CMP 240.00

Target Price 266.00

ISIN: INE998I01010

DECEMBER 17th

2013

MAHINDRA HOLIDAYS & RESORTS INDIA LTD

Result Update: Q2 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Tourism & Hospitality

BSE Code 533088

Face Value 10.00

52wk. High / Low (Rs.) 358.00/206.00

Volume (2wk. Avg.) 6893

Market Cap (Rs. in mn.) 21125.76

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 7015.48 7787.18 8441.31

EBITDA 1816.43 1994.30 2170.79

Net Profit 1069.77 1113.02 1209.54

EPS 12.75 12.64 13.74

P/E 18.82 18.98 17.47

Shareholding Pattern (%)

1 Year Comparative Graph

MAHINDRA HOLIDAYS & RESORTS INDIA S&P BSE SENSEX

SYNOPSIS

Mahindra Holidays & Resorts India Ltd (MHRIL),

one of India’s leisure hospitality providers and part

of the $16.2 billion Mahindra Group.

During Q2 FY14, the Company’s net profit jumps to

Rs. 288.25 million against Rs. 270.11 million in Q2

FY13, an increase of 6.72%.

Revenue for the quarter rose by 14.96% to Rs.

1891.52 million from Rs. 1645.44 million, when

compared with the prior year period.

Profit before interest, depreciation and tax is Rs.

524.39 mn as against Rs. 447.26 mn in Q2 FY13, an

increase of 17.25%.

Mahindra Holidays unveils New Brand Identity for

its flagship Brand “Club Mahindra”.

Mahindra Holidays new projects in Kanha in MP and

Naldehra near Shimla are progressing on schedule.

During the quarter, Mahindra Holidays has

approved the scheme of Amalgamation of its wholly

owned subsidiary, Bell Towers Resorts Private Ltd

with the Company.

During the quarter, 2416 members added with the

company, cumulative membership base moves to

165,719.

Net Sales and PAT of the company are expected to

grow at a CAGR of 11% and 5% over 2012 to 2015E

respectively.

Mahindra Holidays has been the first to create an

international footprint through its presence in

Bangkok and Dubai.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Mahindra Holidays & Resorts India Ltd 240.00 21125.76 12.75 18.82 3.17 40.00

Indian Hotels Co. Ltd 60.45 48852.10 - - 1.48 80.00

EIH Ltd 53.80 30921.90 1.35 40.07 1.18 45.00

Asian Hotels (East) Ltd 128.90 1474.70 26.37 4.89 0.18 45.00

Recommendation & Analysis - ‘BUY’

During Q2 FY14, Mahindra Holidays & Resorts India Ltd (MHRIL), one of India’s leisure hospitality providers

and part of the $16.2 billion Mahindra Group, reported a Total Income from operations increased by 15% to

Rs. 1891.52 million from Rs. 1645.44 million in previous year period. The net profit after tax (PAT) was at Rs.

288.25 million in Q2 FY14, up by 7% over the same quarter last year. During the quarter, 2416 members

added with the company, cumulative membership base moves to 165,719.

In the recent past, new domestic resorts introduced at Kandaghat (near Shimla), Jaisalmer and Udaipur in

Rajasthan, Kumarakom, Cherai Beach and Poovar in Kerala and Virajpet (near Coorg) have made the network

the largest for any vacation ownership company. Mahindra Holidays has been the first to create an

international footprint through its presence in Bangkok and Dubai. As leaders in the vacation ownership

category, the company’s new brand look and promise is a renewal of their vow to remain committed to

customer delight.

The Company’s flagship brand, Club Mahindra, recently unveiled its new brand identity, which is inspired by

the thought, ‘Make Every Movement Magical’. The thought reflects the ethos of the organization which strives

to create magical experience for the entire family during their holidays. The new brand identity will be

supported by comprehensive marketing campaign which also includes a new TVC.

