Bang research report.

May 04, 2013 / 04:16 PM IST
  • bselive
  • nselive
Todays L/H

Despite the lull in the hospitality and leisure industry, companies in the business of vacation ownership have performed better than those from the hotel industry in the past one-and-a-half years.

Be it cash flows from operations, debt or growth in revenues, these companies have done relatively better than their peers from the hotel and hospitality industry.

Let us understand the factors responsible for the growth of the vacation ownership industry and subsequently its importance from an investment point of view.

The Basics

According to the data presented by RCI, a global leader in vacation exchange platform with over 4,000 affiliated resorts in approximately 100 countries, the vacation ownership industry in India is growing at a healthy rate of 18% every year since the last five years.

In India itself there are 52 companies that are into vacation ownership.

These companies have 102 resorts and provide close to 5,000 rooms. The annual maintenance fee of resorts provided by these companies is in the range of `7,000- `10,000/week.

Clocking 18% every year in the last five years is no mean feat for an industry, which is relatively nascent in comparison with well-established hotels across all segments.

The Facts

One of the chief reasons for the huge acceptance of the vacation ownership concept in India is its dependence on domestic travel. In the last five years, even though outbound travel in India has been affected, travel within the country is growing well. This has lifted the financial performance of vacation ownership companies in the recent years. This performance when juxtaposed with hotel companies is exceptionally good.

Mahindra Holidays, which has a 72% market share of India’s vacation ownership market, has shown reasonably better growth than hotel companies. The company’s net sales in the last five fiscals have grown at a compound annual growth rate (CAGR) of 13%, while its net profit has shown a CAGR growth of approximately 5%.

In comparison with this, the financial performance of Indian Hotels Company, one of the largest players in the hotel industry, has deteriorated in the last five fiscals. Its net profit has declined by a CAGR of 44%, while its net sales has grown at a meagre rate of 4% in the same period.

Vacation ownership companies have  also done well on cash flows from operations. And their growth in cash flows is far better than their hotel counterparts. Cash flow from operations of East India Hotels (EIH), which is one of the largest premium hotel companies, has been flat in the last five years.

On the other hand, Mahindra Holidays’ cash flow from operations has grown at a CAGR of 45% in the same period. Also, in terms of leverage, vacation ownership companies have lighter balance sheet than hotel companies.

Sterling Holidays Resorts, which has been cutting its losses in the last few years, has virtually no debt on its books. Even Mahindra Holidays has a negligible debt of `8 crore as of FY12.

Due to their dependence on domestic consumption theme, vacation ownership companies have been recording better business than most hotel companies whose revenues are impacted due to weak foreign tourist arrivals. Foreign tourist arrivals in the last five years has grown at a low CAGR of 4.1%.

In the same period, the vacation ownership segment has grown by 18% every year in the last five years and the number of resorts in the country grew by 33% to 104 in 2012. Interestingly, the average occupancy rates of these companies has been over 70%. A study by Cushman & Wakefield foresees India’s timeshare industry to grow at an annual rate of 16% between 2006 and 2015.

Besides, hotel companies have been expanding their room inventory at a time when the demand in the hospitality industry has been weak. As a result of this, revenues of hotel companies have been dwindling in the last five years.

At present, the supply of rooms in the industry has grown at 23%, while the demand has been steady at 21% at an average occupancy rate of 57%. To make matters worse, untoward incidents related to foreign tourists in the country, especially women have also affected foreign tourist’s arrivals in recent months.

In times of slowdown, in comparison with the hotel business, vacation ownership businesses have been doing well.

At present, Sterling Holidays Resorts has been making losses on a consolidated basis. Despite the fact that the company has been making losses, it has been able to reduce its losses in the last one year by streamlining of its operations and by making timely strategic investments by private equity investors.

At present, the size of the time-share industry in India is `750 crore. In the United States, the time-share industry forms 2% of its travel and tourism industry. Industry experts believe that even if one assumes the share of time-share industry in India to become 1% of its travel and tourism industry, it would turn out to be a `3,800 crore industry. This shows the potential growth of the vacation ownership industry in the country.

Source: Nirmal Bang's Beyond Market

Click here to read the full magazine

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on are their own, and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

stay updated

Get Daily News on your Browser
ISO 27001 - BSI Assurance Mark