Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,913.455.3
Stock Analysis, IPO, Mutual Funds, Bonds & More

Stock pick of the week: Why analysts are bullish on Mahindra Holidays shares

Strengthening balance sheet, better scenario for domestic tourism, and fall in valuations has made Mahindra Holidays analysts’ pick of the week.

, ET Bureau|
Feb 12, 2018, 06.30 AM IST
0Comments
BCCL
holiday
The change in customer acquisition strategy has hurt revenue but will boost the company’s long-term growth.
Mahindra Holidays and Resorts disappointed the Street with its third quarter numbers for 2017-18.

The company’s revenue fell 1% year on year (y-o-y) mainly because of a 7% y-o-y fall in its vacation ownership income amid lower new membership additions.

Though this fall in revenue looks bad, it is due to Mahindra Holidays’ new member-acquisition strategy. The focus of the new strategy is on acquiring quality members—people who can afford higher down payments for membership.

Buy:9
Sell:1

In line with its change in strategy, Mahindra Holidays has increased the down payment requirement for its 48-month EMI scheme. Analysts are not worried about the fall in the company’s revenue because Mahindra Holidays’ new customer acquisition strategy is helping boost the company’s balance sheet. Its cash balance has surged by more than 100% y-o-y. With the company’s member base maturing, its revenue share from other streams has also been increasing. Its annual subscription fee and income from resorts during the quarter have increased by 5% and 8% respectively y-oy.

To increase resort revenues and also member satisfaction, Mahindra Holidays is adding more rooms, to offer members greater choice. The company has added 62 rooms in the third quarter, taking its total room inventory base to 3,360. Since it is already working at high occupancy rates —85% in third quarter—the management plans to increase the company’s rooms to 3,900 by 2019-20. Improving balance sheet strength and cash levels should help Mahindra Holidays achieve this target. Mahindra Holidays’ effort at improving the performance of its European subsidiary, Holiday Club, have borne fruits, and turned around the company.

With more than 80% of Mahindra Holidays’ customers making bookings online, the company’s digital push has also started paying off and is helping it rein in employee costs. With its unique business model—ready customer base—Mahindra Holidays is in a sweet spot to benefit from the improvement in domestic tourism. More importantly, the company’s massive under performance in the past seven months—the counter fell 30%, while the Sensex rose 10% during same time—has brought down its valuations to reasonable levels.

Untitled-19
Performance of Mahindra Holidays compared with the Sensex. Stock price and index values normalised to a base of 100. Source: ETIG database & Bloomberg

Selection Methodology
We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.


Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service