Mahindra Holidays new projects in Kanha in Madhya Pradesh and Naldehra near Shimla (Himachal Pradesh)

are progressing on schedule. Mahindra Holidays will continue to pioneer improvements in the vacation

ownership industry. Over FY2012-15E, we expect the company to post a CAGR of 11% and 5% in its top-line

and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘Mahindra Holidays & Resorts India Ltd’

with a target price of Rs. 266.00.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q2 FY14,

Mahindra Holidays & Resorts India Ltd. (MHRIL),

India’s largest vacation ownership company and

part of the Mahindra Group, reported its financial

results for the quarter ended 30th Sep, 2013.

Months Sep-13 Sep-12 % Change

Net Sales 1891.52 1645.44 14.96

PAT 288.25 270.11 6.72

EPS 3.27 3.22 1.67

EBITDA 524.39 447.26 17.25

The company’s net profit jumps to Rs.288.25 million against Rs.270.11 million in the corresponding quarter

ending of previous year, an increase of 6.72%. Revenue for the quarter rose by 14.96% to Rs.1891.52 million

from Rs.1645.44 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.3.27 a share during the quarter, registering 1.67% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 524.39 millions as against Rs.447.26 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Rs. Million

Q2 FY14 Q2 FY13

Sales & Marketing Expenses 414.29 406.22

Employee Benefit Expenses 399.72 379.23

Depreciation & Amortization Expense

85.45 53.46

Other Expenditure 599.61 443.84

Latest Updates

• During the quarter, Mahindra Holidays has approved the scheme of Amalgamation of its wholly owned

subsidiary, Bell Towers Resorts Private Ltd with the Company.

• Mahindra Holidays unveils New Brand Identity for its flagship Brand “Club Mahindra”, which is inspired by

the thought, ‘Make Every Movement Magical’. The thought reflects the ethos of the organization which strives

to create magical experience for the entire family during their holidays.

• Mahindra Holidays new projects in Kanha in Madhya Pradesh and Naldehra near Shimla (Himachal Pradesh)

are progressing on schedule.

• The Company is planning to enter into its presence in other locations like Sri Lanka and Malaysia.

• Mahindra Holidays has purchased 100% Equity Share Capital of Holiday on Hills Resorts Private Limited

("HHRPL"), which owns a Resort comprising of 80 rooms near Shimla, Himachal Pradesh.

Recognition & Awards

• Club Mahindra Coorg was voted as Asia’s second most favourite family holiday resort by TripAdvisor.

• RCI has awarded 13 Club Mahindra properties the prestigious RCI Gold Crowns & also awarded MHRIL the

prestigious RCI President’s award.

• Club Mahindra was also voted the Product of the Year 2012 in a consumer survey by AC Nielsen covering

over 30,000 respondents.

• 90% of Club Mahindra resorts, rated on TripAdvisor have a rating of 4 and above (on a scale of 5).

COMPANY PROFILE

Mahindra Holidays & Resorts India Ltd., (MHRIL) is a part of the Leisure and Hospitality sector of the Mahindra

Group and brings to the industry values such as Reliability, Trust and Customer Satisfaction. Started in 1996, the

company’s flagship brand ‘Club Mahindra Holidays’, today has a fast growing customer base of over 160,747

members and 41 beautiful resorts at some of the most exotic locations in India and abroad.

Mahindra Holidays has acquired 49% Equity Share Capital of Infinity Hospitality Group Company Limited,

Thailand ("IHGCL") on November 05, 2012, which owns a Resort comprising of 77 rooms in Bangkok, Thailand.

And the Company has subscribed 49% of share capital of Arabian Dreams Hotel Apartments LLC, Dubai. This

hotel has 75 rooms which are a combination of studios and apartments and is centrally located in Dubai. This is

the second addition the company has made in an international destination after Bangkok in November 2012.

Parentage

Mahindra Holidays & Resorts India Limited is part of the USD 16.2 billion multinational Mahindra Group. With

over 155,000 employees in 100 countries across the globe, the Group is also among India’s top ten Industrial

Houses with interests in aerospace, aftermarket, agribusiness, automotive, components, consulting services,

defense, energy, farm equipment, finance and insurance, industrial equipment, information technology, leisure

and hospitality, logistics, real estate, retail, and two wheelers.

