An edited version of this story first appeared in DNA Money edition on Friday April 29, 2011.
Mahindra Holidays & Resorts India Ltd (MHRIL) is gearing up to cover lost ground in the current financial year. Having managed to add just 148 rooms against the target of 500 in FY'11, the management is now targeting an overall inventory addition of 800 rooms in the current fiscal.
A part of auto major Mahindra & Mahindra Group, the BSE-listed hospitality company, has taken up higher targets in terms of new room additions thereby ramping up inventory to meet future growth targets. Taking a three-pronged strategy, the company is looking to close a few acquisitions as well that will cost approximately Rs 300-odd crore. In fact, some of the acquisitions, the company management said, are likely to be closed in the first and second quarter this year.
Ramesh Ramanathan, managing director, Mahindra Holidays, said the company is adding rooms though a mix of greenfield, brownfield and long-term lease arrangements. “The plan is to add 800 rooms in the current fiscal of which 400 will be added through greenfield developments. The balance inventory is in various stages of development including around seven projects through the inorganic route. In fact, we are already in a fairly advanced stage of due diligence with three such projects. If only we could have finished the exercise in time, these would have become part of our last year's room addition,” he said.
The acquisitions to be made will be in the domestic market (within India) and include both small and big inventory (under 70 rooms to over 100 rooms) projects from across the country. “It would be inappropriate of me to give out specifics at this stage, all I can say is that some of the acquisitions will very likely get closed in the first and second quarter this year. All in all the inorganic approach will cost us around Rs 300-odd crore,” he said.
The company has earmarked an overall capex of Rs 700 crore which will be funded mainly through internal accruals. MHRIL is sitting on Rs 200 crore worth of cash on books of which Rs 75 crore is the IPO money and balance is from operations. “We also have Rs 800 crore of receivables (EMIs due from our customers) which can be securitised to raise the balance. We have taken this approach in the past and we can securitise the same as and when there is a requirement,” Ramanathan said.
MHRIL's overall guestroom inventory in FY'11 stood at 1,624. The company added 69 rooms during the last quarter FY'11 with 44 rooms in Udaipur and 25 rooms in Kanha. Lat year, the company had a backlog 352 rooms (500 – 148) which are part of current year's plan as well.
Elaborating on what really went wrong with meeting last year's target, Ramanathan said, addition of rooms is something that can take long at times. “We would have really liked to meet the target but a few things didn't happen the way we envisaged. We were to add a resort at Tungi with 155 rooms. Most of the work on this project had been completed and we were awaiting occupancy certificate (OC) which has been pending for a while now. This project unfortunately couldn't form part of our room addition last year else the picture would have been completely different as we speak now,” he said.
On reason behind sounding so bullish on meeting the company's new targeted addition of rooms, he said that their project in Tungi will bring in 155 rooms, a project near Coorg with 150 rooms will get completed within this year and another 100-odd rooms will get added between Gir and Kanha projects. Thus the four greenfield projects will take care of 400 rooms and the balance will be added through a mix of lease agreements and acquisitions as detailed earlier.
Analysts tracking the company had earlier expressed concerns about the management's ability to execute expansion plans thereby making a meaningful positive impact on the overall business prospects. “We believe, only meaningful addition of rooms will help the company sell its offerings aggressively. We believe headwinds in membership additions will continue for a few more quarters before the restructuring starts showing results. We also believe that new schemes to be launched are far in future to have a meaningful impact on near-term financials,” said Manav Vijay and Manish Sarawagi, analysts with Edelweiss Securities, in their latest report.
Responding to the analysts' concerns Ramanathan said that the company relates rooms with the number of members on board and that anyone buying membership will not be elligible to take a holiday unless they have paid the company in full. “So there is a time delay between when you enrol and when you can go on a holiday. Presently we have an enrolled membership base of over 125,000 of which 80,000 are eligible for a holiday. Our current inventory of 1,624 rooms is sufficient to meet holiday requirements of the elligible membership base. Thus, if you look at work-in-process versus what we have actually managed to accomplish, we are doing pretty good,” he said.
On the membership front, MHRIL added net 3,418 members (2,717 Club Mahindra Holidays and 701 Zest) in Q4FY11 against 3,758 (3,146 CMH and 612 Zest) in Q3FY11 and 774 in Q4FY10. On gross basis, the company added around 5,500 members - 4,700 as CMH memberships and 800 as Zest. During FY'11, the company added 15,285 members on net basis and around 20,900 on gross - its total membership base currently stands at 1,25,169.
The company in FY'11 has been rationalising its membership base as a result a considerable number of memberships had been categorised as non-permorming members. The number of such members was significantly high at over 7,000 last year which has be reduced significantly. I'd say these is very normal in business like ours and can very well be absorbed in the system. What we are also doing is putting in place a very robust system to ensure the non-performing membership numbers are brought down significantly. We cannot completely eliminate it but there are always ways to reduce the number of such members going forward and we are already doing that,” he said.
However, writing-off of around 2,000 members during Q4FY11, analysts feel, also indicates that the pain in the system is far from over. “We would like to maintain our 16% growth or around 20,000 membership addition estimates for FY'12, along with 10% increase in average membership ticket size,” the Edelweiss analysts said in their report.
A part of the country's leading business conglomerate, the Mahindra Group, the company named Rajiv Sawhney as the new CEO of Mahindra Holidays & Resorts India who is likely to assume office in May 2011. Ramanathan has appointed as head of Mahindra Group's pioneering initiative in setting up Hospitality Schools and other learning platforms for the hospitality business.
