Market volatility has seen the stock of vacation ownership provider Mahindra Holidays and Resorts India fall about 16 per cent over the past three months. This presents a good buying opportunity for investors with a long-term perspective. At ₹417, the stock trades at about 29 times its trailing 12-month earnings, in line with its three-year historical average. On the business front, the company’s healthy performance over the past year-and-a-half should continue with planned additions to room inventory and increase in membership base.

Robust growth

After rising about 26 per cent in 2015-16, Mahindra Holidays’ net profit rose about 21 per cent year-on-year in the six months ended September 2016. The good show has been driven by increase in membership base, addition to room count and healthy occupancy.

Growing about 7 per cent year-on-year, about 8,000 new members were added in the half year ended September 2016, taking the total member count to about 207,000.

Additions to the room inventory also picked up; compared with the 63 units in 2015-16, 125 rooms were added in the recent six months, taking the total room count to about 3,000 across 46 resorts. Occupancy level improved to a strong 85 per cent.

While membership numbers grew steadily, income from the sale of vacation ownerships — the key revenue driver (about 50 per cent) — fell about 4 per cent year-on-year in the half year ended September 2016. This suggests price moderation and shift towards membership categories with lower realisations to attract customers. But this dip was more than made up by good growth in other revenue streams such as annual subscription fee, resort income and interest income. These factors, coupled with the focus on cost-effective digital and referral sales (more than half the sales mix now) and web reservations, have helped the company sustain healthy operating margin of 25 per cent and net margin of 12 per cent.

The company plans to add around 700 rooms to the inventory in the next few years; this should help sustain growth in the long run.

Timeshare buy is a discretionary expense, with economic growth helping the business. The recent demonetisation move by the government may hurt the economy in the near term.

This could put companies such as Mahindra Holidays also on the back-foot. But once the dust settles, growth should revive again, especially for organised sector players. This should help the company in the medium to long-term.

Healthy balance-sheet

While the latest financial performance of the Finland-based subsidiary, Holiday Club Resorts, is not made available, the company has been on the revival path from September 2015 (when the 86 per cent stake acquisition was completed) until March 2016. The acquisition has made Mahindra Holidays the largest timeshare operator outside the US and could be a good growth driver in the long run. Synergies could aid margins too.

Despite the sharp increase in debt levels to fund the acquisition, the company’s overall leverage level remained comfortable with consolidated debt-to-equity at less than one time as of March 2016.

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