Domain Expertise

Over the last decade, MHRIL has established itself as a market leader in the family holiday business. The

company has followed a two pronged strategy – rapidly increasing its bouquet of resorts to provide more variety

in holidaying options and enhancing its service levels to its members to provide delight at every point of

interaction.

All MHRIL resorts are totally geared to cater to a variety of holiday needs and experiences in all areas of

operation, from housekeeping to food & beverage to holiday activities. Creating and managing the holiday

experience is core strength.

FINANCIAL HIGHLIGHT (STANDALONE)

Balance sheet as at March31, 2012 to 2015E

(A*- Actual, E* -Estimations & Rs. In Millions)

MHRIL. FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 838.46 838.81 880.24 880.24

Reserves and Surplus 4849.96 5504.36 7155.66 8365.19

1. Sub Total - Net worth 5688.42 6343.17 8035.90 9245.43

Non Current Liabilities

Deferred Tax Liabilities 366.33 411.98 465.54 502.78

Deferred Income - Advance towards member's

facilities 10679.17 12531.05 13533.53 14210.21

Other Long term Liabilities 59.05 54.02 60.50 65.34

Long Term Provisions 14.65 40.70 44.77 49.25

2. Sub Total - Non Current Liabilities 11119.20 13037.75 14104.34 14827.58

Current Liabilities

Short Term Borrowings 7.92 19.50 21.45 23.17

Trade Payables 760.61 774.22 851.64 902.74

Deferred Income - Advance towards member's

facilities 551.18 600.74 720.89 807.39

Other Current Liabilities 1201.73 1248.68 1848.05 2032.85

Short Term Provisions 402.09 419.21 410.83 423.15

3. Sub Total - Current Liabilities 2923.53 3062.35 3852.85 4189.30

Total Liabilities (1+2+3) 19731.15 22443.27 25993.09 28262.31

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 4394.57 4488.38 4757.68 4900.41

Intangible assets 15.66 33.24 35.90 38.05

Capital Work in Progress 1836.38 2314.21 2638.20 2902.02

Intangible assets under development 118.03 212.03 258.68 289.72

a) Sub Total - Fixed Assets 6364.64 7047.86 7431.78 7840.49

b) Non-current investments 823.22 1756.89 1838.89 1937.52

c) Long Term Loans and Advances 1290.46 1512.40 1663.64 1786.75

d) Other Non-current Assets 3633.62 3296.27 4120.34 4614.78

1. Sub Total – Non Current Assets 12111.94 13613.42 15054.65 16179.53

Current Assets

Current Investment 1261.70 102.24 149.27 158.23

Inventories 36.7 63.80 95.70 115.80

Trade receivables 5180.51 6259.83 7011.01 7571.89

Cash and Bank Balances 83.95 338.44 930.25 1079.09

Short-terms loans & advances 1041.67 1974.97 2606.96 2998.00

Other current assets 14.68 90.57 145.25 159.78

2. Sub Total - Current Assets 7619.21 8829.85 10938.44 12082.78

Total Assets (1+2) 19731.15 22443.27 25993.09 28262.32

Annual Profit & Loss Statement for the period of 2012to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 6215.57 7015.48 7787.18 8441.31

Other Income 150.18 143.91 179.89 187.08

Total Income 6365.75 7159.39 7967.07 8628.39

Expenditure -4703.68 -5342.96 -5972.77 -6457.60

Operating Profit 1662.07 1816.43 1994.30 2170.79

Interest -3.51 -16.00 -17.60 -19.18

Gross profit 1658.56 1800.43 1976.70 2151.61

Depreciation -203.41 -211.91 -296.67 -338.21

Profit Before Tax 1455.15 1588.52 1680.03 1813.40

Tax -408.76 -518.75 -567.01 -603.86

Net Profit 1046.39 1069.77 1113.02 1209.54

Equity capital 838.46 838.81 880.24 880.24

Reserves 4849.96 5504.35 7155.66 8365.19

Face value 10.00 10.00 10.00 10.00

EPS 12.48 12.75 12.64 13.74

Quarterly Profit & Loss Statement for the period of 31st

Mar, 2013 to 31st Dec, 2013E

Value(Rs.in.mn) 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 2005.40 1803.00 1891.52 2033.38