Mahindra Holidays & Resorts India Ltd (MHRIL) is gearing up to cover lost ground in the current financial year. Having managed to add just 148 rooms against the target of 500 in FY'11, the management is now targeting an overall inventory addition of 800 rooms in the current fiscal.
A part of auto major Mahindra & Mahindra Group, the BSE-listed hospitality company, has taken up higher targets in terms of new room additions thereby ramping up inventory to meet future growth targets. Taking a three-pronged strategy, the company is looking to close a few acquisitions as well that will cost approximately Rs 300-odd crore. In fact, some of the acquisitions, the company management said, are likely to be closed in the first and second quarter this year.
Ramesh Ramanathan, managing director, Mahindra Holidays, said the company is adding rooms though a mix of greenfield, brownfield and long-term lease arrangements. “The plan is to add 800 rooms in the current fiscal of which 400 will be added through greenfield developments. The balance inventory is in various stages of development including around seven projects through the inorganic route. In fact, we are already in a fairly advanced stage of due diligence with three such projects. If only we could have finished the exercise in time, these would have become part of our last year's room addition,” he said.
The acquisitions to be made will be in the domestic market (within India) and include both small and big inventory (under 70 rooms to over 100 rooms) projects from across the country. “It would be inappropriate of me to give out specifics at this stage, all I can say is that some of the acquisitions will very likely get closed in the first and second quarter this year. All in all the inorganic approach will cost us around Rs 300-odd crore,” he said.
The company has earmarked an overall capex of Rs 700 crore which will be funded mainly through internal accruals. MHRIL is sitting on Rs 200 crore worth of cash on books of which Rs 75 crore is the IPO money and balance is from operations. “We also have Rs 800 crore of receivables (EMIs due from our customers) which can be securitised to raise the balance. We have taken this approach in the past and we can securitise the same as and when there is a requirement,” Ramanathan said.
MHRIL's overall guestroom inventory in FY'11 stood at 1,624. The company added 69 rooms during the last quarter FY'11 with 44 rooms in Udaipur and 25 rooms in Kanha. Lat year, the company had a backlog 352 rooms (500 – 148) which are part of current year's plan as well.
Elaborating on what really went wrong with meeting last year's target, Ramanathan said, addition of rooms is something that can take long at times. “We would have really liked to meet the target but a few things didn't happen the way we envisaged. We were to add a resort at Tungi with 155 rooms. Most of the work on this project had been completed and we were awaiting occupancy certificate (OC) which has been pending for a while now. This project unfortunately couldn't form part of our room addition last year else the picture would have been completely different as we speak now,” he said.
On reason behind sounding so bullish on meeting the company's new targeted addition of rooms, he said that their project in Tungi will bring in 155 rooms, a project near Coorg with 150 rooms will get completed within this year and another 100-odd rooms will get added between Gir and Kanha projects. Thus the four greenfield projects will take care of 400 rooms and the balance will be added through a mix of lease agreements and acquisitions as detailed earlier.
Analysts tracking the company had earlier expressed concerns about the management's ability to execute expansion plans thereby making a meaningful positive impact on the overall business prospects. “We believe, only meaningful addition of rooms will help the company sell its offerings aggressively. We believe headwinds in membership additions will continue for a few more quarters before the restructuring starts showing results. We also believe that new schemes to be launched are far in future to have a meaningful impact on near-term financials,” said Manav Vijay and Manish Sarawagi, analysts with Edelweiss Securities, in their latest report.
Responding to the analysts' concerns Ramanathan said that the company relates rooms with the number of members on board and that anyone buying membership will not be elligible to take a holiday unless they have paid the company in full. “So there is a time delay between when you enrol and when you can go on a holiday. Presently we have an enrolled membership base of over 125,000 of which 80,000 are eligible for a holiday. Our current inventory of 1,624 rooms is sufficient to meet holiday requirements of the elligible membership base. Thus, if you look at work-in-process versus what we have actually managed to accomplish, we are doing pretty good,” he said.
On the membership front, MHRIL added net 3,418 members (2,717 Club Mahindra Holidays and 701 Zest) in Q4FY11 against 3,758 (3,146 CMH and 612 Zest) in Q3FY11 and 774 in Q4FY10. On gross basis, the company added around 5,500 members - 4,700 as CMH memberships and 800 as Zest. During FY'11, the company added 15,285 members on net basis and around 20,900 on gross - its total membership base currently stands at 1,25,169.
The company in FY'11 has been rationalising its membership base as a result a considerable number of memberships had been categorised as non-permorming members. The number of such members was significantly high at over 7,000 last year which has be reduced significantly. I'd say these is very normal in business like ours and can very well be absorbed in the system. What we are also doing is putting in place a very robust system to ensure the non-performing membership numbers are brought down significantly. We cannot completely eliminate it but there are always ways to reduce the number of such members going forward and we are already doing that,” he said.
However, writing-off of around 2,000 members during Q4FY11, analysts feel, also indicates that the pain in the system is far from over. “We would like to maintain our 16% growth or around 20,000 membership addition estimates for FY'12, along with 10% increase in average membership ticket size,” the Edelweiss analysts said in their report.
A part of the country's leading business conglomerate, the Mahindra Group, the company named Rajiv Sawhney as the new CEO of Mahindra Holidays & Resorts India who is likely to assume office in May 2011. Ramanathan has appointed as head of Mahindra Group's pioneering initiative in setting up Hospitality Schools and other learning platforms for the hospitality business.
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