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ICICI Direct Report
Key Investment Thesis:
Strong room inventory pipeline to perk membership:
Mahindra Holidays and Resorts India Ltd. has significantly accelerated room inventory over the last three years with average annual key additions increasing from 221 during FY14-20 to 372 keys in FY21-23.
Subsequently, member/room ratio enhanced from 71 times in FY14 to 57 times in FY23.
Going forward, company has envisaged to add more than 1600 plus keys over the next three-four years (visibility of 750 keys in FY24) and has embarked capex of Rs 1600-1700 crore (~Rs 1 crore capex per key).
We model in 800 rooms over the next two years taking the total count to 5740 rooms by FY25E. Healthy room addition trajectory would in-turn lead to increase in membership base over the same period.
Assuming member/room ratio will sustain at current levels (56-57 times), we factor in ~19000 annual membership addition during FY24-25E taking the overall count to 3.2 lakh plus members (compound annual growth rate: 6.5%).
Resort income to be the key growth driver:
For Mahindra Holidays, despite record number of room additions in FY22-23, it reported healthy occupancy rate of 84%. As a result, Mahindra Holidays registered its highest ever resort income of Rs 323 crore in FY23 (up 67% YoY) with share in overall revenue enhancing to 27% (20% in FY22, pre-Covid levels: 24%).
With occupancy rate expected to sustain at healthy levels (86-88%) on a rising member base, we expect resort income to grow at 19% CAGR with share increasing to 30% in FY25E.
Rating and target price:
Mahindra Holidays is expected to be a key beneficiary of strong industry tailwinds such as robust recovery in room occupancies, an expanding aspirational consumer segment and low penetration of vacation membership market in India (~2% versus 11% in USA) providing significant headroom for growth. Furthermore, sustained inflation in average room rates is expected to drive demand for vacation ownership model.
We initiate coverage with a 'Buy' rating.
We value Mahindra Holidays at Rs 400 per share (based on 20 times FY25E enterprise value/Ebitda)
About the company:
Mahindra Holiday's enjoys a strong brand patronage through its brand ‘Club Mahindra' and is one of the leaders in leisure hospitality space. Over the years it has solidified its presence in a unique and sustainable vacation ownership business model with more than 25 years of track record.
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