Mahindra Holidays - Fundamental Call - Consortium

Mahindra Holidays Q3FY13 adjusted PAT for Q3FY13 came in-line at Rs30.1crs but net revenues and EBITDA margin came in ahead of estimates. Net revenues grew by 19.3% YoY to Rs170 crs and EBITDA margin expanded by 574bps YoY to 23.3% due to lower sales and marketing expenses and lower other expenses.

Low addition to inventory :The company has not added inventory in Q3FY13, but has strong greenfield expansion plans. Post-completion, properties at Virajpet, Kanha, Naldehra and Munnar would increase the aggregate inventory by 400 rooms over the next six quarters. Since the gestation period for this room addition is long, we now believe the company will add 775 rooms over the next two years instead of the earlier assumed 1,100 rooms.

Stronger realizations, Membership addition as per expectations: Net membership addition for the quarter has been at 4,021 and cumulates to 11,963 for 9MFY13. On the other hand, since the company has stopped offering its low-priced Zest membership, which may increase average realisation by 8.3% from Rs317,520 per member to Rs343,980 per member.

Healthy cash position: MHRIL is likely to generate steady cashflow and liquidity (Rs450 crs of free cashflow over the next three years), which can fuel its growth initiatives. We expect the company's sales and earnings to grow at a CAGR of 14.2% and 18.1% over FY12-15 respectively.

Recommendation: We have a BUY rating on the stock target price of Rs400.

Source : Equity Bulls

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