Mahindra Holidays: Riding high on growth
Even as the broader hospitality industry struggles to cope with overcapacity and low room rents due to a fall in tourist arrivals, companies from the timeshare industry continue to generate good numbers.
Mahindra Holidays, leader in the timeshare space, with a market share of nearly 72%, generated decent numbers in the third quarter of 2012-13. The sales and net profit during this period rose by 19% and 14%, respectively, compared with that in the same period last year.
By the end of the third quarter, Mahindra Holidays’ cumulative membership had reached 1.55 lakh. While there is a small fall in member additions, this can be attributed to the fact that the company decided to stop selling its low duration membership plan, Zest, from the third quarter. Zest was the shorter version of Club Mahindra Membership, which offered three breaks of two nights each, every year, for 10 years, and had contributed to 725 memberships in the third quarter of 2011-12. This means that on net basis, the member additions are on line.
The discontinuation of this low revenue plan has also helped Mahindra Holidays to increase its average realisation per member from Rs 2.9 lakh last year to Rs 3.8 lakh in this quarter. This, along with the reduction in sale and marketing expenses, helped the company improve its EBITDA margin by 574 bps to 23.3% on a year-on-year basis. Since India has a huge untapped timeshare business potential, Mahindra Holidays should be able to maintain its growth momentum in the future. It has obtained a licence to operate in the UAE and, once operational, this may be another trigger for membership additions.
The management has also started taking steps to enhance customer satisfaction and, thereby, reduce membership cancellation (the third quarter cancellation stood at 1,002, compared with 815 in the second quarter). Its member first policy and more transparent Internet-based booking seem to be bearing fruit. With the occupancy surging to 83% in the third quarter from 78% on a y-o-y basis, Mahindra Holidays is also planning to increase the room inventory. Since the company funds its capex plans from the membership fee and internal accruals, its debt is at a negligible level. This means that its growth plans can be sustained in the future even if it faces short-term hardships, such as a slowdown in membership growth or delay in annual fee payment, with the help of external funding.
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