Mahindra Holidays & Resorts India Limited IPO

Company Background: MHRIL was founded in 1996 as “Mahindra Holidays & Resorts Private Limited”, and was converted to a public limited company in 1998. MHRIL is an established player in the leisure hospitality segment, and provides holidays through vacation ownership memberships. The members enrolled for the company’s offerings can reside at resorts in a range of locations, for a pre-determined number of days for a fixed period. The company has an integrated business model, and its activities include acquisition of members, servicing of members and maintaining contact with them, identification of locations and land for resorts, and developing and operating resorts. MHRIL’s members can also choose to access a range of resorts through its tie -up with Resort Condominiums International (RCI). As of June 09, the company offers stays at 27 resorts, which include 11 owned and 16 leased resorts.

Promoters: MHRIL is part of the Mahindra Group, and was promoted by Mahindra & Mahindra Limited and Mahindra Holdings and Finance Limited. Majority of the shareholding (93.6%) is held by Mahindra & Mahindra Limited (M&M). The employee stock option scheme trust (ESOS) holds 1.7% of the share capital, with employees (including employees of group companies) and directors holding 1.4%. MHRIL has made a pre- IPO placement with State Bank of India and Nylim Jacob Ballas India Fund III, LLC, which hold 2.11% and 1.05%, respectively , of the equity share capital. This placement has been made at INR479 per equity share. The company has a management team that is well qualified and experienced in the industry. As of 31 May 2009, the company had a qualified, skilled and trained workforce of 638 employees at its offices and 944 employees at the resorts.

Compettion: While there are other players in the vacation ownership industry in India, MHRIL is the most recognized player in the industry — and the largest among them. Competitors include companies like Sterling Holiday Resorts (India) Limited. While other competitors could emerge, Fitch believes that MHRIL’s brand, inventory and distribution of resorts and its integrated model, combined with the company being an early mover in the industry, will give it significant competitive advantage. In addition to domestic competitors, the increasing popularity of international travel may also intensify the level of competition. India’s economic growth, and the enhanced purchasing power across the middle class -income segments,, has also led to the increasing penetration of luxury goods in the country, vying for a share of disposable income.

Business Overview: MHRIL’s resorts offer the use of furnished accommodation, such as apartments and cottages; facilities such as restaurants; and a range of activities. The company has a mixed –use model for utilization of its resorts, also providing non-members access to unutilised apartments on a per -night tariff basis. MHRIL retains the ownership of its resorts, offering members the “right to use” these resorts. The company currently has three offerings: Club Mahindra Holidays, Club Mahindra Fundays and Zest. Club Mahindra Holidays is the flagship service offering of the company. Membership here enables members to holiday at any of its 23 resorts, for seven days each year, for a period of 25 years. The membership fees depend on the type of accommodation and season of holiday chosen. This offering is aimed at couples in the 35-50 age groups . Club Mahindra Fun-days is the corporate offering of the company, which is a point based system of 10 years’ tenure. Corporates can purchase these points from MHRIL and allow their employees to use these points for holidays. MHRIL does not allow use of its resorts for corporate conferences. Zest is the short-break holiday product from MHRIL, which provides holiday options of six nights a year in 2-3 day breaks, over a period of 10 years. This product is aimed at individuals and young couples in the 29-35 age brackets. Launched in 2006, it currently has around 2,172 members. In addition, MHRIL has tied up with RCI, which is among the largest vacation exchange companies in the world. This includes a travel website,, and a programme where MHRIL members can access RCI resorts worldwide, which includes around 4,192 resorts (complementary membership for three years for Club Mahindra members, thereafter by paying an additional amount). The membership fee payable by MHRIL’s members comprises a non-refundable admission fee towards enrollment, and an entitlement fee towards provision of entitlements through the membership period. MHRIL also offers financing options up to tenure of 60 months, where membership fees are paid in Equated Monthly Installments (EMIs).

IPO Grading: The Issue has been graded as 4/5 by Fitch Ratings India Private Limited pursuant to the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000, (“SEBI Guidelines”), indicating that the fundamentals of Issue are above average relative to other listed securities in India. The IPO Grading is assigned on a five-point scale from 5, with an IPO Grade of 5/5 indicating strong fundamentals and 1/5 indicating poor fundamentals. For details, see the section titled “General Information”

Outlook: The continued growth of the Indian economy would facilitate increased memberships — and hence strong revenue growth and accretion to shareholder wealth in the long term. However , in the short-term, new member additions could slow down due to slowing economic growth, as witnessed in H209. At the same time, delinquency rates would be higher than in earlier years. MHRIL has significantly increased its member base over the last two years, which will provide stability of revenue streams through annual subscription fees and income from utilization of resort facilities. The wider range of resorts that MHRIL has planned would help the company attract and retain members.

Market Comments…
Subscribe to Mahindra Holidays IPO at lower band: Reliance Money
Mahindra Holidays’ valuations appear to be high: Sharekhan
Mahindra Holidays: quality public issue, but pricey Livemint

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