Mahindra holidays is a "Timeshare" holiday company that operates under the "Club Mahindra" Brand, the company has 50 Resorts with 4-star facilities. Basically, the company sells holiday packages for a duration of 25 years under which you are entitled to stay at any of these resorts for 7 days per year, for the next 25 years. The membership fee (currently in the range of 3-18 lacs, depending on the plan you choose) is paid upfront by the customer. Apart from the membership fee, an yearly maintenance fee is also charged from the customers (currently in the range of 7-15K per year).
Here is a detail of the variants of membership –
?Membership fee is received in advance, which is used to fund the construction & maintenance of resorts. Thus, less reliance on debt makes it a better model over other hospitality companies.
The company does not need to open resorts at prime locations, since it has pre-acquired all the customers, it is not dependent on the visibility of the resort to ensure occupancy. Therefore, you would usually find "Club Mahindra" resorts at furthest corner of the town. Its peers need to buy prime land to ensure visibility and attractiveness of location for the prospective customers. Whereas Club Mahindra knows that its members will come to it no matter where the location is, owing to the membership fee they have already paid.
- Owned by the reputed Mahindra Group
- Management has successfully scaled the business while keeping leverage in check
- Management has avoided reckless growth in the last 2 decades which is often a temptation in such businesses
- They have fine-tuned the business model perfectly and is much ahead of its older rivals (Sterling Holidays)
Management Score - 8/10
- The hospitality sector is one of the fastest growing sectors in India and is projected to grow at a blistering pace of 16% CAGR
- The tourism mania is now visible in Indian families and with rising stress levels, traffic and environmental problems, more and more families are making a habit of holidaying at least once every year
- Opening and maintaining a chain of resorts is time taking (Takes approximately 3-4 years to build a resort from scratch), capital heavy and compliance heavy activity and thus acts as a moat for existing players.
Industry Score - 9/10
- Innovative business model that includes receiving membership fee in advance for the next 25 years.
- Lower cost of acquiring land. Resorts are located at non-prime locations due to non-dependence on "location advantage" to attract customers as all customers are pre-acquired for the next 25 years.
- Phenomenal occupancy rate of 85% (Much above industry average of around 63%). Partly due to season-based pricing of membership plans. Also, if a peak season member visits in an off season, he gets additional days, free of cost.
Business Score - 9/10
- Stock is trading at P/E of 32, which in isolation hardly tells us anything about the valuation
- The company's EPS has grown at a rate of 7% in the last 5 years. Assuming that the EPS will grow at 10% CAGR for the next 10 years and the PE will be 20 (which has been the average PE of the stock in the last 10 years), The estimated share price after 10 years would be 9.8%, which is clearly sub-normal. But remember, this estimate is squarely based on earning estimates and the company definitely has the potential to surprise. The company looks slightly over-valued to me, but this is purely and personal opinion
Valuation Score - 5/10
I accept that valuing this company on the basis of P/E and EPS growth is not the best way and thereby its only used to get a vague sense of valuation and not "the valuation". This is strictly meant for educational purposes.
Total Score - 31/40