Mahindra Holidays scouts for acquisitions amid coronavirus pandemic

The company provides holiday resorts for a period of time to members by charging an upfront membership fee and an annual charge while retaining the title of the property.
At a time when most of the hospitality firms are witnessing falling occupancy rates and are busy taking stock of the losses caused by the coronavirus (Covid-19) pandemic, Mahindra Holidays & Resorts India Ltd (MHRIL) is scouting for resorts it can acquire as part of its expansion plan.

“We are looking for acquisitions. This will include resorts at leisure destinations,” said Kavinder Singh, managing director & chief executive officer at MHRIL. It is a part of the company’s expansion plan and MHRIL plans to have close to 5,300 rooms in the next 3- 4 years from the current 3,700 rooms, he said. Of this, 150 rooms will be added in the next six months. MHRIL has earmarked Rs 1,000 crore for creating new assets and enhancing the existing inventory over the next two years.

While Singh concedes it’s a good time to buy out properties, there aren’t any distress sales happening just yet. The properties up for sale at the moment are mainly those who were not doing well and have nothing to do with the Covid-19 pandemic.  

Meanwhile, MHRIL is seeing a steady uptick in bookings.  “In line with our projection, there’s a huge interest building up for properties in driveable locations,” he said. Domestic tourism will see a boom in the forthcoming months as people will tend to defer traveling for holidays outside India. Singh is therefore “not worried about occupancy levels.”

MHRIL’s occupancy in states like Rajasthan, Maharashtra and Karnataka and a few others where there are no travel restrictions, has already reached 85-90 per cent when compared to pre-Covid levels. Outbound travel and foreign tourism, however, are unlikely recover any time soon.          

However, some analysts remain skeptical. “Though the situation is improving gradually, given MHRIL’s core product/business falls under discretionary consumption, we believe it will take the longest to recover and that a major impact of Covid-19 will be seen over the coming quarters,” wrote Nihal Mahesh Jham, analyst at Edelweiss Securities in a report last month.

To be sure, it helps that unlike others, MHRIL has zero debt and a cash-pile it can dip into when required. Thanks to its vacation-ownership model that offers vacationers with resorts spread across India and abroad. The company provides holiday resorts for a period of time to members by charging an upfront membership fee and an annual charge while retaining the title of the property.

Members can avail a week of holidays annually for 25 continuous years across any of the resorts with certain pre-conditions. MHRIL uses the upfront membership fee charged from members to build resorts. It boasts of 258,000 members spread across different schemes. MHRIL with its unique business model, is in a sweet spot to exploit growth in Indian domestic tourism, say analysts.

A strong balance sheet and a captive (vacation seeking) member base are likely to help MHRIL tide over Covid-19 crises. "We expect it to be back on growth trajectory and cash generation once travel resumes,"said Jham. He has a 'buy' rating on the stock with a target price of Rs 200.

According to Singh, the Covid-19 pandemic will change a few things forever. Since trustworthy brands will witness a high demand, no one will want to take a chance with safety and hygiene. This will hold a brand like MHRIL in good stead.

MHRIL’s stock closed at Rs170.75 a piece, up 5.11 per cent at the end of the trading session on the BSE on Friday. The Sensex closed at 37,388.66, up 2.28 per cent.

Mahindra Holidays in numbers

  1. 150 -  planned rooms over the next 6 months
  2. Rs 780 crore-- Cash as on June 30
  3. 258,000- No of members 
  4. 85%-95%- Occupancy in states without travel restrictions 
  5. 60:40- Ratio of owned properties to leased ones 

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