Other income 37.01 47.30 46.49 49.28

Total Income 2042.41 1850.30 1938.01 2082.66

Expenditure -1493.25 -1456.15 -1413.62 -1514.87

Operating profit 549.16 394.15 524.39 567.79

Interest -10.72 -0.81 -6.64 -7.84

Gross profit 538.44 393.34 517.75 559.96

Depreciation -54.39 -82.11 -85.45 -88.01

Profit Before Tax 484.05 311.23 432.30 471.94

Tax -174.77 -101.08 -144.05 -158.10

Net Profit 309.28 210.15 288.25 313.84

Equity capital 838.81 880.22 880.24 880.24

Face value 10.00 10.00 10.00 10.00

EPS 3.69 2.39 3.27 3.57

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 12.48 12.75 12.64 13.74

EBITDA Margin (%) 26.74% 25.89% 25.61% 25.72%

PBT Margin (%) 23.41% 22.64% 21.57% 21.48%

PAT Margin (%) 16.83% 15.25% 14.29% 14.33%

P/E Ratio (x) 19.23 18.82 18.98 17.47

ROE (%) 18.40% 16.86% 13.85% 13.08%

ROCE (%) 32.75% 31.88% 28.43% 27.07%

EV/EBITDA (x) 12.06 10.91 10.14 9.25

Book Value (Rs.) 67.84 75.62 91.29 105.03

P/BV 3.54 3.17 2.63 2.28

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.240.00, the stock P/E ratio is at 18.98 x FY14E and 17.47 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.12.64 and

Rs.13.74 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 5% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 10.14 x for FY14E and 9.25 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.63 x and 2.28 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs. 266.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The Indian tourism and hospitality industry has emerged as one of the key industries driving growth of the

services sector in India. Tourism in India has registered significant growth in the recent years and the country

has tremendous potential to become a major global tourist destination.

Indian tourism industry is thriving due to an increase in foreign tourist arrivals and greater number of Indians

travelling to domestic destinations than before. In the past few years the real growth has come from within the

domestic sector as around 30 million Indians travel within the country in a year. Strong growth in per capita

income, rising young population coupled with changing lifestyles are leading to greater expenditure on leisure

services.

Hotels are an important component of the tourism product. They contribute in the overall tourism experience

through the standards of facilities and services offered by them. The fortunes of the hospitality industry have

always been linked to the prospects of the tourism industry and tourism is the foremost demand driver of the

industry.

Travel & tourism’s contribution to capital investment is projected to grow at 6.5 per cent per annum during

2013-2023, above the global average of five per cent. The tourism policy of Government of India aims at speedy

implementation of tourism projects, development of integrated tourism circuits, special capacity building in the

hospitality sector and new marketing strategies

Market Size

The total market size of Indian tourism and hospitality sector stood at US$ 117.7 billion and is expected to touch

US$ 418.9 billion by 2022.

The foreign direct investment (FDI) inflows in hotel and tourism sector during April 2000 to July 2013 stood at

US$ 6,754.49 million, according to Department of Industrial Policy and Promotion (DIPP).

Foreign tourist arrivals (FTA) during the Month of August 2013 stood at 4.74 lakh as compared to FTAs of 4.46

lakh during August 2012, registering a growth of 6.4 per cent.

Foreign exchange earnings (FEE) during the month of August 2013 were US$1.294 billion as compared to FEEs

of US$1.306 billion during August 2012 and US$ 1.264 billion in August 2011.

The number of tourists availing of the tourist Visa on Arrival (VOA) Scheme during January to August, 2013 have

recorded a growth of 29.4 percent. During the period, a total number of 12,176 VOAs have been issued as

compared to 9,412 VOAs during the corresponding period of 2012.

Major developments and Investments

India is expected to receive nearly half a million medical tourists by 2015, implying an annual growth of 30 per

cent. The country has received 43.06 lakh foreign tourists during the period January-August 2013. India is

perceived as one of the fastest growing medical tourism destination. The number of medical tourists coming to

India has registered a growth of 40 per cent in the past six months. The inflow of medical tourists is expected to

cross 45 lakh by 2015 from the current level of 25 lakh.

