Mahindra Holidays and Resorts IPO

Mahindra Holidays and Resorts IPO is going to open on June 23, 2009 and close on June 26, 2009. The price band of the IPO is between Rs. 275 to Rs.325. At this price level, the P/E Multiple of FY – 10 comes out between 23 – 27.

Fitch has rated the IPO 4 out 5 with 5 being the highest rating.

Business of Mahindra Holidays and Resorts

Mahindra Holidays and Resorts India Ltd. are in the business of leisure hospitality services in India and have the flagship service offering Club Mahindra Holidays.

They offer innovative services in the Indian holiday market which is known as vacation ownership memberships.

Club Mahindra Holiday Vacations

People can take membership of this scheme and members can choose to holiday in any of the predetermined resorts for a fixed number of days in a year for a fixed number of years. Currently Club Mahindra entitles its members to holiday in one of 23 resorts for seven days in a year, in the choice of the member’s season, and apartment style; for a period of 25 years.

While this is a relatively new service offering in the Indian markets as of May 31 2009, there were 91,997 members for Club Mahindra Holidays Vacation.


Other than Club Mahindra; the company launched Zest in November 2006 which is targeted at young urban families looking for small breaks. Zest members get an option to choose between 5 resorts, for 6 days each year, for a period of 10 years.

Club Mahindra Fundays

Club Mahindra Fundays was launched by the company in October 2006 and is targeted at corporate houses.

The membership in Club Mahindra Fundays entitles a company to send its employees on family holidays for a period of ten years.

The company also launched in April 2007 which is a one stop shop for travel and travel related holidays.

Mahindra Homestays

Homestays is a novel concept for the Indian market. It means that instead of staying in a hotel, you live with a host family. There will be comforts like ones in hotels, but, the core idea revolves around living in a house with a host family instead of a hotel.

This business model is different from traditional hotel business in the sense that the members pay an upfront fee and then an annual subscription. In return, they get to pick and choose between certain options and then stay there by paying additional cost for services and facilities. If you were a customer of a hotel, you will have to book a hotel and then pay for its stay every time. This is a relatively novel concept in India and Mahindra is the market leader in it, with a total of 72% of the total active membership in the vacation ownership industry. This number has grown at a CAGR of 32% over the last 3 years and they have been able to increase the price at a CAGR of 13.18% over the last three years too.

Mahindra Holidays and Resorts also have a fully integrated business model, where they market and promote their services, manage their resorts and also build them.

Financials of Mahindra Holidays and Resorts

The total revenues were Rs.442.12 crores for the year ended March 31, 2009 and grew from Rs.377.19 crores the year before and Rs.241.29 crores, the year before.

The net profit for the last three years was Rs. 79.80 crores, 84.03 crores and 42.52 crores. Mahindra Holidays also had a positive cash flow from operating activities, which is always a healthy sign. Simply, put – it made more money from running its business than spending it in the last five years. Mahindra Holidays generated Rs.158.36 crores from operating activities in 2009, 46.56 crores in 2008 and 69.05 crores in 2007.

The net worth of Mahindra Holidays was Rs.195.80 crores on March 31, 2009 and that comes down to Rs.24.99 per share. It’s also interesting to note that the cost of the share to the promoters is Rs. 4.12 per share.

Risks related to Mahindra Holidays and Resorts IPO

5 out of 8 directors have litigation pending against them. On top of the litigations against the directors, there are litigations against the company for their resort in Munnar, Income Tax proceedings, Consumer Complaints and Luxury tax proceeding.

Objectives of the IPO

Mahindra Holidays and Resorts is coming up with an IPO to raise funds for expansion of their existing resorts and setting up new projects. Here is a break-up of the resorts on which they intend to use the funding:

Ashtamudi (Kerala): 36.80 crores (existing)

Coorg (Karnataka): 16.31 crores (existing)

Ooty (Ooty Town): 12.17 crores (existing)

Tungi (Himachal Pradesh): 96.96 crores (new)

Theog (Maharashtra): 74.65 crores (new)


Mahindra Holidays and Resorts is one of the better IPOs to hit the market. It is in a growing sector with a novel concept and is a market leader in which it operates. If the IPO is reasonably priced, it can be a good pick in a portfolio of the long – term investor.

Disclaimer: This is not a buy or sell recommendation for this stock, just a summary of the business and my personal thoughts on it. If you are planning to buy or sell, please take advice specific to your financial situation and portfolio.