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Mahindra Holidays: Too many members, Too few rooms

A quick note on Club Mahindra (MHRIL) .

Rooms: Where?

On September 30, 2010, they have 117,993 members. And 1,473 apartments.

Even if they use them 100% for members, with one week per member and 52 weeks a year, they can only accomodate about 77,000 numbers. 35% of their members can’t be accomodated – 1 in 3 won’t get a chance. Given that holidays are usually taken in bunches (not spread out evenly across the year), there are likely to be even more disappointments.

Their response…

The standard reply is that listen, people don’t qualify to take holidays immediately on membership. In a mail I was forwarded, the statement made was:

…members avail of financing plans from us for their membership purchase. In light of that a certain no. of EMIs would need to realized before the member becomes “Eligible” to holiday

Oh, that way.

But…

Their member FAQs say:

Club Mahindra Member FAQ

The maximum that members will need to wait is 12 months, it seems.

One year ago

Let’s look back, to 15 months ago. During their IPO they said they had 96,000 members.

By now, all of them will be able to take rooms, because they’ve done their one year of tapasya. But even now, MHRIL can accomodate just 77,000. Around 20,000 will be unsatisfied. Sure the RCI affiliation takes care of some of them, but I doubt 35% of their members will want to pay the even higher RCI charges instead.

Even if we spread out holidays evenly across all members, across all resorts, and allow no “one-time” visitors or complimentary free room-nights. Which is a joke – in reality, holidays are bunched, people want to go to certain resorts (who’ll spend time in the Himalayas in winter?) and they do let in one-timers.

This model is simply not sustainable. They have to get more resorts on board. In the last one year, they have only added 200 or so rooms, but about 20,000 members. That itself is zany – 200 rooms can only satisfy 10,400 members!

Valuation

It all comes down to valuation. The stock price at 346 seems low, but is it really? Look at EPS growth:

MHRIL EPS and Revenues

The TTM (Trailing Twelve Month) EPS is Rs. 10.39. That’s a P/E of 34, for a company that hasn’t grown EPS much in the last full year.

Chart

Looks like a giant head and shoulder pattern. Technically the support bottom is 323. Break that with volume and this stock could go to half the current price.

MHRIL Chart

Disclosure

No positions. Not even technical ones.

What brought me to the analysis was: This MoneyLife post that must be read. Yeah, I write about them too often; even I wonder why I bother. But this is an interesting lesson – markets reward branding, not performance, in the short term. In the long term, performance has to make up. (Or so I think!)

  • Anonymous says:

    >I remember your previous post on its IPO and extremely -ve outlook. Stock further climbed 50% and now on the way back.
    That reminds me of Jesse Livermore's saying "There are no good stocks or bad stocks, only stocks which make money".
    The analysis which is very accurate is good for a long term investor. For a trader, it is "follow the trend".
    (not criticizing or anything, just saying, i have no positions ever in this stock)

  • Anonymous says:

    >"markets reward branding, not performance, in the short term. In the long term, performance has to make up"

    Benjamin Graham – In short term market behaves as voting machine, in long term as weighing machine..

  • Bhupesh says:

    >Read many post on ClubMahindra on my Blog
    http://what-goes-in-my-mind.blogspot.com/

    Recent one:
    Mahindra Holidays admits their staff did not follow company’s ethics policy

    Mahindra Holidays: Growth in membership Vs. inventory

  • Kiran Nataraj says:

    >This is hilarious – your article in Google Reader had an Ad from Club Mahindra!

  • Anonymous says:

    >Well no mention of me 🙁

    I kept reminding you of that mahindra call.

    That's not fair.

    Till now i use think T.A. is for suckers, but since this scams and operators and promoters and all this i think Fundamental is for suckers only.

    I renounce fundamental based trading for me…….since all is bullshit.

    T.A. is ethical and true form of stock market…….Fundamental is gamble based on operator and promoters based calls.

  • Vijay Basrur says:

    >Funnily in y RSS feed, this article was accompanied but a huge Mahindra Holidays display ad. 🙂