• The Taj Group has launched The Gateway Hotel IT Expressway Chennai, its first hotel in the city under the

Gateway Hotels & Resorts brand.

• Marriott International has launched its business hotel brand Courtyard by Marriott at the industrial and auto

hub of Chakan near Pune in Maharashtra.

• ITC Hotels has tied up with Bahrain-based India-born billionaire Mr Ravi Pillai to manage five of its hotels

under the Welcom Hotel and Fortune brands in India and Dubai.

• Ecole hoteliere de Lausanne has opened a 67,000 square feet campus in India to tap into the growing demand

for skilled hospitality professionals in the country. Located in the newly developed Lavasa Township near

Pune, Ecole Hoteliere Lavasa will offer a four-year programme.

Government Initiatives

The Government has allowed 100 per cent FDI under the automatic route in the hotel and tourism related

industry, according to the Consolidated FDI Policy, released by DIPP, Ministry of Commerce and Industry,

Government of India.

The Ministry of Tourism, Government of India, has signed bilateral agreements/ memoranda of understanding

(MoU) with 47 countries, a tripartite agreement between India, Brazil and South Africa and a multilateral

agreement between India and Member States of Association of South East Asian Nations (ASEAN) for

cooperation in the tourism sector.

The Ministry of Tourism as part of its promotional activities releases campaigns in the international and

domestic markets under the Incredible India brand-line, to promote various tourism destinations and products

of India. The budget allocated for the Domestic Promotion & Publicity and Overseas Promotion & Publicity

including Marketing Development stood at Rs 110 crore (US$ 17.73 million) and Rs 350 crore (US$ 56.41

million) for the FY 2013-14.

The ministry has set up a Hospitality Development and Promotion Board, which will monitor and facilitate hotel

project approvals. The allocation for Ministry of Tourism in the Union Budget 2013-14 has been increased by Rs

87.66 crore (US$ 14.13 million) to Rs 1,297.66 crore (US$ 209.30 million).

In a major boast to the North-East tourism sector, Mr K Chiranjeevi, Union Minister for Tourism, Government of

India, has approved Central Finance Assistance (CFA) to various tourism development projects in the states of

Arunachal Pradesh, Sikkim and Nagaland. The Ministry has approved CFA of Rs 25.04 crore (US$ 4.03 million) for

the ongoing tourism mega circuit projects at Tirupati and Kadapa district in Andhra Pradesh.

The Government has proposed to set up the Central Institute of Hotel Management (IHM), Catering Technology

and Applied Nutrition in the country. The IHM will be set up at Jagdishpur, Uttar Pradesh.

The Ministry of Tourism has undertaken joint development of tourist amenities at Amritsar and Rai Bareilli,

Trivandrum, Gaya and Agra Cantt Railway Stations in association with Ministry of Railways. CFA of Rs 10.28

crores (US$ 1.65 million), Rs 5.98 crore (US$ 964,453.42), Rs 5.18 crore (US$ 835,413.19) and Rs 5.05 crore (US$

814,141.59) has been provided by the Ministry for the same.

Road Ahead

The tourism, travel and hospitality industry in India is poised for unprecedented growth in the coming years.

With world tourist arrivals expected to increase by 43 million every year on an average from 2010 to 2030 and

FTAs in emerging countries is expected to grow faster than in advanced economies, a goldmine of opportunity in

tourism is waiting for India. The industry is likely to become more competitive due to the entry of additional

international flight operators, which would offer improved services to tourists.

Cruise shipping is one of the most dynamic and fastest growing components of the global leisure industry. India

with a vast and beautiful coastline, virgin forests, and undisturbed idyllic islands can be a fabulous tourist

destination for cruise tourists.

The Ministry of Tourism, Government of India, has consistently been working on improving India as a prime

destination for tourists. It further aims at promoting various Indian tourism products vis-à-vis competition faced

from various destinations and to increase India's share of the global tourism market.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of

any financial instrument or as an official confirmation of any transaction. The information contained herein is from

publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained

in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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